UPS 2000 Letter to Shareholders

Is the glass full?
We certainly don’t think so. Although we had a superb year in 2000, a record year in fact, our future is ripe with opportunities. Promising growth in our core business and continuing improvements in the international segment have created a platform for new and exciting opportunities in other parts of our business.

We’ve built an unmatched infrastructure that allows customers to take advantage of our vast array of services and resources to enter the supply chain whenever they require it. They can do so anywhere along the line, at any time, using any mode of transport, to any place in the world. They are as excited about that as we are.

In our first full year as a public company, the 359,000 UPS employees worldwide showed the investment community what we’ve known for decades: UPS is well positioned to execute a clearly defined strategy. We are innovative, and we have exceptional people.

Remaining focused on our strengths, while stretching the limit of expansion into new horizons, we believe the future for our company, for our customers, and for our people is bright. UPS is positioned at the right place with the right strategies to enable global commerce in the 21st century.

We are, in many ways, just getting started.

Strong results across all segments
In 2000, we met the targets we set for 10 percent revenue growth and mid-teens growth in earnings. In fact, 2000 was a record year for the company in terms of revenue, operating profit, and earnings per share. We also grew market share for ground and air products, experienced strong growth in international export volume, and achieved significant growth in the non-package segment, including the area of logistics.

Total revenue jumped 10.1 percent to $29.8 billion, as compared to $27.1 billion in 1999. We realized a 15.5 percent increase in operating profit, ending the year at $4.5 billion. Net income rose 20.2 percent to $2.8 billion, excluding one-time investment gains and other non-recurring items in 2000, and a special tax charge that reduced 1999 net income. Diluted earnings per share, adjusted for these items, increased 16.7 percent to $2.38 from $2.04 in 1999.

Our concentrated attention on growing our business continues to pay off – daily delivery volume increased 5.4 percent over 1999. In 2000, UPS delivered an average of 13.6 million packages each day in over 200 countries and territories around the world. Export package volume grew more rapidly, increasing 21.5 percent over 1999’s total.

In 2001, we see UPS growing across all segments. We expect revenue to increase 8 to 10 percent, assuming a strengthening economy in the second half of the year, led by expected mid- to upper-teens growth in our international export operations. Our logistics business should prove to be the most significant growth driver in the non-package segment, with revenue increasing more than 40 percent and achieving profitability in the second half of 2001.

With change comes opportunity
In 2000, two of our senior managers announced their retirements. Chief Operating Officer Chuck Schaffer and Chief Financial Officer Bob Clanin, both having spent their entire careers with UPS, had a profound impact on our company.

Chuck and Bob helped revolutionize UPS from a local delivery company to a global provider of distribution, logistics, and financial services. Their contributions have been immeasurable. We wish Chuck and Bob, and their families, a happy and healthy retirement.

One of our true strengths at UPS is the many people prepared to assume positions of increased responsibility. Tom Weidemeyer, Senior Vice President for Transportation and Engineering, President of UPS Airlines, and a Management Committee member since 1994 and Director since 1998, assumed the responsibilities of Chief Operating Officer. Scott Davis, Vice President of Finance, was named Chief Financial Officer and Senior Vice President of Finance. In Tom and Scott, we have two leaders who have proven they are ready to help guide this company as we continue to expand our global reach.

The future is bright
We achieved our record results through a focus on our customers’ needs and the commitment to service excellence by our people worldwide. This commitment is at the heart of every customer relationship – a passion we know is paramount to continued success.

When you look at the UPS of 2000 – a logistics company, an electronic commerce company, a consulting company, and a financial services company – it’s obvious we’re not just delivering packages. Managing a rich information network that feeds customer connectivity and sound business relationships, UPS is capitalizing on the opportunity to provide distribution and supply chain solutions extending well beyond traditional package delivery.

Supported by the strength of the UPS brand, the commitment of UPS people, the industry’s broadest product portfolio, and the only integrated worldwide network, our company can deal with any of the leading-edge business trends revolutionizing global commerce.

In the new business dynamic of smaller, more frequent, time-sensitive, and global shipments, UPS is the leader. But we are not content to lead our industry as it is today. In creating exciting, innovative ways to enable global commerce in tomorrow’s economy...we’re just getting started.

Sincerely,

James P. Kelly
Chairman and Chief Executive Officer
March 15, 2001