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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                                ---------------
                                   FORM 10-K
 
                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
  (Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934
 
                  For the fiscal year ended December 31, 1999
                                      OR
 
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934
 
        For the transition period from                to
 
                       Commission File Number 001-15451
 
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                          UNITED PARCEL SERVICE, INC.
            (Exact Name of Registrant as Specified in Its Charter)
 

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<S>                                                       <C> 
                    Delaware                                   58-2480149
        (State or Other Jurisdiction of                     (I.R.S. Employer
         Incorporation or Organization)                    Identification No.)
           55 Glenlake Parkway, N.E.                             30328
                Atlanta, Georgia                               (Zip Code)
    (Address of Principal Executive Offices)
</TABLE>

                                (404) 828-6000
             (Registrant's telephone number, including area code)
 
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          Securities registered pursuant to Section 12(b) of the Act:
 

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                 Title of Each Class                 Name of Each Exchange on Which Registered
    ----------------------------------------------   ------------------------------------------
    Class B common stock, par value $.01 per share            New York Stock Exchange
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          Securities registered pursuant to Section 12(g) of the Act:
 
               Class A-1 common stock, par value $.01 per share
               Class A-2 common stock, par value $.01 per share
               Class A-3 common stock, par value $.01 per share
                               (Title of Class)
 
  Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
 
  As of February 29, 2000, the aggregate market value of the class B common
stock held by non-affiliates of the registrant was approximately
$5,975,974,945. As of February 29, 2000, non-affiliates held 1,050,759,900
shares of class A common stock and 109,399,999 shares of class B common stock.
There is no active market for the class A common stock.
 
  As of February 29, 2000, there were 1,101,353,454 outstanding shares of
class A common stock and 109,400,000 outstanding shares of class B common
stock.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  Portions of the registrant's definitive proxy statement for its annual
meeting of shareowners scheduled for May 12, 2000 are incorporated by
reference into Part III of this Report.
 
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                                    PART I
 

Item 1. Business
 
Overview
 
  We are the world's largest express carrier, the world's largest package
delivery company and a leading global provider of specialized transportation
and logistics services. We were founded in 1907 to provide private messenger
and delivery services in the Seattle, Washington area. Over the past 93 years,
we have expanded our small regional parcel delivery service into a global
company. We deliver packages each business day for 1.8 million shipping
customers to six million consignees. In 1999, we delivered an average of more
than 12.92 million pieces per day worldwide, generating revenue of over $27
billion.
 
  Our primary business is the time-definite delivery of packages and documents
throughout the United States and in over 200 other countries and territories.
We have established a vast and reliable global transportation infrastructure,
developed a comprehensive, competitive and guaranteed portfolio of services
and consistently supported these services with advanced technology. We provide
logistics services, including integrated supply chain management, for major
companies worldwide. We are the industry leader in the delivery of goods
purchased over the Internet. We seek to position ourselves as an indispensable
branded component of e-commerce and to focus on the movement of goods,
information and funds.
 
Competitive Strengths
 
  We have the following competitive strengths:
 
  Global Reach and Scale. We believe that our integrated worldwide ground and
air network is the most extensive in the industry. We operate more than
150,000 delivery vehicles and over 500 airplanes. We estimate that our
integrated end-to-end delivery system carries goods having a value in excess
of 6% of the U.S. gross domestic product and covers virtually all U.S.
businesses and residential addresses. We have invested billions of dollars in
information technology, a fleet of airplanes and many other improvements
across our vast global delivery network. Based on number of jet aircraft
operated, we are now the ninth largest airline in North America, with our
primary air hub in Louisville, Kentucky.
 
  We established our first international operation when we entered Canada in
1975, and we first entered Europe in 1976 when we established a domestic
operation in West Germany. In the 1980s and early 1990s, we expanded our
operations throughout Europe as we identified opportunities presented by the
development of the single market and responded to the need for pan-European
delivery services. Today, we offer the broadest portfolio of time-definite
services available, ranging from same-day service to logistics solutions for
total supply chain management. We currently have what we believe is the most
comprehensive integrated delivery and information services portfolio of any
carrier in Europe.
 
  In the last decade, we entered into more than two dozen alliances with
various Asian delivery companies, and we currently serve more than 40 Asia
Pacific countries and territories. Our primary focus has been on the transport
of express packages to and from the region, and our volumes remained strong
throughout the economic downturn in Asia. We also have established operations
in Latin America and the Caribbean, and we are positioned to capitalize upon
the growth potential in those regions. This is exemplified by our 1999
agreement to acquire the assets and air routes of Challenge Air Cargo, through
which we will become the largest air cargo carrier in Latin America. In
addition, we have formed alliances with a number of service partners in
countries throughout our Americas region.
 
  In 1999, Fortune magazine recognized us as the World's Most Admired Global
Mail, Package and Freight Delivery Company.
 
  Technology Systems. We have expanded our reputation as a leading package
distribution company by developing an equally strong capability as a mover of
electronic information. We currently collect electronic data on about 9.5
million packages each day--more than any of our competitors. As a result, we
have improved our efficiency and price competitiveness, and we provide
improved customer solutions.
 
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  We have made significant investments in technology over the past decade. CIO
magazine ranked us 35th in the U.S. for our corporate information systems, and
we have won two Computerworld Smithsonian Awards for our technology. The
state-of-the-art technology that we currently deploy over our network enables
us to serve our customers globally in the most efficient ways. This technology
provides our customers with total order visibility and improves customer
service, receiving, order management and accounting operations. Currently,
approximately 76% of our volume is with shipping customers that are connected
to us electronically.
 
  The following are examples of our technology:
 
  .  we built and maintain the world's largest private DB2 database
 
  .  we recently introduced DIAD III, which provides the fastest and most
     complete delivery information of any hand-held computer used by any
     delivery company in the world
 
  .  we are the only company to provide electronic capture and retrieval of
     package recipients' signatures
 
  .  in selected hubs, we have installed sophisticated, automated sortation
     systems to improve processing speed and operational efficiency
 
  .  we developed an array of UPS Online Solutions, which are proprietary
     software and hardware packages that we provide to our customers that
     enable them to send, manage and track their shipments and provide us
     with electronic package-level detail to support these functions
 
  E-Commerce Capabilities. We are a leading participant in and facilitator of
e-commerce, which we define as the use of networked computer technology to
facilitate the buying and selling of goods and services. According to Deloitte
Consulting, business-to-business e-commerce sales have risen from almost zero
a few years ago to more than $100 billion today, and Deloitte projects that
91% of U.S. businesses will do their purchasing over the Internet by the end
of 2001. We have teamed with over 100 e-commerce leaders to offer fully
integrated Web-enabled solutions for our customers. Over two-thirds of
ActivMedia, Inc.'s top 50 websites that use transportation services are UPS
customers.
 
  We have integrated our systems with software produced by leading
manufacturers of enterprise resource planning, Internet transactions, e-
procurement and systems integration solutions. Our e-commerce alliance
partners include AT&T, Harbinger, IBM, Oracle and PeopleSoft. These solutions
give our customers the integration of UPS delivery options into their
websites, including real-time package delivery information. This integration
allows our customers to lower their package tracking costs, to improve their
collections through closed-loop billing and to provide better customer
service. At the same time, we gain a competitive advantage as the preferred
transportation solution.
 
  Our website strategy is to provide our customers with the convenience of all
the functions that they otherwise would perform over the phone or at one of
our shipping outlets. On a daily basis, our site, www.ups.com, receives over
three million separate page views and more than 1.5 million package tracking
transactions. This technology allows us to strengthen ties to our customers.
Our customers can easily download our tools on to their own websites for
direct use by their customers. This allows users to access our tools without
leaving our customers' websites. Our Internet tools include enhanced tracking,
rate calculation, service selection, address validation, time-in-transit
detail, service mapping and electronic manifesting. Matrix Media and The
Economist both rated our website as the top transportation website in the
world. Business Marketing's NetMarketing also named our website one of the top
25 business-to-business sites.
 
  Broad, Flexible Range of Distribution Services. We offer to our customers
the broadest range of day-definite and time-definite delivery services in the
industry. All of our air, international and business-to-business
 
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ground delivery service offerings are guaranteed. Our portfolio of services
enables customers to choose the delivery option that is most appropriate for
their requirements.
 
  Our express air services are integrated with our vast ground delivery
system. This integrated air and ground network enhances pickup and delivery
density and provides us with the flexibility to transport packages using the
most efficient and cost-effective transportation mode or combination of modes.
Our sophisticated engineering systems allow us to optimize our network
efficiency and asset utilization.
 
  We make guaranteed international shipments to more than 200 countries and
territories worldwide, including guaranteed overnight delivery of documents to
the world's major business centers. We offer a complete portfolio of time-
definite services for customers in major markets.
 
  We pioneered technologies that allow for secure, encrypted and trackable
digital file deliveries over the Internet, such as UPS OnLine CourierSM in
1998. To make our services more easily available and to integrate our presence
on the Web wherever e-commerce is taking place, we have developed a wide range
of Internet tools accessible both from our website and from the websites of
many of our customers. We recently began offering free Internet access to UPS
websites via UPS OnLine World Link. UPS OnLine World Link enables companies to
take advantage of the speed and ease of online shipping and secure digital
document delivery without additional charge.
 
  Our technological capabilities and our broad portfolio of services have
contributed to our volume and revenue growth in recent years. Our sales and
marketing strategies have enabled us to grow our volume and thereby improve
the utilization of our network. These factors, together with a robust economy,
provide us the opportunity to continue to grow our business in the future.
 
  Customer Relationships. We serve the ongoing package distribution
requirements of our customers worldwide and provide additional services that
both enhance customer relationships and complement our position as the
foremost provider of package distribution services.
 
  We focus on building and maintaining long-term customer relationships. We
deliver packages each business day for 1.8 million shipping customers. In
addition, thousands of our other customers access us daily through on-call
pick-up for air delivery services, about 51,000 letter drop-boxes and over
25,000 independently owned shipping locations.
 
  We place significant importance on the quality of our customer relationships
and conduct comprehensive market research to monitor customer service. Since
1992, we have conducted telephone interviews with shipping decision makers
virtually every business day to determine their satisfaction with delivery
providers and perception of performance on 17 key service factors. We use the
telephone interview data to develop a statistical model that identifies those
service factors that have the greatest impact on improving customer
satisfaction, leading to enhanced profitability. This proprietary Customer
Satisfaction Index allows us to continuously monitor satisfaction levels and
helps us to focus our sales and communications efforts and new service
development. One particular area of UPS strength relative to all the
competitors measured was in the area of customer communications. This service
advantage is attributable in large part to our Preferred Customer Loyalty
program, aggressive ongoing communications through customer publications,
direct marketing, teleservicing and personal contact programs through our
drivers, sales force and other management personnel.
 
  Brand Equity. We have built strong brand equity as a leader in quality
service and product innovation in our industry. A recent survey of senior
business executives, called Image Power, rated UPS as the second strongest
business-to-business brand in the U.S., behind Microsoft, and a 1999 Equitrend
survey report ranked UPS as one of the top ten brands of the decade. Among the
factors that contribute to our brand equity are our:
 
  .  friendly, professional delivery employees and familiar brown delivery
     vehicles
 
  .  long history of service reliability
 
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  .  comprehensive service portfolio
 
  .  state-of-the-art technology
 
  .  history of innovation and industry firsts
 
  .  competitive pricing
 
  .  consistent advertising and communications to customers and the public
     about our evolving capabilities
 
  .  longstanding and significant contributions to the communities in which
     we live and work
 
  Our brand has successfully made the transition from a U.S.-based ground
delivery company to a global time-definite service provider with the ability to
launch innovative new products and services around the globe. For example, we
were the first company to offer next day delivery to every address in the 48
contiguous states and guaranteed next business day delivery of packages and
documents by 8:00 a.m. or 8:30 a.m. We also were the first full-service carrier
to introduce same-day delivery services in the U.S. and the first company to
provide guaranteed nationwide ground service in the U.S. Increasingly, our
customers recognize that we are is not just a reliable carrier of packages, but
an innovator of transportation and information-based business solutions on a
broadening global scale. For example, in June 1999 we introduced UPS Imports,
with which we became the first in our industry to publish import rates in a
single currency for all customers.
 
  One of the many ways that we have supported our brand is through sponsorship
arrangements, such as our status globally as a Worldwide Olympic Partner, as
the official package delivery company of the National Football League and as
the official express delivery company of NASCAR in the U.S. We have been
Fortune magazine's Most Admired Transportation Company in the mail, package and
freight category for 17 consecutive years.
 
  Distinctive People and Culture. Our people are our most valuable asset. We
believe that the dedication of our employees results in large part from our
distinctive "employee-owner" concept. Our employee stock ownership tradition
dates from 1927, when our founders, who believed that employee stock ownership
was a vital foundation for successful business, first offered stock to our
employees. To facilitate stock ownership by employees, we have maintained
several stock-based compensation plans. Currently, employees and retirees own
about two-thirds of our outstanding class A common stock, and the founders'
families and foundations own the remaining shares of class A common stock.
These groups continue to own about 90% of our total outstanding shares and
control about 99% of the voting power of our stock.
 
  Complementing our tradition of employee ownership, we also have a long-
standing policy of "promotion from within," and this policy has significantly
reduced our need to hire managers and executive officers from outside UPS. A
majority of the members of our management team began their careers as full-time
or part-time hourly UPS employees, and have since spent their entire careers
with us. Every one of our executive officers, including our CEO, has more than
25 years of service with us and has accumulated a meaningful ownership stake in
our company. Therefore, our executive officers have a strong incentive to
effectively manage UPS, which benefits all of our shareowners.
 
  We have a legacy of commitment to the communities in which our employees live
and work. Our many community service activities include:
 
  .  UPS Foundation. Since 1951, our Foundation has provided financial
     support to alleviate social problems--most notably programs that support
     family and workplace literacy, food distribution and nationwide
     volunteerism. Our Foundation also supports high-impact educational and
     urgent human needs programs.
 
  .  Community Internship Program. For the past 30 years, selected managers
     have participated in four weeks of intense community service in
     underprivileged areas. We designed this initiative to educate managers
     about the needs of a diverse work force and customer base and to allow
     these managers to apply their problem solving skills in the community.
 
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  .  Neighbor to Neighbor. Through an ongoing company-wide initiative, we
     match our employees' and their families' volunteer efforts with local
     programs. In 1999, about 17,000 volunteers donated about 240,000 hours
     to this program.
 
  .  United Way. Since our first campaign in 1982, we and our employees have
     contributed over $355 million to the United Way, making us the United
     Way's second largest corporate giver in the U.S.
 
  .  Welfare to Work. In 1997, we became one of the five founding members of
     the White House-sponsored Welfare-to-Work program, which places people
     on public assistance into private sector jobs. We have developed,
     trained and mentored over 20,000 qualified candidates nationwide for
     positions at UPS.
 
  .  School to Work. We have introduced a school-to-work program, which
     promotes education and real-world work experience for at-risk youth.
 
  Financial Strength. Our balance sheet gives us financial strength that few
companies can match. We are one of the few companies--and the only
transportation company--with a triple-A credit rating from both Standard &
Poor's and Moody's. This credit rating reflects the strength of our competitive
position, our consistent earnings and cash flow growth and our conservative
balance sheet. As of December 31, 1999, we had a balance of cash, cash
equivalents, marketable securities and short-term investments of approximately
$6.3 billion and shareowners' equity of $12.5 billion. Long-term debt was $1.9
billion, slightly lower than at the end of 1998. Our financial strength has
given us the resources to achieve global scale and to make needed investments
in technology and fleet to position us for growth.
 
Growth Strategy
 
  Our growth strategy is designed to take advantage of our competitive
strengths while maintaining our focus on meeting or exceeding our customers'
requirements. The principal components of our growth strategy are as follows:
 
  Expand Our Leadership Position in Our Core Domestic Business. Our U.S.
package operation is the foundation of our business and the primary engine for
our future growth. We believe that our tradition of reliable parcel service,
our experienced and dedicated employees and our unmatched delivery system
provide us with the advantages of reputation, service quality and economies of
scale that differentiate us from our competitors. Our strategy is to increase
core domestic revenues through cross-selling of our existing and new services
to our large and diverse customer base, to limit the rate of expense growth and
to employ technology-driven efficiencies to increase operating profit. Our core
business also is a springboard for our growth in all other areas, including
international, e-commerce, logistics, supply chain management and financial
services.
 
  We plan to focus on maintaining and improving service quality, meeting
customer demands and providing innovative service offerings in order to
continue to grow domestic package revenues. A good example of our
implementation of this plan is our 1998 introduction of the first nationwide
guaranteed ground package delivery service.
 
  Continue International Expansion. We have built a strong international
presence through significant investments over a number of years. In 1999, our
international package operations generated $3.7 billion of revenue. The
international package delivery market has grown, and continues to grow, at a
faster rate than the U.S. market. We plan to leverage our worldwide
infrastructure and broad product portfolio to continue to improve our
international business mix, to grow high margin premium services and to
implement cost, process and technology improvements.
 
  Europe, which includes our operations in Africa and the Middle East, remains
our largest regional market outside of the U.S., accounting for more than half
of our international revenue. As the European Community
 
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evolves into a single marketplace, with well-established regional standards
and regulations, we believe that our business will benefit from additional
growth within Europe as well as continued growth in imports and exports
worldwide. We plan to solidify and expand our market position in Europe, where
we already have created a pan-European network. We have introduced new
aircraft and additional capacity in Europe to support volume growth and add
flexibility to our European air operations. In addition, we have gained
operating rights and enhanced our European hubs. We believe that we have the
strongest portfolio of pan-European services of any integrated carrier in
Europe, combining time-definite delivery options and related information
capabilities. We plan to continue to expand our service offerings in Eastern
Europe and the Middle East.
 
  Our primary focus has been on the transport of express packages to and from
Asia, and our volumes remained strong throughout the economic downturn in that
region. We are investing in our Asian air network to enhance our operations.
We recently developed new multi-million dollar hubs in Hong Kong and Taiwan.
We also acquired operating rights to provide service to points in Asia and
beyond from Tokyo, and we are seeking to acquire additional air operating
authority from a number of countries. We also are seeking rights to fly
directly between the U.S. and the People's Republic of China.
 
  We believe that there is significant untapped potential for us to expand our
service offerings in Latin America. To this end, we are introducing overnight
delivery between key cities in the Mercosur and other trade blocs, introducing
8:00 a.m. delivery to the U.S., Canada and Europe. Most importantly, through
our 1999 agreement to acquire the assets and air routes of Challenge Air
Cargo, we will become the largest air cargo carrier in Latin America. This
position will enable us to further develop our cargo business and provide
advantages in pursuit of additional express package volume, a market that is
less developed in the region.
 
  Provide Comprehensive Logistics and Financial Solutions. Many businesses
have decided to outsource the management of all or part of their supply chains
to cut costs and to improve service. The domestic third-party logistics market
was estimated to be between $18 billion and $20 billion in 1998, and this
market is expected to grow at 15% to 20% annually. We believe that this trend,
evident in North America, Asia and Europe, will be closely followed by further
demand for a service offering that incorporates transportation and logistics
supply chain services with complete financial support and information
services. We believe that we are well positioned to capitalize on this growth
for the following reasons:
 
  .  we now redesign and operate supply chains for major companies in 45
     countries, with about five million square feet of distribution space and
     35 centralized locations worldwide, and we recently acquired Finon
     Sofecome, a leading French service parts and supply chain management
     services provider
 
  .  we focus on technology and management-based solutions for our customers
     rather than the more traditional logistics focus on trucks, warehouses
     and assets
 
  .  we maintain long-term relationships with our customers, which allows us
     to share our expertise in organizing supply chain management, to
     establish an innovative way to speed products to market and to recommend
     to our customers more efficient services for their customers
 
  To complement our existing logistics and supply chain solutions, we plan to
design a portfolio of financial products and services that capitalizes on our
financial strength, customer relationships and extensive package- level data
on our customers' shipments. We have recently developed UPS Capital(TM)
Corporation to provide customers with funding in a variety of forms.
 
  Leverage Our Leading-Edge Technology and E-Commerce Advantage. Forrester
Research projects that the worldwide e-commerce business will grow to over
$3.2 trillion in 2003. E-commerce is an important part of our future growth
because we believe that it will drive smaller and more frequent shipments and
provide a strong complement to our core delivery service offerings.
 
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  Our goal is to integrate our technology into the business processes of our
customers, providing information to assist them in serving their customers and
improving their cash flows. We also will use our technology and our physical
infrastructure to help provide the operational backbone to businesses striving
to create new business models in e-commerce. These new business models will
operate in just-in-time or manufacturer-direct distribution modes, which are
heavily dependent on smaller, more frequent shipments. In the process, we will
gain knowledge of new repeatable business models and market this expertise
elsewhere. A key component of this strategy is to expand relationships with
technology providers in areas such as enterprise resource planning,
e-procurement and systems integration and to integrate our technologies into
their solutions and into the websites and systems of their customers.
 
  To date, our leading-edge technology has enabled our e-commerce partners to
integrate our shipping functionality into their e-commerce product suites. Our
partners' products are being installed throughout the Internet, and we expect
these integrated systems to provide us with a competitive advantage. In
addition, the technology we integrate into our partners' products creates
significant value for our customers through reduced cycle times, lower
operating costs, improved customer service, enhanced collections and the
ability to offer strong delivery commitments.
 
  Our website at www.ec.ups.com supports our commitment to e-commerce,
promotes the advantages of e-commerce and spotlights our unique position with
regard to the facilitation of e-commerce.
 
  Pursue Strategic Acquisitions and Global Alliances. In order to remain the
pre-eminent global company in our industry, we will continue to make strategic
acquisitions and enter into global alliances. Our initial public offering
better positioned us to aggressively pursue strategic acquisitions and enter
into global alliances that can:
 
  .  complement our core business
 
  .  build our global brand
 
  .  enhance our technological capabilities or service offerings
 
  .  lower our costs
 
  .  expand our geographic presence and managerial expertise
 
Products and Services--Package Operations
 
 Domestic Ground Services
 
  For most of our history, we have been engaged primarily in the delivery of
packages traveling by ground transportation. We expanded this service
gradually, and today standard ground service is available for interstate and
intrastate destinations, serving every address in the 48 contiguous states and
intrastate in Alaska and Hawaii. We restrict this service to packages that
weigh no more than 150 pounds and are no larger than 108 inches in length and
130 inches in combined length and girth. In 1998, we introduced UPS Guaranteed
GroundSM, which gives guaranteed, time-definite delivery of all commercial
ground packages.
 
  In addition to our standard ground delivery product, UPS Hundredweight
Service(R) offers discounted rates to customers sending multiple package
shipments having a combined weight of 200 pounds or more, or air shipments
totaling 100 pounds or more, addressed to one recipient at one address and
shipped on the same day. Customers can realize significant savings on these
shipments compared to regular ground or air service rates. UPS Hundredweight
Service is available in all 48 contiguous states.
 
 Domestic Air Services
 
  We provide domestic air delivery throughout the United States. UPS Next Day
Air(R) offers guaranteed next business day delivery by 10:30 a.m. to more than
75% of the United States population and delivery by noon to areas covering an
additional 14%. We offer Saturday delivery for UPS Next Day Air shipments for
an additional fee.
 
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  UPS Early A.M.(R) guarantees next business day delivery of packages and
documents by 8:00 a.m. or 8:30 a.m. to more than 55% of the United States
population. UPS Early A.M. is available from virtually all overnight shipping
locations coast to coast. In addition, UPS Next Day Air Saver(R) offers next
day delivery by 3:00 or 4:30 p.m. to commercial destinations and by the end of
the day to residential destinations in all 48 contiguous states.
 
  We offer three options for customers who desire guaranteed delivery services
but do not require overnight delivery:
 
  .  UPS 2nd Day Air A.M.(R) provides guaranteed delivery of packages and
     documents to commercial addresses by noon of the second business day
 
  .  UPS 2nd Day Air(R) provides guaranteed delivery of packages and
     documents in two business days
 
  .  3 Day Select(R) provides guaranteed delivery in three business days
 
  In 1999, we expanded our packaging portfolio to include additional Next Day
Air and 2nd Day Air box options at no charge to our customers.
 
 International Delivery Services
 
  We deliver international shipments to more than 200 countries and territories
worldwide, and we provide guaranteed overnight delivery to the world's major
business centers. Throughout 1999, we continued to develop our global delivery
and logistics network. We offer a complete portfolio of import, export and
domestic services that is designed to provide a uniform service offering across
major countries, including UPS Worldwide ExpressSM and UPS Worldwide
ExpeditedSM. This portfolio includes guaranteed 8:00 a.m., 8:30 a.m., 10:30
a.m., 12:00 p.m. and 3:00 p.m. next business day delivery to major cities, as
well as scheduled day-definite air and ground services. We offer complete
customs clearance service for any mode of transportation, regardless of
carrier, at all UPS Customhouse Brokerage sites in the U.S. and Canada.
 
  UPS Worldwide ExpressSM provides guaranteed door-to-door, customs-cleared
delivery to more than 200 countries and territories. This service includes
guaranteed overnight delivery of documents from major cities worldwide to many
international business centers. For package delivery from the U.S., UPS
Worldwide Express provides guaranteed overnight delivery to major cities in
Mexico and Canada and guaranteed second business day delivery for packages to
more than 290 cities in Europe. Shipments to other destinations via UPS
Worldwide Express generally are delivered in two or three business days.
 
  UPS Worldwide Express PlusSM complements our regular express service by
providing guaranteed early morning delivery options from international
locations to major cities around the world. These options include guaranteed
early morning second business day delivery from the United States to over 150
cities in Europe and other early morning delivery from major business centers
around the world.
 
  In February 1998, we introduced two shipment pricing options in our major
international markets for UPS Worldwide Express and UPS Worldwide Express Plus:
the UPS 10KG Box(R) and the UPS 25KG Box(TM). These options offer a simple,
convenient, door-to-door fixed-rate shipping solution for express shipments up
to 10 kilograms and 25 kilograms. Customers using these packaging options
receive flat rates based on destination.
 
  We also offer UPS Worldwide ExpeditedSM service, a guaranteed alternative
that is faster and more reliable than traditional air freight. From the United
States, shipments to Mexico and Canada are delivered within three business
days, and shipments to most major destinations in Europe, South America and
Asia generally are delivered in four to five business days. Customers outside
the United States enjoy similar qualities of service and transit.
 
  UPS 3 Day SelectSM from Canada is an example of our ability to support
customers' commerce needs between the major trading lanes of the U.S. and
Canada. 3 Day Select is an economical service with guaranteed delivery from
most locations in Canada to every address in the 48 contiguous states within
three business days.
 
                                       9

<PAGE>
 
  UPS Standard service provides scheduled delivery of shipments within and
between the European Union countries, within Canada and between the United
States and Canada. This service includes day-specific delivery of less-than-
urgent package shipments. The service offers delivery typically between one and
five days, depending on the distance.
 
 Delivery Service Options
 
  We offer additional services such as Consignee Billing, Delivery Confirmation
and Call Tag Service to those customers who require customized package
distribution solutions. We designed Consignee Billing for customers who receive
large volumes of merchandise from a number of vendors. We bill these consignee
customers directly for their shipping charges, enabling the customer to obtain
tighter control over inbound transportation costs. Delivery Confirmation
provides automatic confirmation and weekly reports of deliveries and is
available throughout the United States and Puerto Rico. Immediate confirmation
is also available upon request. Call Tag Service provides prompt pick-up and
return of packages previously delivered by UPS from any address in the 48
contiguous states.
 
Products and Services--Non-Package Operations
 
  We provide other services that are distinct from our package operations. Key
service offerings are:
 
  .  Global supply chain management, in which we provide solutions for the
     re-engineering and managing of supply chains--from supplier through
     manufacturer, distributor, dealer and/or end consumer. These services
     include warehouse operations, inventory and order management,
     fulfillment, returns management and value-added services like product
     inspection and configuration, kitting, packaging, cross-docking and
     vendor-managed inventory.
 
  .  Service parts logistics, in which we bring together a number of our
     competencies to the management of field service technicians for
     manufacturers of computers and other high-tech equipment. Our services
     include call center and technical service hotline management, inventory
     financing, just-in-time inventory stocking and transportation, critical
     and urgent parts delivery networks and high-tech repair and return.
 
  .  Transportation services, in which we manage multi-modal shipments and
     distribution networks around the world, including carrier selection,
     network optimization and fleet management services. We offer both
     contractual and transaction freight services.
 
  .  Supply chain technologies, in which we provide integrated logistics
     information systems and services to give visibility of inventory and
     shipments across the supply chain and to better manage the flow of
     goods, capital and information on a global basis.
 
  We formed UPS Logistics Group, Inc. in 1995. UPS Logistics Group is the
parent company for a number of operating subsidiaries.
 
  .  UPS Worldwide Logistics(R), Inc. provides third-party supply chain
     management solutions for a number of industries, including high-tech,
     telecommunications, apparel, automotive and electronics. It operates
     distribution and technology centers in the United States, Mexico,
     Singapore, Hong Kong, Japan, The Netherlands, Germany, Taiwan, France
     and the United Kingdom, using state-of-the-art information systems that
     reduce customers' distribution and capital costs.
 
  .  SonicAir(R), Inc. provides same-day and next-flight-out delivery
     services to virtually any location in the United States and locations in
     more than 180 countries. SonicAir also provides service parts logistics
     that include strategic stocking locations for critical parts and high-
     tech repair and return services.
 
  .  Roadnet(R) Technologies, Inc. develops supply chain management software.
     Roadnet has been recognized for its leadership in fleet management
     software, including routing and scheduling systems and MOBILECAST, a
     wireless system that connects dispatchers with drivers.
 
                                       10

<PAGE>
 
  .  Diversified Trimodal, Inc., also known as Martrac(R), offers
     transactional and contractual freight services as part of the
     transportation services offering. Diversified Trimodal also transports
     produce and other commodities in temperature-controlled trailers over
     railroads.
 
  .  UPS Autogistics, Inc. manages the network and tracking to support the
     delivery of finished automobiles from manufacturer to dealer.
 
  .  Worldwide Dedicated Services, Inc. provides dedicated contract fleet
     management services.
 
  We also have subsidiaries that provide financial and other value-added
services, such as consulting, call-center operation, equipment leasing and e-
commerce solutions.
 
  .  UPS Capital Corporation offers a portfolio of financial products,
     including C.O.D. services, accounts receivable financing and equipment
     leasing.
 
  .  UPS Professional Services, Inc. provides global management consulting
     delivering strategic business solutions.
 
  .  UPS Business Communications Services, Inc. offers call-center services
     and telecommunications consulting.
 
  .  UPS e-Ventures, Inc. identifies and rapidly develops new businesses
     adjacent to our core business that focus on e-commerce.
 
  .  UPS e-Logistics, Inc. currently is being developed to provide
     comprehensive turnkey supply chain management solutions for quick launch
     of e-businesses.
 
 Electronic Services
 
  We provide a variety of UPS OnLine(R) solutions that support automated
shipping and tracking. UPS OnLine WorldShip(R) is software that helps shippers
streamline their shipping activities. It processes shipments, prints address
labels, tracks packages and provides management reports from a desktop
computer. WorldShip supports both domestic and international shipments and
quickly prepares any needed export documentation. UPS Internet Shipping is a
quick and convenient way to ship packages from the Web without installing
additional software. All a shipper needs to process a shipment is a computer
with Internet access and a laser printer. UPS OnLine Host Access provides
electronic connectivity between us and the shipper's host computer system,
linking UPS shipping information directly to all parts of the customer's
organization. UPS OnLine Host Access can be used to enhance and streamline the
customer's sales, service, distribution and accounting functions by providing
direct access to vital transportation planning, shipment status and
merchandise delivery information. UPS OnLine Compatible Solutions, provided by
third-party vendors, offer similar benefits to customers who want to automate
their shipping and tracking processes.
 
  UPS Document ExchangeSM, featuring UPS OnLine CourierSM Service, is a
delivery solution that utilizes the Internet as the mode of transport. This
service offers features not found in traditional e-mail applications, such as
document tracking, version translation, scheduled delivery, delivery
confirmation, security options and the ability to carry any type of digital
file. This gives customers the ability to send any digitally produced material
in a secured environment, which allows them to take advantage of the speed and
efficiencies of electronic delivery.
 
  Our website, www.ups.com, brings a wide array of information services to
customers worldwide. Package tracking, pick-up requests, rate quotes, service
mapping, drop-off locator, transit times and supply ordering services all are
available at the customer's desktop. The site also displays full domestic and
international service information and provides an avenue for customers to
download our software.
 
 
                                      11

<PAGE>
 
Sales and Marketing
 
  Our sales force consists of about 3,700 account executives worldwide, spread
across our 14 regions. Account executives, except for regional management
account executives, are further allocated to individual operating districts.
For our largest multi-site customers, we have an organization of regionally
based account managers who report directly to our corporate office.
 
  We recently instituted our new Sales Force 2000 initiative, which realigned
our sales force based on an assessment of customer revenue and potential.
Account responsibilities were rationalized and account executives' workloads
were distributed based on the size and strategic importance of individual
customers.
 
  We also have provided each of our U.S. account executives with laptop
computers loaded with our proprietary "Link" account management software, and
we plan to deploy laptops loaded with Link to all of our account executives
worldwide by the end of 2000. These systems provide account executives with
useful productivity tools, and we have determined that the systems will
increase the time our account executives are able to spend with customers and
potential customers and improve their overall effectiveness.
 
  In addition to our general sales force, we have overlaid three supplemental
sales forces: international business, focused on international business out of
major U.S. business centers; UPS HundredWeight Service business; and e-
commerce. Within these specialty sales forces, account executives report to
their respective districts. Our logistics operations and other subsidiaries
maintain their own sales forces.
 
  Our marketing organization is generally organized along similar lines. At the
corporate level, the marketing group is engaged in brand management, rate-
making and revenue management policy, market and customer research, product
development, brand management, product management, marketing alliances and e-
commerce, including the non-technical aspects of our web presence. Advertising,
public relations and most formal marketing communications are centrally
conceived and controlled.
 
  Individual district and region marketing personnel are engaged in business
planning, bid preparation and other revenue management activities, and in
coordinating alignment with corporate marketing initiatives. Individual regions
and districts may engage in local promotional and public relations activities
pertinent to their locales.
 
Employees
 
  During 1999, we had approximately 344,000 employees. We recently were named
one of Fortune magazine's "Diversity Elite--50 Best Companies for Blacks,
Asians and Hispanics."
 
  As of December 31, 1999, we employed approximately 206,000 of our employees
(60% of our total employees) under a national master agreement and various
supplemental agreements with local unions affiliated with the International
Brotherhood of Teamsters. These agreements run through July 31, 2002. We employ
the majority of our pilots under a collective bargaining agreement with the
Independent Pilots Association. This agreement becomes amendable on January 1,
2004. The majority of our mechanics who are not employed under agreements with
the Teamsters are employed under collective bargaining agreements with the
International Association of Machinists. These agreements have various
expiration dates between July 31, 2002 and August 4, 2003.
 
  We believe that our relations with our employees are good.
 
Competition
 
  We are the largest package distribution company in the world, in terms of
both revenue and volume. We offer a broad array of services in the package
delivery industry and therefore compete with many different companies and
services on a local, regional, national and international basis. Our
competitors include the postal services of the United States and other nations,
various motor carriers, express companies, freight forwarders, air couriers and
others. Our major competitors include Federal Express, the United States Postal
Service, Airborne Express, DHL Worldwide Express, Deutsche Post and TNT Post
Group.
 
                                       12

<PAGE>
 
  Competition increasingly is based on a carrier's ability to integrate its
distribution and information systems with its customers' systems to provide
unique transportation solutions at competitive prices. We rely on our vast
infrastructure and service portfolio to attract and maintain customers. As we
move into logistics and other non-package areas, we compete with a number of
participants in the logistics, financial services and information technology
industries.
 
Government Regulation
 
  Both the Department of Transportation and the Federal Aviation Administration
regulate air transportation services.
 
  The DOT's authority primarily relates to economic aspects of air
transportation, such as discriminatory pricing, non-competitive practices,
interlocking relations or cooperative agreements. The DOT also regulates,
subject to the authority of the President of the United States, international
routes, fares, rates and practices, and is authorized to investigate and take
action against discriminatory treatment of United States air carriers abroad.
The FAA's authority primarily relates to safety aspects of air transportation,
including aircraft standards and maintenance, personnel and ground facilities.
In 1988, the FAA granted us an operating certificate, which remains in effect
so long as we meet the operational requirements of federal aviation
regulations.
 
  The FAA has issued rules mandating repairs on all Boeing Company and
McDonnell-Douglas Corporation aircraft that have completed a specified number
of flights, and also has issued rules requiring a corrosion control program for
Boeing Company aircraft. Our total expenditures under these programs for 1999
were about $13.7 million. The future cost of repairs pursuant to these programs
may fluctuate. All mandated repairs have been completed or are scheduled to be
completed within the timeframes specified by the FAA.
 
  Our ground transportation of packages in the United States is subject to the
DOT's jurisdiction with respect to the regulation of routes and both the DOT's
and the states' jurisdiction with respect to the regulation of safety,
insurance and hazardous materials.
 
  We are subject to similar regulation in many non-U.S. jurisdictions. In
addition, we are subject to non-U.S. government regulation of aviation rights
to and beyond non-U.S. jurisdictions, and non-U.S. customs regulation.
 
 Postal Rate Proceedings
 
  The Postal Reorganization Act of 1970 created the postal service as an
independent establishment of the executive branch of the federal government,
and vested the power to recommend domestic postal rates in a regulatory body,
the Postal Rate Commission. We believe that the postal service consistently
attempts to set rates for its monopoly services, particularly first class
letter mail, above the cost of providing these services, in order to use the
excess revenues to subsidize its expedited, parcel, international and other
competitive services. Therefore, we participate in the postal rate proceedings
before the Postal Rate Commission in an attempt to secure fair postal rates for
competitive services.
 
  Legislation has been proposed that would result in significant amendments to
the Postal Reorganization Act. If adopted, it would introduce a form of rate-
cap regulation of monopoly services, loosen regulation of competitive services
and, for some matters, strengthen the powers of the Postal Rate Commission.
 
                                       13


<PAGE>
 

I
tem 1A. Executive Officers of the Registrant
 

<TABLE>
<CAPTION>
                                                        Principal Occupation
                                                       and Employment During
                                                       at Least the Last Five
 Name and Office                                Age            Years
 ---------------                                ---    ----------------------
 <C>                                            <C> <S>
 John J. Beystehner............................  48 Senior Vice President (1999
  Senior Vice President                             to present), Worldwide
                                                    Sales Group Manager (1997
                                                    to present), Airline
                                                    Operations Manager (1994 to
                                                    1997), District Manager
                                                    (1992 to 1994), Legal and
                                                    Regulatory Air Operations
                                                    Manager (1987 to 1992)
 Robert J. Clanin..............................  56 Director (1996 to present),
  Senior Vice President, Treasurer, Chief           Senior Vice President,
  Financial Officer and Director                    Treasurer and Chief
                                                    Financial Officer (1994 to
                                                    present), Finance Manager
                                                    (1990 to 1994)
 Calvin Darden.................................  50 Senior Vice President and
  Senior Vice President                             U.S. Operations Manager
                                                    (1998 to present),
                                                    Corporate Quality Manager
                                                    (1995 to 1998), Region
                                                    Manager (1993 to 1995),
                                                    District Manager (1991 to
                                                    1993)
 John A. Duffy.................................  53 Senior Vice President (1999
  Senior Vice President                             to present), Corporate
                                                    Strategy Group Manager
                                                    (1996 to present),
                                                    Strategic Operations
                                                    Planning Group Manager
                                                    (1994 to 1996),
                                                    International Marketing
                                                    Manager (1993 to 1994),
                                                    District Manager (1989 to
                                                    1993)
 Michael L. Eskew..............................  50 Executive Vice President
  Executive Vice President and                      (1999 to present), Director
  Director                                          (1998 to present),
                                                    Corporate Development Group
                                                    Manager (1999 to 2000),
                                                    Senior Vice President (1996
                                                    to 1999), Engineering Group
                                                    Manager (1996 to 2000),
                                                    Corporate Industrial
                                                    Engineering Manager (1993
                                                    to 1996), District Manager
                                                    (1991 to 1993)
 James P. Kelly ...............................  56 Director (1991 to present),
  Chairman of the Board, Chief Executive            Chairman of the Board and
  Officer and Director                              Chief Executive Officer
                                                    (1997 to present), Vice
                                                    Chairman (1996), Executive
                                                    Vice President (1994 to
                                                    1996), Chief Operating
                                                    Officer (1992 to 1996),
                                                    U.S. Operations Manager
                                                    (1990 to 1992)
 Kenneth W. Lacy...............................  50 Senior Vice President and
  Senior Vice President and Chief                   Chief Information Officer
  Information Officer                               (1996 to present), Vice
                                                    President-Information
                                                    Services (1994 to 1996),
                                                    Corporate Controller (1992
                                                    to 1994), Financial Manager
                                                    (1989 to 1992)
 Christopher D. Mahoney........................  52 Senior Vice President and
  Senior Vice President                             U.S. Operations Manager
                                                    (1998 to present), Region
                                                    Manager (1988 to 1998)
 Joseph R. Moderow.............................  51 Director (1988 to present),
  Senior Vice President, Secretary and Director     Senior Vice President and
                                                    Secretary (1986 to
                                                    present), Legal and Public
                                                    Affairs Group Manager (1989
                                                    to present)
</TABLE>

 
                                       14

<PAGE>
 

<TABLE>
<CAPTION>
                                                        Principal Occupation
                                                        and Employment During
                                                       at Least the Last Five
 Name and Office                                 Age            Years
 ---------------                                 ---   ----------------------
 <C>                                             <C> <S>
 Joseph M. Pyne.................................  52 Senior Vice President and
  Senior Vice President                              Marketing Group Manager
                                                     (1996 to present),
                                                     Corporate Development
                                                     Group Manager (2000 to
                                                     present), Vice President-
                                                     Marketing (1995 to 1996),
                                                     National Marketing
                                                     Planning Manager (1989 to
                                                     1995)
 Charles L. Schaffer............................  54 Director (1992 to
  Senior Vice President, Chief Operating             present), Chief Operating
  Officer and Director                               Officer (1998 to present),
                                                     Senior Vice President
                                                     (1990 to present), U.S.
                                                     Operations Manager (1996
                                                     to 1998), Engineering
                                                     Group Manager (1990 to
                                                     1996)
 Lea N. Soupata.................................  49 Director (1998 to
  Senior Vice President and Director                 present), Senior Vice
                                                     President and Human
                                                     Resources Group Manager
                                                     (1995 to present), Vice
                                                     President-Human Resources
                                                     (1994 to 1995), District
                                                     Manager (1990 to 1994)
 Ronald G. Wallace..............................  55 Senior Vice President and
  Senior Vice President and President--              President-International
  International Operations                           Operations (1998 to
                                                     present), Region Manager
                                                     (1994 to 1998), District
                                                     Manager (1979 to 1994)
 Thomas H. Weidemeyer...........................  52 Director (1998 to
  Senior Vice President, President--UPS Airlines     present), Senior Vice
  and Director                                       President (1994 to
                                                     present), Engineering
                                                     Group Manager (2000 to
                                                     present), Transportation
                                                     Group Manager (1997 to
                                                     present), Labor Relations
                                                     Group Manager (1997 to
                                                     present), Airline
                                                     Operations Manager (1990
                                                     to 1994), President--UPS
                                                     Airlines (1994 to present)
</TABLE>


Item 2. Properties
 
Operating Facilities
 
  We own our headquarters, which are located in Atlanta, Georgia and consist
of about 735,000 square feet of office space on an office campus.
 
  We also own our 28 principal U.S. package operating facilities, which have
floor spaces that range from about 378,000 to 838,000 square feet. In
addition, we have a 1.9 million square foot operating facility near Chicago,
Illinois, which is designed to streamline shipments between East Coast and
West Coast destinations.
 
  We also own about 760, and lease about 881, smaller operating facilities
throughout the United States for our package operations. The smaller of these
facilities have vehicles and drivers stationed for the pickup of packages and
facilities for the sorting, transfer and delivery of packages. The larger of
these facilities have additional facilities for servicing our vehicles and
equipment and employ specialized mechanical installations for the sorting and
handling of packages. We also own or lease other facilities that support our
international package and non-package operations. We believe that our
facilities are adequate to support our current operations.
 
  Our aircraft are operated in a hub and spokes pattern in the United States.
Our principal air hub in the United States is located in Louisville, Kentucky,
with regional air hubs in Columbia, South Carolina, Dallas, Texas, Hartford,
Connecticut, Ontario, California, Philadelphia, Pennsylvania and Rockford,
Illinois. These hubs house facilities for the sorting, transfer and delivery
of packages. Our Louisville, Kentucky hub handles the largest volume of
packages for air delivery in the United States. Our European air hub is
located in Cologne, Germany,
 
                                      15

<PAGE>
 
and our Asia-Pacific air hub is located in Taipei, Taiwan. Regional air hubs in
Canada include facilities located in Hamilton, Ontario and Montreal, Quebec.
Our new automated sorting facility, "Hub 2000," currently is under construction
in Louisville, Kentucky, and we expect it to commence partial operations in
Fall 2000. We expect this new facility to add efficiency and to increase our
hub capacity by over 40% in Louisville.
 
  Our computer operations are consolidated in a 435,000 square foot leased
facility, the Ramapo Ridge facility, which is located on a 39-acre site in
Mahwah, New Jersey. We have leased this facility for an initial term ending in
2019 for use as a data processing, telecommunications and operations facility.
We also own a 160,000 square foot facility located on a 25-acre site in the
Atlanta, Georgia area, which serves as a backup to the main computer operations
facility in New Jersey. This facility provides production functions and backup
capacity in case a power outage or other disaster incapacitates the main data
center. It also helps us to meet communication needs.
 
Fleet
 
 Aircraft
 
  The following table shows information about our fleet as of December 31,
1999:
 

<TABLE>
<CAPTION>
                                                          Leased or
                                                          Chartered
                                                            from     On   Under
Description                                         Owned  Others   Order Option
-----------                                         ----- --------- ----- ------
<S>                                                 <C>   <C>       <C>   <C>
McDonnell-Douglas DC-8-71..........................   23      --      --    --
McDonnell-Douglas DC-8-73..........................   26      --      --    --
Boeing 727-100.....................................   51      --      --    --
Boeing 727-200.....................................   10      --      --    --
Boeing 747-100.....................................   12      --      --    --
Boeing 747-200.....................................    4      --      --    --
Boeing 757-200.....................................   71       4      --    31
Boeing 767-300.....................................   24       6      --    30
Airbus A300-600....................................   --      --      30    30
Other..............................................   --     344      --    --
                                                     ---     ---     ---   ---
  Total............................................  221     354      30    91
                                                     ===     ===     ===   ===
</TABLE>

 
  We maintain an inventory of spare engines and parts for each aircraft.
 
  All of the aircraft we own meet Stage III federal noise regulations and can
operate at airports that have aircraft noise restrictions. We became the first
major airline to successfully operate a 100% Stage III fleet more than three
years in advance of the date required by federal regulations.
 
  During 1999, we took delivery of two Boeing 757-200 and three Boeing 767-300
aircraft. We also exercised options to purchase five Boeing 757-200 aircraft
that we previously accounted for under operating leases. We have firm
commitments to purchase seven Airbus A300-600 aircraft during 2000 and 23
Airbus A300-600 aircraft between 2001 and 2004, and we have options to purchase
30 Airbus A300-600 aircraft between 2002 and 2009.
 
 Vehicles
 
  We operate a fleet of more than 150,000 delivery vehicles, ranging from panel
delivery vehicles to large tractors and trailers, including about 1,500
temperature-controlled trailers owned by Martrac.
 
 
                                       16

<PAGE>
 
  Our management believes that these aircraft and vehicles are adequate to
support our operations over the next year.
 
Safety
 
  We promote safety throughout our operations.
 
  Our Automotive Fleet Safety Program is built with the following components:
 
  .  Selection. Six out of every seven drivers come from our part-time ranks.
     Therefore, many of our new drivers are familiar with our philosophies,
     policies, practices and training programs.
 
  .  Training. Training is the cornerstone of our Fleet Safety Program. Our
     approach starts with training the trainer. All trainers undergo a
     rigorous training workshop to ensure that they have the skills and
     motivation to effectively train novice drivers. The first 30 days of a
     new driver's employment includes eight hours of classroom "space and
     visibility" training followed by three safety training rides integrated
     into his or her training cycle.
 
  .  Responsibility. Our operations managers are responsible for their
     drivers' safety records. We investigate every accident. If we determine
     that an accident could have been prevented, we re-train the driver.
 
  .  Preventive Maintenance. An integral part of our Fleet Safety Program is
     a comprehensive Preventive Maintenance Program. Our fleet is tracked by
     computer to ensure that each vehicle is serviced before a breakdown or
     accident is likely to occur.
 
  .  Honor Plan. A well-defined safe driver honor plan recognizes and rewards
     our drivers when they achieve success. We have about 2,850 drivers who
     have driven for 25 years or more without an avoidable accident.
 
  Our workplace safety program consists of a comprehensive health and safety
program that is monitored by our employee-management health and safety
committees. The workplace safety process focuses on employee conditioning and
safety-related habits. We enlist employees' help in designing facilities and
work processes.
 

Item 3. Legal Proceedings
 
  On August 9, 1999, the U.S. Tax Court issued an opinion unfavorable to us
regarding a Notice of Deficiency asserting that we are liable for additional
tax for the 1983 and 1984 tax years. The Court held that we are liable for tax
on income of Overseas Partners Ltd., a Bermuda company, which had reinsured
excess value package insurance purchased by our customers beginning in 1984.
The Court held that for the 1984 tax year we are liable for taxes of $31
million on income reported by OPL, penalties and penalty interest of $93
million and interest for a total after-tax exposure estimated at approximately
$246 million. In February 2000, the Court entered a decision in accord with
its opinion.
 
  In addition, during the first quarter of 1999, the IRS issued two Notices of
Deficiency asserting that we are liable for additional tax for the 1985
through 1987 tax years, and the 1988 through 1990 tax years. The primary
assertions by the IRS relate to the reinsurance of excess value package
insurance, the issue raised for the 1984 tax year. The IRS has based its
assertions on the same theories included in the 1983-1984 Notice of
Deficiency.
 
  We anticipate that the IRS will take similar positions for tax years
subsequent to 1990. Based on the Tax Court opinion, we currently estimate that
our total after-tax exposure for the tax years 1984 through 1999 could be as
high as $2.353 billion. We believe that a number of aspects of the Tax Court
decision are incorrect, and we intend to appeal the decision to the U.S. Court
of Appeals for the Eleventh Circuit.
 
  In the second quarter 1999 financial statements, we recorded a tax
assessment charge of $1.786 billion, which included an amount for related
state tax liabilities. The charge included taxes of $915 million and interest
of $871 million. This assessment resulted in a tax benefit of $344 million
related to the interest component of
 
                                      17

<PAGE>
 
the assessment. As a result, our net charge to net income for the tax
assessment was $1.442 billion, increasing our total after-tax reserve at that
time with respect to these matters to $1.672 billion. The tax benefit of
deductible interest is included in income taxes; since none of the income on
which this tax assessment is based is our income, however, we have not
classified the tax charge as income taxes.
 
  We determined the size of our reserve with respect to these matters in
accordance with generally accepted accounting principles based on our estimate
of our most likely liability. In making this determination, we concluded that
it was more likely that we would be required to pay taxes on income reported
by OPL and interest, but that it was not probable that we would be required to
pay any penalties and penalty interest. If penalties and penalty interest
ultimately are determined to be payable, we would have to record an additional
charge of up to $681 million.
 
  On August 31, 1999, we deposited $1.349 billion with the IRS related to
these matters for the 1984 through 1994 tax years. We included the profit of
the excess value package insurance program, using the IRS's methodology for
calculating these amounts, for both 1998 and 1999 in filings we made with the
IRS in the fourth quarter of 1999. In February 2000, we deposited $339 million
with the IRS related to these matters for the 1995 through 1997 tax years.
These deposits and filings were made in order to stop the accrual of interest,
where applicable, on that amount of the IRS's claim, without conceding the
IRS's position or giving up our right to appeal the Tax Court's decision.
 
  Effective October 1, 1999, we implemented a new arrangement for providing
excess value package insurance for our customers through UPS subsidiaries.
This new arrangement results in including in our non-package operating segment
the operations of the excess value package insurance program offered to our
customers. This revised arrangement should eliminate the issues considered by
the Tax Court in the Notices of Deficiency relating to OPL for periods after
September 1999.
 
  The IRS has proposed adjustments, unrelated to the OPL matters discussed
above, regarding the timing of deductions, the characterization of expenses as
capital rather than ordinary, and our entitlement to the investment tax credit
and the research tax credit in the 1985 through 1990 tax years. These proposed
adjustments, if sustained, would result in $82 million in additional income
tax expense.
 
  We believe that our practice of expensing the items that the IRS alleges
should have been capitalized is consistent with the practices of other
industry participants. We expect that we will prevail on substantially all of
these issues. Should the IRS prevail, however, unpaid interest on these
adjustments through 1999 could aggregate up to $270 million, after the benefit
of related tax deductions. The IRS's proposed adjustments include penalties
and penalty interest. We believe that the possibility that such penalties and
penalty interest will be sustained is remote. The IRS may take similar
positions with respect to some of these issues for each of the years from 1991
through 1999. We believe the eventual resolution of these issues will not
result in a material adverse effect upon our financial condition, results of
operations or liquidity.
 
  We are a defendant in various employment-related lawsuits. In one of these
actions, which alleges employment discrimination by UPS, class action status
has been granted, and the United States Equal Employment Opportunity
Commission has been granted the right to intervene. In our opinion, none of
these cases is expected to have a material effect upon our financial
condition, results of operations or liquidity.
 
  We recently have been named as a defendant in nine lawsuits which seek to
hold us (and in two cases, other defendants) liable for the collection of
premiums for excess value coverage, or "EVC", in connection with package
shipments since 1984. These cases generally claim that we acted as an insurer
without complying with state insurance laws and regulations, and that the
price for EVC was excessive. All of these cases currently are pending in
federal courts, and we have requested that the cases be consolidated for pre-
trial purposes in a multi-district litigation proceeding before a single
federal court. Each of these cases is in its initial stages, no discovery
 
                                      18

<PAGE>
 
has commenced and no class has been certified. These actions all developed
after the August 9, 1999 Tax Court opinion was rendered. We believe the
allegations have no merit and intend to defend them vigorously. The ultimate
resolution of these matters cannot presently be determined. The nine lawsuits
are:
 
  .  Allen, et al., v. UPS, Overseas Partners, Ltd., American International
     Group, Inc., AIG Risk Management, Inc., National Union Fire Insurance
     Company of Pittsburgh, PA, Frank B. Hall Insurance Brokers, Inc.,
     Prometheus Funding Corp., Aon Group (Bermuda) Ltd., and Aon Corporation,
     United States District Court for the Southern District of Ohio (Western
     Division), Case No. C-3-99-653, filed November 18, 1999;
 
  .  Camp v. UPS, United States District Court for the District of Colorado,
     Case No. 99-Z-2492, filed November 24, 1999;
 
  .  Tseffos v. UPS, United States District Court for the District of
     Arizona, Case No. CIV-99-2256-PHX-SMM, filed November 24, 1999;
 
  .  Prestige Fabric Co. v. UPS, United States District Court for the Central
     District of California, Case No. CV 00-00830 RSWL (BQRx), filed December
     7, 1999;
 
  .  Dyer Enterprises v. UPS, United States District Court for the District
     of Colorado, Case No. 00-Z-46, filed December 20, 1999;
 
  .  Busby v. UPS, United States District Court for the Middle District of
     Louisiana, Civil Action No. 00109 Division "C", filed December 28, 1999;
 
  .  Cantor Jewelry v. UPS, United States District Court for the Southern
     District of New York, Case No. 00 CV 0306 (RMB), filed January 4, 2000;
 
  .  Poppe v. UPS, Overseas Partners, Ltd., American International Group,
     Inc., AIG Risk Management, Inc., National Union Fire Insurance Company
     of Pittsburgh, PA, Frank B. Hall Insurance Brokers, Inc., Prometheus
     Funding Corp., Aon Group (Bermuda) Ltd., and Aon Corporation, United
     States District Court for the Southern District of Ohio, Western
     Division (Cincinnati), Case No. C-1-00-0107, filed January 27, 2000; and
 
  .  Farina, et al. v. UPS, United States District Court for the Eastern
     District of Pennsylvania, Civil Action No. 00-CV-0586, filed February 1,
     2000.
 
  As part of our 1997-2002 collective bargaining agreement with the Teamsters,
we agreed that we would create 2,000 new full-time jobs from existing part-
time jobs during each year of the contract. There was a provision, however,
which nullified this obligation if there was a reduction in volume that
resulted in layoffs. At the end of the first contract year (July 31, 1998),
our shipping volume was still below pre-strike levels and employees were laid
off. Therefore, we believed that we were not obligated to create the 2,000
jobs for the first year of the contract. The Teamsters filed a grievance
concerning this issue, and the case was submitted to an arbitrator. In
February 2000, the arbitrator ruled against us and ordered us to create the
2,000 new full-time jobs from existing part-time positions within 90 days of
the arbitrator's decision, and to make whole the employees selected for the
full-time positions for any lost wages or benefits. We are in the process of
creating these full-time jobs, identifying the employees that will fill the
new jobs and quantifying the financial impact of this matter. Our package
volume surpassed pre-strike levels in 1999, and thus we are in the process of
creating the 2,000 full-time jobs called for in the third year of the
contract. We have agreed to create the 2,000 full-time jobs for the second
year of the contract by June 10, 2000, and to make whole the employees
selected for the full-time positions for any lost wages or benefits. We do not
believe that the eventual amount will be material to our financial condition
or liquidity.
 
  On November 22, 1999, the U.S. Occupational Safety and Health Administration
proposed regulations to mandate an ergonomics standard that would require
American industry to make significant changes in the workplace in order to
reduce the incidence of musculoskeletal complaints such as low back pain. If
adopted as proposed, these regulations would require us to make extensive
changes in the physical layout of our distribution centers and to hire
significant numbers of additional full-time and part-time employees. Should
this occur, we
 
                                      19

<PAGE>
 
believe that the cost of compliance could be material to our financial
condition, results of operations and liquidity. Our competitors, as well as
the remainder of American industry, would incur similar costs. We have filed
comments with OSHA challenging the medical support and economic and technical
feasibility of the proposed regulations.
 

Item 4. Submission Of Matters to a Vote of Security Holders
 
  We held a special meeting of shareowners on October 25, 1999. The matters
voted upon at the special meeting, and the results of the voting, were as
follows:
 

<TABLE>
<CAPTION>
                                                  Percent of
                              Number of Votes    Total Voting
                            -------------------- ------------
   <S>                      <C>      <C>         <C>
   To approve an Agreement
    and Plan of             For:     489,845,484     97.3%
   Merger, dated as of
    September 22, 1999,     Against:  13,066,966      2.6%
   among United Parcel      Abstain:     677,782      0.1%
   Service of America,
   Inc., United Parcel
   Service, Inc. and UPS
   Merger Subsidiary, Inc.
<CAPTION>
                                                  Percent of
                              Number of Votes    Total Voting
                            -------------------- ------------
   <S>                      <C>      <C>         <C>
   To approve the United
    Parcel Service, Inc.    For:     480,242,241     95.4%
   Incentive Compensation
    Plan                    Against:  16,223,355      3.2%
                            Abstain:   7,124,636      1.4%
</TABLE>

 

                                    PART II
 

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
 
  In October 1999, the shareowners of United Parcel Service of America, Inc.
approved the merger of that company with a subsidiary of United Parcel
Service, Inc. As a result of the merger, which was completed in November 1999,
United Parcel Service of America, Inc. became a wholly owned subsidiary of
United Parcel Service, Inc., and each share of common stock of United Parcel
Service of America, Inc. was converted into two shares of class A common stock
of United Parcel Service, Inc.
 
  We are authorized to issue 10,400,000,000 shares of stock, of which
1,533,333,333 shares are class A-1 common stock, par value $0.01 per share,
1,533,333,333 shares are class A-2 common stock, par value $0.01 per share,
1,533,333,334 shares are class A-3 common stock, par value $0.01 per share,
5,600,000,000 shares are class B common stock, par value $0.01 per share, and
200,000,000 shares are preferred stock, par value $0.01 per share. As of
February 29, 2000, 1,101,353,454 shares of class A common stock, 109,400,000
shares of class B common stock and no shares of preferred stock were issued
and outstanding.
 
  The net proceeds from our initial public offering, which we completed in
November 1999, were $5.266 billion. We used the majority of the IPO proceeds
to fund a cash tender offer to purchase class A-1 shares from shareowners. The
tender offer, which was announced on February 4, 2000, and expired on March 3,
2000, was for up to 100,893,277 shares at a price of $60 per share. The actual
number of shares validly tendered and accepted for purchase by us was
68,312,335, which resulted in a cash expenditure of approximately
$4.099 billion and reduced our outstanding class A shares accordingly. The
remaining IPO proceeds will be available for general corporate purposes, which
may include future additional purchases of UPS shares.
 
  Holders of class A common stock are entitled to ten votes per share and
holders of class B common stock are entitled to one vote per share on all
matters voted on by shareowners. The voting rights of any shareowner or
shareowners as a group, other than any of our employee benefit plans, that
beneficially own more than 25% of our voting power are limited so that the
shareowner or group may cast only one one-hundredth of a vote with respect to
each vote in excess of 25% of the outstanding voting power.
 
                                      20

<PAGE>
 
  Before November 10, 1999, we would notify our shareowners periodically of
our willingness to purchase a limited number of shares of our common stock at
specified prices determined by the board of directors. In determining the
share price, the board would consider a variety of factors, including past and
current earnings, earnings estimates, the ratio of our common stock to our
debt, other factors affecting our business and long-range prospects, and
general economic conditions, as well as opinions furnished from time to time
by investment counselors acting as independent appraisers.
 
  Before November 10, 1999, we also had a preferential right to purchase our
own shares. We had been the principal purchaser of our common stock, which we
had used primarily for awards under the UPS Managers Incentive Plan, awards
under the UPS Stock Option Plans, the matching contribution of our stock under
the UPS Qualified Stock Ownership Plan and sales under the UPS 1997 Managers
Stock Purchase Plan, the UPS 1997 Employee Stock Purchase Plan and the UPS
Qualified Stock Ownership Plan.
 
  The prices at which we published notices of our willingness to purchase
shares of common stock from January 1, 1998 to November 9, 1999 are as
follows, as adjusted to reflect the 2-for-1 merger exchange ratio effective in
November 1999:
 

<TABLE>
<CAPTION>
                         1998
               Dates                      Price
               -----                      ------
        <S>                               <C>
        January 1 to February 26          $15.38
        February 27 to May 21             $16.00
        May 22 to August 19               $17.00
        August 20 to November 18          $18.50
        November 19 to February 17, 1999  $20.00
<CAPTION>
                         1999
               Dates                      Price
               -----                      ------
        <S>                               <C>
        February 18 to May 19             $21.50
        May 20 to August 18               $23.50
        August 19 to November 9           $25.50
</TABLE>

 
  Our class A common stock is not listed on a national securities exchange or
traded in an organized over-the-counter market. On November 10, 1999, our
class B common stock began to trade on the New York Stock Exchange under the
ticker symbol "UPS". From November 10 to December 31, 1999, the quoted price
on the New York Stock Exchange for our class B common stock fluctuated between
$61.00 and $76.94, with a December 31, 1999 closing price of $69.00. Because
our class B shares have the same equitable interest in our earnings and the
same dividend payments as our class A shares, we expect that the market price
of our class B common stock will determine the value of our class A common
stock.
 
  In February 1999, we distributed an aggregate of 6,354,858 shares of United
Parcel Service of America, Inc. common stock under the UPS Managers Incentive
Plan to a total of 26,278 employees at a managerial or supervisory level. In
March 1999, we granted options to our directors and management employees under
our 1996 Stock Option Plan, and in November 1999, we granted options to our
directors and management employees under our Incentive Compensation Plan. No
options will be granted to these directors and management employees under the
Incentive Compensation Plan in 2000.
 
  During 1999, 7,571,160 shares of United Parcel Service of America, Inc.
common stock and no shares of our class A common stock were distributed to
management employees upon the exercise of stock options granted under our 1991
Stock Option Plan. On December 31, 1999, 99,240 active employees owned
approximately 380 million shares of our class A common stock.
 
                                      21

<PAGE>
 
  During the fiscal year ended December 31, 1999, as adjusted to reflect the 2-
for-1 merger exchange ratio effective in November 1999, we paid a cash dividend
of $0.23 a share in January 1999 and $0.28 a share in June 1999. During the
fiscal year ended December 31, 1998, as adjusted to reflect the 2-for-1 merger
exchange ratio effective in November 1999, we paid a cash dividend of $0.18 a
share in January 1998 and $0.20 a share in June 1998.
 
  In November 1999, we declared a cash dividend of $0.30 per share, which we
paid in January 2000. In February 2000, we announced that we plan to begin
paying dividends quarterly rather than semi-annually, and we declared a cash
dividend of $0.17 a share, payable in March 2000.
 
  The policy of our board of directors is to declare dividends each year out of
current earnings. However, the declaration of future dividends is subject to
the discretion of the board of directors in light of all relevant facts,
including earnings, general business conditions and working capital
requirements.
 
  As of March 10, 2000, there were 125,100 record holders of our class A common
stock and 6,250 record holders of our class B common stock.
 
                                       22

<PAGE>
 

Item 6. Selected Financial Data
 
  The following table sets forth selected financial data for each of the five
years in the period ended December 31, 1999. This financial data should be read
in conjunction with our Consolidated Financial Statements, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
other financial data appearing elsewhere in this document.
 

<TABLE>
<CAPTION>
                                           Years Ended December 31,
                                    -------------------------------------------
Selected Income Statement Data       1999     1998     1997     1996     1995
------------------------------      -------  -------  -------  -------  -------
                                    (In millions except per share amounts)
<S>                                 <C>      <C>      <C>      <C>      <C>
Revenue:
 U.S. domestic package............. $22,313  $20,650  $18,868  $18,881  $17,773
 International package.............   3,730    3,399    3,067    3,074    2,958
 Non-package.......................   1,009      739      523      413      314
                                    -------  -------  -------  -------  -------
 Total revenue.....................  27,052   24,788   22,458   22,368   21,045
Operating expenses:
 Compensation and benefits.........  15,285   14,346   13,289   13,326   12,401
 Other.............................   7,779    7,352    7,471    7,013    6,478
 Restructuring charge..............     --       --       --       --       372
                                    -------  -------  -------  -------  -------
 Total operating expenses..........  23,064   21,698   20,760   20,339   19,251
Operating profit (loss):
 U.S. domestic package.............   3,568    2,899    1,654    2,181    1,937
 International package.............     252       56      (67)    (281)    (250)
 Non-package.......................     168      135      111      129      107
                                    -------  -------  -------  -------  -------
 Total operating profit............   3,988    3,090    1,698    2,029    1,794
Other income (expense):
 Investment income.................     177       84       70       39       26
 Interest expense..................    (228)    (227)    (187)     (95)     (77)
 Tax assessment....................  (1,786)     --       --       --       --
 Miscellaneous, net................     (63)     (45)     (28)     (63)     (35)
                                    -------  -------  -------  -------  -------
Income before income taxes.........   2,088    2,902    1,553    1,910    1,708
Income taxes.......................   1,205    1,161      644      764      665
                                    -------  -------  -------  -------  -------
Net income......................... $   883  $ 1,741  $   909  $ 1,146  $ 1,043
                                    =======  =======  =======  =======  =======
Per share amounts:
  Basic earnings per share......... $  0.79  $  1.59  $  0.82  $  1.03  $  0.93
  Diluted earnings per share....... $  0.77  $  1.57  $  0.81  $  1.01  $  0.92
Dividends declared per share....... $  0.58  $  0.43  $  0.35  $  0.34  $  0.32
Weighted Average Shares Outstand-
 ing...............................   1,121    1,093    1,103    1,114    1,118
 Basic.............................
 Diluted...........................   1,141    1,108    1,116    1,129    1,131
As Adjusted Net Income Data:
 Net income before impact of tax
  assessment in 1999............... $ 2,325  $ 1,741  $   909  $ 1,146  $ 1,043
    As a percentage of revenue.....     8.6%     7.0%     4.0%     5.1%     5.0%
    Basic earnings per share....... $  2.07  $  1.59  $  0.82  $  1.03  $  0.93
    Diluted earnings per share..... $  2.04  $  1.57  $  0.81  $  1.01  $  0.92
<CAPTION>
                                                 December 31,
                                    -------------------------------------------
Selected Balance Sheet Data          1999     1998     1997     1996     1995
---------------------------         -------  -------  -------  -------  -------
                                                 (In millions)
<S>                                 <C>      <C>      <C>      <C>      <C>
Working capital.................... $ 6,940  $ 1,708  $ 1,079  $ 1,097  $   261
Long-term debt.....................   1,912    2,191    2,583    2,573    1,729
Total assets.......................  23,043   17,067   15,912   14,954   12,645
Shareowners' equity................  12,474    7,173    6,087    5,901    5,151
</TABLE>

 
 
                                       23

<PAGE>
 

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
Operations
 
 1999 Compared to 1998
 
  The following tables set forth information showing the change in revenue,
average daily package volume and average revenue per piece, both in dollars or
amounts and in percentage terms:
 

<TABLE>
<CAPTION>
                                                    Year Ended
                                                   December 31,     Change
                                                  --------------- ------------
                                                   1999    1998     $      %
                                                  ------- ------- ------  ----
<S>                                               <C>     <C>     <C>     <C>
Revenue (in millions):
----------------------
U.S. domestic package:
  Next Day Air................................... $ 5,240 $ 4,690 $  550  11.7%
  Deferred.......................................   2,694   2,464    230   9.3
  Ground.........................................  14,379  13,496    883   6.5
                                                  ------- ------- ------
                                                   22,313  20,650  1,663   8.1
International package:
  Domestic.......................................     924     953    (29) (3.0)
  Export.........................................   2,479   2,176    303  13.9
  Cargo..........................................     327     270     57  21.1
                                                  ------- ------- ------
                                                    3,730   3,399    331   9.7
  Non-package....................................   1,009     739    270  36.5
                                                  ------- ------- ------
  Consolidated................................... $27,052 $24,788 $2,264   9.1%
                                                  ======= ======= ======  ====
<CAPTION>
Average Daily Package Volume (in thousands):                        #
--------------------------------------------                      ------
<S>                                               <C>     <C>     <C>     <C>
U.S. domestic package:
  Next Day Air...................................   1,039     938    101  10.8%
  Deferred.......................................     852     783     69   8.8
  Ground.........................................  10,016   9,645    371   3.8
                                                  ------- ------- ------
                                                   11,907  11,366    541   4.8
International package:
  Domestic.......................................     711     730    (19) (2.6)
  Export.........................................     303     256     47  18.4
                                                  ------- ------- ------
                                                    1,014     986     28   2.8
                                                  ------- ------- ------
Consolidated.....................................  12,921  12,352    569   4.6%
                                                  ======= ======= ======  ====
 
Average Revenue Per Piece:                                          $
--------------------------                                        ------
U.S. domestic package:
  Next Day Air................................... $ 19.86 $ 19.69 $ 0.17   0.9%
  Deferred.......................................   12.45   12.39   0.06   0.5
  Ground.........................................    5.65    5.51   0.14   2.5
  Total..........................................    7.38    7.15   0.23   3.2
International package:
  Domestic.......................................    5.12    5.14  (0.02) (0.4)
  Export.........................................   32.21   33.46  (1.25) (3.7)
  Total..........................................   13.21   12.49   0.72   5.8
Consolidated..................................... $  7.84 $  7.58 $ 0.26   3.4%
                                                  ======= ======= ======  ====
</TABLE>

 
 
                                      24

<PAGE>
 
  U.S. domestic package revenue increased more than $1.6 billion primarily due
to a 4.8% increase in average daily package volume combined with a 3.2%
improvement in revenue per piece. Package volume growth was experienced in all
products, with average volumes for our Next Day Air and Deferred products
growing at 10.8% and 8.8%, respectively. We generated substantial growth in
our Ground revenue, which comprises 64% of our U.S. domestic package revenue,
based on average volume growth of 3.8% and a 2.5% improvement in average
revenue per piece.
 
  During the first quarter of 1999, we increased rates for standard ground
shipments an average of 2.5% for commercial deliveries. The ground residential
charge continued to be $1.00 over the commercial ground rate, with an
additional delivery area surcharge added to certain less accessible areas. In
addition, we increased rates for UPS Next Day Air, UPS Next Day Air Saver and
UPS 2nd Day Air an average of 2.5%, while we decreased the rate for UPS 2nd
Day Air A.M. by 2.2%. The rate for UPS Next Day Air Early A.M. did not change.
Rates for international shipments originating in the United States did not
increase for UPS Worldwide Express, Worldwide Express Plus, UPS Worldwide
Expedited and UPS International Standard service. Rate changes for shipments
originating outside the U.S. were made throughout the past year and varied by
geographic market.
 
  The increase in international package revenue was primarily due to an
overall improvement in product mix, specifically volume growth for our export
products. All international operations posted double-digit volume growth in
export services, with the largest increases experienced in our Asia Pacific
and European operations. Due to the strong growth of our international export
products, our total average revenue per piece for the international segment
increased $0.72, or 5.8%.
 
  We have added a "Cargo" line item within the international package revenue
category. Previously, this revenue was included in the international export
and the non-package revenue amounts. Amounts for all periods presented have
been restated to reflect this change.
 
  The growth in non-package revenue resulted primarily from the continued
growth of the UPS Logistics Group. This growth reflects both new business and
increased business with existing customers. Revenue for the non-package
segment was also increased by the new arrangement for providing excess value
package insurance for our customers.
 
  Operating expenses increased by $1.366 billion, or 6.3%, which was less than
our increase in revenue of 9.1%. Compensation and benefit expenses accounted
for $939 million of this increase. Purchased transportation costs increased by
$160 million and fuel costs increased by $77 million. The operating margin,
defined as operating profit as a percentage of revenue, for 1999 was 14.7
compared to 12.5 in 1998. This improvement was largely due to containment of
operating expense growth through better utilization of existing capacity and
from continued company-wide cost containment efforts.
 
                                      25

<PAGE>
 
  The following table shows the change in operating profit, both in dollars
and in percentage terms:
 

<TABLE>
<CAPTION>
                                                        Year Ended
                                                       December 31,    Change
                                                       ------------- ----------
                                                        1999   1998   $     %
                                                       ------ ------ ---- -----
                                                             (in millions)
<S>                                                    <C>    <C>    <C>  <C>
Operating Segment
-----------------
U.S. domestic package................................. $3,568 $2,899 $669  23.1%
International package.................................    252     56  196 350.0
Non-package...........................................    168    135   33  24.4
                                                       ------ ------ ----
 Consolidated operating profit........................ $3,988 $3,090 $898  29.1%
                                                       ====== ====== ====
</TABLE>

 
  U.S. domestic package operating profit improved due to the volume and
revenue improvements discussed previously, combined with the containment of
operating expense growth.
 
  Our international package operating profit improved significantly in 1999
due to a shift to higher yielding export packages. Average daily volume for
our export products grew 18.4% over 1998. The Europe and Asia Pacific regions
contributed significantly to overall operating profit improvements.
 
  The increase in non-package operating profit is largely due to the new
arrangement for providing excess value package insurance for our customers.
The new arrangement for excess value package insurance, which was implemented
in the fourth quarter of 1999, increased non-package operating profit by $60
million. This increase was offset somewhat by continued start-up costs at UPS
Capital Corporation, higher third party underwriting losses for UPINSCO, our
captive insurance company, and a reduction in intersegment profit. The UPS
Logistics Group experienced a small decrease in operating profit compared to
last year. This decrease was due to third-party transportation costs for the
group's SonicAir subsidiary and higher fuel costs for its UPS Truck Leasing
subsidiary. These decreases were offset somewhat by higher operating profits
for the group's Worldwide Logistics subsidiary.
 
  In 1999 quarterly financial statements, we did not allocate capitalized
software to individual segments, and reported the amounts capitalized as a
separate "Corporate" line item. However, for the year ended December 31, 1999,
all capitalized software costs, including amounts capitalized in prior
quarters, have been allocated to the individual segments which benefit from
the software.
 
  The increase in investment income of $93 million for the year is due to
large cash, cash equivalents, marketable securities and short-term investments
balances we have maintained during 1999, including the IPO proceeds received
in November.
 
  Net income for 1999 decreased by $858 million from 1998, resulting in a
decrease in diluted earnings per share from $1.57 in 1998 to $0.77 in 1999.
These results reflect the charge we recorded during the second quarter of
1999, resulting from an unfavorable ruling of the U.S. Tax Court. Excluding
the impact of this one-time charge of $1.442 billion, our net income for 1999
would have been $2.325 billion, with an associated diluted earnings per share
of $2.04. Further discussion of this matter is included in the Liquidity and
Capital Resources section.
 
 
                                      26

<PAGE>
 
 1998 Compared to 1997
 
  The following tables set forth information showing the change in revenue,
average daily package volume and average revenue per piece, both in dollars or
amounts and in percentage terms:
 

<TABLE>
<CAPTION>
                                                    Year Ended
                                                   December 31,     Change
                                                  --------------- ------------
                                                   1998    1997     $      %
                                                  ------- ------- ------  ----
<S>                                               <C>     <C>     <C>     <C>
Revenue (in millions):
----------------------
U.S. domestic package:
  Next Day Air................................... $ 4,690 $ 4,054 $  636  15.7%
  Deferred.......................................   2,464   2,314    150   6.5
  Ground.........................................  13,496  12,500    996   8.0
                                                  ------- ------- ------
                                                   20,650  18,868  1,782   9.4
International package:
  Domestic.......................................     953     919     34   3.7
  Export.........................................   2,176   1,922    254  13.2
  Cargo..........................................     270     226     44  19.5
                                                  ------- ------- ------
                                                    3,399   3,067    332  10.8
Non-package......................................     739     523    216  41.3
                                                  ------- ------- ------
  Consolidated................................... $24,788 $22,458 $2,330  10.4%
                                                  ======= ======= ======  ====
Average Daily Package Volume (in thousands):                        #
--------------------------------------------                      ------
U.S. domestic package:
  Next Day Air...................................     938     822    116  14.1%
  Deferred.......................................     783     771     12   1.6
  Ground.........................................   9,645   9,521    124   1.3
                                                  ------- ------- ------
                                                   11,366  11,114    252   2.3
International package:
  Domestic.......................................     730     678     52   7.7
  Export.........................................     256     217     39  18.0
                                                  ------- ------- ------
                                                      986     895     91  10.2
                                                  ------- ------- ------
Consolidated.....................................  12,352  12,009    343   2.9%
                                                  ======= ======= ======  ====
Average Revenue Per Piece:                                          $
--------------------------                                        ------
U.S. domestic package:
  Next Day Air................................... $ 19.69 $ 19.49 $ 0.20   1.0%
  Deferred.......................................   12.39   11.86   0.53   4.5
  Ground.........................................    5.51    5.19   0.32   6.2
  Total..........................................    7.15    6.71   0.44   6.6
International package:
  Domestic.......................................    5.14    5.36  (0.22) (4.1)
  Export.........................................   33.46   35.01  (1.55) (4.4)
  Total..........................................   12.49   12.55  (0.06) (0.5)
Consolidated..................................... $  7.58 $  7.15 $ 0.43   6.0%
                                                  ======= ======= ======  ====
</TABLE>

 
                                      27

<PAGE>
 
  The increase in U.S. domestic package revenue in 1998 resulted from
continued improvement in product mix, combined with generally higher revenue
per piece. The 1997 revenues were adversely affected by the 15-day Teamsters
strike. The Teamsters union, which, at the time, represented about 203,000 of
our employees, was on strike from August 4 through August 19, 1997. In
addition, the Independent Pilots Association, which represents all of our non-
management pilots, observed picket lines in support of the Teamsters strike.
Excluding the period of the strike, average daily domestic volume in 1998 was
2.2% below 1997, reflecting residual lost volume following the strike.
Domestic express volume, however, increased by 4.0%.
 
  During the first quarter of 1998, we increased rates for standard ground
shipments an average of 3.6% for commercial deliveries, and increased the
ground residential premium from $.80 to $1.00 over the commercial ground rate.
In addition, we increased rates for each of UPS Next Day Air, UPS 2nd Day Air
and UPS 3 Day Select about 3.3%. Rates for international shipments originating
in the U.S. did not change for UPS Worldwide Express, UPS Worldwide Expedited
and UPS Standard Service to Canada. Rate changes for shipments originating
outside the U.S. were made throughout 1998 and varied by geographic market.
 
  The increase in international package revenue in 1998 was attributable
primarily to a 10.2% increase in volume and an improvement in product mix. The
revenue increase was partially offset by the stronger U.S. dollar. Europe was
a significant contributor to international revenue growth in 1998 as a result
of a 12.2% volume increase and improved product mix. The increase in non-
package revenue in 1998 was driven mainly by continued growth of the UPS
Logistics Group.
 
  Consolidated operating expenses increased $938 million, or 4.5%, in 1998
over 1997, while the operating margin improved from 7.6 during 1997 to 12.5
during 1998. Compensation and benefits expenses increased $1.057 billion in
1998, in part due to labor costs not incurred during the Teamsters strike in
August 1997. Other operating expenses decreased $119 million from 1997 to
1998, mainly driven by lower fuel costs and the reduction of overhead costs in
1998.
 
  The following table shows the change in operating profit, both in dollars
and in percentage terms:
 

<TABLE>
<CAPTION>
                                                      Year Ended
                                                     December 31,     Change
                                                     -------------  -----------
                                                      1998   1997     $     %
                                                     ------ ------  ------ ----
                                                           (in millions)
<S>                                                  <C>    <C>     <C>    <C>
Operating Segment
-----------------
U.S. domestic package............................... $2,899 $1,654  $1,245 75.3%
International package...............................     56    (67)    123    *
Non-package.........................................    135    111      24 21.6
                                                     ------ ------  ------ ----
 Consolidated operating profit...................... $3,090 $1,698  $1,392 82.0%
                                                     ====== ======  ====== ====
</TABLE>

--------
* Not meaningful
 
  Approximately $703 million of the U.S. domestic package operating profit
increase resulted from improvements in U.S. domestic revenue per piece,
improved product mix and containment of operating expense growth. The
remaining $542 million of the increase reflects the change between August 1998
and August 1997, the period in which the Teamsters strike occurred.
 
  The favorable trend in international operations resulted primarily from
higher volume, improved product mix and better utilization of existing
capacity. Most of this improvement was due to the Europe region. Despite the
economic problems in Asia, operating results associated with the Asia Pacific
region continued to improve in 1998.
 
  Net income increased by $832 million in 1998 over 1997. Approximately $496
million of this improvement was due primarily to higher revenue per piece on
U.S. domestic products, improved product mix, improved international operating
results and the containment of operating expense growth. The remaining
increase of $336 million resulted from the change in net income for August
1998 as compared to August 1997, the period in which the Teamsters strike
occurred.
 
                                      28

<PAGE>
 
Liquidity and Capital Resources
 
  Our primary source of liquidity is our cash flow from operations. We
maintain significant cash, cash equivalents, marketable securities and short-
term investments, amounting to $6.278 billion at December 31, 1999. Of this
amount, $5.266 billion represents the net proceeds from our initial public
offering, which was completed in November 1999. We used the majority of the
IPO proceeds to fund a cash tender offer to purchase class A-1 shares from
shareowners. The tender offer, which was announced on February 4, 2000, and
expired on March 3, 2000, was for up to 100,893,277 shares at a price of $60
per share. The actual number of shares validly tendered and accepted for
purchase by us was 68,312,335, which resulted in a cash expenditure of
approximately $4.099 billion and reduced our outstanding class A shares
accordingly. The remaining IPO proceeds will be available for general
corporate purposes, which may include future additional purchases of UPS
shares.
 
  We maintain a commercial paper program under which we are authorized to
borrow up to $2.0 billion. Approximately $102 million was outstanding as of
December 31, 1999. The average interest rate on the amount outstanding at
December 31, 1999 was 5.8%.
 
  We maintain two credit agreements with a consortium of banks. These
agreements provide revolving credit facilities of $1.25 billion each, with one
expiring in April 2000 and the other expiring in April 2003. Interest on any
amounts we borrow under these facilities would be charged at 90-day LIBOR plus
15 basis points. There were no borrowings under either of these agreements as
of December 31, 1999.
 
  We also maintain a European medium-term note program with a borrowing
capacity of $1.0 billion. Under this program, we may issue notes from time to
time denominated in a variety of currencies. At December 31, 1999, $500
million was available under this program. Of the amount outstanding at
December 31, 1999, $200 million bears interest at a stated interest rate of
6.625% and $300 million bears interest at a stated interest rate of 6.25%.
 
  In January 1999, we filed a shelf registration statement with the SEC, under
which we may issue debt in the U.S. marketplace of up to $2.0 billion. The
debt may be denominated in a variety of currencies. There is approximately $55
million issued under this shelf registration statement at December 31, 1999.
 
  On August 9, 1999, the U.S. Tax Court issued an opinion unfavorable to us
regarding a Notice of Deficiency asserting that we are liable for additional
tax for the 1983 and 1984 tax years. The Court held that we are liable for tax
on income of Overseas Partners Ltd., a Bermuda company, which had reinsured
excess value package insurance purchased by our customers beginning in 1984.
The Court held that for the 1984 tax year we are liable for taxes of $31
million on income reported by OPL, penalties and penalty interest of
$93 million and interest for a total after-tax exposure estimated at
approximately $246 million. In February 2000, the Court entered a decision in
accord with its opinion.
 
  In addition, during the first quarter of 1999, the IRS issued two Notices of
Deficiency asserting that we are liable for additional tax for the 1985
through 1987 tax years, and the 1988 through 1990 tax years. The primary
assertions by the IRS relate to the reinsurance of excess value package
insurance, the issue raised for the 1984 tax year. The IRS has based its
assertions on the same theories included in the 1983-1984 Notice of
Deficiency.
 
  We anticipate that the IRS will take similar positions for tax years
subsequent to 1990. Based on the Tax Court opinion, we currently estimate that
our total after-tax exposure for the tax years 1984 through 1999 could be as
high as $2.353 billion. We believe that a number of aspects of the Tax Court
decision are incorrect, and we intend to appeal the decision to the U.S. Court
of Appeals for the Eleventh Circuit.
 
  In the second quarter 1999 financial statements, we recorded a tax
assessment charge of $1.786 billion, which included an amount for related
state tax liabilities. The charge included taxes of $915 million and interest
of $871 million. This assessment resulted in a tax benefit of $344 million
related to the interest component of the assessment. As a result, our net
charge to net income for the tax assessment was $1.442 billion, increasing
 
                                      29

<PAGE>
 
our total after-tax reserve at that time with respect to these matters to
$1.672 billion. The tax benefit of deductible interest is included in income
taxes; however, since none of the income on which this tax assessment is based
is our income, we have not classified the tax charge as income taxes.
 
  We determined the size of our reserve with respect to these matters in
accordance with generally accepted accounting principles based on our estimate
of our most likely liability. In making this determination, we concluded that
it was more likely that we would be required to pay taxes on income reported
by OPL and interest, but that it was not probable that we would be required to
pay any penalties and penalty interest. If penalties and penalty interest
ultimately are determined to be payable, we would have to record an additional
charge of up to $681 million.
 
  On August 31, 1999, we deposited $1.349 billion with the IRS related to
these matters for the 1984 through 1994 tax years. We included the profit of
the excess value package insurance program, using the IRS's methodology for
calculating these amounts, for both 1998 and 1999 in filings we made with the
IRS in the fourth quarter of 1999. In February 2000, we deposited $339 million
with the IRS related to these matters for the 1995 through 1997 tax years.
These deposits and filings were made in order to stop the accrual of interest,
where applicable, on that amount of the IRS's claim, without conceding the
IRS's position or giving up our right to appeal the Tax Court's decision.
 
  Effective October 1, 1999, we implemented a new arrangement for providing
excess value package insurance for our customers through UPS subsidiaries.
This new arrangement results in including in our non-package operating segment
the operations of the excess value package insurance program offered to our
customers. This revised arrangement should eliminate the issues considered by
the Tax Court in the Notices of Deficiency relating to OPL for periods after
September 1999.
 
  We recently have been named as a defendant in nine lawsuits which seek to
hold us (and in two cases, other defendants) liable for the collection of
premiums for excess value coverage, or "EVC", in connection with package
shipments since 1984. These cases generally claim that we acted as an insurer
without complying with state insurance laws and regulations, and that the
price for EVC was excessive. All of these cases currently are pending in
federal courts, and we have requested that the cases be consolidated for pre-
trial purposes in a multi-district litigation proceeding before a single
federal court. Each of these cases is in its initial stages, no discovery has
commenced, and no class has been certified. These actions all developed after
the August 9, 1999, Tax Court opinion was rendered. We believe the allegations
have no merit and intend to defend them vigorously. The ultimate resolution of
these matters cannot presently be determined.
 
  As part of our 1997-2002 collective bargaining agreement with the Teamsters,
we agreed that we would create 2,000 new full-time jobs from existing part-
time jobs during each year of the contract. There was a provision, however,
which nullified this obligation if there was a reduction in volume that
resulted in layoffs. At the end of the first contract year (July 31, 1998),
our shipping volume was still below pre-strike levels and employees were laid
off. Therefore, we believed that we were not obligated to create the 2,000
jobs for the first year of the contract. The Teamsters filed a grievance
concerning this issue, and the case was submitted to an arbitrator. In
February 2000, the arbitrator ruled against us and ordered us to create the
2,000 new full-time jobs from existing part-time positions within 90 days of
the arbitrator's decision, and to make whole the employees selected for the
full-time positions for any lost wages or benefits. We are in the process of
creating these full-time jobs, identifying the employees that will fill the
new jobs and quantifying the financial impact of this matter. Our package
volume surpassed pre-strike levels in 1999, and thus we are in the process of
creating the 2,000 full-time jobs called for in the third year of the
contract. We have agreed to create the 2,000 full-time jobs for the second
year of the contract by June 10, 2000, and to make whole the employees
selected for the full-time positions for any lost wages or benefits. We do not
believe that the eventual amount owed will be material to our financial
condition or liquidity.
 
  On November 22, 1999, the U.S. Occupational Safety and Health Administration
proposed regulations to mandate an ergonomics standard that would require
American industry to make significant changes in the workplace in order to
reduce the incidence of musculoskeletal complaints such as low back pain. If
adopted as proposed, these regulations would require us to make extensive
changes in the physical layout of our distribution centers and to hire
significant numbers of additional full-time and part-time employees. Should
this
 
                                      30

<PAGE>
 
occur, we believe that the cost of compliance could be material to our
financial condition, results of operations and liquidity. Our competitors, as
well as the remainder of American industry, would incur similar costs. We have
filed comments with OSHA challenging the medical support and economic and
technical feasibility of the proposed regulations.
 
  We believe that funds from operations and borrowing programs will provide
adequate sources of liquidity and capital resources to meet our expected long-
term needs for the operation of our business, including anticipated capital
expenditures such as commitments for aircraft purchases through 2004.
 
  Following is a summary of capital expenditures:
 

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                        -----------------------
                                                         1999    1998    1997
                                                        ------- ------- -------
                                                             (in millions)
<S>                                                     <C>     <C>     <C>
Buildings and facilities............................... $   579 $   408 $   523
Aircraft and parts.....................................     433     942     907
Vehicles...............................................     139     141     333
Information technology.................................     325     154     221
                                                        ------- ------- -------
                                                         $1,476 $ 1,645 $ 1,984
                                                        ======= ======= =======
</TABLE>

 
  Our capital expenditures have declined over the past three years primarily
as a result of better utilization of our existing transportation system and
other assets and our focus on return on invested capital.
 
  We anticipate capital expenditures of approximately $2.1 billion in 2000,
and $2.3 billion in 2001. These expenditures will provide for replacement of
existing capacity and anticipated future growth and include the projected cost
of capitalized software.
 
Market Risk
 
  We are exposed to a number of market risks in the ordinary course of
business. These risks, which include interest rate risk, foreign currency
exchange risk and commodity price risk, arise in the normal course of business
rather than from trading. We have examined our exposures to these risks and
concluded that none of our exposures in these areas is material to fair
values, cash flows or earnings. We have engaged in several strategies to
manage these market risks.
 
  Our indebtedness under our various financing arrangements creates interest
rate risk. In connection with each debt issuance and as a result of continual
monitoring of interest rates, we may enter into interest rate swap agreements
for purposes of managing our borrowing costs.
 
  For all foreign currency-denominated borrowing and certain lease
transactions, we simultaneously entered into currency exchange agreements to
lock in the price of the currency needed to pay the obligations and to hedge
the foreign currency exchange risk associated with such transactions. We are
exposed to other foreign currency exchange risks in the ordinary course of our
business operations due to the fact that we provide our services in more than
200 countries and territories and collection of revenues and payment of
certain expenses may give rise to currency exposure.
 
  We require significant quantities of gasoline, diesel fuel and jet fuel for
our aircraft and delivery vehicles. We therefore are exposed to commodity
price risk associated with variations in the market price for energy products.
We manage this risk with a hedging strategy designed to minimize the impact of
sudden, catastrophic increases in the prices of energy products, while
allowing us to benefit if fuel prices decline. Our hedging program is designed
to moderate the impact of fluctuating crude oil prices and maintain our
competitive position relative to our industry peers.
 
 
                                      31

<PAGE>
 
Future Accounting Changes
 
  In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), as amended by Statement No.
137, which provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The new
statement is effective for fiscal years beginning after June 15, 2000, with
earlier adoption encouraged but not required. We have not yet completed our
analysis of the effects of adopting this standard.
 
Impact of the Year 2000 Issue
 
 Introduction
 
  The term "year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the year 2000 was
approached and reached. Our failure to appropriately address a material year
2000 issue, or the failure by any third parties who provide goods or services
that are critical to our business activities to appropriately address their
year 2000 issues, could have a material adverse effect on our financial
condition, liquidity or results of operations.
 
 State of Readiness
 
  Since entering the year 2000, we have not experienced any significant
disruptions related to the year 2000 issue, nor are we aware of any
significant year 2000-related disruptions impacting our customers and
suppliers. While we will continue to monitor our business critical information
technology assets, we do not anticipate that we will experience any
significant year 2000-related disruptions to our internal systems, nor to
those of our customers and suppliers.
 
 Costs to Address the Year 2000 Issue
 
  Costs incurred to achieve year 2000 readiness were charged to expense as
incurred. Such costs include both internal resources dedicated to achieving
year 2000 compliance, as well as the costs of independent consultants retained
to assess our year 2000 initiative. The costs related to our year 2000
initiative will total approximately $104 million, substantially all of which
were incurred prior to December 31, 1999.
 
 Contingency Plans
 
  In the normal course of business, we maintain and deploy contingency plans
designed to address potential business interruptions. We completed risk
assessment reviews under our year 2000 initiative for each business unit, and
developed further contingency plans specifically related to the year 2000
issue. These contingency plans remain in place in the case of a year 2000-
related disruption to our internal systems, or to the systems of our customers
and suppliers.
 
Forward-Looking Statements
 
  "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Liquidity and Capital Resources" and other parts of this report
contain "forward-looking" statements about matters that are inherently
difficult to predict. These statements include statements regarding our
intent, belief and current expectations. We have described some of the
important factors that affect these statements as we discussed each subject.
Forward-looking statements involve risks and uncertainties that may affect
future developments. These risks include, for example, our continued ability
to successfully compete, especially with foreign competition, the reliability
and availability of rail transportation, the growth rate of e-commerce in
relation to our expectations, adverse weather conditions and changing fuel
prices. Additional information concerning these risks and uncertainties, and
other factors you may wish to consider, are provided in the "Risk Factors"
section of our prospectus dated November 9, 1999, as filed with the SEC.
 
                                      32

<PAGE>
 

I
tem 7A. Quantitative and Qualitative Disclosures About Market Risk
 
   See Item 7.
 

Item 8. Financial Statements and Supplementary Data
 
  Our financial statements are filed together with this report. See the Index
to Financial Statements and Financial Statement Schedules on page F-1 for a
list of the financial statements filed herewith. Supplementary data appear in
note 12 to our financial statements.
 

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
 
  None.
 

                                   PART III
 

Item 10. Directors and Executive Officers of the Registrant
 
  Information regarding our directors is presented under the caption "Election
of Directors" in our definitive Proxy Statement for the Annual Meeting of
Shareowners to be held on May 12, 2000, which we filed with the SEC on March
22, 2000, and is incorporated herein by reference.
 
  Information concerning our executive officers can be found in Part I, Item
1, of this Form 10-K under the caption "Executive Officers" in accordance with
Instruction 3 of Item 401(b) of Regulation S-K and General Instruction G(3) of
Form 10-K.
 
  Information concerning our compliance with Section 16 is presented under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" in our
definitive Proxy Statement for the Annual Meeting of Shareowners to be held on
May 12, 2000, which we filed with the SEC on March 22, 2000, and is
incorporated herein by reference.
 

Item 11. Executive Compensation
 
  Information in answer to Item 11 is presented under the captions
"Compensation of Executive Officers and Directors," excluding the information
under the caption "Report of the Compensation Committee on Executive
Compensation" in our definitive Proxy Statement for the Annual Meeting of
Shareowners to be held on May 12, 2000, which we filed with the SEC on March
22, 2000, and is incorporated herein by reference.
 

Item 12. Security Ownership of Certain Beneficial Owners and Management
 
  Information in answer to Item 12 is presented under the caption "Beneficial
Ownership of Common Stock" in our definitive Proxy Statement for the Annual
Meeting of Shareowners to be held on May 12, 2000, which we filed with the SEC
on March 22, 2000, and is incorporated herein by reference.
 

Item 13. Certain Relationships and Related Transactions
 
  Information in answer to Item 13 is presented under the captions "Certain
Business Relationships" and "Common Relationships with Overseas Partners Ltd."
in our definitive Proxy Statement for the Annual Meeting of Shareowners to be
held on May 12, 2000, which we filed with the SEC on March 22, 2000, and is
incorporated herein by reference.
 
                                      33

<PAGE>
 

                                    PART IV
 

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
 
  (a)1. Financial Statements.
 
  See the Index to Financial Statements and Financial Statement Schedules on
page F-1 for a list of the financial statements filed herewith.
 
   2. Financial Statement Schedules.
 
  Not applicable.
 
   3. List of Exhibits.
 
  See the Exhibit Index beginning on page E-1 for a list of the exhibits
incorporated by reference herein or filed herewith.
 
  (b)Reports on Form 8-K.
 
  None.
 
  (c)Exhibits required by Item 601 of Regulation S-K.
 
  See the Exhibit Index beginning on page E-1 for a list of the exhibits
incorporated by reference herein or filed herewith.
 
 
                                       34

<PAGE>
 
                          UNITED PARCEL SERVICE, INC.
                                AND SUBSIDIARIES
 
                       INDEX TO FINANCIAL STATEMENTS AND
                         FINANCIAL STATEMENT SCHEDULES
 

<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
<S>                                                                       <C>
Independent Auditors' Report.............................................  F-2
Consolidated balance sheets
 -- December 31, 1999 and 1998...........................................  F-3
Statements of consolidated income
 -- Years ended December 31, 1999, 1998 and 1997.........................  F-4
Statements of consolidated shareowners' equity
 -- Years ended December 31, 1999, 1998 and 1997.........................  F-5
Statements of consolidated cash flows
 -- Years ended December 31, 1999, 1998 and 1997.........................  F-6
Notes to consolidated financial statements...............................  F-7

</TABLE>

 
                                      F-1

<PAGE>
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

                         INDEPENDENT AUDITORS' REPORT
 
Board of Directors and Shareowners
United Parcel Service, Inc.
Atlanta, Georgia
 
  We have audited the accompanying consolidated balance sheets of United
Parcel Service, Inc., and its subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, shareowners' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of United Parcel Service, Inc.,
and its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
 
  As discussed in Note 1, United Parcel Service, Inc. became the parent of
United Parcel Service of America, Inc. as a result of a merger in 1999, and
the consolidated financial statements have been retroactively restated for all
periods presented to give effect to the exchange of securities in the merger
and the capital structure of United Parcel Service, Inc.
 
DELOITTE & TOUCHE LLP
 
Atlanta, Georgia
January 31, 2000

 
                                      F-2

<PAGE>
 
                          CONSOLIDATED BALANCE SHEETS
 
                  UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
                (In millions except share and per share amounts)
 

<TABLE>
<CAPTION>
                                                               December 31,
                           ASSETS                             ----------------
                                                               1999     1998
                                                              -------  -------
<S>                                                           <C>      <C>
Current Assets:
  Cash and cash equivalents.................................. $ 4,204  $ 1,240
  Marketable securities and short-term investments...........   2,074      389
  Accounts receivable........................................   3,167    2,713
  Prepaid employee benefit costs.............................   1,327      703
  Materials, supplies and other prepaid expenses.............     366      380
                                                              -------  -------
    Total Current Assets.....................................  11,138    5,425
                                                              -------  -------
Property, Plant and Equipment:
  Vehicles...................................................   3,444    3,482
  Aircraft (including aircraft under capitalized leases).....   8,173    7,739
  Land.......................................................     656      651
  Buildings..................................................   1,467    1,478
  Leasehold improvements.....................................   1,902    1,803
  Plant equipment............................................   4,334    4,144
  Construction-in-progress...................................     494      257
                                                              -------  -------
                                                               20,470   19,554
  Less accumulated depreciation and amortization.............   8,891    8,170
                                                              -------  -------
                                                               11,579   11,384
Other Assets.................................................     326      258
                                                              -------  -------
                                                              $23,043  $17,067
                                                              =======  =======
 
                      LIABILITIES AND SHAREOWNERS' EQUITY
 
Current Liabilities:
  Accounts payable........................................... $ 1,295  $ 1,322
  Accrued wages and withholdings.............................     998    1,092
  Dividends payable..........................................     361      247
  Tax assessment.............................................     457      --
  Current maturities of long-term debt.......................     512      410
  Other current liabilities..................................     575      646
                                                              -------  -------
    Total Current Liabilities................................   4,198    3,717
                                                              -------  -------
Long-Term Debt (including capitalized lease obligations).....   1,912    2,191
                                                              -------  -------
Accumulated Postretirement Benefit Obligation................     990      969
                                                              -------  -------
Deferred Taxes, Credits and Other Liabilities................   3,469    3,017
                                                              -------  -------
Shareowners' Equity:
  Preferred stock, no par value, authorized 200,000,000
   shares, none issued.......................................     --       --
  Class A common stock, par value $.01 per share, authorized
    4,600,000,000 shares, issued 1,101,295,534 and
    1,118,000,000 in 1999 and 1998...........................      11       11
  Class B common stock, par value $.01 per share, authorized
    5,600,000,000 shares, issued 109,400,000 and -0- in 1999
    and 1998.................................................       1      --
  Additional paid-in capital.................................   5,096      325
  Retained earnings..........................................   7,536    7,325
  Accumulated other comprehensive loss.......................    (170)     (63)
                                                              -------  -------
                                                               12,474    7,598
  Treasury stock, at cost (-0- and 23,211,904 shares in 1999
   and 1998).................................................     --      (425)
                                                              -------  -------
                                                               12,474    7,173
                                                              -------  -------
                                                              $23,043  $17,067
                                                              =======  =======
</TABLE>

                See notes to consolidated financial statements.
 
                                      F-3

<PAGE>
 
                       STATEMENTS OF CONSOLIDATED INCOME
 
                  UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
                     (In millions except per share amounts)
 

<TABLE>
<CAPTION>
                                                Years Ended December 31, 1999
                                                -------------------------------
                                                  1999       1998       1997
                                                ---------  ---------  ---------
<S>                                             <C>        <C>        <C>
Revenue........................................ $  27,052  $  24,788  $  22,458
                                                ---------  ---------  ---------
Operating Expenses:
  Compensation and benefits....................    15,285     14,346     13,289
  Other........................................     7,779      7,352      7,471
                                                ---------  ---------  ---------
                                                   23,064     21,698     20,760
                                                ---------  ---------  ---------
  Operating Profit.............................     3,988      3,090      1,698
                                                ---------  ---------  ---------
Other Income and (Expense):
  Investment income............................       177         84         70
  Interest expense.............................      (228)      (227)      (187)
  Tax assessment...............................    (1,786)       --         --
  Miscellaneous, net...........................       (63)       (45)       (28)
                                                ---------  ---------  ---------
                                                   (1,900)      (188)      (145)
                                                ---------  ---------  ---------
Income Before Income Taxes.....................     2,088      2,902      1,553
Income Taxes...................................     1,205      1,161        644
                                                ---------  ---------  ---------
Net Income..................................... $     883  $   1,741  $     909
                                                =========  =========  =========
Basic Earnings Per Share....................... $    0.79  $    1.59  $    0.82
                                                =========  =========  =========
Diluted Earnings Per Share..................... $    0.77  $    1.57  $    0.81
                                                =========  =========  =========
</TABLE>

 
 
                See notes to consolidated financial statements.
 
                                      F-4

<PAGE>
 
                 STATEMENTS OF CONSOLIDATED SHAREOWNERS' EQUITY
 
                  UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
                     (In millions except per share amounts)
 

<TABLE>
<CAPTION>
                                            Class B                         Accumulated
                             Class A     Common Stock  Additional              Other     Treasury Stock     Total
                          Common Stock   -------------  Paid-In   Retained Comprehensive --------------  Shareowners'
                          Shares  Amount Shares Amount  Capital   Earnings Income (Loss) Shares Amount      Equity
                          ------  ------ ------ ------ ---------- -------- ------------- ------ -------  ------------
<S>                       <C>     <C>    <C>    <C>    <C>        <C>      <C>           <C>    <C>      <C>
Balance, January 1,
 1997...................  1,140    $11    --     $--     $  141    $5,728      $  21      --        --     $ 5,901
 Comprehensive income:
 Net income.............    --     --     --      --        --        909        --       --        --         909
 Foreign currency
  adjustments...........    --     --     --      --        --        --        (102)     --        --        (102)
                                                                                                           -------
 Comprehensive income...                                                                                       807
                                                                                                           -------
 Dividends ($.35 per
  share)................    --     --     --      --        --       (385)       --       --        --        (385)
 Gain on issuance of
  treasury stock........    --     --     --      --         27       --         --       --        --          27
 Stock award plans......    --     --     --      --        (26)      --         --       --        --         (26)
 Constructive retirement
  of common stock.......    (16)   --     --      --       (142)      (95)       --       --        --        (237)
                          -----    ---    ---    ----    ------    ------      -----      ---   -------    -------
Balance, December 31,
 1997...................  1,124     11    --      --        --      6,157        (81)     --        --       6,087
 Comprehensive income:
 Net income.............    --     --     --      --        --      1,741        --       --        --       1,741
 Foreign currency
  adjustments...........    --     --     --      --        --        --          19      --        --          19
 Unrealized loss on
  marketable
  securities............    --     --     --      --        --        --          (1)     --        --          (1)
                                                                                                           -------
 Comprehensive income...                                                                                     1,759
                                                                                                           -------
 Constructive retirement
  of common stock.......     (6)   --     --      --        --        (90)       --       --        --         (90)
 Dividends ($.43 per
  share)................    --     --     --      --        --       (466)       --       --        --        (466)
 Gain on issuance of
  treasury stock........    --     --     --      --         70       --         --       --        --          70
 Stock award plans......    --     --     --      --        255       (17)       --       --        --         238
 Reclassification of
  common stock held for
  stock plans...........    --     --     --      --        --        --         --       (23)     (425)      (425)
                          -----    ---    ---    ----    ------    ------      -----      ---   -------    -------
Balance, December 31,
 1998...................  1,118     11    --      --        325     7,325        (63)     (23)     (425)     7,173
 Comprehensive income:
 Net income.............    --     --     --      --        --        883        --       --        --         883
 Foreign currency
  adjustments...........    --     --     --      --        --        --        (104)     --        --        (104)
 Unrealized loss on
  marketable
  securities............    --     --     --      --        --        --          (3)     --        --          (3)
                                                                                                           -------
 Comprehensive income...                                                                                       776
                                                                                                           -------
 Dividends ($.58 per
  share)................    --     --     --      --        --       (672)       --       --        --        (672)
 Gain on issuance of
  treasury stock........    --     --     --      --          5       --         --       --        --           5
 Stock award plans......      7    --     --      --         91       --         --        21       434        525
 Treasury stock
  purchases.............    --     --     --      --        --        --         --       (54)   (1,232)    (1,232)
 Treasury stock
  issuances.............    --     --     --      --        --        --         --        32       633        633
 Issuance of Class B
  common stock in public
  offering, net of
  issuance costs........    --     --     109       1     5,265       --         --       --        --       5,266
 Retirement of treasury
  stock.................    (24)   --     --      --       (590)      --         --        24       590        --
                          -----    ---    ---    ----    ------    ------      -----      ---   -------    -------
Balance, December 31,
 1999...................  1,101    $11    109    $  1    $5,096    $7,536      $(170)     --    $   --     $12,474
                          =====    ===    ===    ====    ======    ======      =====      ===   =======    =======
</TABLE>

 
                See notes to consolidated financial statements.
 
                                      F-5

<PAGE>
 
                     STATEMENTS OF CONSOLIDATED CASH FLOWS
 
                  UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
                                 (In millions)
 

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                                  ----------------------------
                                                    1999      1998      1997
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Cash flows from operating activities:
  Net income..................................... $    883  $  1,741  $    909
  Adjustments to reconcile net income to net cash
   from operating activities:
    Depreciation and amortization................    1,139     1,112     1,063
    Postretirement benefits......................       21        58        70
    Deferred taxes, credits and other............      575        23       406
    Stock award plans............................      443       347       162
    Changes in assets and liabilities:
      Accounts receivable........................     (454)     (308)      (64)
      Prepaid employee benefit costs.............     (624)      (34)     (268)
      Materials, supplies and other prepaid
       expenses..................................      (18)       37       164
      Accounts payable...........................      (27)      115        52
      Accrued wages and withholdings.............      (94)     (137)     (169)
      Dividends payable..........................      114        56        (3)
      Tax assessment.............................      226       --        --
      Other current liabilities..................       39       (93)      184
                                                  --------  --------  --------
        Net cash from operating activities.......    2,223     2,917     2,506
                                                  --------  --------  --------
Cash flows from investing activities:
  Capital expenditures...........................   (1,476)   (1,645)   (1,984)
  Disposals of property, plant and equipment.....      213       216       111
  Purchases of marketable securities and short-
   term investments..............................   (3,981)     (390)      --
  Sales and maturities of marketable securities
   and short-term investments....................    2,290       --        --
  Construction funds in escrow...................     (111)      --        --
  Other asset receipts (payments)................      (60)      164        46
                                                  --------  --------  --------
        Net cash (used in) investing activities..   (3,125)   (1,655)   (1,827)
                                                  --------  --------  --------
Cash flows from financing activities:
  Proceeds from borrowings.......................      502       287     2,097
  Repayments of borrowings.......................     (679)     (310)   (2,065)
  Purchases of treasury stock....................   (1,232)     (823)     (719)
  Issuances of treasury stock pursuant to stock
   awards and employee stock purchase plans......      741       785       487
  Issuance of Class B common stock in public
   offering, net of issuance costs...............    5,266       --        --
  Dividends......................................     (672)     (466)     (385)
  Other transactions.............................      (21)       45         1
                                                  --------  --------  --------
        Net cash from (used in) financing
         activities..............................    3,905      (482)     (584)
                                                  --------  --------  --------
Effect of exchange rate changes on cash..........      (39)      --        (27)
                                                  --------  --------  --------
Net increase in cash and cash equivalents........    2,964       780        68
Cash and cash equivalents:
  Beginning of year..............................    1,240       460       392
                                                  --------  --------  --------
  End of year.................................... $  4,204  $  1,240  $    460
                                                  ========  ========  ========
Cash paid during the period for:
  Interest, net of amount capitalized............ $    982  $    298  $    130
                                                  ========  ========  ========
  Income taxes................................... $    773  $  1,181  $    319
                                                  ========  ========  ========
</TABLE>

 
                See notes to consolidated financial statements.
 
                                      F-6

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
 
 Reporting Entity
 
  During November 1999, in connection with becoming a publicly traded company,
United Parcel Service of America, Inc. completed a merger in which it became a
subsidiary of a newly-formed company, United Parcel Service, Inc. In the
merger, each share of United Parcel Service of America, Inc. common stock was
exchanged for two shares of United Parcel Service, Inc. Class A common stock.
United Parcel Service, Inc. then completed a public offering of Class B common
shares as discussed below. Shareowners' equity, share and per share amounts
have been restated to give effect to the 2-for-1 merger exchange ratio and to
reflect the capital structure of United Parcel Service, Inc. The restatement
had no effect on other amounts, including net income, previously reported by
United Parcel Service of America, Inc.
 
 Initial Public Offering of Common Shares
 
  After the completion of the merger, we sold 109.4 million Class B shares in
an initial public offering ("IPO") that raised $5.266 billion, net of issuance
costs. On November 10, 1999, our Class B shares began trading on the New York
Stock Exchange under the ticker symbol "UPS". Although the Class B shares
contain the same economic interests in the Company as the Class A shares, the
Class A shares entitle holders to ten votes per share while the Class B
shareowners are entitled to one vote per share. After the completion of the
IPO transaction, Class A shares constituted about 90% of our total outstanding
stock and about 99% of our total voting power, while the Class B shares
constituted about 10% of our total outstanding shares and about 1% of our
total voting power.
 
  The shares of Class A stock resulting from the merger were equally allocated
among Class A-1, A-2, and A-3 common stock. The different types of Class A
common stock are identical, except for the applicable transfer restriction
periods. Shares of Class A common stock will not be freely transferable or
convertible into Class B shares until the relevant restriction period expires.
The restriction periods expire 180 days after the IPO for Class A-1 shares
(May 8, 2000), 360 days after the IPO for Class A-2 shares (November 4, 2000),
and 540 days after the IPO for Class A-3 shares (May 3, 2001). When Class A
shares are sold or transferred, they will generally convert to Class B shares.
 
  We used the majority of the IPO proceeds for a tender offer for Class A
shares. In early February 2000, we announced an offer to purchase up to
100,893,277 shares of Class A-1 common stock for $60 per share. The actual
number of shares validly tendered and accepted for purchase by us was
68,312,335, which will result in a cash expenditure of approximately $4.099
billion and reduce our outstanding Class A shares accordingly.
 
 Basis of Financial Statements and Business Activities
 
  The accompanying consolidated financial statements include the accounts of
United Parcel Service, Inc., and all of its subsidiaries (collectively "UPS"
or the "Company"). All material intercompany balances and transactions have
been eliminated.
 
  UPS concentrates its operations in the field of transportation services,
primarily domestic and international letter and package delivery. Revenue is
recognized upon delivery of a letter or package.
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
                                      F-7

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
  As of December 31, 1999, we had approximately 206,000 employees (60% of
total employees) employed under collective bargaining agreements with various
locals of the International Brotherhood of Teamsters ("Teamsters"). These
agreements expire on July 31, 2002. The majority of our pilots are employed
under a collective bargaining agreement with the Independent Pilots
Association ("IPA"), which becomes amendable January 1, 2004. In addition, the
majority of our mechanics who are not employed under agreements with the
Teamsters are employed under collective bargaining agreements with the
International Association of Machinists. These agreements have various
expiration dates between July 31, 2002 and August 4, 2003.
 
 Cash and Cash Equivalents
 
  Cash and cash equivalents consist of highly liquid investments (including
investments in debt and auction rate securities of $3.933 billion and $936
million at December 31, 1999 and 1998, respectively) that are readily
convertible into cash. The carrying amount approximates fair value because of
the short-term maturity of these instruments.
 
 Marketable Securities
 
  Marketable securities are classified as available-for-sale and are carried
at fair value, with related unrealized gains and losses reported as other
comprehensive income and as a separate component of shareowners' equity. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in
investment income, along with interest and dividends. The cost of securities
sold is based on the specific identification method; realized gains and losses
resulting from such sales are included in investment income.
 
 Common Stock Held for Stock Plans
 
  Prior to December 31, 1998, we accounted for our common stock held for
awards and distributions under various UPS stock and benefit plans as a
current asset. Common stock held in excess of current requirements was
constructively retired and accounted for as a reduction in Shareowners'
Equity.
 
  As a result of a change in position by the Securities and Exchange
Commission ("SEC") as well as a change by the Financial Accounting Standards
Board ("FASB"), we reclassified our Common Stock Held for Stock Plans from
Current Assets to Treasury Stock, a separate component of Shareowners' Equity.
 
 Property, Plant and Equipment
 
  Property, plant and equipment are carried at cost. Depreciation (including
amortization) is provided by the straight-line method over the estimated
useful lives of the assets, which are as follows: Vehicles -- 9 years;
Aircraft -- 12 to 20 years; Buildings -- 20 to 40 years; Leasehold
Improvements -- lives of leases; Plant Equipment -- 5 to 8 1/3 years.
 
  The costs of major airframe and engine overhauls, as well as other routine
maintenance and repairs, are charged to expense as incurred.
 
 Costs in Excess of Net Assets Acquired
 
  Costs of purchased businesses in excess of net assets acquired are amortized
over a 10-year period using the straight-line method.
 
 Impairment of Long-Lived Assets
 
  We review long-lived assets for impairment when circumstances indicate the
carrying amount of an asset may not be recoverable. If the carrying amount of
the asset is determined not to be recoverable, a write-down to fair value is
recorded.
 
                                      F-8

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
 Income Taxes
 
  Income taxes are accounted for under FASB Statement No. 109, "Accounting for
Income Taxes" ("FAS 109"). FAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in our
financial statements or tax returns. In estimating future tax consequences,
FAS 109 generally considers all expected future events other than proposed
changes in the tax law or rates.
 
 Capitalized Interest
 
  Interest incurred during the construction period of certain property, plant
and equipment is capitalized until the underlying assets are placed in
service, at which time amortization of the capitalized interest begins,
straight-line, over the estimated useful lives of the related assets.
Capitalized interest was $20, $27 and $43 million for 1999, 1998 and 1997,
respectively.
 
 Derivative Instruments
 
  We have entered into interest rate swap agreements, cross-currency interest
rate swap agreements and forward currency contracts. All of these agreements
relate to our long-term debt and are specifically matched to the underlying
cash flows. They have been entered into for the purposes of reducing our
borrowing costs and to protect us against adverse changes in foreign currency
exchange rates. Any periodic settlement payments are accrued monthly, as
either a charge or credit to interest expense, and are not material to net
income. Based on estimates provided by third party investment bankers, we have
determined that the fair value of these agreements is not material to our
financial statements.
 
  We also purchase options to reduce the impact of changes in foreign currency
rates on our foreign currency purchases and purchase options and forward
contracts to moderate the impact of price increases in the cost of crude oil
on fuel expense. The forward contracts and options are adjusted to fair value
at period end based on market quotes and are not material to our financial
statements.
 
  We do not utilize derivatives for trading or other speculative purposes. We
are exposed to credit loss in the event of nonperformance by the other parties
to the interest rate swap agreements. However, we do not anticipate
nonperformance by the counterparties. We are exposed to market risk based upon
changes in interest rates, foreign currency exchange rates and fuel prices.
 
 Stock Option Plans
 
  We have adopted Statement of Financial Accounting Standards No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation." FAS 123 encourages the use
of a fair value method of accounting for stock-based awards under which the
fair value of stock options is determined on the date of grant and expensed
over the vesting period. Under FAS 123, companies have the option to measure
compensation costs for stock option plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." Under APB 25, compensation expense
is generally not recognized when both the exercise price is the same as the
market price and the number of shares to be issued is set on the date the
employee stock option is granted. Since our employee stock options are granted
on this basis, and we have chosen to use the intrinsic value method, we do not
recognize compensation expense for grants under our plans. We do, however,
include in Note 6 pro forma disclosures of net income and earnings per share
as if the fair value method of accounting had been applied.
 
                                      F-9

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
 Segment Information
 
  Effective January 1, 1998, we adopted FASB Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("FAS 131"), which
changed the method we had used to report information about our operating
segments. FAS 131 establishes standards to be used by enterprises to identify
and report information about operating segments and for related disclosures
about products and services, geographic areas and major customers. The
adoption of FAS 131 did not affect our results of operations or financial
position, but did affect the disclosure of segment information contained in
Note 10.
 
 Capitalized Software
 
  Effective January 1, 1999, we adopted the Accounting Standards Executive
Committee Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which requires that
certain costs to develop or obtain computer software for internal use be
capitalized. Prior to the adoption of SOP 98-1, we expensed all internal use
software costs as incurred. The effect of adopting the SOP was to increase net
income for 1999 by $89 million, or $0.08 per share on a basic and diluted
basis. Capitalized costs for this software are amortized using the straight-
line method over periods ranging from three to five years.
 
 Changes in Presentation
 
  Certain prior year amounts have been reclassified to conform to the current
year presentation.
 
NOTE 2. LONG-TERM DEBT AND COMMITMENTS
 
  Long-term debt, as of December 31, consists of the following (in millions):

<TABLE>
<CAPTION>
                                                                 1999    1998
                                                                ------  ------
<S>                                                             <C>     <C>
8 3/8% debentures, due April 1, 2020 (i)......................  $  424  $  424
8 3/8% debentures, due April 1, 2030 (i)......................     276     276
Commercial paper (ii).........................................     102     112
Industrial development bonds, Philadelphia Airport facilities,
 due December 1, 2015 (iii)...................................     100     100
Special facilities revenue bonds, Louisville Airport
 facilities, due January 1, 2029 (iv).........................     149     --
Floating rate senior notes, due October 26, 2049 (v)..........      55     --
Capitalized lease obligations (vi)............................     558     598
5.5% Eurobond notes, due January 4, 1999......................     --      200
3.25% 200 million Swiss Franc notes, due October 22, 1999.....     --      166
6.875% 100 million Pound Sterling notes, due February 25,
 2000.........................................................     166     166
6.625% EuroNotes, due April 25, 2001..........................     200     200
6.25% EuroNotes, due July 7, 2000.............................     300     301
4.5% 100 million Singapore Dollar notes, due November 11,
 2004.........................................................      60     --
Installment notes, mortgages and bonds at various rates from
 4.1% to 7.0%.................................................      34      58
                                                                ------  ------
                                                                 2,424   2,601
Less current maturities.......................................    (512)   (410)
                                                                ------  ------
                                                                $1,912  $2,191
                                                                ======  ======
</TABLE>

 
  (i) On January 22, 1998, we exchanged $276 million of the original $700
million debentures for new debentures of equal principal with a maturity of
April 1, 2030. The new debentures have the same interest rate as the 8 3/8%
debentures due 2020 until April 1, 2020, and, thereafter, the interest rate
will be 7.62% for the
 
                                     F-10

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
final 10 years. The new 2030 debentures are redeemable in whole or in part at
the option of the Company at any time. The redemption price is equal to the
greater of 100% of the principal amount and accrued interest or the sum of the
present values of the remaining scheduled payouts of principal and interest
thereon discounted to the date of redemption at a benchmark treasury yield
plus five basis points plus accrued interest. The remaining $424 million of
2020 debentures are not subject to redemption prior to maturity. Interest is
payable semiannually on the first of April and October for both debentures and
neither debenture is subject to sinking fund requirements.
 
  (ii) The weighted average interest rate on the commercial paper outstanding
as of December 31, 1999 and 1998, was 5.8% and 5.1%, respectively. The
commercial paper has been classified as long-term debt in accordance with our
intention and ability to refinance such obligations on a long-term basis under
our revolving credit facilities. However, the amount of commercial paper
outstanding in 2000 is expected to fluctuate. We are authorized to borrow up
to $2.0 billion under this program as of December 31, 1999.
 
  (iii) The industrial development bonds bear interest at a daily variable
rate. The average interest rates for 1999 and 1998 were 3.1% and 3.3%,
respectively.
 
  (iv) The special facilities revenue bonds bear interest at a daily variable
rate. The average interest rate for 1999 was 3.3%.
 
  (v) The floating rate senior notes bear interest at one-month LIBOR less 45
basis points. The average interest rate for 1999 was 5.1%.
 
  (vi) We have capitalized lease obligations for certain aircraft, which are
included in Property, Plant and Equipment at December 31 as follows (in
millions):
 

<TABLE>
<CAPTION>
                                                                     1999  1998
                                                                     ----  ----
<S>                                                                  <C>   <C>
  Aircraft.......................................................... $614  $614
  Accumulated amortization..........................................  (59)  (38)
                                                                     ----  ----
                                                                     $555  $576
                                                                     ====  ====
</TABLE>

 
  The aggregate annual principal payments for the next five years, excluding
commercial paper and capitalized leases, are (in millions): 2000 -- $470; 2001
-- $203; 2002 -- $1; 2003 -- $1; and 2004 -- $60.
 
  Based on the borrowing rates currently available to the Company for long-
term debt with similar terms and maturities, the fair value of long-term debt,
including current maturities, is approximately $2.5 billion and $2.8 billion
as of December 31, 1999 and 1998.
 
                                     F-11

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  We lease certain aircraft, facilities, equipment and vehicles under
operating leases, which expire at various dates through 2034. Total aggregate
minimum lease payments under capitalized leases and under operating leases are
as follows (in millions):
 

<TABLE>
<CAPTION>
                                                          Capitalized Operating
  Year                                                      Leases     Leases
  ----                                                    ----------- ---------
  <S>                                                     <C>         <C>
  2000...................................................    $  67     $  182
  2001...................................................       67        157
  2002...................................................       67        121
  2003...................................................       67         85
  2004...................................................       67         72
  After 2004.............................................      459        414
                                                             -----     ------
  Total minimum lease payments...........................      794     $1,031
                                                                       ======
  Less imputed interest..................................     (236)
                                                             -----
  Present value of minimum capitalized lease payments....      558
  Less current portion...................................      (42)
                                                             -----
  Long-term capitalized lease obligations................    $ 516
                                                             =====
</TABLE>

 
  As of December 31, 1999, we have outstanding letters of credit totaling
approximately $1.2 billion issued in connection with routine business
requirements.
 
  As of December 31, 1999, we have commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $2.9
billion, with the following amounts expected to be spent during the next five
years (in millions): 2000 -- $983; 2001 -- $669; 2002 -- $493; 2003 -- $423;
and 2004 -- $286.
 
  We maintain two credit agreements with a consortium of banks which provide
revolving credit facilities of $1.25 billion each, with one expiring April 30,
2000, and the other April 30, 2003. Interest on any amounts we borrow under
these facilities would be charged at 90-day LIBOR plus 15 basis points. At
December 31, 1999, there were no outstanding borrowings under these
facilities.
 
  We also maintain a European medium-term note program with a borrowing
capacity of $1.0 billion. Under this program, we may, from time to time, issue
notes denominated in a variety of currencies. There is currently $500 million
available under this program. Of the amount outstanding at December 31, 1999,
$200 million bears interest at a stated interest rate of 6.625% and $300
million bears interest at a stated interest rate of 6.25%.
 
  In January 1999, we filed a shelf registration statement with the SEC, under
which we may issue debt in the U.S. marketplace of up to $2.0 billion. The
debt may be denominated in a variety of currencies. As of December 31, 1999,
there was approximately $55 million issued under this shelf registration
statement.
 
                                     F-12

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
NOTE 3. EARNINGS PER SHARE
 
  The following table sets forth the computation of basic and diluted earnings
per share (in millions except per share amounts):

<TABLE>
<CAPTION>
                                                           1999   1998   1997
                                                          ------ ------ ------
<S>                                                       <C>    <C>    <C>
Numerator:
Numerator for basic and diluted earnings per share--net
 income.................................................. $  883 $1,741 $  909
                                                          ====== ====== ======
Denominator:
 Weighted-average shares.................................  1,119  1,090  1,101
 Contingent shares--Management Incentive Awards..........      2      3      2
                                                          ------ ------ ------
Denominator for basic earnings per share.................  1,121  1,093  1,103
 
Effect of dilutive securities:
 Additional contingent shares--Management Incentive
  Awards.................................................      9      9      8
 Stock option plans......................................     11      6      5
                                                          ------ ------ ------
Denominator for diluted earnings per share...............  1,141  1,108  1,116
                                                          ====== ====== ======
Basic earnings per share................................. $ 0.79 $ 1.59 $ 0.82
                                                          ====== ====== ======
Diluted earnings per share............................... $ 0.77 $ 1.57 $ 0.81
                                                          ====== ====== ======
</TABLE>

 
NOTE 4. LEGAL PROCEEDINGS AND CONTINGENCIES
 
  On August 9, 1999, the U.S. Tax Court issued an opinion unfavorable to UPS
regarding a Notice of Deficiency asserting that we are liable for additional
tax for the 1983 and 1984 tax years. The Court held that we are liable for tax
on income of Overseas Partners Ltd. ("OPL"), a Bermuda company, which had
reinsured excess value package insurance purchased by our customers beginning
in 1984. The Court held that for the 1984 tax year we are liable for taxes of
$31 million on income reported by OPL, penalties and penalty interest of $93
million and interest for a total after-tax exposure estimated at approximately
$246 million. In February 2000, the U.S. Tax Court entered a decision in
accord with its opinion.
 
  In addition, during the first quarter of 1999, the IRS issued two Notices of
Deficiency asserting that we are liable for additional tax for the 1985
through 1987 tax years, and the 1988 through 1990 tax years. The primary
assertions by the IRS relate to the reinsurance of excess value package
insurance, the issue raised for the 1984 tax year. The IRS has based its
assertions on the same theories included in the 1983-1984 Notice of
Deficiency.
 
  We anticipate that the IRS will take similar positions for tax years
subsequent to 1990. Based on the Tax Court opinion, we currently estimate that
our total after-tax exposure for the tax years 1984 through 1999 could be as
high as $2.353 billion. We believe that a number of aspects of the Tax Court
decision are incorrect, and we intend to appeal the decision to the U.S. Court
of Appeals for the Eleventh Circuit.
 
  In the second quarter 1999 financial statements, we recorded a tax
assessment charge of $1.786 billion, which included an amount for related
state tax liabilities. The charge included taxes of $915 million and interest
of $871 million. This assessment resulted in a tax benefit of $344 million
related to the interest component of the assessment. As a result, our net
charge to net income for the tax assessment was $1.442 billion, increasing our
total after-tax reserve at that time with respect to these matters to $1.672
billion. The tax benefit of deductible interest is included in income taxes;
however, since none of the income on which this tax assessment is based is our
income, we have not classified the tax charge as income taxes.
 
                                     F-13

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  We determined the size of our reserve with respect to these matters in
accordance with generally accepted accounting principles based on our estimate
of our most likely liability. In making this determination, we concluded that
it was more likely that we would be required to pay taxes on income reported
by OPL and interest, but that it was not probable that we would be required to
pay any penalties and penalty interest. If penalties and penalty interest
ultimately are determined to be payable, we would have to record an additional
charge of up to $681 million.
 
  On August 31, 1999, we deposited $1.349 billion with the IRS related to
these matters for the 1984 through 1994 tax years. We included the profit of
the excess value package insurance program, using the IRS's methodology for
calculating these amounts, for both 1998 and 1999 in filings we made with the
IRS in the fourth quarter of 1999. In February 2000, we deposited $339 million
with the IRS related to these matters for the 1995 through 1997 tax years. The
above described deposits and filings were made in order to stop the accrual of
interest, where applicable, on that amount of the IRS's claim, without
conceding the IRS's position or giving up our right to appeal the Tax Court's
decision.
 
  Effective October 1, 1999, we implemented a new arrangement for providing
excess value package insurance for our customers through UPS subsidiaries.
This new arrangement results in including in our non-package operating segment
the operations of the excess value package insurance program offered to our
customers. This revised arrangement should eliminate the issues considered by
the Tax Court in the Notices of Deficiency relating to OPL for periods after
September 1999.
 
  The IRS has proposed adjustments, unrelated to the OPL matters discussed
above, regarding the timing of deductions, the characterization of expenses as
capital rather than ordinary, and our entitlement to the investment tax credit
and the research tax credit in the 1985 through 1990 tax years. These proposed
adjustments, if sustained, would result in $82 million in additional income
tax expense.
 
  We believe that our practice of expensing the items that the IRS alleges
should have been capitalized is consistent with the practices of other
industry participants. We expect that we will prevail on substantially all of
these issues. Should the IRS prevail, however, unpaid interest on these
adjustments through 1999 could aggregate up to $270 million, after the benefit
of related tax deductions. The IRS's proposed adjustments include penalties
and penalty interest. We believe that the possibility that such penalties and
penalty interest will be sustained is remote. The IRS may take similar
positions with respect to some of these issues for each of the years from 1991
through 1999. We believe the eventual resolution of these issues will not
result in a material adverse effect upon our financial condition, results of
operations or liquidity.
 
  We are a defendant in various employment-related lawsuits. In one of these
actions, which alleges employment discrimination by UPS, class action status
has been granted, and the United States Equal Employment Opportunity
Commission has been granted the right to intervene. In our opinion, none of
these cases is expected to have a material effect upon our financial
condition, results of operations or liquidity.
 
  We recently have been named as a defendant in nine lawsuits which seek to
hold us (and in two cases, other defendants) liable for the collection of
premiums for excess value coverage ("EVC") in connection with package
shipments since 1984. These cases generally claim that we acted as an insurer
without complying with state insurance laws and regulations, and that the
price for EVC was excessive. All of these cases are currently pending in
federal courts, and we have requested that the cases be consolidated for pre-
trial purposes in a multi-district litigation proceeding before a single
federal court. Each of these cases is in its initial stages, no discovery has
commenced, and no class has been certified. These actions all developed after
the August 9, 1999, Tax Court opinion was rendered. We believe the allegations
have no merit and intend to defend them vigorously. The ultimate resolution of
these matters cannot presently be determined.
 
                                     F-14

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  As part of our 1997-2002 collective bargaining agreement with the Teamsters,
we agreed that we would create 2,000 new full-time jobs from existing part-
time jobs during each year of the contract. There was a provision, however,
which nullified this obligation if there was a reduction in volume that
resulted in layoffs. At the end of the first contract year (July 31, 1998),
our shipping volume was still below pre-strike levels and employees were laid
off. Therefore, we believed that we were not obligated to create the 2,000
jobs for the first year of the contract. The Teamsters filed a grievance
concerning this issue, and the case was submitted to an arbitrator. In
February 2000, the arbitrator ruled against us and ordered us to create the
2,000 new full-time jobs from existing part-time positions within 90 days of
the arbitrator's decision, and to make whole the employees selected for the
full-time positions for any lost wages or benefits. We are in the process of
creating these full-time jobs, identifying the employees that will fill the
new jobs and quantifying the financial impact of this matter. Our package
volume surpassed pre-strike levels in 1999, and thus we are in the process of
creating the 2,000 full-time jobs called for in the third year of the
contract. We have agreed to create the 2,000 full-time jobs for the second
year of the contract by June 10, 2000, and to make whole the employees
selected for the full-time positions for any lost wages or benefits. We do not
believe that the eventual amount will be material to our financial condition
or liquidity.
 
  On November 22, 1999, the U.S. Occupational Safety and Health Administration
("OSHA") proposed regulations to mandate an ergonomics standard that would
require American industry to make significant changes in the workplace in
order to reduce the incidence of musculoskeletal complaints such as low back
pain. If adopted as proposed, and substantially enforced, these regulations
would require us to make extensive changes in the physical layout of our
distribution centers and to hire significant numbers of additional full-time
and part-time employees. Should this occur, we believe that the cost of
compliance could be material to our financial condition, results of operations
and liquidity. Our competitors, as well as the remainder of American industry,
would incur similar costs. We have filed comments with OSHA challenging the
medical support and economic and technical feasibility of the proposed
regulations.
 
  In addition, we are a defendant in various other lawsuits that arose in the
normal course of business. In our opinion, none of these cases is expected to
have a material effect upon our financial condition, results of operations or
liquidity.
 
NOTE 5. EMPLOYEE BENEFIT PLANS
 
  We maintain several defined benefit pension plans (the "Plans"). The Plans
are noncontributory and include all employees who meet certain minimum age and
years of service requirements, except those employees covered by certain
multi-employer plans provided for under collective bargaining agreements.
 
  The Plans provide for retirement benefits based on either service credits or
average compensation levels earned by employees prior to retirement. The
Plans' assets consist primarily of publicly traded stocks and bonds and
include approximately 26.9 million shares of UPS common stock at December 31,
1999 and 1998. Our funding policy is consistent with relevant federal tax
regulations. Accordingly, we contribute amounts deductible for federal income
tax purposes.
 
  We also sponsor postretirement medical plans that provide health care
benefits to our retirees who meet certain eligibility requirements and who are
not otherwise covered by multi-employer plans. Generally, this includes
employees with at least 10 years of service who have reached age 55 and
employees who are eligible for postretirement medical benefits from a Company-
sponsored plan pursuant to collective bargaining. We have the right to modify
or terminate certain of these plans. In many cases, these benefits have been
provided to retirees on a noncontributory basis; however, in certain cases,
retirees are required to contribute towards the cost of the coverage.
 
 
                                     F-15

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets, and a statement of funded status
as of September 30, with certain amounts included in the balance sheet as of
December 31 (in millions):
 

<TABLE>
<CAPTION>
                                                Pension       Postretirement
                                               Benefits      Medical Benefits
                                             --------------  ------------------
                                              1999    1998     1999     1998
                                             ------  ------  --------  --------
<S>                                          <C>     <C>     <C>       <C>
Change in Benefit Obligation
Net benefit obligation at October 1, prior
 year......................................  $4,203  $3,311  $  1,212  $ 1,139
Service cost...............................     187     147        41       39
Interest cost..............................     293     260        83       86
Plan participants' contributions...........     --      --          2      --
Plan amendments............................      96      60        10      (24)
Actuarial (gain) loss......................    (455)    534       104       18
Gross benefits paid........................    (128)   (109)      (55)     (46)
                                             ------  ------  --------  -------
Net benefit obligation at September 30.....   4,196   4,203     1,397    1,212
                                             ------  ------  --------  -------
Change in Plan Assets
Fair value of plan assets at October 1,
 prior year................................   3,930   3,856       290      291
Actual return on plan assets...............     938      69        61        3
Employer contributions.....................     767     114        76       42
Plan participants' contributions...........     --      --          2      --
Gross benefits paid........................    (128)   (109)      (55)     (46)
                                             ------  ------  --------  -------
Fair value of plan assets at September 30..   5,507   3,930       374      290
                                             ------  ------  --------  -------
Funded status at September 30..............   1,311    (273)   (1,023)    (922)
Unrecognized net actuarial (gain) loss.....    (770)    280        39      (24)
Unrecognized prior service cost............     335     261       (11)     (23)
Unrecognized net transition obligation.....      55      63       --       --
Employer contributions.....................     --      --          5      --
                                             ------  ------  --------  -------
Net asset (liability) recorded at end of
 year......................................  $  931  $  331  $   (990) $  (969)
                                             ======  ======  ========  =======
</TABLE>

 
  Net periodic benefit cost for the years ended December 31 included the
following components (in millions):
 

<TABLE>
<CAPTION>
                                                               Postretirement
                                                                  Medical
                                          Pension Benefits        Benefits
                                          -------------------  ----------------
                                          1999   1998   1997   1999  1998  1997
                                          -----  -----  -----  ----  ----  ----
<S>                                       <C>    <C>    <C>    <C>   <C>   <C>
Service cost............................. $ 187  $ 147  $ 108  $ 41  $ 39  $ 41
Interest cost............................   293    260    220    83    86    89
Expected return on assets................  (351)  (310)  (240)  (26)  (26)  (21)
Amortization of:
 Transition obligation...................     8      8      4   --    --    --
 Prior service cost......................    23     23     11    (2)    1     3
 Actuarial loss..........................     6    --     --    --    --    --
                                          -----  -----  -----  ----  ----  ----
Net periodic benefit cost................ $ 166  $ 128  $ 103  $ 96  $100  $112
                                          =====  =====  =====  ====  ====  ====
</TABLE>

 
                                     F-16

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  The significant assumptions used in the measurement of our benefit
obligations are as follows:
 

<TABLE>
<CAPTION>
                                                              1999  1998  1997
                                                              ----  ----  ----
<S>                                                           <C>   <C>   <C>
Expected long-term rate of earnings on plan assets........... 9.5%   9.5% 9.5%
Discount rate................................................ 7.5%  6.75% 7.5%
Rate of increase in future compensation levels for pension
 benefits.................................................... 4.0%   4.0% 4.0%
</TABLE>

 
  Future postretirement medical benefit costs were forecasted assuming an
initial annual increase of 6.25% for pre-65 medical costs and an increase of
5.25% for post-65 medical costs, decreasing to 5.75% for pre-65 and 4.75% for
post-65 by the year 2000 and with consistent annual increases at those
ultimate levels thereafter.
 
  Assumed health care cost trends have a significant effect on the amounts
reported for the health care plans. A one-percent change in assumed health
care cost trend rates would have the following effects (in millions):
 

<TABLE>
<CAPTION>
                                                       1% Increase 1% Decrease
                                                       ----------- -----------
<S>                                                    <C>         <C>
Effect on total of service and interest cost
 components...........................................     $11        $ (13)
Effect on post retirement benefit obligation..........     $91        $(109)
</TABLE>

 
  We also contribute to several multi-employer pension plans for which the
above information is not determinable. Amounts charged to operations for
pension contributions to these multi-employer plans were $809, $757 and $597
million during 1999, 1998 and 1997, respectively.
 
  We also contribute to several multi-employer health and welfare plans which
cover both active and retired employees for which the above information is not
determinable. Amounts charged to operations for contributions to multi-
employer health and welfare plans were $463, $458 and $448 million during
1999, 1998 and 1997, respectively.
 
  We also sponsor a defined contribution plan for all employees not covered
under collective bargaining agreements. Beginning January 1, 1998, the Company
matched, in shares of UPS common stock, a portion of the participating
employees' contributions. Matching contributions charged to expense were $55
million and $49 million for 1999 and 1998, respectively.
 
NOTE 6. INCENTIVE COMPENSATION PLANS
 
  We adopted the UPS Incentive Compensation Plan in October 1999. The UPS
Incentive Compensation Plan permits the grant of nonqualified stock options,
incentive stock options, stock appreciation rights, restricted stock,
performance shares, performance units, and management incentive awards to
eligible employees. The number of shares reserved for issuance under the Plan
is 112 million, with the number of shares reserved for issuance as restricted
stock limited to 34 million shares. As of December 31, 1999, only management
incentive awards and stock option grants had been made under the Incentive
Compensation Plan.
 
 Management Incentive Awards
 
  Persons earning the right to receive Management Incentive Awards are
determined annually by the Compensation Committee of the UPS Board of
Directors. This Committee in its sole discretion determines the total award,
which consists of UPS common stock, given in any year. The total of all such
awards historically has been 15% of consolidated income before income taxes
for the 12-month period ending each September 30, exclusive of gains and
losses from the sale of real estate and stock of subsidiaries and the effect
of certain other nonrecurring transactions or accounting changes. Amounts
charged to operations were $588, $448, and $244 million during 1999, 1998 and
1997, respectively.
 
                                     F-17

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
 Nonqualified and Incentive Stock Options
 
  We maintain fixed stock option plans under which options are granted to
purchase shares of UPS common stock. Prior to adoption of the Incentive
Compensation Plan, these options were granted at the current price of UPS
shares as determined by the Board of Directors on the date of option grant.
Stock options granted in connection with the UPS Incentive Compensation Plan
must be at least equal to the NYSE closing price of UPS stock on the date the
option was granted. We apply the measurement provisions of APB Opinion 25 and
related Interpretations in accounting for these plans. Accordingly, no
compensation expense has been recorded for the grant of stock options during
1999, 1998 or 1997. Pro forma information regarding net income and earnings
per share has been determined as if we accounted for our employee stock
options under the fair value method of FAS 123. For purposes of pro forma
disclosures, the estimated fair value of the options granted in 1999, 1998 and
1997 is amortized to expense over the vesting period of the options.
 
  The pro forma information is as follows (in millions except per share
amounts):
 

<TABLE>
<CAPTION>
                                                             1999   1998  1997
                                                             ----- ------ -----
   <S>                                           <C>         <C>   <C>    <C>
   Net income................................... As reported $ 883 $1,741 $ 909
                                                 Pro forma   $ 870 $1,734 $ 904
   Basic earnings per share..................... As reported $0.79 $ 1.59 $0.82
                                                 Pro forma   $0.78 $ 1.59 $0.82
   Diluted earnings per share................... As reported $0.77 $ 1.57 $0.81
                                                 Pro forma   $0.76 $ 1.56 $0.81
</TABLE>

 
  The assumptions used, by year, and the calculated weighted average fair
value of options granted, are as follows:
 

<TABLE>
<CAPTION>
                                                  1999(1)  1999   1998   1997
                                                  -------  -----  -----  -----
<S>                                               <C>      <C>    <C>    <C>
Semiannual dividend per share.................... $ 0.30   $0.30  $0.23  $0.18
Risk-free interest rate..........................   5.88%   5.14%  5.56%  6.73%
Expected life in years...........................      5       5      5      5
Expected volatility..............................     40%    n/a    n/a    n/a
Weighted average fair value of options granted... $20.29   $2.08  $1.80  $2.63
</TABLE>

 
  (1) Pro forma information for these options was calculated using the Black-
Scholes option pricing model as these options were granted in connection with
the IPO. Pro forma information for all other options was calculated using the
minimum value method for nonpublic entities, as these options were granted
prior to the IPO.
 
  Persons earning the right to receive stock options are determined each year
by the Compensation Committee of the UPS Board of Directors. Except in the
case of death, disability or retirement, options granted prior to the adoption
of our Incentive Compensation Plan are exercisable only during a limited
period after the expiration of five years from the date of grant, while
options granted under the Incentive Compensation Plan are generally
exercisable between three years from the date of grant and before the
expiration of the option ten years after the date of grant. All options
granted are subject to earlier cancellation or exercise under certain
conditions.
 
                                     F-18

<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                  UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  The following is an analysis of options for shares of common stock issued and
outstanding:
 

<TABLE>
<CAPTION>
                                                      Weighted      Number of
                                                      Average        Shares
                                                   Exercise Price (in thousands)
                                                   -------------- -------------
<S>                                                <C>            <C>
Outstanding at January 1, 1997....................     $10.61        37,911
Exercised.........................................       8.25        (7,912)
Granted...........................................      14.88         6,524
Canceled..........................................      11.36          (625)
                                                                     ------
Outstanding at December 31, 1997..................      11.88        35,898
Exercised.........................................       9.38        (7,787)
Granted...........................................      16.00         8,300
Canceled..........................................      12.38          (440)
                                                                     ------
Outstanding at December 31, 1998..................      13.37        35,971
Exercised.........................................      10.63        (7,571)
Granted...........................................      30.37        11,139
Canceled..........................................      14.61        (1,059)
                                                                     ------
Outstanding at December 31, 1999..................     $18.76        38,480
                                                       ======        ======
</TABLE>

 
  No options were exercisable at December 31, 1999, 1998 or 1997. The following
table summarizes information about stock options outstanding at December 31,
1999:
 

<TABLE>
<CAPTION>
         Number of                Weighted Average
           Shares                  Remaining Life                      Weighted Average
       (in thousands)                (in years)                         Exercise Price
       --------------             ----------------                     ----------------
       <S>                        <C>                                  <C>
            7,276                       0.3                                 $11.88
            6,139                       1.3                                 $13.50
            6,162                       2.3                                 $14.88
            7,942                       3.3                                 $16.00
            7,510                       4.3                                 $21.50
            3,451                       9.9                                 $50.00
           ------
           38,480                       3.1                                 $18.76
           ======
</TABLE>

 
NOTE 7. INCOME TAXES
 
  The provision for income taxes for the years ended December 31 consists of
the following (in millions):
 

<TABLE>
<CAPTION>
                                                               1999   1998  1997
                                                              ------ ------ ----
<S>                                                           <C>    <C>    <C>
Current:
 Federal..................................................... $  834 $  917 $455
 State.......................................................     99    127   76
                                                              ------ ------ ----
  Total Current..............................................    933  1,044  531
                                                              ------ ------ ----
Deferred:
 Federal.....................................................    236    104  100
 State.......................................................     36     13   13
                                                              ------ ------ ----
  Total Deferred.............................................    272    117  113
                                                              ------ ------ ----
  Total...................................................... $1,205 $1,161 $644
                                                              ====== ====== ====
</TABLE>

 
                                      F-19

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  Income before income taxes includes income of international subsidiaries of
$7 million in 1999 and losses of international subsidiaries of $20 and $70
million for 1998 and 1997, respectively.
 
  A reconciliation of the statutory federal income tax rate to the effective
income tax rate for the years ended December 31 consists of the following:

<TABLE>
<CAPTION>
                                                               1999  1998  1997
                                                               ----  ----  ----
<S>                                                            <C>   <C>   <C>
Statutory federal income tax rate............................. 35.0% 35.0% 35.0%
Tax assessment................................................ 17.7   --    --
State income taxes (net of federal benefit)...................  4.2   3.1   3.7
Other.........................................................  0.8   1.9   2.8
                                                               ----  ----  ----
Effective income tax rate..................................... 57.7% 40.0% 41.5%
                                                               ====  ====  ====
</TABLE>

 
  Deferred tax liabilities and assets are comprised of the following at
December 31 (in millions):
 

<TABLE>
<CAPTION>
                                                                  1999    1998
                                                                 ------  ------
<S>                                                              <C>     <C>
Excess of tax over book depreciation............................ $2,096  $1,957
Pension plans...................................................    662     265
Prepaid health and welfare......................................    129     124
Leveraged leases................................................     58      62
Other...........................................................    288     400
                                                                 ------  ------
Gross deferred tax liabilities..................................  3,233   2,808
                                                                 ------  ------
Other postretirement benefits...................................    421     407
Loss carryforwards (international)..............................    283     308
Insurance reserves..............................................    175     104
Other...........................................................    258     229
                                                                 ------  ------
Gross deferred tax assets.......................................  1,137   1,048
Deferred tax assets valuation allowance.........................   (283)   (308)
                                                                 ------  ------
Net deferred tax assets.........................................    854     740
                                                                 ------  ------
Net deferred tax liability......................................  2,379   2,068
                                                                 ------  ------
Less: Amount included in other current liabilities..............      6     114
                                                                 ------  ------
Long-term portion -- see Note 8................................. $2,373  $1,954
                                                                 ======  ======
</TABLE>

 
  The valuation allowance decreased $25, $14 and $43 million during the years
ended December 31, 1999, 1998 and 1997, respectively.
 
  UPS has international loss carryforwards of approximately $668 million as of
December 31, 1999. Of this amount, $288 million expires in varying amounts
through 2009. The remaining $380 million may be carried forward indefinitely.
These international loss carryforwards have been fully reserved in the
deferred tax assets valuation allowance due to the uncertainty resulting from
a lack of previous international taxable income within certain international
tax jurisdictions. In addition, a portion of these losses has been deducted on
the U.S. tax return, which could affect the amount of any future benefit.
 
                                     F-20

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
NOTE 8. DEFERRED TAXES, CREDITS AND OTHER LIABILITIES
 
  Deferred taxes, credits and other liabilities, as of December 31, consist of
the following (in millions):
 

<TABLE>
<CAPTION>
                                                                   1999   1998
                                                                  ------ ------
<S>                                                               <C>    <C>
Deferred federal and state income taxes.......................... $2,373 $1,954
Insurance reserves...............................................    829    704
Other credits and noncurrent liabilities.........................    267    359
                                                                  ------ ------
                                                                  $3,469 $3,017
                                                                  ====== ======
</TABLE>

 
NOTE 9. OTHER OPERATING EXPENSES
 
  The major components of other operating expenses for the years ended
December 31 are as follows (in millions):
 

<TABLE>
<CAPTION>
                                                            1999   1998   1997
                                                           ------ ------ ------
<S>                                                        <C>    <C>    <C>
Repairs and maintenance................................... $  945 $  864 $  804
Depreciation and amortization.............................  1,139  1,112  1,063
Purchased transportation..................................  1,679  1,519  1,374
Fuel......................................................    681    604    736
Other occupancy...........................................    373    375    395
Other expenses............................................  2,962  2,878  3,099
                                                           ------ ------ ------
                                                           $7,779 $7,352 $7,471
                                                           ====== ====== ======
</TABLE>

 
NOTE 10. SEGMENT AND GEOGRAPHIC INFORMATION
 
  We report our operations in three segments: U.S. domestic package
operations, international package operations and non-package operations.
Package operations represent our core business and are broken down into
regional operations around the world. Regional operations managers are
responsible for both domestic and export operations within their geographic
area. International package operations include shipments wholly outside the
U.S. as well as shipments with either origin or distribution outside the U.S.
Non-package operations, which include the UPS Logistics Group, are distinct
from package operations and are thus managed and reported separately. Based on
the requirements of FAS 131, reportable segments include U.S. domestic package
operations, international package operations and non-package operations.
 
  In evaluating financial performance, we focus on operating profit as a
segment's measure of profit or loss. Operating profit is before interest
expense, interest income, other non-operating gains and losses and income
taxes. The accounting policies of the reportable segments are the same as
those described in the summary of accounting policies (Note 1), with certain
expenses allocated between the segments using activity-based costing methods.
 
                                     F-21

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  Segment information as of, and for the years ended December 31, is as
follows (in millions):
 

<TABLE>
<CAPTION>
                                                         1999    1998    1997
                                                        ------- ------- -------
<S>                                                     <C>     <C>     <C>
Revenue:
 U.S. domestic package................................. $22,313 $20,650 $18,868
 International package.................................   3,730   3,399   3,067
 Non-package...........................................   1,009     739     523
                                                        ------- ------- -------
  Consolidated......................................... $27,052 $24,788 $22,458
                                                        ======= ======= =======
Operating Profit (Loss):
 U.S. domestic package................................. $ 3,568 $ 2,899 $ 1,654
 International package.................................     252      56     (67)
 Non-package...........................................     168     135     111
                                                        ------- ------- -------
  Consolidated......................................... $ 3,988 $ 3,090 $ 1,698
                                                        ======= ======= =======
Assets:
 U.S. domestic package................................. $11,398 $11,225 $10,985
 International package.................................   3,378   2,325   2,051
 Non-package...........................................   1,998   1,824   1,858
 Unallocated...........................................   6,269   1,693   1,018
                                                        ------- ------- -------
  Consolidated......................................... $23,043 $17,067 $15,912
                                                        ======= ======= =======
</TABLE>

 
  Non-package operating profit included $108, $112 and $111 million for 1999,
1998 and 1997, respectively, of intersegment profit with a corresponding
amount of operating expense included in the U.S. domestic package segment.
 
  In 1999 quarterly financial statements, we did not allocate capitalized
software to individual segments, and reported the amounts capitalized as a
separate "Corporate" line item. However, for the year ended December 31, 1999,
all capitalized software costs, including amounts capitalized in prior
quarters, have been allocated to the individual segments which benefit from
the software.
 
  Revenue by product type for the years ended December 31, is as follows (in
millions):
 

<TABLE>
<CAPTION>
                                                         1999    1998    1997
                                                        ------- ------- -------
<S>                                                     <C>     <C>     <C>
Letters, packages, and cargo........................... $26,043 $24,049 $21,935
Other..................................................   1,009     739     523
                                                        ------- ------- -------
                                                        $27,052 $24,788 $22,458
                                                        ======= ======= =======
</TABLE>

 
                                     F-22

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  Geographic information as of, and for the years ended December 31, is as
follows (in millions):
 

<TABLE>
<CAPTION>
                                                          1999    1998    1997
                                                         ------- ------- -------
<S>                                                      <C>     <C>     <C>
U.S.:
 Revenue................................................ $24,059 $22,090 $20,105
 Long-lived assets...................................... $ 9,794 $10,031 $10,063
International:
 Revenue................................................ $ 2,993 $ 2,698 $ 2,353
 Long-lived assets...................................... $ 2,111 $ 1,611 $ 1,372
Consolidated:
 Revenue................................................ $27,052 $24,788 $22,458
 Long-lived assets...................................... $11,905 $11,642 $11,435
</TABLE>

 
  Revenue, for geographic disclosure, is based on the location in which
service originates. Long-lived assets include property, plant and equipment,
long-term investments and goodwill.
 
NOTE 11. MARKETABLE SECURITIES AND SHORT-TERM INVESTMENTS
 
  The following is a summary of marketable securities and short-term
investments at December 31, 1999 and 1998 (in millions):
 

<TABLE>
<CAPTION>
                                                   Gross               Extimated
                                                 Unrealized   Gross      Fair
                                           Cost    Gains    Unrealized   Value
1999                                      ------ ---------- ---------- ---------
<S>                                       <C>    <C>        <C>        <C>
U.S. government securities..............  $  179    $--        $  3     $  176
U.S. corporate securities...............   1,205       1          4      1,202
Other debt securities...................     610     --           1        609
                                          ------    ----       ----     ------
 Total debt securities..................   1,994       1          8      1,987
Equity securities.......................      87       5          5         87
                                          ------    ----       ----     ------
                                          $2,081    $  6       $ 13     $2,074
                                          ======    ====       ====     ======
<CAPTION>
                                                   Gross               Extimated
                                                 Unrealized   Gross      Fair
                                           Cost    Gains    Unrealized   Value
1998                                      ------ ---------- ---------- ---------
<S>                                       <C>    <C>        <C>        <C>
U.S. government securities..............  $  194    $  2       $--      $  196
U.S. corporate securities...............     188       2        --         190
Other debt securities...................       2     --         --           2
                                          ------    ----       ----     ------
 Total debt securities..................     384       4        --         388
Equity securities.......................       6     --           5          1
                                          ------    ----       ----     ------
                                          $  390    $  4       $  5     $  389
                                          ======    ====       ====     ======
</TABLE>

 
  The gross realized gains on sales of marketable securities totaled $6
million in 1999 and 1998. The gross realized losses totaled $12 million in
1999 and $1 million in 1998. The adjustment to unrealized holding losses on
marketable securities, net of tax, included in other comprehensive income
totaled $3 million in 1999, and $1 million in 1998.
 
                                     F-23

<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
 
 
  The amortized cost and estimated fair value of marketable securities and
short-term investments at December 31, 1999, by contractual maturity, are
shown below (in millions). Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
 

<TABLE>
<CAPTION>
                                                                       Estimated
                                                                         Fair
                                                                 Cost    Value
                                                                ------ ---------
<S>                                                             <C>    <C>
Due in one year or less........................................ $1,592  $1,591
Due after one year through three years.........................     35      34
Due after three years through five years.......................    181     178
Due after five years...........................................    186     184
                                                                ------  ------
                                                                 1,994   1,987
Equity securities..............................................     87      87
                                                                ------  ------
                                                                $2,081  $2,074
                                                                ======  ======
</TABLE>

 
NOTE 12. QUARTERLY INFORMATION (unaudited)
 

<TABLE>
<CAPTION>
                                           Second                        Fourth
                          First Quarter    Quarter     Third Quarter     Quarter
                          ------------- -------------- -------------  -------------
                           1999   1998   1999    1998   1999   1998    1999   1998
                          ------ ------ ------  ------ ------ ------  ------ ------
                                  (in millions, except per share amounts)
<S>                       <C>    <C>    <C>     <C>    <C>    <C>     <C>    <C>
Revenue:
 U.S. domestic package..  $5,231 $4,892 $5,434  $5,090 $5,574 $5,147  $6,074 $5,521
 International package..     885    796    908     838    909    823   1,028    942
 Non-package............     215    171    218     179    232    188     344    201
                          ------ ------ ------  ------ ------ ------  ------ ------
  Total revenue.........   6,331  5,859  6,560   6,107  6,715  6,158   7,446  6,664
Operating profit (loss):
 U.S. domestic package..     789    594    898     747    916    757     965    801
 International package..      52     11     71      23     47    (15)     82     37
 Non-package............      25     35     33      35     27     35      83     30
                          ------ ------ ------  ------ ------ ------  ------ ------
  Total operating
   profit...............     866    640  1,002     805    990    777   1,130    868
Net income (loss).......  $  499 $  352 $ (854) $  458 $  577 $  449  $  661 $  482
Earnings (loss) per
 share:
 Basic..................  $ 0.45 $ 0.32 $(0.77) $ 0.42 $ 0.53 $ 0.41  $ 0.57 $ 0.44
 Diluted................  $ 0.44 $ 0.32 $(0.77) $ 0.42 $ 0.52 $ 0.40  $ 0.56 $ 0.43
</TABLE>

 
The loss for the second quarter of 1999 resulted from a tax assessment charge
discussed in Note 4.
 
                                     F-24

<PAGE>
 

 
                                 SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, United Parcel Service, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
 
                                          United Parcel Service, Inc.
                                          (Registrant)
 
                                                    /s/ James P. Kelly
                                          By: _________________________________
                                                    James P. Kelly
                                                 Chairman of the Board and
                                                  Chief Executive Officer
 
Date: March 30, 2000
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----
 
<S>                                    <C>                        <C>
     /s/ William H. Brown, III         Director                     March 30, 2000
______________________________________
        William H. Brown, III
 
       /s/ Robert J. Clanin            Senior Vice President,       March 30, 2000
______________________________________  Chief Financial Officer,
           Robert J. Clanin             Treasurer and Director
                                        (Principal Financial and
                                        Accounting Officer)
 
        /s/ Michael L. Eskew           Executive Vice President     March 30, 2000
______________________________________  and Director
           Michael L. Eskew
 
         /s/ James P. Kelly            Chairman of the Board,       March 30, 2000
______________________________________  Chief Executive Officer
            James P. Kelly              and Director (Principal
                                        Executive Officer)
 
                                       Director
______________________________________
           Ann M. Livermore
 
                                       Director
______________________________________
          Gary E. MacDougal
 
       /s/ Joseph R. Moderow           Senior Vice President,       March 30, 2000
______________________________________  Secretary and Director
          Joseph R. Moderow
 
                                       Director
______________________________________
            Kent C. Nelson
</TABLE>


<PAGE>
 
 

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----
 
<S>                                    <C>                        <C>
                                       Director
______________________________________
           Victor A. Pelson
 
                                       Director
______________________________________
            John W. Rogers
 
 
      /s/ Charles L. Schaffer          Senior Vice President and    March 30, 2000
______________________________________  Director
         Charles L. Schaffer
</TABLE>

 

<TABLE>
<S>                                    <C>                        <C>
         /s/ Lea N. Soupata            Senior Vice President and    March 30, 2000
______________________________________  Director
            Lea N. Soupata
 
                                       Director
______________________________________
           Robert M. Teeter
 
      /s/ Thomas H. Weidemeyer         Senior Vice President and    March 30, 2000
______________________________________  Director
         Thomas H. Weidemeyer
</TABLE>


<PAGE>
 

                                 EXHIBIT INDEX
 
  Unless otherwise noted, documents filed with the Commission referred to below
were filed by United Parcel Service of America, Inc.
 

<TABLE>
<CAPTION>
 Exhibit No. Description
 ----------- ------------------------------------------------------------------
 <C>         <S>
  2.1        Agreement and Plan of Merger, dated as of September 22, 1999,
             among United Parcel Service of America, Inc., United Parcel
             Service, Inc. and UPS Merger Subsidiary, Inc. (incorporated by
             reference to United Parcel Service, Inc.'s registration statement
             on Form S-4 (No. 333-83349), filed on July 21, 1999, as amended).
 
  3.1        Form of Restated Certificate of Incorporation of United Parcel
             Service, Inc. (incorporated by reference to United Parcel Service,
             Inc.'s registration statement on Form S-4 (No. 333-83349), filed
             on July 21, 1999, as amended).
 
  3.2        Form of Bylaws of United Parcel Service, Inc. (incorporated by
             reference to Exhibit 3.2 to United Parcel Service, Inc.'s
             registration statement on Form S-4 (No. 333-83349), filed on July
             21, 1999, as amended).
 
  4.1        Form of Class A Common Stock Certificate (incorporated by
             reference to Exhibit 4.1 to United Parcel Service, Inc.'s
             registration statement on Form S-4 (No. 333-83349), filed on July
             21, 1999, as amended).
 
  4.2        Form of Class B Common Stock Certificate (incorporated by
             reference to Exhibit 4.2 to United Parcel Service, Inc.'s
             registration statement on Form S-4 (No. 333-83349), filed on July
             21, 1999).
 
  4.3        Specimen Certificate of 8 3/8% Debentures due April 1, 2020
             (incorporated by reference to Exhibit 4(c) to Registration
             Statement No. 33-32481, filed December 7, 1989).
 
  4.4        Indenture relating to 8 3/8% Debentures due April 1, 2020
             (incorporated by reference to Exhibit 4(c) to Registration
             Statement No. 33-32481, filed December 7, 1989).
 
  4.5        Specimen Certificate of $500,000,000 of Temporary and Permanent
             Global Notes in connection with the European medium term note
             program (available to the Commission upon request).
 
  4.6        Indenture relating to the $500,000,000 European Medium term note
             program (available to the Commission upon request).
 
  4.7        Specimen Certificate of Exchange Offer Notes Due 2030
             (incorporated by reference to Exhibit T-3C to Form T-3 filed
             December 18, 1997).
 
  4.8        Indenture relating to Exchange Offer Notes Due 2030 (incorporated
             by reference to Exhibit T-3C to Form T-3 filed December 18, 1997).
 
  4.9        Specimen Certificate of $200,000,000 of 6.625% Euro Notes due
             April 25, 2001 (available to the Commission upon request).
 
  4.10       Indenture relating to $200,000,000 of 6.625% Euro Notes due April
             25, 2001 (available to the Commission upon request).
 
  4.11       Specimen Certificate of $300,000,000 of 6.25% Euro Notes due July
             7, 2000 (available to the Commission upon request).
 
  4.12       Indenture relating to $300,000,000 of 6.25% Euro Notes due July 7,
             2000 (available to the Commission upon request).
 
  4.13       Specimen Certificate of $1,000,000,000 of Temporary and Permanent
             Global Notes in connection with the European medium term note
             program (available to the Commission upon request).
 
  4.14       Indenture relating to the $1,000,000,000 European medium term note
             program (available to the Commission upon request).
 
</TABLE>

 
 
                                      E-1

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No. Description
 ----------- ------------------------------------------------------------------
 <C>         <S>
  4.15       Indenture relating to $2,000,000,000 of debt securities
             (incorporated by reference to Exhibit 4.1 to Pre-Effective
             Amendment No. 1 to Registration Statement on Form S-3 (No. 333-
             08369) as filed January 26, 1999).
 
  4.16       Form of Supplemental Indenture relating to $2,000,000 of debt
             securities (incorporated by reference to Exhibit 4.2 to Post-
             Effective Amendment No. 1 to Registration Statement on Form S-3
             (No. 333-08369-01) as filed March 15, 2000)
 
 10.1        UPS Thrift Plan, as Amended and Restated January 1, 1976,
             including Amendment Nos. 1 and 2 (incorporated by reference to
             Exhibit 10(a) to 1980 Annual Report on Form 10-K).
 
             (1)   Amendment No. 3 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 20(b) to 1980 Annual Report on Form 10-
                   K).
 
             (2)   Amendment No. 4 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 20(b) to 1981 Annual Report on Form 10-
                   K).
 
             (3)   Amendment No. 5 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 19(b) to 1983 Annual Report on Form 10-
                   K).
 
             (4)   Amendment No. 6 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(4) to 1985 Annual Report on Form
                   10-K).
 
             (5)   Amendment No. 7 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(5) to 1985 Annual Report on Form
                   10-K).
 
             (6)   Amendment No. 8 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(6) to 1987 Annual Report on Form
                   10-K).
 
             (7)   Amendment No. 9 to the UPS Thrift Plan (incorporated by
                   Reference to Exhibit 10(a)(7) to 1987 Annual Report on Form
                   10-K).
 
             (8)   Amendment No. 10 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(8) to 1990 Annual Report on Form
                   10-K).
 
             (9)   Amendment No. 11 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(9) to 1991 Annual Report on Form
                   10-K).
 
             (10)  Amendment No. 12 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(10) to 1991 Annual Report on Form
                   10-K).
 
             (11)  Amendment No. 13 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(11) to 1991 Annual Report on Form
                   10-K).
 
             (12)  Amendment No. 14 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(12) to 1991 Annual Report on Form
                   10-K).
 
             (13)  Amendment No. 15 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(13) to 1992 Annual Report on Form
                   10-K).
 
             (14)  Amendment No. 16 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(14) to 1993 Annual Report on Form
                   10-K).
 
             (15)  Amendment No. 17 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(15) to 1993 Annual Report on Form
                   10-K).
 
             (16)  Amendment No. 18 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(16) to 1994 Annual Report on Form
                   10-K).
 
             (17)  Amendment No. 19 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(17) to 1994 Annual Report on Form
                   10-K).
 
             (18)  Amendment No. 20 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(18) to 1995 Annual Report on Form
                   10-K).
 
</TABLE>

 
 
                                      E-2

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No. Description
 ----------- ------------------------------------------------------------------
 <C>         <S>
             (19)  Amendment No. 21 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(19) to 1995 Annual Report on Form
                   10-K).
 
             (20)  Amendment No. 22 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(20) to 1996 Annual Report on Form
                   10-K).
 
             (21)  Amendment No. 23 to the UPS Thrift Plan (incorporated by
                   reference to Exhibit 10(a)(21) to 1996 Annual Report on Form
                   10-K).
 
 10.2        UPS Retirement Plan (including Amendments 1 through 4)
             (incorporated by reference to Exhibit 9 to 1979 Annual Report on
             Form 10-K).
 
             (1)   Amendment No. 5 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 20(a) to 1980 Annual Report on Form 10-
                   K).
 
             (2)   Amendment No. 6 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 19(a) to 1983 Annual Report on Form 10-
                   K).
 
             (3)   Amendment No. 7 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(3) to 1984 Annual Report on Form
                   10-K).
 
             (4)   Amendment No. 8 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(4) to 1985 Annual Report on Form
                   10-K).
 
             (5)   Amendment No. 9 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(5) to 1985 Annual Report on Form
                   10-K).
 
             (6)   Amendment No. 10 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 19(a) to 1988 Annual Report on Form 10-
                   K).
 
             (7)   Amendment No. 11 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 19(b) to 1988 Annual Report on Form 10-
                   K).
 
             (8)   Amendment No. 12 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(8) to 1989 Annual Report on Form
                   10-K).
 
             (9)   Amendment No. 13 to the UPS Retirement Plan (incorporated by
                   Reference to Exhibit 10(b)(9) to 1989 Annual Report on Form
                   10-K).
 
             (10)  Amendment No. 14 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(10) to 1990 Annual Report on Form
                   10-K).
 
             (11)  Amendment No. 15 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(11) to 1992 Annual Report on Form
                   10-K).
 
             (12)  Amendment No. 16 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(12) to 1994 Annual Report on Form
                   10-K).
 
             (13)  Amendment No. 17 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(13) to 1994 Annual Report on Form
                   10-K).
 
             (14)  Amendment No. 18 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(14) to 1995 Annual Report on Form
                   10-K).
 
             (15)  Amendment No. 19 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(15) to 1995 Annual Report on Form
                   10-K).
 
             (16)  Amendment No. 20 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(16) to 1995 Annual Report on Form
                   10-K).
 
             (17)  Amendment No. 21 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(17) to 1996 Annual Report on Form
                   10-K).
</TABLE>

 
                                      E-3

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No. Description
 ----------- ------------------------------------------------------------------
 <C>         <S>
             (18)  Amendment No. 22 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(18) to 1997 Annual Report on Form
                   10-K).
 
             (19)  Amendment No. 23 to the UPS Retirement Plan (incorporated by
                   reference to Exhibit 10(b)(19) to 1998 Annual Report on Form
                   10-K).
 
 10.3        Indemnification Contracts or Arrangements (incorporated by
             reference to Item 8 of Form 10, as filed April 29, 1970).
 
 10.4        Agreement of Sale between Delaware County Industrial Development
             Authority and Penallen Corporation, dated as of December 1, 1985;
             Remarketing Agreement, dated as of December 1, 1985, among United
             Parcel Service of America, Inc., Penallen Corporation and Salomon
             Brothers Inc; Guarantee Agreement, dated as of December 1, 1985,
             between United Parcel Service of America, Inc. and Irving Trust
             Company; Guarantee by United Parcel Service of America, Inc. to
             Delaware County Industrial Development Authority, dated as of
             December 1, 1985 (incorporated by reference to Exhibit 10(m) to
             1985 Annual Report on Form 10-K).
 
 10.5        Receivables Purchase and Sale Agreement, dated as of November 24,
             1987, among United Parcel Service, Inc., an Ohio corporation,
             United Parcel Service, Inc., a New York corporation, United Parcel
             Service of America, Inc., Cooperative Receivables Corporation and
             Citicorp North America, Inc. (incorporated by reference to Exhibit
             10(l) to 1987 Annual Report on Form 10-K).
 
 10.6        Receivables Purchase and Sale Agreement, dated as of November 24,
             1987, among United Parcel Service, Inc., an Ohio corporation,
             United Parcel Service, Inc., a New York corporation, United Parcel
             Service of America, Inc., Citibank, N.A., and Citicorp North
             America, Inc. (incorporated by reference to Exhibit 10(m) to 1987
             Annual Report on Form 10-K).
 
 10.7        Membership Agreement, dated as of November 24, 1987, by and
             between Cooperative Receivables Corporation and United Parcel
             Service of America, Inc. (incorporated by reference to Exhibit
             10(n) to 1987 Annual Report on Form 10-K).
 
 10.8        Amended and Restated Facility Lease Agreement, dated as of
             November 6,1990, among Overseas Partners Leasing, Inc., United
             Parcel Service General Services Co. and United Parcel Service of
             America, Inc. (incorporated by reference to Exhibit 10(r) to 1990
             Annual Report on Form 10-K).
 
 10.9        Amended and Restated Aircraft Lease Agreement, dated as of
             November 6, 1990, among Overseas Partners Leasing, Inc., United
             Parcel Service Co. and United Parcel Service of America, Inc.
             (incorporated by reference to Exhibit 10(s) to 1990 Annual Report
             on Form 10-K).
 
 10.10       Agreement of Sale, dated as of December 28, 1989, between Edison
             Corporation and Overseas Partners Leasing, Inc. (incorporated by
             reference to Exhibit 10(t) to 1989 Annual Report on Form 10-K).
 
 10.11       Assignment and Assumption Agreement, dated as of December 28,
             1989, between and among Edison Corporation, Overseas Partners
             Leasing, Inc., McBride Enterprises, Inc. and Ramapo Ridge-McBride
             Office Park (incorporated by reference to Exhibit 10(u) to 1989
             Annual Report on Form 10-K).
 
 10.12       UPS Deferred Compensation Plan for Non-Employee Directors
             (incorporated by reference to Exhibit 10(v) to 1990 Annual Report
             on Form 10-K).
 
 
 
 
 10.13       UPS Savings Plan, as Amended and Restated, including Amendment
             Nos. 1-5 (incorporated by reference to Exhibit 10(x) to 1990
             Annual Report on Form 10-K).
 
             (1)   Amendment No. 6 to the UPS Savings Plan (incorporated by
                   reference to Exhibit 10(x)(1) to 1990 Annual Report on Form
                   10-K).
 
</TABLE>

 
 
                                      E-4

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No. Description
 ----------- ------------------------------------------------------------------
 <C>         <S>
             (2)   Amendment No. 7 to the UPS Savings Plan (incorporated by
                   reference to Exhibit 10(x)(2) to 1991 Annual Report on Form
                   10-K).
 
             (3)   Amendment No. 8 to the UPS Savings Plan (incorporated by
                   reference to Exhibit 10(x)(3) to 1992 Annual Report on Form
                   10-K).
 
             (4)   Amendment No. 9 to the UPS Savings Plan (incorporated by
                   reference to Exhibit 10(x)(4) to 1992 Annual Report on Form
                   10-K).
 
             (5)   Amendment No. 10 to the UPS Savings Plan (Incorporated by
                   Reference to Exhibit 10(x)(5) to 1992 Annual Report on Form
                   10-K).
 
             (6)   Amendment No. 11 to the UPS Savings Plan (incorporated by
                   reference to Exhibit 10(x)(6) to 1994 Annual Report on Form
                   10-K).
 
             (7)   Amendment No. 12 to the UPS Savings Plan (incorporated by
                   reference to Exhibit 10(x)(7) to 1994 Annual Report on Form
                   10-K).
 
             (8)   Amendment No. 13 to the UPS Savings Plan (incorporated by
                   reference to Exhibit 10(x)(8) to 1994 Annual Report on Form
                   10-K).
 
             (9)   Amendment No. 14 to the UPS Savings Plan (incorporated by
                   reference to Exhibit 10(x)(9) to 1994 Annual Report on Form
                   10-K).
 
             (10)  Amendment No. 15 to the UPS Savings Plan (incorporated by
                   reference to Exhibit 10(x)(10) to 1994 Annual Report on Form
                   10-K).
 
             (11)  Restatement Amendment No. 1 to the UPS Savings Plan
                   (incorporated by reference to Exhibit 10(x)(11) to 1996
                   Annual Report on Form 10-K).
 
             (12)  Restatement Amendment No. 2 to the UPS Savings Plan
                   (incorporated by reference to Exhibit 10(x)(12) to 1995
                   Annual Report on Form 10-K).
 
             (13)  Restatement Amendment No. 3 to the UPS Savings Plan
                   (incorporated by reference to Exhibit 10(o)(13) to 1996
                   Annual Report on Form 10-K).
 
             (14)  Restatement Amendment No. 4 to the UPS Savings Plan
                   (incorporated by reference to Exhibit 10(o)(14) to 1996
                   Annual Report on Form 10-K).
 
             (15)  Restatement Amendment No. 5 to the UPS Savings Plan
                   (incorporated by reference to Exhibit 10(o)(15) to 1996
                   Annual Report on Form 10-K).
 
             (16)  Restatement Amendment No. 6 to the UPS Savings Plan
                   (incorporated by reference to Exhibit 10(o)(16) to 1997
                   Annual Report on Form 10-K).
 
 10.14       Credit Agreement (364-Day Facility) dated April 29, 1999 among
             United Parcel Service of America, Inc., the initial lenders named
             therein, Salomon Smith Barney as Co-Arranger and NationsBanc
             Montgomery Securities LLC as Co-Arranger and Bank of America NT &
             SA., as Agent, and Citibank, N.A., as Agent (incorporated by
             reference to Exhibit 10(a) to Quarterly Report on Form 10-Q for
             the Quarter Ended March 31, 1999).
 
 10.15       Credit Agreement (Five-Year Facility) dated April 30, 1998 among
             United Parcel Service of America, Inc., the initial lenders named
             therein, Citicorp Securities, Inc. as Co-Arranger and BancAmerica
             Robertson as Co-Arranger and Bank of America NT & SA as Agent and
             Citibank, N.A., as Agent (incorporated by reference to Exhibit
             10(b) to the Quarterly Report on Form 10-Q for the Quarter Ended
             March 30, 1998).
 
 10.16       UPS 1991 Stock Option Plan (Amended and Restated as of February
             20, 1992) (incorporated by reference to Appendix A to Definitive
             Proxy Statement for 1995 Annual Meeting of Shareholders).
 
</TABLE>

 
                                      E-5

<PAGE>
 

<TABLE>
<CAPTION>
 Exhibit No. Description
 ----------- ------------------------------------------------------------------
 <C>         <S>
 10.17       UPS Excess Coordinating Benefit Plan (incorporated by reference to
             Exhibit 10(s) to 1997 Annual Report on Form 10-K).
 
 10.18       UPS 1996 Stock Option Plan, as amended and restated (incorporated
             by reference to Exhibit 10(a) to Quarterly Report on Form 10-Q for
             the Quarter ended September 30, 1997).
 
 10.19       UPS Qualified Stock Ownership Plan and Trust Agreement
             (incorporated by reference to Exhibit 4.1 to Registration
             Statement No. 333-67479, filed November 18, 1998).
 
             (1)  Amendment No. 1 to the UPS Qualified Stock Ownership Plan and
             Trust Agreement.
 
             (2)  Amendment No. 2 to the UPS Qualified Stock Ownership Plan and
             Trust Agreement.
 
 
             (3)  Amendment No. 3 to the UPS Qualified Stock Ownership Plan and
             Trust Agreement.
 
 10.20       Form of United Parcel Service, Inc. Incentive Compensation Plan
             (incorporated by reference to United Parcel Service, Inc.'s
             registration statement on Form S-4 (No. 333-83349), filed on
             July 21, 1999, as amended).
 
 21          Subsidiaries of the Registrant.
 
 23          Consent of Deloitte & Touche LLP.
 
 27          Financial Data Schedule.
</TABLE>

 
                                      E-6





<PAGE>
 
                                                                EXHIBIT 10.19(1)


                                AMENDMENT NO. 1

                                    TO THE

                      UPS QUALIFIED STOCK OWNERSHIP PLAN

                              AND TRUST AGREEMENT

                       (Effective as of January 1, 1998)


     WHEREAS, United Parcel Service of America, Inc. and certain of its
affiliated companies established the UPS Qualified Stock Ownership Plan and
Trust ("Plan") effective as of January 1, 1998 to provide their eligible
employees with a matching contribution invested in the common stock of UPS ("UPS
Stock") and to permit eligible employees to transfer amounts from the UPS
Savings Plan to the Plan for the purpose of investing in UPS Stock; and

     WHEREAS, it is desired to amend the Plan to correct a scrivener's error and
to limit transfers from the UPS Savings Plan to the Plan in the case where an
eligible employee's investment in the Plan would exceed twenty percent of the
aggregate amount in such eligible employee's combined accounts under the Plan
and the UPS Savings Plan.

     NOW THEREFORE, pursuant to the authority vested in the Board of Directors
by Section 12.1 of the Plan, the UPS Qualified Stock Ownership Plan is hereby
amended as follows:

     1.  Section 3.1 hereby is amended in its entirety to read as follows
effective as of March 17, 1999:

     Section 3.1  Transfers From Savings Plan.  A participant in the
 Savings
                  ---------------------------                               
     Plan may transfer an amount from his or her individual accounts under the
     Savings Plan to this Plan in accordance with transfer procedures
     established by the Committee and subject to the limitations set forth in
     Section 8.12.

     Any amounts transferred to this Plan pursuant to this Section 3.1 will be
     credited to the Participant's Savings Plan Account that corresponds to the
     subaccount under the Savings Plan from which the amount was transferred.

     2.  The last sentence of Section 8.12 hereby is amended effective as of
January 1, 1998 to read as follows in order to correct a scrivener's error:

     A Participant may not make a Transfer from the Savings Plan to this Plan
     during the one year period beginning on the date of the most recent cash
     withdrawal under Section 8.7 or transfer from this Plan to the Savings
     Plan; provided, however, that the one year restriction will not apply if
     the Participant requests a distribution following a Separation from
     Service.

<PAGE>
 
     3.  Section 8.12 hereby is amended in its entirety effective as of March
15, 1999 to read as follows:

     Section 8.12 Transfers to this Plan.
                  ---------------------- 

     (a) General Rule.  Except as provided in Section 8.12(b), a Participant may
         ------------                                                           
     not make a Transfer from the Savings Plan to this Plan (1) during the one
     year period beginning on the date of the most recent cash withdrawal under
     Section 8.7 or transfer from this Plan to the Savings Plan ("one year
     restriction") or (2) to the extent that the amount transferred from the
     Savings Plan would cause the balance credited to his or her Account to
     exceed twenty percent of the aggregate balance credited to his or her
     Account and to his or her accounts under the Savings Plan ("Twenty Percent
     Limitation").  For purposes of determining the Twenty Percent Limitation,
     the balance credited to an Account and to the accounts under the Savings
     Plan will be determined immediately following the transfer as if the
     transfer to this Plan were allocated then instead of at the end of the
     Accounting Period.

     If a participant in the Savings Plan attempts to transfer an amount from
     the Savings Plan that would cause the balance credited to the Participant's
     Account to exceed the Twenty Percent Limitation, the Trustee only will
     accept the transfer of such amount that once transferred would not cause
     the Account to exceed the Twenty Percent Limitation.  The Trustee will
     reject the transfer of any amount that would, if transferred, cause the
     Account to exceed the Twenty Percent Limitation and send the excess amount
     back to the Savings Plan.

     (b) Transfer in Connection with a Distribution upon a Separation from
         -----------------------------------------------------------------
     Service.  In no event shall the one year limitation or the Twenty Percent
     --------                                                                 
     Limitation on transfers set forth in Section 8.12(a) apply if the
     Participant requests a distribution following a Separation from Service.



     IN WITNESS WHEREOF, United Parcel Service of America, Inc. based upon
action by its Board of Directors on the 15th day of March, 1999, has caused
this Amendment No. 1 to be executed.


ATTEST:                             UNITED PARCEL SERVICE OF
                                    AMERICA, INC.

/s/ Joseph R. Moderow               /s/ James P. Kelly    
______________________              _________________________
Secretary                           Chairman



<PAGE>
 
                                                                EXHIBIT 10.19(2)

 
                                AMENDMENT NO. 2

                                    TO THE

                      UPS QUALIFIED STOCK OWNERSHIP PLAN

                              AND TRUST AGREEMENT

                       (Effective as of January 1, 1998)


     WHEREAS, United Parcel Service of America, Inc. and certain of its
affiliated companies established the UPS Qualified Stock Ownership Plan and
Trust ("Plan") effective as of January 1, 1998 to provide their eligible
employees with a matching contribution invested in the common stock of UPS ("UPS
Stock") and to permit eligible employees to transfer amounts from the UPS
Savings Plan to the Plan for the purpose of investing in UPS Stock; and

     WHEREAS, it is desired to amend the Plan to reflect the suspension of all
transfers from the Savings Plan to the Plan until further notice pending the
completion of the company's proposed merger and public offering announced July
21, 1999.

     NOW THEREFORE, pursuant to the authority vested in the Board of Directors
by Section 12.1 of the Plan, the UPS Qualified Stock Ownership Plan is hereby
amended as follows:

     1.  Section 3.1 hereby is amended in its entirety effective as of July 20,
1999 to read as follows:

     Section 3.1  Transfers From Savings Plan.  In accordance with the authority
                  ---------------------------                                   
     granted to the Committee in Sections 3.1 and 8.22 to establish transfer
     procedures,
 transfers from participants' individual accounts in the Savings
     Plan to this Plan are suspended as of July 20, 1999 in connection with the
     proposed public offering of common stock of a subsidiary of UPS following a
     merger of UPS with that subsidiary. The Committee shall continue to have
     the absolute authority and full discretion to establish transfer procedures
     (including initiating, suspending or terminating transfers from the Savings
     Plan) and to amend those transfer procedures at any time without the
     necessity of a Plan amendment; provided, to the extent transfers are
     permitted, such transfer procedures are consistent with the timing and
     percentage limitations described in Section 8.12.

     Any amounts transferred to this Plan pursuant to this Section 3.1 will be
     credited to the Participant's Savings Plan Account that corresponds to the
     subaccount under the Savings Plan from which the amount was transferred.

<PAGE>
 
     2.  Section 8.12 hereby is amended effective as of July 20, 1999 to add a
new subparagraph 8.12 (c) that reads as follows:

     Section 8.12 Transfers to this Plan.
                  ---------------------- 

          (c)   Committee Procedures.  Subsections 8.12 (a) and (b) shall be
               ---------------------                                        
          operative only to the extent that the Committee permits transfers from
          the Savings Plan to this Plan in accordance with Section 3.1.



     IN WITNESS WHEREOF, United Parcel Service of America, Inc. based upon
action by its Board of Directors on the 27th day of July, 1999, has caused
this Amendment No. 2 to be executed.


ATTEST:                             UNITED PARCEL SERVICE OF
                                    AMERICA, INC.

/s/ Joseph R. Moderow               /s/ James P. Kelly
_______________________             __________________________
Secretary                           Chairman



<PAGE>
 
                                                                EXHIBIT 10.19(3)


                                AMENDMENT NO. 3

                                    TO THE

                      UPS QUALIFIED STOCK OWNERSHIP PLAN

                              AND TRUST AGREEMENT

                      (Effective as of November 15, 1999)


     WHEREAS, United Parcel Service of America, Inc. and certain of its
affiliated companies established the UPS Qualified Stock Ownership Plan and
Trust ("Plan") effective as of January 1, 1998 to provide their eligible
employees with a matching contribution invested in the common stock of UPS ("UPS
Stock") and to permit eligible employees to transfer amounts from the UPS
Savings Plan to the Plan for the purpose of investing in UPS Stock;

     WHEREAS, on November 15, 1999, United Parcel Service of America, Inc. ("Old
UPS") merged into one of its subsidiaries and, as a result, became a subsidiary
of United Parcel Service, Inc. ("New UPS");

     WHEREAS, pursuant to the terms of the merger, each share of UPS Stock held
under the Plan was exchanged for two shares of the Class A common stock of  New
UPS, and each shareholder's interest in Class A common stock was divided as
evenly as possible between Class A-1, Class A-2 and Class A-3 common stock of
New UPS;

     WHEREAS, following the merger, New UPS has announced a cash tender offer to
buy Class A-1 common stock of New UPS; and

     WHEREAS, it is desired to amend the Plan to reflect the merger
 and to
facilitate the tender offer.

     NOW THEREFORE, pursuant to the authority vested in the Board by Section
12.1 of the Plan, the UPS Qualified Stock Ownership Plan is hereby amended as
follows effective as of November 15, 1999:

1.   Section 1.28 is hereby amended to read as follows:

     Section 1.28  Fair Market Value - means
                   -----------------        

     (a)  for any asset other than UPS Stock, the fair market value of that
     asset as determined by the Trustee;

<PAGE>
 
     (b)   for UPS Stock,

           (1) the fair market value of a share of the Class B common stock of
           United Parcel, Inc. ("Class B Stock"), as determined in accordance
           with the following provisions:

               (i) if shares of Class B Stock are listed on any established
               stock exchange or a national market system, the reported closing
               price for a share of Class B Stock as reported by such stock
               exchange or national market system with respect to its normal
               trading session or such other source as the Board deems reliable;
               or

               (ii) if shares of Class B Stock are not listed on any established
               stock exchange or a national market system, the fair market value
               of a share of Class B Stock as determined by the Board in its
               sole and absolute discretion; and

           (2)  at any time after the ESOP feature is activated, the fair market
           value as determined by an "independent appraiser" (as described in
           Code (S) 401(a)(28)) appointed by the Committee for that purpose.


2.    Section 1.57, UPS Stock, is hereby amended to read as follows:
                    ---------                                       

      Section 1.57  UPS Stock -  means the Class A common stock of United Parcel
                    -----------                                                 
      Service, Inc. (including Class A-1, Class A-2 and Class A-3) and other
      securities of United Parcel Service, Inc. or an Affiliate that meet the
      definition of "employer securities" under Code (S) 409(l) or ERISA (S)
      407.


3.    The Plan is hereby amended to delete all references to the UPS Stock
Trust, accordingly:

     (a)   Article I is hereby amended to delete the definition of UPS Stock
           Trust set forth in Section 1.58 and to renumber the subsequent
           paragraph (currently Section 1.59 Valuation Date) so that it is
                                             --------------
           numbered Section 1.58 Valuation Date;
           --------------

     (b)   Section 8.8, Distribution of UPS Stock or Cash; is hereby amended to 
                        ---------------------------------                    
           delete the last sentence thereof;

     (c)   Section 8.9(d), Continuation of Rights, is hereby amended to delete
                           ---------------------- 
           the parenthetical in the last sentence thereof; and

<PAGE>
 
     (d)  Section 8.13(b)(5)(c), regarding eligible rollover distributions, is
          hereby amended to delete the phrase "the custodian or trustee of which
          agrees to be bound by the terms of the UPS Stock Trust" from the last
          sentence thereof.


4.  Article VI is hereby amended to add a new Section 6.7 that reads as follows:

     Section 6.7  Account Adjustments to Reflect November 15, 1999 Merger.  Each
                  -------------------------------------------------------       
     Account shall be adjusted in an equitable manner as directed by the
     Committee to reflect the stock received by the Plan in connection with the
     merger described in the proxy statement/prospectus to the shareowners of
     United Parcel Service of America, Inc. dated September 22, 1999.


5.  Section 8.8 is hereby amended to add the following sentence to the end
thereof:

     If there is more than one class of UPS Stock allocated to an Account, any
     UPS Stock distributed from such Account and any UPS Stock sold to
     distribute cash from such Account shall be taken equally from the shares of
     each such class allocated to such Account in accordance with the procedures
     developed by the Committee, which shall reflect appropriate adjustments for
     shares of any class sold from such Account in any tender offer.


6.  Section 8.10 is hereby amended to add the following sentence to the end
thereof:

     If there is more than one class of UPS Stock allocated to an Account, any
     UPS Stock sold to effect such transfer shall be taken equally from the
     shares of each such class allocated to such Account in accordance with
     procedures developed by the Committee, which shall reflect appropriate
     adjustments for shares of any class sold from such Account in any tender
     offer.


7.  Section 8.11 is hereby amended to add the following sentence to the end
thereof:

     If there is more than one class of UPS Stock allocated to an Account, any
     UPS Stock sold to effect such transfer shall be taken equally from the
     shares of each such class allocated to such Account in accordance with
     procedures developed by the Committee, which shall reflect appropriate
     adjustments for shares of any class sold from such Account in any tender
     offer.

8.  Section 8.12 (a) is hereby amended to add the following sentence to the end
thereof:

     In no event shall an automatic transfer of the proceeds of a tender offer
     to the Savings Plan as described in Section 9.12 (a)(2) be treated as a
     transfer from this 

<PAGE>
 
     Plan to the Savings Plan for the purpose of the one year restriction
     described in this Section 8.12 (a).


9.  Section 9.12(a) hereby is amended

    (a)  to add new paragraphs (3) and (4) as follows:

          (3) February 4, 2000 Tender Offer.  Notwithstanding any contrary
              -----------------------------                               
          provision, paragraph (2) of this Section 9.12(a) will not apply and
          this paragraph (3) will apply with respect to the tender offer by
          United Parcel Service, Inc. for shares of Class A-1 common stock of
          United Parcel Service, Inc. ("Class A-1 Shares") dated February 4,
          2000 (the "February 2000 Tender").  For purposes of this paragraph
          (3), a "Tender Participant" means each Participant or Beneficiary who
          would be entitled to tender whole Class A-1 Shares allocated to his or
          her Account in accordance with the terms of the February 2000 Tender
          if such Class A-1 Shares were owned directly by such Participant or
          Beneficiary and the Class A-1 Shares allocated to his or her Account
          were the only Class A-1 Shares owned by such Participant or
          Beneficiary.  Each Tender Participant will be entitled to instruct the
          Trustee as to whether to tender whole Class A-1 Shares allocated to
          his or her Account and such whole shares will be tendered or not
          tendered by the Trustee in accordance with such instructions.  The
          failure to give a timely direction to tender by Tender Participant
          with respect to Class A-1 Shares allocated to his or her Account is
          deemed to be a direction not to tender.  Accordingly, any whole Class
          A-1 Shares allocated to the Account of a Tender Participant with
          respect to which no direction is received by the Trustee in a timely
          manner will not be tendered.  Fractional shares allocated to an
          Account  and shares allocated to the Account of a Participant or
          Beneficiary other than a Tender Participant will not be tendered.

          (4) Proceeds of Tender Offer.  Notwithstanding the requirements set
              ------------------------                                       
          forth in Section 8.10, the proceeds of the tender of any shares of UPS
          Stock allocated to the Account of a Participant or Beneficiary shall
          be automatically transferred to an account for the benefit of such
          Participant or Beneficiary under the Savings Plan.

     and

     (b) to renumber paragraph (3) (as in effect before this Amendment No. 3) as
         paragraph (5) and amend such new paragraph (5) to read as follows:

          (5)  Communication.  The Trustee will (in an appropriate and timely
               --------------                                                
          manner) furnish, or cause to be furnished, to Participants and
          Beneficiaries who are entitled to direct the Trustee whether to tender
          the shares of UPS 

<PAGE>
 
          Stock allocated to his or her Account with the same information and
          notices as are furnished to other shareholders who are entitled to
          vote or entitled to tender regarding the matters to be voted upon or
          the tender offer and will provide them with adequate opportunity to
          deliver their instructions to the Trustee. The Trustee in its
          discretion will determine the manner in which instructions with
          respect to the voting or tender of UPS Stock will be given and any
          such instructions will be confidential.

 
     IN WITNESS WHEREOF, the undersigned certify that United Parcel Service of
America, Inc. based upon action by its Board of Directors dated February 15,
2000, has caused this Amendment No. 3 to be adopted.


ATTEST:                             UNITED PARCEL SERVICE OF
                                    AMERICA, INC.

/s/ Joseph R. Moderow               /s/ James P. Kelly
_________________________           __________________________
Joseph R. Moderow                   James P. Kelly
Secretary                           Chairman



<PAGE>
 
                                                                      EXHIBIT 21

<TABLE>
<CAPTION>


                  SUBSIDIARIES OF UNITED PARCEL SERVICE, INC.
                             AS OF MARCH 28, 2000

Name of Subsidiary                                    State of Organization    Date of Organization   
------------------                                    ---------------------    --------------------   
<S>                                                   <C>                      <C>                    
 United Parcel Service of America, Inc.               Delaware                 May 9, 1930            
  Elsil Corporation                                   Illinois                 July 3, 1986           
  Evind Corporation                                   Indiana                  November 6, 1969       
  Merchants Parcel Delivery                           Washington               April 5, 1909          
  Nubee, Inc.                                         New York                 December 9, 1943       
  Oasis Wholesale Supply Corporation                  Louisiana                June 15, 1998          
  Parkprop, Inc.                                      Kansas                   March 7, 1989          
  Saskan Corporation                                  Kansas                   June 16, 1969          
  Solacal Company                                     California               February 16, 1966      
   Lacalos Corporation                                Nevada                   January 29, 1986       
  Trailer Conditioners, Inc.                          Delaware                 March 22, 1982         
  United Parcel Service Co.                           Delaware                 January 22, 1953       
  United Parcel Service Deutshland Inc.               Delaware                 September 10, 1980     
   UPS Deutschland Management LLC                     Georgia                  November 21, 1997      
  United Parcel Service General Services Co.          Delaware                 November 4, 1957       
  United Parcel Service Oasis Supply Corporation      Delaware                 September 9, 1997      
  UPICO Corporation                                   Delaware                 December 26, 1974      
  UPINSCO, INC.                                       Virgin Islands           December 1, 1994       
  UPS Air Leasing, Inc.                               Delaware                 October 12, 1989       
   Avenair Corporation                                Nevada                   November 14, 1994      
   Nevair Corporation                                 Nevada                   November 10, 1994      
  UPS Aviation
 Services, Inc.                         Delaware                 February 7, 1989       
  UPS Aviation Technologies, Inc.                     Oregon                   March 9, 1982          
  UPS Business Communications Services, Inc.          Delaware                 July 31, 1998          
  UPS Capital Corporation                             Delaware                 May 28, 1998           
   Glenlake Financial Corp. 
   Glenlake Insurance Agency, Inc.                    Delaware                 July 29, 1998          
    Glenlake Insurance Agency, Inc. of                                                                
     California                                       California               August 10, 1999        
    Glenlake Insurance Agency, Inc. of                                                                
     Kentucky                                         Kentucky                 December 10, 1998      
    Glenlake Insurance Agency, Inc. of Nevada         Nevada                   February 8, 2000       
    Glenlake Managing General Agency, Inc.                                                            
     of Texas                                         Texas                    October 19, 1964       
   UPS Capital Global Trade Finance Corporation       Delaware                 December 14, 1999      
  UPS Customhouse Brokerage, Inc.                     Delaware                 April 1, 1985          
  UPS e-Logistics, Inc.                               Delaware                 January 27, 2000       
  UPS e-Ventures, Inc.                                Delaware                 January 27, 2000       
  UPS International General Services Co.              Delaware                 August 12, 1988        
  UPS International, Inc.                             Delaware                 July 5, 1988           
   United Parcel Service Espana Ltd.                  Delaware                 December 4, 1992       
   United Parcel Service Italia, S.R.L.               Delaware                 January 11, 1993       
   UPS Global Forwarding Services, Inc.               Delaware                 March 17, 1992         
   UPS International Forwarding, Inc.                 Delaware                 August 13, 1990        
   UPS Latin America, Inc.                            Delaware                 November 12, 1993      
   UPS of China, Inc.                                 Delaware                 April 25, 1995         
   UPS of Greece, Inc.                                Delaware                 May 10, 1996           
   UPS of Norway, Inc.                                Delaware                 September 25, 1992     
   UPS of Portugal, Inc.                              Delaware                 June 30, 1992          
  UPS Internet Services, Inc.                         Delaware                 August 8, 1997         
  UPS Logistics Group, Inc.                           Delaware                 May 24, 1996           
   Diversified Trimodal, Inc.                         Delaware                 July 25, 1979          
   Pax Logistics International, Ltd.                  Delaware                 March 18, 1998         
   Roadnet Technologies, Inc.                         Delaware                 May 12, 1986           
   SonicAir, Inc.                                     Arizona                  February 16, 1995      
   UPS Autogistics, Inc.                              Delaware                 January 31, 2000        
</TABLE>


<PAGE>
 

<TABLE> 
<CAPTION> 

 
Name of Subsidiary                                    State of Organization    Date of Organization  
------------------                                    ---------------------    --------------------  
<S>                                                   <C>                      <C>                           
   UPS Logistics Group International, Inc.            Delaware                 February 3, 2000      
   UPS Worldwide Logistics, Inc.                      Delaware                 December 18, 1992     
    Worldwide Logistics - Nevada, Inc.                Delaware                 January 4, 1999       
    Worldwide Logistics - Tristate, A UPS                                                                                 
     Worldwide Logistics Company                      Delaware                 June 25, 1998         
   Worldwide Dedicated Services, Inc.                 Delaware                 June 9, 1995          
  UPS Procurement Services Corporation                Delaware                 September 9, 1997     
  UPS Professional Services, Inc.                     Delaware                 December 8, 1997      
  UPS Properties, Inc.                                Delaware                 May 9, 1990           
   El Paso Distribution Center, Inc. (One)            Texas                    September 17, 1990    
   El Paso Distribution Center, Inc. (Two)            Texas                    September 17, 1990    
   Tri-State Distribution, Inc. (One)                 Illinois                 September 14, 1990    
   Tri-State Distribution, Inc. (Two)                 Illinois                 September 14, 1990    
   Tri-State Distribution, Inc. (Three)               Illinois                 September 14, 1990    
   Tri-State Distribution, Inc. (Four)                Illinois                 September 14, 1990    
   Tri-State Distribution, Inc. (Five)                Illinois                 September 14, 1990    
   Vista Distribution Center, Inc. (One)              Nevada                   September 14, 1990    
   Vista Distribution Center, Inc. (Two)              Nevada                   September 14, 1990    
   Vista Distribution Center, Inc. (Three)            Nevada                   September 14, 1990    
   Vista Distribution Center, Inc. (Four)             Nevada                   September 14, 1990    
   Vista Distribution Center, Inc. (Five)             Nevada                   September 14, 1990    
  UPS Telecommunications, Inc.                        Delaware                 April 25, 1990        
  UPS Worldwide Forwarding, Inc.                      Delaware                 August 12, 1988       
   BT Property Holdings, Inc.                         Delaware                 June 25, 1999         
    BT Property, LLC                                  Delaware                 June 4, 1999          
   United Parcel Service, Inc.                        New York                 June 27, 1930         
    BT Realty Holdings, Inc.                          Delaware                 May 18, 1999          
     BT Realty, Inc.                                  Maryland                 May 12, 1999          
      BT-Newyo, LLC                                   Delaware                 June 11, 1999         
       Condel, LLC                                    Delaware                 June 11, 1999         
    C.C. & E. Holding, LLC                            Delaware                 June 11, 1999         
     C.C. & E. I, L.L.C.                              Delaware                 February 22, 1996     
   United Parcel Service, Inc.                        Ohio                     March 19, 1934        
    BT Realty Holdings II, Inc.                       Delaware                 May 18, 1999          
     BT Realty II, Inc.                               Maryland                 May 12, 1999          
      BT-OH, LLC                                      Delaware                 June 4, 1999           
</TABLE>
 
 
 

<PAGE>
 

<TABLE> 
<CAPTION> 
International Subsidiaries

Name of Subsidiary                                    State of Organization    Date of Organization              
------------------                                    ---------------------    --------------------              
<S>                                                   <C>                      <C> 
UPS de Argentina, S.A                                 Argentina                September 25, 1998                
United Parcel Service Pty. Ltd.                       Australia                December 7, 1990                  
UPS Pty. Ltd.                                         Australia                january 19, 1990                  
United Parcel Service                                                                                            
Speditionsgesellschaft m.b.H.                         Austria                  September 2, 1986                 
UPS AZ                                                Azerbaijan               January 29, 1998                  
United Parcel Service (Bahrain) WLL                   Bahrain                  February 19, 1983                 
UPS Belarus                                           Belarus                  February 10, 1997                 
United Parcel Service Belgium N.V                     Belgium                  December 22, 1988                 
UPS Europe N.V./S.A                                   Belgium                  September 24, 1996                
United Parcel Service (Bermuda) Ltd.                  Bermuda                  June 25, 1985                     
UPS of Bermuda, Inc.                                  Bermuda                  June 25, 1985                     
UPS Re Ltd.                                           Bermuda                  October 29, 1999                  
UPS do Brasil & Cia                                   Brazil                   January 24, 1994                  
2855-8278 Quebec Inc.                                 Canada                   April 24, 1991                    
724352 Ontario Limited                                Canada                   June 19, 1987                     
United Parcel Service Canada Ltd.                     Canada                   September 19, 1974                
UPS Logistics Group Canada Ltd.                       Canada                   December 1, 1998                  
United Parcel Service Cayman Islands Limited          Cayman Islands           June 5, 1992                      
UPS Cayman Limited                                    Cayman Islands           July 28, 1999                     
United Parcel Service Chile Limitada                  Chile                    January 14, 1997                  
UPS De San Jose, S.A.                                 Costa Rica               July 27, 1995                     
United Parcel Service Czech Republic S.R.O.           Czech Republic           July 29, 1998                     
UPS Denmark A/S                                       Denmark                  January 1, 1989                   
UPS Dominicana S.A.                                   Dominican Republic       June 18, 1997                     
United Parcel Services Finland OY                     Finland                  January 28, 1987                  
Finon S.A.                                            France                   February 21, 1989                 
United Parcel Service France S.N.C.                   France                   March 31, 1994                    
UPS Worldwide Logistics SARL                          France                   August 14,1997                    
UPS Georgia                                           Georgia                  March 17, 1997                    
Prost-Transports S.A. Speditionsgesellschaft gmbH     Germany                  1989                              
UPS Air Cargo Service GmbH                            Germany                  January 12, 1988                  
UPS Deutschland Inc. and Co. OHG                      Germany                  October 12, 1997                  
UPS Grundstuecksverwaltungs GmbH                      Germany                  February 25, 1985                 
UPS Holding GmbH                                      Germany                  January 9, 1976                   
UPS Transport GmbH                                    Germany                  August 5, 1976                    
UPS Transport GmbH II                                 Germany                  July 23, 1990                     
UPS Worldwide Logistics GmbH                          Germany                  August 17, 1993                   
UPS Capital Global Trade Finance (HK) Limited         Hong Kong                December 29, 1999                 
UPS Parcel Delivery Service Limited                   Hong Kong                November 6, 1987                  
UPS Hungary kft                                       Hungary                  November 1, 1997                  
United Parcel Service CSTC Ireland Limited            Ireland                  June 8, 1995                      
United Parcel Service of Ireland Limited              Ireland                  March 25, 1986                    
United Parcel Service Italia, S.R.L                   Italy                    July 30, 1986                     
UPS Japan Limited                                     Japan                    October 14, 1986                  
United Parcel Service Jersey Limited                  Jersey                   October 23, 1973                  
UPS (KZ)                                              Kazaksthan               December 20, 1996                 
UPS-Korea Express Company Ltd.                        Korea                    January 30, 1996                  
United Parcel Service (M)Sdn. Bhd.                    Malaysia                 August 17, 1988                   
United Parcel Service de Mexico S.A. de C.V.          Mexico                   November 22, 1989                 
UPS Worldwide Logistics de Mexico                     Mexico                   June 3, 1996                      
UPS Plus SRL (Moldova)                                Moldova                  July 25, 1997                     
Prost-Transports Frankrijk B.V.                       Netherlands              July 20, 1988                      
</TABLE>
 


<PAGE>
 

<TABLE> 
<CAPTION> 
 
Name of Subsidiary                                    State of Organization    Date of Organization              
------------------                                    ---------------------    --------------------              
<S>                                                   <C>                      <C>                            
United Parcel Service Nederland B.V.                  Netherlands              December 19, 1985                 
UPS Worldwide Logistics Nederland BV                  Netherlands              January 31, 1996                  
United Parcel Service Nigeria Ltd.                    Nigeria                  December 28, 1978                 
UPS Norge A/S                                         Norway                   August 8, 1986                    
UPS-Delbros International Express Co. Ltd.            Philippines              February 27, 1997                 
UPS International General Services Co.                Philippines              November 19, 1996                 
UPS of Portugal - Transportes Internacionais                                                                                      
 de Mercadorias Lda                                   Portugal                 September 12, 1997                
United Parcel Service (Rus) o.o.o.                    Russia                   May 31, 1999                      
UPS Sovtransavto                                      Russia                   December 1, 1989                  
United Parcel Service Singapore PTE Ltd.              Singapore                June 15, 1988                     
UPS Worldwide Logistics Asia Pte., Inc.               Singapore                November 17, 1995                 
Sociedad Iversora Sanrelman, S.A.                     Spain                    November 17, 1988                 
United Parcel Service Espana Ltd.                                                                             
 Y Compania, S.R.C.                                   Spain                    January 1, 1993                   
UPS Spain, S.L.                                       Spain                    March 9, 1988                     
United Parcel Service Sweden AB                       Sweden                   January 1, 1966                   
United Parcel Service (Switzerland)                   Switzerland              August 28, 1986                   
UPS Parcel Delivery Service Limited                   Thailand                 September 28, 1988                
Ukrainian Parcel Service                              Ukraine                  March 11, 1994                    
Atexco (1991) Limited                                 United Kingdom           March 6, 1985                     
Atlasair Limited                                      United Kingdom           July 24, 1947                     
Carryfast Limited                                     United Kingdom           August 4, 1941                    
United Parcel Service of America                      United Kingdom           October 28, 1991                  
UPS Air Couriers of America Ltd.                      United Kingdom           February 11, 1969                 
UPS Capital Global Trade Finance (U.K.) Ltd.          United Kingdom           May 7, 1999                       
UPS (UK) Limited                                      United Kingdom           October 2, 1984                   
UPS Limited                                           United Kingdom           July 24, 1985                     
UPS of America Limited                                United Kingdom           March 5, 1985                     
UPS Worldwide Logistics Ltd.                          United Kingdom           November 28, 1995                  
</TABLE>
 



<PAGE>
 
                                                                     EXHIBIT 23
 
                         INDEPENDENT AUDITORS' CONSENT
 
  We consent to the incorporation by reference in Registration Statements No.
333-08369-01 (on Form S-3) and 333-93213 (on Form S-8) of United Parcel
Service, Inc. and in Registration Statements No. 333-72127, 333-24805, 333-
23969, 333-23971 and 33-46840 (on Form S-8) of United Parcel Service of
America, Inc. of our report dated January 31, 2000, which includes an
explanatory paragraph relating to the merger of United Parcel Service, Inc.
and United Parcel Service of America, Inc. in 1999, appearing in the Annual
Report on Form 10-K of United Parcel Service, Inc. for the year ended December
31, 1999.
 
DELOITTE & TOUCHE LLP
 
Atlanta, Georgia
March 28, 2000





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<PAGE>
 
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<CIK> 0001090727
<NAME> UNITED PARCEL SERVICE, INC.
<MULTIPLIER> 1,000,000
       
<S>                             <C>
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<CGS>                                                0
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