FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

(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, 2000

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

UNITED PARCEL SERVICE, INC.

(404) 828-6000

Securities registered pursuant to Section 12(b) of the Act:

     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    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 1, 2001, the aggregate market value of the class B common stock held by non-affiliates of the registrant was approximately $13,011,964,539. As of February 1, 2001, non-affiliates held 875,345,640 shares of class A common stock and 211,336,114 shares of class B common stock. Our class A common stock is not listed on a national securities exchange or traded in an organized over-the-counter market, but each share of our class A common stock is convertible into one share of our class B common stock.

     As of February 1, 2001, there were 919,322,844 outstanding shares of class A common stock and 211,355,587 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 17, 2001 are incorporated by reference into Part III of this Report.

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 as a private messenger and delivery service in the Seattle, Washington area. Over the past 94 years, we have expanded from a 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 2000, we delivered an average of more than 13.6 million pieces per day worldwide. Total revenue in 2000 was over $29.7 billion. We focus on the movement of goods, information and funds, and we seek to position ourselves as the world’s premier enabler of global commerce.

      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 global transportation infrastructure and developed a comprehensive portfolio of guaranteed delivery services, and we support 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.

Competitive Strengths

      We have the following competitive strengths:

      Global Reach and Scale. We believe that our integrated global ground and air network is the most extensive in the industry. We operate more than 150,000 vehicles and over 600 airplanes. In the U.S., we estimate that our integrated door-to-door delivery system carries goods having a value in excess of 6% of the U.S. gross domestic product, and we reach all U.S. businesses and residential addresses. We have invested billions of dollars in information technology, a fleet of airplanes and sorting facilities across our vast global delivery network. Based on number of jet aircraft operated, we are the ninth largest airline in North America. Our primary air hub is located in Louisville, Kentucky.

      We established our first international operation in Canada in 1975, and we established a domestic operation in West Germany in 1976. In the 1980s and early 1990s, we expanded our operations throughout Europe as the single market created by the European Union drove the need for pan-European delivery services. Today, we have what we believe is the most comprehensive integrated delivery and information services portfolio of any carrier in Europe, and we offer a broad portfolio of time-definite services, ranging from same-day delivery to logistics solutions for total supply chain management.

      In the last decade, we created more than two dozen alliances with Asian delivery companies to supplement company-owned operations, and we currently serve more than 40 Asia Pacific countries and territories. In January 2001, the U.S. Department of Transportation awarded us rights to fly directly from the U.S. to China. We began direct service from the U.S. to China in April 2001.

      We also have operations in Latin America and the Caribbean, and we are positioned to capitalize upon the growth potential in those regions. Through our 2000 acquisition of the assets and air routes of Challenge Air Cargo, we have become the largest air cargo carrier in Latin America. Our 2000 acquisition of Comlasa has positioned us as a leading provider of service parts logistics in Latin America and the Caribbean. In addition, we have formed alliances with a number of service partners in countries throughout our Americas region.

      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. In 2000, we transmitted over 1.3 billion packets of data via wireless networks, and we currently collect electronic data on over 10.5 million

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      We have made significant investments in technology over the past decade. Citing UPS as the company making the greatest advancement in integrating both physical and online business practices, MIT’s Sloan School of Business awarded UPS its 2000 Clicks & Mortar Award. In ranking UPS second in its Fast Track 500, eWeek said that UPS “has firmly established itself as an e-business innovator.” The state-of-the-art technology that we 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, we process approximately 85% of our domestic volume using a UPS or UPS-compatible shipping system.

      The following are examples of our technology:

	•	we built and maintain the world’s largest private DB2 database;
	•	we utilize the fastest and most complete delivery information hand-held computer used by any delivery company in the world;
	•	in selected hubs, we have installed sophisticated, automated sortation systems to improve processing speed and operational efficiency; and
	•	we offer an array of UPS OnLine® solutions, which provide proprietary software solutions 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 AMR Research, Internet-based business-to-business commerce will grow to $5.7 trillion, and 29% of all business to business transactions will be Internet-based, by 2004. We have teamed with over 100 e-commerce leaders to offer fully integrated Web-enabled solutions for our customers. In fact, according to ActivMedia, more than 60% of the top 100 consumer e-commerce 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. These solutions give our customers, and our partners’ customers, UPS service options integrated into their websites and their information technology infrastructures. 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 high-value 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. Our site, www.ups.com, receives over 40 million hits and processes over 3.5 million package tracking transactions daily. This technology allows us to strengthen ties to our customers. They can easily download our interfaces to UPS transportation functionality, known as UPS OnLine Tools, to their own websites for direct use by their customers. This allows users to access our tools without leaving our customers’ websites. UPS OnLine Tools include tracking, rates, service selection, address validation, time-in-transit detail and shipping.

      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 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.

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      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 Courier^SM. 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 offer 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 the costs and productivity concerns associated with providing full Internet access.

      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 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 world’s premier enabler of global commerce.

      We focus on building and maintaining long-term customer relationships. We deliver packages each business day for 1.8 million shipping customers to six million consignees. In addition, thousands of other customers access us daily through on-call pick-up for air delivery services, about 52,000 letter drop-boxes, and over 25,000 independently owned authorized shipping outlets.

      We place significant importance on the quality of our customer relationships and conduct comprehensive market research to monitor customer perceptions. Since 1993, 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 categories of 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. This proprietary Customer Satisfaction Index allows us to continuously monitor satisfaction levels, to focus our sales and communications efforts and new service developments, and to develop process improvement initiatives.

      Brand Equity. We have built strong brand equity as a leader in quality service and product innovation in our industry. 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;
	•	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; and
	•	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

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      Increasingly, our customers recognize that we are an innovator of transportation and information-based business solutions on a broadening global scale. For example, in 2000 we launched UPS Signature Tracking, which allows customers to electronically view the actual signature image of the person who signed for a shipment at a delivery as captured on the delivery driver’s handheld computer. The information includes the full delivery address and, if applicable, the C.O.D. amount. We introduced this service in a secure environment on www.ups.com in 13 European countries, the U.S., Canada and Puerto Rico. UPS Signature Tracking has caused a significant decline in the number of phone calls to our customer service centers for these information requests, with a 25% reduction achieved in December 2000 compared to December 1999.

      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 maintain several stock-based compensation programs. 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 80% of our total outstanding shares and control about 98% of the voting power of our outstanding stock.

      Our long-standing policy of “promotion from within” complements our tradition of employee ownership, and this policy has reduced significantly 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. Our CEO and most of our executive officers have more than 25 years of service with us and have 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.

      Our many community service activities include:

	•	UPS Foundation. Since 1951, The UPS Foundation has provided financial support to alleviate social problems — most notably programs that support family and workplace literacy, food distribution and nationwide volunteerism. The UPS 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 workforce and customer base and to allow these managers to apply their problem solving skills in the community.
	•	Neighbor-to-Neighbor. Through an ongoing company-wide initiative, we match our employees’ and their families’ volunteer efforts with local programs. In 2000, over 19,500 volunteers donated almost 300,000 hours through this program.
	•	United Way. Since our first campaign in 1982, we and our employees have contributed over $478 million to the United Way. In its 2000/2001 campaign, UPS was the largest corporate giver to United Way 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 nearly 30,000 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.

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      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, 2000, we had a balance of cash, cash equivalents, marketable securities and short-term investments of approximately $1.95 billion and shareowners’ equity of $9.74 billion. Long-term debt was $2.98 billion. Our financial strength has given us the resources to achieve global scale and to make needed investments in technology and fleet to facilitate our 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:

      Build on 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 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.

      Continue International Expansion. We have built a strong international presence through significant investments over a number of years. In 2000, our international package operations generated $4.17 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. As the European Community 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 additional 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.

      We also are investing in our Asian air network to enhance our operations, and we have developed new multi-million dollar hubs in Hong Kong and Taiwan. We have 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. In January 2001, the U.S. Department of Transportation awarded us rights to fly directly from the U.S. to China. We began direct service from the U.S. to China in April 2001.

      We believe that there is significant untapped potential for us to expand our service offerings in Latin America. To this end, we have introduced overnight delivery between key cities in the Mercosur and other trade blocs. Most importantly, through our acquisition of the assets and air routes of Challenge Air Cargo, we have 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.

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      Provide Comprehensive Supply Chain and Financial Solutions. Many businesses have decided to outsource the management of all or part of their supply chains to streamline and gain efficiencies, to strengthen their balance sheets and to improve service. We anticipate that there will be further demand for a global service offering that incorporates transportation, service parts logistics, and 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 50 countries, with about 10 million square feet of distribution space and 35 centralized locations worldwide, and we have acquired leading supply chain management and service parts logistics providers in France, Latin America, Asia, Australia and Canada.
	•	We focus on technology, reengineering 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 supply chain management across many industries and geographies, to establish innovative ways to speed products to market and to recommend to our customers more efficient services for their customers.
	•	In January 2001, we agreed to acquire Fritz Companies, Inc., a global freight forwarding, customs brokerage and logistics concern, which we believe will enable us to offer a broad, integrated portfolio of services for moving everything from small packages to heavy freight, by any mode of transport, anywhere in the world.

      To complement our existing logistics and supply chain solutions, we are creating a portfolio of financial products and services that capitalizes on our financial strength, customer relationships and extensive package-level data on our customers’ shipments. UPS Capital™ Corporation provides customers these products and services in a variety of forms. And in January 2001, we agreed to acquire First International Bancorp, Inc., which we believe will enable us to create a powerful combination of financial, shipping and logistics solutions for customers that will enable them to better manage their supply chains.

      Leverage Our Leading-Edge Technology and E-Commerce Advantage. According to research firm eMarketer, online retail sales will grow 57% during 2001 to $65.9 billion. We believe that e-commerce will drive smaller and more frequent shipments and provide a strong complement to our core delivery service offerings.

      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 generally 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 marketplace solutions, and to integrate our technologies into their solutions and into the websites and systems of their customers.

      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.

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      Pursue Strategic Acquisitions and Global Alliances. In order to remain the preeminent 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 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; and
	•	expand our geographic presence and managerial expertise.

      During 2000, we completed 13 acquisitions, which were concentrated primarily in the non-package segment and the customs brokerage industry. In the first quarter of 2001, we announced three additional acquisition agreements:

	•	Fritz Companies, Inc. On January 10, 2001, we announced that we had entered into an agreement to acquire Fritz Companies, Inc., a global freight forwarding, customs brokerage and logistics concern, for approximately $450 million in class B common stock. We believe that this acquisition will enable us to offer a broad, integrated portfolio of services for moving everything from small packages to heavy freight, by any mode of transport, anywhere in the world.
	•	First International Bancorp, Inc. On January 16, 2001, we announced that we had entered into an agreement to acquire First International Bancorp, Inc., a provider of structured trade finance, commercial and government-backed lending products, for approximately $78 million in class B common stock. We believe that this acquisition will enable us to create a powerful combination of financial, shipping and logistics solutions for customers that will enable them to better manage their supply chains.
	•	Mail Boxes Etc. On March 2, 2001, we announced that we had entered into an agreement to acquire substantially all of the assets of Mail Boxes Etc., the world’s largest franchisor of independently owned and operated business, communication and shipping centers, for approximately $191 million in cash. We believe that this acquisition will allow us to develop new opportunities in such areas as small business services, e-commerce and financial services.

      Each of these transactions is subject to closing conditions, and each is expected to close during the second quarter of 2001.

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 Ground^SM, which gives guaranteed, time-definite delivery of all commercial ground packages.

      In addition to our standard ground delivery product, UPS Hundredweight Service® 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 LTL or air freight forwarder rates. UPS Hundredweight Service is available in all 48 contiguous states.

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  Domestic Air Services

      We provide domestic air delivery throughout the United States. UPS Next Day Air® 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.

      UPS Next Day Air Early A.M.® 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 Next Day Air Early A.M. is available from virtually all overnight shipping locations coast to coast. In addition, UPS Next Day Air Saver® 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.® provides guaranteed delivery of packages and documents to commercial addresses by noon of the second business day;
	•	UPS 2nd Day Air® provides guaranteed delivery of packages and documents in two business days; and
	•	3 Day Select® provides guaranteed delivery in three business days.

  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 2000, 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 Express^SM and UPS Worldwide Expedited^SM. This portfolio includes guaranteed 8:00 a.m., 8:30 a.m., 10:30 a.m., and 12:00 p.m. next business day delivery to major cities, including delivery by 10:30 a.m. to over 700 cities in Europe, 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 and other parts of the world.

      UPS Worldwide Express 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 from the U.S. and other parts of the world to other destinations via UPS Worldwide Express generally are delivered in one to three business days.

      UPS Worldwide Express Plus^SM 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 to major business centers around the world.

      We have two additional shipment pricing options in our major international markets for UPS Worldwide Express and UPS Worldwide Express Plus: the UPS 10KG Box® 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, respectively. Customers using these packaging options receive flat rates based on destination.

      We also offer UPS Worldwide Expedited 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

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      UPS 3 Day Select^SM from Canada is an example of our ability to support customers’ commerce needs between the major trading lanes of the U.S. and Canada. UPS 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.

      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. It offers delivery typically between one and five days, depending on distance.

      UPS domestic services in major countries complement our delivery service portfolio and provide time-definite delivery options for packages moving between points in those countries.

  Delivery Service Options

      We offer additional services such as Consignee Billing, Delivery Confirmation and UPS Return Services 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.

      UPS Return Services provide our customers with multiple solutions to meet their various returns needs:

	•	UPS Returns, which are solutions that provide a return label to the end-user;
	•	UPS Returns Plus, which are solutions that provide a return label and a pickup to the end-user; and
	•	UPS Returns on the Web, which is a Web-based solution that enables an end-user to generate a return label directly from a vendor’s website.

Products and Services — Non-Package Operations

  UPS Logistics Group

      We formed UPS Logistics Group, Inc. in 1995. UPS Logistics Group offers a full portfolio of logistics services on a global or regional level, including supply chain network design, re-engineering and management expertise, leading-edge information systems and value-added services such as product testing, configuration and returns management. UPS Logistics Group’s operations in North America, Europe, Asia and Latin America include hundreds of distribution facilities and strategic stocking locations.

      UPS Logistics Group provides its comprehensive logistics solutions through four primary business units:

	•	Supply Chain Management provides solutions to re-engineer and manage supply chains — from supplier through manufacturer, distributor, dealer or end-consumer — in a wide variety of industries, including computers, telecommunications, automotive, electronics, e-commerce and healthcare.
	•	Transportation Services manages complex transportation networks and a full range of multi-modal options. It provides transportation network analysis and re-engineering, lane and mode optimization, carrier selection and routing, tracking and tracing, auditing and freight payment and other value-added services that cover a full range of shipment sizes and weights and multiple modes. It also provides dedicated contract carriage services and specialized automotive services ranging from inbound sourcing to finished vehicle delivery network management and aftermarket distribution.
	•	Service Parts Logistics manages post-sale support, including strategic stocking locations, urgent parts deliveries and return-and-repair operations across a wide variety of industries. It provides logistics

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		planning, central parts distribution, inventory management, returns management, SmartCourier® field repair, depot repair and hundreds of strategically placed forward stocking locations.
	•	Logistics Technologies provides integrated logistics information systems and services, offering flexible, proprietary software systems that include territory planning, routing and scheduling, real-time dispatch and tracking, end-to-end transportation solutions and total delivery and returns management. This unit also supports UPS Logistics Group customer solutions.

  UPS Capital Corporation

      UPS Capital and its subsidiaries deliver a portfolio of financial products and services that help customers expand operations, market to new accounts, improve inventory management, accelerate cash flow, lease new equipment and expand working capital. Its portfolio includes:

	•	C.O.D. Enhancement Services, which offers UPS C.O.D. shippers fast and convenient options for depositing C.O.D. remittances. UPS C.O.D. Automatic provides advance funding of C.O.D. remittances, depositing immediately available funds generally within two to three days after delivery. UPS C.O.D. Direct Deposit deposits C.O.D. remittance checks to an account generally within two to three days after delivery.
	•	Distribution Finance, which helps customers minimize carrying costs and increase cash flow. Services include accounts receivable financing, asset-based lending and accounts receivable purchase.
	•	Equipment Leasing, which provides leases for a full range of business equipment costing from $1,000 to $250,000, including computers, copiers and printers, telecommunications systems, office furniture and warehouse and materials handling machinery.
	•	Global Trade Finance, which provides international trade financial solutions, including export receivables services and export letters of credit services.
	•	Glenlake Insurance Agency, which is a full-service provider of financial and insurance solutions for the small business owner. It provides excess value insurance, C.O.D. Secure, world risk international insurance, small business insurance and credit insurance.

  Other Non-Package Operations

      We also have subsidiaries that provide other value-added services, such as consulting, call-center operation and e-commerce solutions.

	•	UPS Professional Services, Inc. provides global management consulting that delivers strategic business solutions in the areas of distribution strategy, service parts logistics, engineering services, fleet services, technology solutions, e-commerce solutions and package design and testing.
	•	UPS Business Communications Services, Inc. offers full support for call-center services, e-commerce, quality measurement and telecommunications consulting.
	•	UPS e-Ventures, Inc. is a corporate incubator for UPS that identifies, tests and rapidly launches new UPS businesses, focusing on e-commerce. e-Ventures serves as the research, development and incubation arm of UPS-based ideas that go beyond package delivery.
	•	UPS e-Logistics, Inc. offers online businesses a wide range of “behind the scenes” services to manage the entire supply chain once an order is placed on a website. It provides a complete menu of bundled and configurable services for e-businesses, including small- and medium-sized e-commerce business and dot-com divisions of established companies. These services include a network of distribution centers, inventory management, order fulfillment (pick, pack and ship), inbound/outbound transportation, customer call centers, returns management and management reporting.

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  Electronic Services

      We provide a variety of UPS OnLine solutions that support automated shipping and tracking. UPS OnLine WorldShip® is software that is available in 50 countries around the world. WorldShip helps shippers streamline their shipping activities by processing shipments, printing address labels, tracking packages and providing management reports, all from a desktop computer. WorldShip supports the portfolio of UPS services, including international shipments, and provides support for preparation of export documentation. UPS Internet Shipping is a quick and convenient way to ship packages using the Web without installing additional software. Internet Shipping is available in the U.S. and most major markets in Europe, Asia and Latin America. 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 UPS 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 Exchange^SM, featuring UPS OnLine Courier^SM 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 secure 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.

Sales and Marketing

      Our field sales organization includes about 3,700 domestic and 1,100 international account executives worldwide. Account executives are assigned 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.

      In addition to our general sales force, we have three supplemental sales forces. In the U.S., we have an international business sales force, which is focused on international business out of major U.S. business centers, and a UPS Hundredweight Service sales force, which targets LTL volume. Globally, we have an e-commerce sales team, which focuses on UPS technology solutions for businesses. 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, 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.

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Employees

      During 2000, we had approximately 359,000 employees. We recently were named one of Fortune magazine’s “Diversity Elite — 50 Best Companies for Blacks, Asians and Hispanics” for the second consecutive year.

      As of December 31, 2000, we employed approximately 214,000 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. Our airline mechanics are covered by a collective bargaining agreement with Teamster Local 2727, which becomes amendable July 31, 2001. The majority of our ground mechanics who are not employed under agreements with the Teamsters are employed under collective bargaining agreements with the International Association of Machinists and Aerospace Workers. These agreements have various expiration dates between July 31, 2002 and May 31, 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.

      We believe 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. We are subject to U.S. customs laws and regulations regarding the import and export of shipments to and from the U.S. In addition, our customs brokerage entities are subject to those same laws and regulations as they relate to the filing of documents on behalf of client importers and exporters.

      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 2000 were about $11.1 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.

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      Our ground transportation of packages in the United States is subject to the DOT’s jurisdiction with respect to the regulation of routes and to 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.

      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.

Item  1A.     Executive Officers of the Registrant

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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 27 principal U.S. package operating facilities, which have floor spaces that range from about 310,000 to 693,000 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, and we own or lease about 1,150 additional smaller package operating facilities in the U.S. 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 almost 600 facilities that support our international package operations and hundreds of facilities that support our non-package operations. UPS Logistics Group maintains facilities with about 10 million square feet of floor space. 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, and our Asia-Pacific air hub is located in Taipei, Taiwan. Our regional air hub in Canada is located in Hamilton, Ontario.

      Our new automated sorting facility, “Hub 2000,” currently is under construction in Louisville, Kentucky. We expect this new facility, which commenced partial operations in September 2000, 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 175,000 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.

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Fleet

  Aircraft

      The following table shows information about our aircraft fleet as of December 31, 2000:

      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 2000, we took delivery of seven Airbus A300-600 aircraft. We have firm commitments to purchase 13 Boeing MD-11 aircraft between 2001 and 2004, two Boeing 767-300 aircraft in 2001, and 83 Airbus A300-600 aircraft between 2001 and 2009. We also have options to purchase 22 Boeing MD-11 aircraft between 2005 and 2010 and 50 Airbus A300-600 aircraft between 2004 and 2012.

  Vehicles

      We operate a ground fleet of more than 150,000 vehicles, ranging from custom built delivery vehicles to large tractors and trailers, including over 2,000 vehicles operated by subsidiaries of UPS Logistics Group.

      Our ground support fleet consists of over 25,000 pieces of equipment designed specifically to support our aircraft fleet, ranging from non-powered container dollies and racks to powered aircraft main deck loaders and cargo tractors. We also have over 30,000 containers used to transport cargo in our aircraft.

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. 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.

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	•	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 2,700 drivers who have driven for 25 years or more without an avoidable accident.

      We have 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 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., a Bermuda company (OPL), 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.

      The IRS, in an issued report, has taken similar positions for tax years 1991 through 1994. We expect the IRS to take similar positions for tax years 1995 through 1999. 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 have appealed the decision to the U.S. Court of Appeals for the Eleventh Circuit. The Eleventh Circuit has heard oral arguments. We do not know when the court will render a decision.

      In our 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.

      We determined the size of our reserve with respect to these matters in accordance with accounting principles generally accepted in the United States of America based on our estimate of our most likely liability. In making this determination, we concluded that it is more likely that we will be required to pay taxes on income reported by OPL and interest, but that it is not probable that we will 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, and on August 8, 2000, we deposited an additional $91 million, 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

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      After the Tax Court decision, National Union Fire Insurance Company, a subsidiary of American International Group, Inc., notified OPL that effective September 30, 1999, it would terminate the five underlying policies that provide shippers’ risk insurance for UPS customers. The termination of these policies triggered the immediate termination of the reinsurance agreement between National Union and OPL.

      UPS, on behalf of our customers, and National Union agreed on a restructuring of this program, which became effective October 1, 1999. Commencing on October 1, 1999, National Union issued five new policies that include coverage for UPS customers. Glenlake Insurance Agency, Inc., a licensed insurance agency formed in 1998 and a wholly owned subsidiary of UPS Capital Corporation, now offers excess value package insurance to be issued under the five new polices.

      UPS Re Ltd., a wholly owned subsidiary of UPS, has entered into a reinsurance agreement under which it will reinsure substantially all of the risks underwritten by National Union in exchange for substantially all of the premiums collected. UPS Re Ltd., is a licensed reinsurance company formed in 1999 to reinsure risks related to UPS and its subsidiaries. UPS Re Ltd., which is domiciled in Bermuda, has elected to be taxed on its income as part of UPS’s consolidated income tax return for federal income tax purposes. This revised arrangement should eliminate the issues considered by the Tax Court in the Notices of Deficiency relating to OPL for the periods after September 1999.

      The IRS has proposed adjustments, unrelated to the OPL matters discussed above, regarding the allowance of deductions and certain losses, the characterization of expenses as capital rather than ordinary, the treatment of certain income, and our entitlement to the investment tax credit and the research tax credit in the 1985 through 1990 tax years. The proposed adjustments would result in $15 million in additional income tax expense. Also, the IRS has issued a report taking a similar position with respect to some of these issues for each of the years from 1991 through 1994. This report proposes adjustments that would result in $155 million in additional income tax expense. For the 1985 through 1994 tax years, unpaid interest on these adjustments through 2000 could aggregate up to $368 million, after the benefit of related tax deductions. We expect that we will prevail on substantially all of these issues. Specifically, 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. The IRS may take similar positions with respect to some of these issues for each of the years 1995 through 2000. 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. We believe the eventual resolution of these issues will not result in a material adverse effect on our financial condition, results of operations or liquidity.

      We have been named as a defendant in 23 lawsuits that seek to hold us (and, in certain cases, other defendants) liable for the collection of premiums for excess value package insurance in connection with package shipments since 1984 (or, in some of the cases, for shorter time periods). These cases generally claim that we acted as an insurer in violation of our shipping contract and without complying with state insurance laws and regulations, and that the price for excess value package insurance was excessive. Eighteen of these cases have been consolidated for pre-trial purposes in a multi-district litigation proceeding (“MDL Proceeding”) before the United States District Court for the Southern District of New York. An amended consolidated complaint in the MDL Proceeding also alleges a violation of the federal RICO statute. Another complaint in the MDL Proceeding alleges violations of federal antitrust laws. We are in the process of seeking to have four of the remaining cases consolidated into the MDL Proceeding. The other remaining case was remanded from federal court to state court in Madison County, Illinois and is proceeding independent of the MDL Proceeding. No class has been certified in any of these cases. These actions all developed after the August 9, 1999 Tax Court opinion was rendered. We believe the allegations in these cases have no merit and intend to continue to defend them vigorously. The ultimate resolution of these matters cannot presently be determined.

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      In November 2000, the U.S. Occupational Safety and Health Administration, or OSHA, published its final ergonomics standard which would have required American industry to take expansive compliance steps in the workplace when an employee reports a musculoskeletal complaint such as low back pain. If OSHA had enforced these regulations by seeking the same ergonomic measures it has advocated in the past under its general authority to remedy “recognized hazards,” it might have demanded extensive changes in the physical layout of our distribution centers as well as the hiring of significant numbers of additional full-time and part-time employees. Our competitors, as well as the remainder of American industry, also would have incurred proportionately comparable costs.

      The rule was challenged by a broad coalition of trade associations and businesses in actions consolidated in the United States Court of Appeals for the D.C. Circuit. Among other arguments against the rule, opponents asserted that OSHA did not comply with the statutory mandate of establishing significant risk of material health impairment or properly analyze the costs and benefits of the proposed regulations. We believed that implementation of the rule would be stayed, that a reviewing court would reject the rule, or that if ergonomic regulations resembling this proposal had been sustained by a reviewing court we would have prevailed in an enforcement proceeding based on substantial defenses.

      OSHA took the position that the cost of compliance with the proposed regulations would have been only $4.5 billion per year over a ten-year period for all of American industry. We maintained that these estimates were unrealistic and estimated that the cost of compliance could have been significantly greater, both in initial costs and in incremental annual costs. We also estimated that such expenditures, if required to be incurred, would have materially and adversely affected our financial condition, results of operations, and liquidity.

      Subsequent to December 31, 2000, the United States Senate and the House of Representatives passed joint resolutions disapproving the OSHA ergonomics standard and declaring that the standard shall have no force or effect. President Bush has signed into law a repeal of the OSHA ergonomics standard. We anticipate that the legal proceedings described above will be dismissed as moot.

      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 on our financial condition, results of operations or liquidity.

Item  4.     Submission Of Matters to a Vote of Security Holders

      None

PART II

Item  5.     Market for Registrant’s Common Equity and Related Stockholder Matters

      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”. The following is a summary of our stock price activity and declared dividend information subsequent to our initial public offering on November 10, 1999.

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      Prior to November 10, 1999, UPS common stock was not listed on a securities exchange and was not sold in the organized over-the-counter markets. We would notify our shareowners periodically of our willingness to purchase a limited number of shares 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 UPS common stock to debt of UPS, other factors affecting the business and long-range prospects of UPS, and general economic conditions, as well as opinions furnished from time to time by investment counselors acting as independent appraisers.

      The following is a summary of the prices at which we have published notices of our willingness to purchase shares from January 1, 1999, to November 9, 1999, and dividends declared during this period.

      The policy of our board of directors is to declare dividends each year out of current earnings. 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 9, 2001, there were 129,753 and 10,280 record holders of Class A and Class B stock, respectively.

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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, 2000. 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 report.

(1)	Excludes $139 million in net income related primarily to investment gains.
(2)	Excludes a $1.442 billion tax assessment charge.

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Item  7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operations

  2000 Compared to 1999

      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:

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      U.S. domestic package revenue increased almost $1.7 billion, or 7.6%, primarily due to volume gains across all product lines, combined with a 2.7% increase in average revenue per piece, which was primarily driven by our Ground products. All products contributed to the revenue increase, with our higher revenue per piece express (Next Day Air and Deferred) products increasing at approximately the same rate (8.1% and 8.0% respectively). Our average daily Ground volume grew at a 4.2% rate for the period, helping to bring our total U.S. average daily package volume to almost 12.5 million pieces.

      During the first quarter of 2000, we increased rates for standard ground shipments an average of 3.1% for commercial deliveries. The ground residential charge continued to be $1.00 over the commercial ground rate, with an additional delivery area surcharge of $1.50 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 3.5%. The surcharge for UPS Next Day Air Early A.M. did not change. Rates for international shipments originating in the United States (Worldwide Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS International Standard service) increased by 2.9%. 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 due to double-digit volume growth for both our domestic and export products, offset by a decline in the revenue per piece for these products. This decline was primarily due to a decline in the value of the Euro relative to the U.S. dollar that occurred during 2000. The value of the Euro averaged $0.92 in 2000 compared to $1.07 in 1999. Overall average daily package volume increased 13.8% for international operations, with our export products, which had an average revenue per piece in excess of $30, increasing at 21.5%.

      The increase in non-package revenue resulted primarily from the new arrangement for providing excess value package insurance for our customers as well as continued growth of the UPS Logistics Group. Revenue for the UPS Logistics Group increased by $250 million, or 32.4%, to over $1 billion for the year ended December 31, 2000. The new arrangement for providing excess value package insurance began in the fourth quarter of 1999. Consequently, this item will have a reduced impact on the comparability of the revenue for our non-package segment in future periods.

      Operating expenses increased by $2.112 billion, or 9.1%, which was less than our revenue increase of 10.1%. Compensation and benefits expenses, the largest component of this increase, accounted for $1.261 billion of the increase and included a $59 million charge recorded in the first quarter of 2000 relating to the creation of 4,000 new full-time hourly jobs resulting from the 1997 Teamsters contract. Other operating expenses increased $851 million primarily due to higher purchased transportation costs, higher fuel costs and claims expense associated with the new arrangement for providing excess value package insurance for our customers. The increase in purchased transportation costs was primarily due to increased business for our international and logistics operations. The 40.1% increase in fuel costs from $681 million to $954 million was due to the increase in fuel prices during 2000 and the additional fuel usage due to the growth in our average daily package volume, partially offset by cost reductions generated by our fuel hedging program. The increase in other operating expenses of $219 million was slightly offset by the $49 million gain we recognized in the first quarter of 2000 from the sale of our UPS Truck Leasing subsidiary. International operating expenses were favorably impacted by the decline in the value of the Euro relative to the U.S. dollar as discussed above.

      To offset the increasing fuel costs we have experienced over the last several quarters and that we expect to continue into the near future, we implemented a temporary 1.25% fuel surcharge effective August 7, 2000. Approximately $130 million in revenue was recorded in 2000 as a result of the surcharge.

      Our operating margin, defined as operating profit as a percentage of revenue, improved from 14.4% during 1999 to 15.2% during 2000. This improvement continues our recently reported trends and was favorably impacted by continued product mix improvements and our continued successful efforts in obtaining profitable volume growth.

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

      U.S. domestic package operating profit increased by $423 million, or 12.1%, due to the volume and revenue improvements discussed previously.

      The improvement in the operating profit of our international package segment of 18.1%, or $42 million, resulted primarily from increased volume and revenue, and was realized despite significantly higher fuel costs. This improvement occurred throughout our international regions. The improvement in operating profit for this segment would have been $36 million greater, if the impact of currency fluctuations was excluded.

      The increase in non-package operating profit is largely due to the new arrangement for providing excess value package insurance for our customers, which contributed $183 million of additional operating profit for the year. Also contributing to the operating profit improvement was the $49 million gain we recognized during the first quarter of 2000 from the sale of our UPS Truck Leasing subsidiary. These improvements were offset somewhat by start-up costs associated with UPS Logistics Group’s service parts logistics offering, UPS e-Ventures, UPS Capital Corporation and other initiatives.

      The increase in investment income of $330 million for the period is primarily due to two factors. First, in the first quarter of 2000, two companies in which our Strategic Enterprise Fund held investments were acquired by other companies, which caused us to recognize a gain of $241 million. Second, we earned income on the $5.3 billion in net IPO proceeds available for investment prior to the tender offer that was completed in early March 2000 and the $1.2 billion in IPO proceeds that were not utilized for the tender offer. In 1999, we had the net IPO proceeds available for investment from mid-November through the end of the year. We announced a share repurchase program on April 20, 2000 under which we would utilize up to the remaining $1.2 billion not used in the tender offer. As of December 31, 2000, approximately $105 million remained available for share repurchases.

      Net income for the year ended December 31, 2000 was $2.934 billion, or $2.50 per diluted share, compared to net income of $883 million, or $0.77 per diluted share, for the prior year. Our 2000 results reflect the non-recurring items discussed above, which include the gains on our Strategic Enterprise Fund investments and the sale of our UPS Truck Leasing subsidiary, offset partially by the charge for retroactive costs associated with creating new full-time jobs from existing part-time Teamster jobs. Our 1999 results reflect a tax assessment charge resulting from an unfavorable ruling of the U.S. Tax Court. Excluding these non-recurring transactions for each of these years, adjusted net income for 2000 would have been $2.795 billion, an increase in excess of 20% over adjusted 1999 net income of $2.325 billion. Adjusted diluted earnings per share would have increased from $2.04 in 1999 to $2.38 in 2000

      Our fourth quarter 2000 results reflected a decline in our previously reported growth rates for both revenue and average daily volume. These declines were caused by an overall weakening of the economy.

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  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: