SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
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For the Quarter Ended June 30, 2001
Commission file number 0-4714
United Parcel Service, Inc.
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(Exact name of registrant specified in its charter)
Delaware 58-2480149
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Glenlake Parkway, NE
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Atlanta, Georgia 30328
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (404) 828-6000
Not Applicable
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Former name, address and fiscal year, if changed since last report
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 and Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Class A and B Common Stock, par value $.01 per share
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(Title of Class)
815,146,964 Class A shares, 310,523,401 Class B shares
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Outstanding as of August 9, 2001
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2001 (unaudited) and December 31, 2000
(In millions except share and per share amounts)
June 30, December 31,
Assets 2001 2000
---------- ---------
Current Assets:
Cash & cash equivalents $ 2,062 $ 879
Marketable securities & short-term investments 1,081 1,073
Accounts receivable 3,932 4,140
Other current assets 684 1,032
---------- ---------
Total Current Assets 7,759 7,124
Property, Plant & Equipment - at cost, net of accumulated
depreciation & amortization of $10,168 in 2001 and
$9,665 in 2000 13,062 12,329
Prepaid pension costs 1,609 1,593
Other assets 1,362 616
---------- ---------
$23,792 $21,662
========== =========
Liabilities & Shareowners' Equity
Current Liabilities:
Commercial paper $ 321 $ 366
Accounts payable 1,829 1,674
Accrued wages & withholdings 1,629 1,134
Income taxes payable 497 132
Current maturities of long-term debt 71 257
Other current liabilities 798 938
---------- ---------
Total Current Liabilities 5,145 4,501
---------- ---------
Long-Term Debt 4,138 2,981
---------- ---------
Accumulated Postretirement Benefit Obligation, Net 1,116 1,049
---------- ---------
Deferred Taxes, Credits & Other Liabilities 3,465 3,396
---------- ---------
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 829,331,774 and 935,873,745
in 2001 and 2000 8 9
Class B common stock, par value $.01 per share, authorized
5,600,000,000 shares, issued 298,815,014 and 198,819,384
in 2001 and 2000 3 2
Additional paid-in capital 100 267
Retained earnings 10,120 9,684
Accumulated other comprehensive loss (303) (227)
Deferred compensation arrangements 47 -
---------- ---------
9,975 9,735
Less: Treasury stock, at cost (817,414 and 0 shares
in 2001 and 2000) (47) -
---------- ---------
9,928 9,735
---------- ---------
$23,792 $21,662
========== =========
See notes to unaudited consolidated financial statements.
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three and Six Months Ended June 30, 2001 and 2000
(In millions except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------------
2001 2000 2001 2000
--------- --------- ------------ ------------
Revenue $7,566 $7,284 $15,076 $14,504
--------- --------- ------------ ------------
Operating Expenses:
Compensation and benefits 4,269 4,042 8,520 8,117
Other 2,256 2,081 4,571 4,159
--------- --------- ------------ ------------
6,525 6,123 13,091 12,276
--------- --------- ------------ ------------
Operating Profit 1,041 1,161 1,985 2,228
--------- --------- ------------ ------------
Other Income and (Expense):
Investment income 39 63 92 402
Interest expense (47) (65) (91) (117)
--------- --------- ------------ ------------
(8) (2) 1 285
--------- --------- ------------ ------------
Income Before Income Taxes And
Cumulative Effect of Change
In Accounting Principle 1,033 1,159 1,986 2,513
Income Taxes 403 464 774 1,005
--------- --------- ------------ ------------
Income Before Cumulative Effect
of Change In Accounting Principle 630 695 1,212 1,508
Cumulative Effect of Change In
The Method Of Accounting For
Derivatives, Net of Taxes - - (26) -
--------- --------- ------------ ------------
Net Income $630 $695 $1,186 $1,508
========= ========= ============ ============
Basic Earnings Per Share Before
Cumulative Effect Of Change
In Accounting Principle $ 0.56 $ 0.61 $ 1.07 $ 1.29
========= ========= ============ ============
Basic Earnings Per Share $ 0.56 $ 0.61 $ 1.05 $ 1.29
========= ========= ============ ============
Diluted Earnings Per Share Before
Cumulative Effect Of Change
In Accounting Principle $ 0.55 $ 0.60 $ 1.06 $ 1.27
========= ========= ============ ============
Diluted Earnings Per Share $ 0.55 $ 0.60 $ 1.03 $ 1.27
========= ========= ============ ============
See notes to unaudited consolidated financial statements.
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Six Months Ended June 30, 2001
(In millions except per share amounts)
(unaudited)
Treasury
Class A Class B Accumulated Stock,
Common Stock Common Stock Additional Other Deferred At Cost Total
-------------- -------------- Paid-In Retained Comprehensive Compensation ------------- Shareowners'
Shares Amount Shares Amount Capital Earnings Loss Arrangements Shares Amount Equity
------ ------ ------ ------ --------- -------- ------------- ------------- ------ ------ -----------
Balance, January 1, 2001 936 $ 9 199 $ 2 $ 267 $ 9,684 $ (227) $ - - $ - $9,735
Comprehensive income:
Net income - - - - - 1,186 - - - - 1,186
Foreign currency
adjustments - - - - - - (37) - - - (37)
Unrealized loss on
marketable securities - - - - - - (17) - - - (17)
Unrealized loss on
cash flow hedges - - - - - - (22) - - - (22)
-----------
Comprehensive income 1,110
-----------
Dividends ($0.38 per share) - - - - - (430) - - - - (430)
Stock award plans 3 - - - 60 - - - - - 60
Common stock purchases (16) - (3) - (715) (320) - - - - (1,035)
Common stock issuances 1 - - - 33 - - - - - 33
Common stock issuances for
acquisitions - - 7 - 455 - - - - - 455
Common stock issuances for
deferred compensation
arrangements 1 - - - - - - 47 (1) (47) -
Conversion of Class A
Common Stock to
Class B Common Stock (96) (1) 96 1 - - - - - - -
------ ------ ------ ------ --------- -------- ------------- ----------- ------ ------ -----------
Balance, June 30, 2001 829 $ 8 299 $ 3 $ 100 $10,120 $ (303) $ 47 (1) $(47) $9,928
====== ====== ====== ====== ========= ======== ============= =========== ====== ====== ===========
See notes to unaudited consolidated financial statements.
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2001 and 2000
(In millions)
(unaudited)
Six Months Ended
June 30,
-------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income $1,186 $1,508
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 656 570
Postretirement benefits 67 62
Deferred taxes, credits, and other 111 60
Stock award plans 282 288
Gain on exchange of investments and sale of business - (290)
Changes in assets and liabilities,
net of effect of acquisitions:
Accounts receivable 571 (5)
Other current assets 323 300
Prepaid pension costs (16) 15
Accounts payable (366) (48)
Accrued wages and withholdings 244 326
Dividends payable (192) (361)
Tax assessment - (311)
Income taxes payable 440 452
Other current liabilities (11) 117
-------- --------
Net cash from operating activities 3,295 2,683
-------- --------
Cash flows from investing activities:
Capital expenditures (1,241) (663)
Disposals of property, plant and equipment 46 220
Purchases of marketable securities and short-term investments (2,008) (2,098)
Sales and maturities of marketable securities
and short-term investments 1,973 2,167
Construction funds in escrow 21 51
Payments for acquisitions, net of cash acquired (339) (156)
Other asset receipts (payments) (79) 85
-------- --------
Net cash (used in) investing activities (1,627) (394)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings 1,365 1,123
Repayments of borrowings (439) (368)
Purchases of common stock via tender - (4,070)
Other purchases of common stock (1,035) (335)
Issuances of common stock pursuant to stock awards
and employee stock purchase plans 176 77
Dividends (430) (400)
Other transactions (69) (122)
-------- --------
Net cash (used in) financing activities (432) (4,095)
-------- --------
Effect of exchange rate changes on cash (53) (17)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,183 (1,823)
Cash and cash equivalents:
Beginning of period 879 4,204
-------- --------
End of period $2,062 $2,381
======== ========
Cash paid during the period for:
Interest (net of amount capitalized) $ 77 $162
======== ========
Income taxes $220 $444
======== ========
See notes to unaudited consolidated financial statements.
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. For interim consolidated financial statement purposes, we compute our
tax provision on the basis of our estimated annual effective income tax rate,
and provide for accruals under our various employee benefit plans for each three
month period based on one quarter of the estimated annual expense.
2. In our opinion, the accompanying interim, unaudited, consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position as of June 30,
2001, the results of operations for the three and six months ended June 30, 2001
and 2000, and cash flows for the six months ended June 30, 2001 and 2000. The
results reported in these consolidated financial statements should not be
regarded as necessarily indicative of results that may be expected for the
entire year.
3. The following table sets forth the computation of basic and diluted
earnings per share (in millions except per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2001 2000 2001 2000
--------- --------- ---------- ---------
Numerator:
Numerator for basic and diluted
earnings per share -
Net income $ 630 $ 695 $1,186 $1,508
========= ========= ========== =========
Denominator:
Weighted-average shares 1,126 1,144 1,128 1,167
Deferred compensation arrangements 1 - - -
--------- --------- ---------- ---------
Denominator for basic earnings
per share 1,127 1,144 1,128 1,167
========= ========= ========== =========
Effect of dilutive securities:
Contingent shares -
Management incentive awards 6 7 5 5
Stock option plans 12 16 14 18
--------- --------- ---------- ---------
Denominator for diluted earnings
per share 1,145 1,167 1,147 1,190
========= ========= ========== =========
Basic Earnings Per Share $ 0.56 $ 0.61 $ 1.05 $ 1.29
========= ========= ========== =========
Diluted Earnings Per Share $ 0.55 $ 0.60 $ 1.03 $ 1.27
========= ========= ========== =========
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
4. On August 9, 1999, the United States Tax Court held that we were liable
for tax on income of Overseas Partners Ltd. ("OPL"), a Bermuda company that had
reinsured excess value package insurance purchased by our customers beginning in
1984, and that we were liable for additional tax for the 1983 and 1984 tax
years. The Court held that for the 1984 tax year we were 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.
On June 21, 2001, the United States Court of Appeals for the Eleventh
Circuit reversed the Tax Court's decision. The case has been remanded to the Tax
Court to consider alternative arguments raised by the parties, but the IRS has
requested that the Eleventh Circuit reconsider its reversal in an en banc
proceeding. We do not know whether the IRS request will be granted and, if the
case is ultimately remanded what the outcome of the remanded proceedings will
be.
The IRS has taken similar positions to that advanced in the Tax Court
opinion for tax years subsequent to 1984. Tax years 1985 through 1990 currently
are docketed in the Tax Court, although no trial date has been set pending
resolution of the case that covers the 1984 year. Further, the IRS has issued a
report asserting similar positions for the 1991 through 1994 tax years, and 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.
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 was included in income taxes in 1999; however,
since none of the income on which this tax assessment is based is our income, we
did not classify 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 based on the Tax
Court opinion. In making this determination, we concluded that, based on the Tax
Court opinion, 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. Since the IRS has requested an en banc
proceeding, we currently do not know what impact the Eleventh Circuit opinion
will ultimately have on our previously recorded reserve for this matter.
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Further, again as a result of the unfavorable Tax Court opinion, and in
order to stop the potential accrual of additional interest that might ultimately
be determined to be due to the IRS, 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 both 1998 and 1999 in filings we
made with the IRS in 1999. In February 2000, we deposited $339 million with the
IRS related to these matters for the 1995 through 1997 tax years. These amounts
will remain with the IRS pending further proceedings.
The excess value program that was the subject of the Tax Court opinion has
been changed since September 1999. The revised arrangement should eliminate the
issues considered by the Tax Court and the Eleventh Circuit related to OPL.
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 June 30, 2001 could
aggregate up to approximately $400 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 24 lawsuits that seek to hold us
liable for the collection of premiums for excess value ("EV") package insurance
in connection with package shipments since 1984. Based on a variety of state and
federal tort, contract and statutory claims, these cases generally claim that we
failed to remit collected EV premiums to an independent insurer; we failed to
provide promised EV insurance; we acted as an insurer without complying with
state insurance laws and regulations; and the price for EV insurance was
excessive. We believe the allegations in these cases have no merit and intend to
continue to defend them vigorously.
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
These actions all developed after the August 9, 1999 Tax Court opinion. As
discussed above, on June 21, 2001, the U.S. Court of Appeals for the Eleventh
Circuit ruled in our favor and reversed the Tax Court opinion.
Twenty-two of these cases have been consolidated for pre-trial purposes in
a multi-district litigation proceeding ("MDL Proceeding") in federal court in
New York. Motions to dismiss these cases are pending in the MDL Proceeding. One
case is in the process of being transferred to the MDL Proceeding.
The ultimate resolution of these cases cannot presently be determined.
The remaining case is pending in Madison County, Illinois (Triad
Industries, Inc. v. UPS). We have entered into a proposed settlement of the
Illinois case -- only with respect to Illinois EV shippers -- based in part on
our desire to vigorously defend these actions in the single MDL Proceeding. We
entered into the proposed settlement shortly before the Eleventh Circuit
reversed the Tax Court decision on which these lawsuits are based. While
expressly denying any and all liability, the proposed settlement would resolve
the Illinois case. This proposed settlement has no impact on the claims pending
in the MDL Proceeding regarding shippers in states other than Illinois.
Confirmation of this proposed settlement is subject to a fairness hearing,
currently scheduled for November 2001, and a final court order. If the proposed
settlement is approved, we would provide to qualifying settlement class members
coupons toward the purchase of specified UPS services and pay attorneys' fees in
an amount specified in, and subject to the terms and conditions of, the proposed
settlement. The proposed settlement's ultimate cost to us will depend upon a
number of factors. We do not believe this proposed settlement will have a
material effect on our financial condition, results of operations or liquidity.
In addition, we are a defendant in various other lawsuits that arose in the
normal course of business. We believe the eventual resolution of these cases
will not result in a material effect on our financial condition, results of
operations or liquidity.
5. 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 divided into regional operations
around the world. Regional operations managers are responsible for both domestic
and export operations within their geographic region. 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 and the Forwarding and Brokerage Services unit,
are distinct from package operations and are thus managed and reported
separately.
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Segment information for the three and six months ended June 30 is as
follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- -----------
Revenue:
U.S. domestic package $5,981 $5,890 $11,957 $11,731
International package 1,050 1,008 2,124 1,998
Non-package 535 386 995 775
---------- ---------- ---------- -----------
Consolidated $7,566 $7,284 $15,076 $14,504
========== ========== ========== ===========
Operating profit:
U.S. domestic package $966 $1,024 $ 1,811 $ 1,907
International package 24 74 63 132
Non-package 51 63 111 189
---------- ---------- ---------- -----------
Consolidated $1,041 $1,161 $ 1,985 $ 2,228
========== ========== ========== ===========
Forwarding and Brokerage Services revenues are recorded in the non-package
operating segment net of certain third party transportation costs, which totaled
$81 million for the three and six months ending June 30, 2001. These costs did
not exist for reporting periods prior to June 30, 2001.
Non-package operating profit included $29 and $30 million for the three
months ended June 30, 2001 and 2000, respectively, and $56 and $57 million for
the six months ended June 30, 2001 and 2000, respectively, of intersegment
profit, with a corresponding amount of operating expense, which reduces
operating profit included in the U.S. domestic package segment. Non-package
operating profit also included a $49 million gain for the six months ended June
30, 2000 from the sale of our UPS Truck Leasing subsidiary.
6. The major components of other operating expenses for the three and six
months ended June 30 are as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
--------- ---------- --------- ----------
Repairs and maintenance $261 $241 $523 $480
Depreciation and amortization 338 287 656 570
Purchased transportation 462 466 965 900
Fuel 244 210 491 448
Other occupancy 119 91 262 198
Other expenses 832 786 1,674 1,563
--------- ---------- --------- ----------
Consolidated $2,256 $2,081 $4,571 $4,159
========= ========== ========= ==========
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. During the second quarter, we acquired substantially all of the assets
of Mail Boxes Etc. ("MBE") in a cash transaction valued at approximately $185
million. MBE is the world's largest franchisor of independently owned and
operated business, communication, and shipping centers worldwide. The
acquisition, which closed on April 30, 2001, was accounted for as a purchase.
MBE's revenues are included in the non-package segment from the date of
acquisition.
On May 24, 2001, we completed our acquisition of Fritz Companies, Inc.
("Fritz") in a transaction valued at approximately $463 million. Fritz is a
freight forwarding, customs brokerage and logistics concern. The acquisition,
accounted for as a purchase, involved the exchange of 7.4 million shares of UPS
class B common stock for all of the outstanding common shares of Fritz. Each
outstanding and unexercised stock option granted by Fritz was converted into an
option to purchase UPS class A common stock based upon the agreed-upon exchange
ratio. Fritz's revenues are included in the non-package segment and constitute a
substantial portion of our Forwarding and Brokerage Services unit as discussed
in Note 5.
On August 7, 2001, we completed our acquisition of First International
Bancorp, Inc. ("First International"). First International offers a variety of
structured trade finance, commercial and government-backed lending products.
First International will operate as a subsidiary of UPS Capital Corporation, the
finance subsidiary of UPS. The total value of the transaction was approximately
$59 million, with an additional $8 million held in escrow pending the outcome of
certain contingencies. The acquisition, accounted for as a purchase, involved
the exchange of 1.1 million shares (including shares held in escrow) of UPS
class B common stock for all of the outstanding shares of First International.
In addition, we issued options to purchase shares of UPS Class A common stock in
substitution for options issued by First International pursuant to its stock
option plans and other agreements. First International's revenues will be
included in the non-package segment.
In addition, we completed six other acquisitions in the first six months of
2001. These six transactions, which were accounted for using the purchase method
of accounting, were completed through the payment of cash and issuance of notes
payable. The aggregate purchase value of these transactions was $153 million.
Pro forma results of operations have not been presented for any of the
acquisitions because the effects of these transactions were not material to us
individually or in the aggregate.
UNITED PARCEL SERVICE, INC., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8. The Financial Accounting Standards Board (FASB) issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"),
as amended by Statements No. 137 and No. 138, which became effective for UPS on
January 1, 2001. Under FAS 133, as amended, all derivative instruments are
recognized on the balance sheet at fair value, and changes in the fair values of
such instruments are recognized in earnings unless the derivatives qualify as
hedges of future cash flows. For derivatives qualifying as hedges of future cash
flows, the effective portion of changes in fair value is recorded temporarily in
accumulated other comprehensive income (OCI), then recognized in earnings along
with the related effects of the hedged items. Any ineffective portion of hedges
is reported in earnings as it occurs.
The nature of our business activities necessarily involves the management
of various financial and market risks, including those related to changes in
commodity prices, foreign currency exchange rates, interest rates, and equity
prices. As discussed more fully in note 13, "Derivative Instruments and Risk
Management," to our consolidated financial statements contained in our Annual
Report on Form 10-K for the year ended December 31, 2000, we use derivative
financial instruments to mitigate or eliminate certain of those risks. The
January 1, 2001 accounting change described above affected only the pattern and
timing of non-cash accounting recognition.
At January 1, 2001, our financial statements were adjusted to record a
cumulative effect of adopting this accounting pronouncement, as follows:
(in millions)
Earnings OCI
--------- ---------
Adjustment to fair value of derivatives (a) $ (42) $ 37
Income tax effects 16 (14)
--------- ---------
Total $ (26) $ 23
========= =========
Effect on diluted earnings per share (a) $(0.03)
(a) For earnings effect, amount shown is net of adjustment to hedged items.
The cumulative effect on earnings was primarily comprised of marking to
market the time value of option contracts used in commodity and foreign currency
hedging. This accounting change did not involve cash, and we believe that it
will not have a material effect on our financial condition, results of
operations, or liquidity.
The cumulative effect on OCI was primarily attributable to marking to
market swap contracts used as hedges of anticipated foreign currency cash flows
and anticipated purchases of energy products.
9. Certain prior period amounts have been reclassified to conform to the
current period presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 2001 and 2000
-----------------------------------------
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:
Three Months Ended
June 30, Change
------------------- ------------------
2001 2000 $ %
-------- -------- --------- -------
Revenue (in millions):
U.S. domestic package:
Next Day Air $1,383 $1,412 $(29) (2.1)%
Deferred 711 690 21 3.0
Ground 3,887 3,788 99 2.6
-------- -------- ---------
Total U.S. domestic package 5,981 5,890 91 1.5
International package
Domestic 220 222 (2) (0.9)
Export 729 707 22 3.1
Cargo 101 79 22 27.8
-------- -------- ---------
Total International package 1,050 1,008 42 4.2
Non-package:
UPS Logistics Group 308 219 89 40.6
Forwarding and Brokerage Services 78 15 63 420.0
Other 149 152 (3) (2.0)
-------- -------- ---------
Total Non-package 535 386 149 38.6
-------- -------- ---------
Consolidated $7,566 $7,284 $282 3.9 %
======== ======== =========
Average Daily Package Volume
(in thousands): #
---------
U.S. domestic package:
Next Day Air 1,112 1,113 (1) (0.1)%
Deferred 874 852 22 2.6
Ground 10,000 10,135 (135) (1.3)
-------- -------- ---------
Total U.S. domestic package 11,986 12,100 (114) (0.9)
International package:
Domestic 775 749 26 3.5
Export 399 360 39 10.8
-------- -------- ---------
Total International package 1,174 1,109 65 5.9
-------- -------- ---------
Consolidated 13,160 13,209 (49) (0.4)%
======== ======== =========
Operating days in period 64 64
Average Revenue Per Piece: $
---------
U.S. domestic package:
Next Day Air $19.43 $19.82 $(0.39) (2.0)%
Deferred 12.71 12.65 0.06 0.5
Ground 6.07 5.84 0.23 3.9
Total U.S. domestic package 7.80 7.61 0.19 2.5
International:
Domestic 4.44 4.63 (0.19) (4.1)
Export 28.55 30.69 (2.14) (7.0)
Total International package 12.63 13.09 (0.46) (3.5)
Consolidated $ 8.23 $ 8.07 $ 0.16 2.0 %
======== ======== =========
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Despite the continued weakness of the U.S. economy, U.S. domestic package
operations produced a 1.5% increase in revenue over the prior year. This
increase was driven by a 2.5% improvement in average revenue per piece, offset
by a 0.9% decrease in our average daily volume.
The increase in international package revenue was due primarily to volume
growth for export products, offset by a decline in the revenue per piece for
these products, along with an increase in cargo revenue associated with our
acquisition of Challenge Air in 2000. Overall, average daily package volume
increased almost 6% for international operations, with our export products still
increasing at double-digit rates.
The increase in non-package revenue of over 38% resulted primarily from the
impact of acquisitions as well as continued growth of the UPS Logistics Group.
Growth in our UPS Logistics Group was led by our supply chain management and
service parts logistics offerings. We are also now separately reporting revenue
amounts for our Forwarding and Brokerage Services unit, which consists primarily
of Fritz along with several other brokerage and cargo entities.
Operating expenses increased by $402 million, or 6.6%. The $227 million
increase in compensation and benefits expenses was driven significantly by
growth in the non-package segment including recent acquisitions. Other operating
expenses increased $175 million due largely to higher fuel costs, increases in
depreciation and amortization expenses, and growth in the non-package segment.
Excluding our non-package segment, operating expenses increased 4.2%.
Our operating margin decreased from 15.9% during the second quarter of 2000
to 13.8% during the second quarter of 2001. The margin improved from the first
quarter results of 12.6% due in part to an increased focus on controlling costs
in response to the slowing economy.
The following table sets forth information showing the change in operating
profit, both in dollars (in millions) and in percentage terms:
Three Months Ended
Operating Segment June 30, Change
---------------------- -------------------
2001 2000 $ %
--------- --------- --------- --------
U.S. domestic package $966 $1,024 $ (58) (5.7)%
International package 24 74 (50) (67.6)
Non-package 51 63 (12) (19.0)
--------- --------- ---------
Consolidated Operating Profit $1,041 $1,161 $(120) (10.3)%
========= ========= =========
U.S. domestic package operating profit decreased $58 million due to the
continued weakness of the U.S. economy.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The decline in the operating profit of our international package operations
resulted primarily from below plan revenues, including cargo, matched with
increased expenses, particularly those expenses associated with aircraft used in
this segment (maintenance, rental and fuel).
The decrease in non-package operating profit is due primarily to
integration costs and goodwill amortization associated with our more recent
acquisitions.
Net income of $630 million for the second quarter of 2001 decreased by $65
million from the second quarter of 2000 primarily due to reduced operating
profit. Corresponding diluted earnings per share decreased from $0.60 in 2000 to
$0.55 in 2001.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Six Months Ended June 30, 2001 and 2000
---------------------------------------
The following table sets forth information showing the change in revenue,
average daily package volume and average revenue per piece, both in dollars and
in percentage terms:
Six Months Ended
June 30, Change
--------------------- ------------------
2001 2000 $ %
--------- --------- -------- -------
Revenue (in millions):
U.S. domestic package:
Next Day Air $ 2,766 $ 2,793 $(27) (1.0)%
Deferred 1,427 1,384 43 3.1
Ground 7,764 7,554 210 2.8
--------- --------- --------
Total U.S. domestic package 11,957 11,731 226 1.9
International package:
Domestic 452 455 (3) (0.7)
Export 1,477 1,389 88 6.3
Cargo 195 154 41 26.6
--------- --------- --------
Total International package 2,124 1,998 126 6.3
Non-package:
UPS Logistics Group 612 428 184 43.0
Forwarding and Brokerage Services 103 48 55 114.6
Other 280 299 (19) (6.4)
--------- --------- --------
Total Non-package 995 775 220 28.4
--------- --------- --------
Consolidated $15,076 $14,504 $572 3.9 %
========= ========= ========
Average Daily Package Volume
(in thousands): #
--------
U.S. domestic package:
Next Day Air 1,109 1,092 17 1.6 %
Deferred 881 854 27 3.2
Ground 10,096 10,118 (22) (0.2)
--------- --------- --------
Total U.S. domestic packag 12,086 12,064 22 0.2
International package:
Domestic 789 752 37 4.9
Export 399 351 48 13.7
--------- --------- --------
Total International package 1,188 1,103 85 7.7
--------- --------- --------
Consolidated 13,274 13,167 107 0.8 %
========= ========= ========
Operating days in period 128 129
Average Revenue Per Piece: $
--------
U.S. domestic package:
Next Day Air $ 19.49 $ 19.83 $(0.34) (1.7)%
Deferred 12.65 12.56 0.09 0.7
Ground 6.01 5.79 0.22 3.8
Total U.S. domestic package 7.73 7.54 0.19 2.5
International:
Domestic 4.48 4.69 (0.21) (4.5)
Export 28.92 30.68 (1.76) (5.7)
Total International package 12.69 12.96 (0.27) (2.1)
Consolidated $ 8.17 $ 7.99 $ 0.18 2.3 %
========= ========= ========
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
U.S. domestic package revenue increased almost 2% primarily due to revenue
per piece improvements in our Ground products. Our Deferred Air products also
contributed to this increase; however, our Next Day Air revenue was down
slightly as the decline in revenue per piece has exceeded our volume gains. Our
total U.S. domestic average daily volume increased 0.2% to approximately 12.1
million packages per day. Also affecting the period comparison was one extra
operating day in the first six months of 2000 compared to the first six months
of 2001. On a per day basis, revenue for this segment was up 2.7%.
During the first quarter of 2001, we increased rates for standard ground
shipments an average of 3.1% for commercial deliveries. The ground residential
charge increased $0.05 to $1.05 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, UPS 2nd Day Air, and 3 Day Select an average of 3.7%. The surcharge for
UPS Next Day Air Early A.M. increased to $27.50. 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. In addition, all
package rates during the six months included a 1.25% fuel surcharge that was put
in place August 7, 2000.
The increase in international package revenue was due primarily to volume
growth for our export products, offset by a decline in the revenue per piece for
these products. This decline in revenue per piece is consistent with previously
reported trends and was primarily due to currency fluctuations, particularly a
decline in the value of the Euro relative to the U.S. dollar. Overall average
daily package volume increased 7.7% for international operations, with our
export products increasing at 13.7%. The average revenue increase for this
segment on a per day basis was 7.1%.
The increase in non-package revenue of over 28% resulted primarily from the
impact of acquisitions, as well as the continued growth of the UPS Logistics
Group.
Operating expenses increased by $815 million, or 6.6%, split almost evenly
between compensation and benefits ($403 million) and other operating expenses
($412 million). The increase was due to a number of factors (i.e.,
depreciation/amortization, fuel, purchased transportation) and also included
growth in the non-package segment. Excluding our non-package segment, operating
expenses increased 4.4%.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Our operating margin declined from 15.4% during the first six months of
2000 to 13.2% during the same period in 2001. This decline continues the trend
we began reporting in the fourth quarter of 2000 as the economy began to weaken.
The following table sets forth information showing the change in operating
profit, both in dollars and in percentage terms:
Six Months Ended
Operating Segment June 30, Change
---------------------- -------------------
2001 2000 $ %
--------- --------- --------- --------
U.S. domestic package $1,811 $1,907 $ (96) (5.0)%
International package 63 132 (69) (52.3)
Non-package 111 189 (78) (41.3)
--------- --------- ---------
Consolidated Operating Profit $1,985 $2,228 $(243) (10.9)%
========= ========= =========
U.S. domestic package operating profit decreased by $96 million primarily
due to the declining economy experienced during 2001.
The decline in the operating profit of our international package operations
resulted primarily from below plan revenues, including cargo, matched with
increased expenses, particularly those expenses associated with aircraft used in
this segment (maintenance, rental and fuel).
The decrease in non-package operating profit is partially due to the $49
million gain we recognized from the sale of our UPS Truck Leasing subsidiary in
the first quarter of 2000. The remaining decrease is due to start-up and
integration costs for several subsidiaries that we are developing or have
acquired, along with goodwill amortization expense associated with recent
acquisitions.
The decrease in investment income of $310 million for the period is due to
two factors relating to the first six months of last year. First, in the first
quarter of 2000, we recognized a $241 million gain on investments held by our
Strategic Enterprise Fund in two companies that were acquired by other
companies. In addition, we earned income on the $5.3 billion in net IPO proceeds
available for investment prior to the tender offer that occurred in early March
2000, and the $1.2 billion in IPO proceeds that were not utilized for the tender
offer.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Net income for the six months ended June 30, 2001 amounted to $1.186
billion, or $1.03 per diluted share, compared to $1.508 billion, or $1.27 per
diluted share, for the same period in the prior year. Our fiscal 2000 results
reflect the non-recurring items discussed above, which include the gains on our
Strategic Enterprise Fund investments and sale of our 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 fiscal 2001
results reflect a FAS 133 cumulative expense adjustment, net of tax, of $26
million. Excluding these non-recurring transactions for each of these periods,
net income for the six months ending June 30, 2001, would have been $1.212
billion, a decrease of $157 million over adjusted 2000 net income of $1.369
billion. Adjusted diluted earnings per share decreased from $1.15 in 2000 to
$1.06 in 2001.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
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 $3.1 billion at June 30, 2001.
We have used all of the $750 million authorized in October 2000 for share
repurchases. An additional $1.3 billion was authorized for share repurchases in
May 2001, of which $1.185 billion was still available as of June 30, 2001.
We maintain two commercial paper programs under which we are authorized to
borrow up to $7.0 billion. Approximately $1.321 billion was outstanding under
these programs as of June 30, 2001, of which $1.0 billion 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. The
average interest rate on the amount outstanding at June 30, 2001 was 3.93%. In
addition, we maintain an extendible commercial notes program under which we are
authorized to borrow up to $500 million. No amounts were outstanding under this
program at June 30, 2001.
We maintain two credit agreements with a consortium of banks. These
agreements provide revolving credit facilities of $1.25 billion each, with one
expiring on April 25, 2002 and the other expiring on April 27, 2005. 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 June 30, 2001.
We also maintain a $1.0 billion European medium-term note program. Under
this program, we may issue notes from time to time, denominated in a variety of
currencies. At June 30, 2001, $264 million was available under this program. The
500 million Pound Sterling denominated bonds which are outstanding (recorded at
$708 million at June 30, 2001), were issued in February 2001 and bear interest
at a stated rate of 5.50%.
We have a shelf registration statement under which we may issue debt
securities in the U.S. of up to $2.0 billion. There was approximately $868
million issued under this shelf registration statement at June 30, 2001,
including $322 million in notes issued under the UPS Notes program. These notes
have various terms and maturities, all with fixed interest rates. Also during
2001, we issued $89 million in floating rate senior notes due December 2050, and
$52 million in floating rate senior notes due June 2051, both of which bear
interest at one-month LIBOR less 45 basis points.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
On August 9, 1999, the United States Tax Court held that we were liable for
tax on income of Overseas Partners Ltd. ("OPL"), a Bermuda company that had
reinsured excess value package insurance purchased by our customers beginning in
1984, and that we were liable for additional tax for the 1983 and 1984 tax
years. The Court held that for the 1984 tax year we were 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. On June 21, 2001, the United States Court of Appeals for the Eleventh
Circuit reversed the Tax Court's decision. The case has been remanded to the Tax
Court to consider alternative arguments raised by the parties, but the IRS has
requested that the Eleventh Circuit reconsider its reversal in an en banc
proceeding. At this time, it is not known whether the IRS request will be
granted and, if the case is ultimately remanded what the outcome of the remanded
proceedings will be. The IRS has taken similar positions to that advanced in the
Tax Court for tax years subsequent to 1984. Tax years 1985 through 1990
currently are docketed in the Tax Court, although no trial date has been set
pending resolution of the case that covers the 1984 year. Further, the IRS has
issued a report asserting similar positions for the 1991 through 1994 tax years,
and we expect the IRS to take similar positions for tax years 1995 through 1999.
We have been named as a defendant in 24 lawsuits that seek to hold us
liable for the collection of premiums for excess value package insurance in
connection with package shipments since 1984. Based on a variety of state and
federal tort, contract and statutory claims, these cases generally claim that we
failed to remit collected EV premiums to an independent insurer; we failed to
provide promised EV insurance; we acted as an insurer without complying with
state insurance laws and regulations; and the price for EV insurance was
excessive. We believe the allegations in these cases have no merit and intend to
continue to defend them vigorously.
These actions all developed after the August 9, 1999 Tax Court opinion. As
discussed above, on June 21, 2001, the U.S. Court of Appeals for the Eleventh
Circuit ruled in our favor and reversed the Tax Court opinion.
Twenty-two of these cases have been consolidated for pre-trial purposes in
a multi-district litigation proceeding ("MDL Proceeding") in federal court in
New York. Motions to dismiss these cases are pending in the MDL Proceeding. One
case is in the process of being transferred to the MDL Proceeding.
The ultimate resolution of these cases cannot presently be determined.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The remaining case is pending in Madison County, Illinois (Triad
Industries, Inc. v. UPS). We have entered into a proposed settlement of the
Illinois case -- only with respect to Illinois EV shippers -- based in part on
our desire to vigorously defend these actions in the single MDL Proceeding. We
entered into the proposed settlement shortly before the Eleventh Circuit
reversed the Tax Court decision on which these lawsuits are based. While
expressly denying any and all liability, the proposed settlement would resolve
the Illinois case. This proposed settlement has no impact on the claims pending
in the MDL Proceeding regarding shippers in states other than Illinois.
Confirmation of this proposed settlement is subject to a fairness hearing,
currently scheduled for November 2001, and a final court order. If the proposed
settlement is approved, we would provide to qualifying settlement class members
coupons toward the purchase of specified UPS services and pay attorneys' fees in
an amount specified in, and subject to the terms and conditions of, the proposed
settlement. The proposed settlement's ultimate cost to us will depend upon a
number of factors. We do not believe this proposed settlement will have a
material effect on our financial condition, results of operations or liquidity.
In addition, we are a defendant in various other lawsuits that arose in the
normal course of business. We believe the eventual resolution of these cases
will not result in a material effect on our financial condition, results of
operations or liquidity.
Reference is made to Note 4 to the accompanying unaudited consolidated
financial statements for more information on each of the preceding matters.
New Accounting Pronouncements
-----------------------------
In June 2001, the FASB issued Statement No. 141 "Business Combinations"
("FAS 141") and Statement No. 142 "Goodwill and Other Intangible Assets" ("FAS
142"). FAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. FAS 141 also specifies the
types of acquired intangible assets that are required to be recognized and
reported separately from goodwill. FAS 142 eliminates the current requirement to
amortize goodwill and indefinite-lived intangible assets, addresses the
amortization of intangible assets with a defined life, and addresses the
impairment testing and recognition for goodwill and intangible assets.
Goodwill amortization, which was $18 and $32 million for the three and six
months ended June 30, 2001, will cease upon the implementation of FAS 142 on
January 1, 2002. In order to complete the transitional assessment of goodwill
impairment, we will need to (1) identify reporting units, (2) determine the
carrying value of each reporting unit, and (3) determine the fair value of each
reporting unit. Due to the extensiveness of the efforts needed to comply with
these provisions, it is not practical, at this time, to estimate the impact of
adoption of these Statements.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
"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 about our strategic direction, prospects and future
results. We have described some of the important factors that affect these
statements as we discussed each subject. Forward-looking statements involve
risks and uncertainties, and certain factors may cause actual results to differ
materially from those contained in the forward-looking statements. These factors
include, for example, economic and other conditions in the markets in which we
operate, our competitive environment, increases in aviation and motor fuel
prices, strikes, work stoppages and slowdowns, governmental regulation, and
cyclical and seasonal fluctuations in our operating results. Additional
information concerning these risks and uncertainties, and other factors you may
wish to consider, are provided in the "Risk Factors" discussed in our Annual
Report on Form 10-K for the year ended December 31, 2000 and other documents we
file from time to time with the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
-----------
We are exposed to market risk from changes in foreign currency exchange
rates, interest rates, equity prices, and certain commodity prices. All of this
market risk arises in the normal course of business, as we do not engage in
speculative trading activities. In order to manage the risk arising from these
exposures, we utilize a variety of foreign exchange, interest rate, equity and
commodity forward contracts, options, and swaps.
Our market risks, hedging strategies, and financial instrument positions at
June 30, 2001 are similar to those disclosed in our Annual Report on Form 10-K
for the year ended December 31, 2000. However, during the first six months of
2001, we issued 500 million of Pound Sterling denominated bonds (recorded at
$708 million at June 30, 2001), at a fixed 5.50% interest rate. We issued a
total of $322 million of fixed rate notes with various maturities under our UPS
Notes program. By utilizing interest rate swaps designated as fair value hedges
of the related fixed rate debt, all of these fixed rate notes were effectively
converted to floating interest rates. In addition, we completed two floating
rate senior note issuances in the amounts of $89 million and $52 million, both
of which bear interest at one month LIBOR less 45 basis points.
The total fair value of our derivative financial instruments, including
derivatives added during the first six months of 2001, increased from an asset
of $137 million at December 31, 2000 to an asset of $139 million at June 30,
2001. The information concerning market risk under the sub-caption "Market Risk"
of the caption "Management's Discussion and Analysis" on pages 29 and 30 of our
consolidated financial statements contained in our Annual Report on Form 10-K
for the year ended December 31, 2000, is hereby incorporated by reference in
this Quarterly Report on Form 10-Q.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have been named as a defendant in 24 lawsuits that seek to hold us
liable for the collection of premiums for excess value package insurance in
connection with package shipments since 1984. Based on a variety of state and
federal tort, contract and statutory claims, these cases generally claim that we
failed to remit collected EV premiums to an independent insurer; we failed to
provide promised EV insurance; we acted as an insurer without complying with
state insurance laws and regulations; and the price for EV insurance was
excessive. We believe the allegations in these cases have no merit and intend to
continue to defend them vigorously.
These actions all developed after the August 9, 1999 Tax Court opinion. As
discussed above, on June 21, 2001, the U.S. Court of Appeals for the Eleventh
Circuit ruled in our favor and reversed the Tax Court decision.
Twenty-two of these cases have been consolidated for pre-trial purposes in
a multi-district litigation proceeding ("MDL Proceeding") in federal court in
New York. Motions to dismiss these cases are pending in the MDL Proceeding. One
case is in the process of being transferred to the MDL Proceeding.
The ultimate resolution of these cases cannot presently be determined.
The remaining case is pending in Madison County, Illinois (Triad
Industries, Inc. v. UPS). We have entered into a proposed settlement of the
Illinois case -- only with respect to Illinois EV shippers -- based in part on
our desire to vigorously defend these actions in the single MDL Proceeding, and
shortly before the Eleventh Circuit Court of Appeals reversed the Tax Court
decision on which these lawsuits are based. While expressly denying any and all
liability, the proposed settlement would resolve the Illinois case. This
proposed settlement has no impact on the claims pending in the MDL Proceeding
regarding shippers in states other than Illinois.
Confirmation of this proposed settlement is subject to a fairness hearing,
currently scheduled for November 2001, and a final court order. If the proposed
settlement is approved, we would provide to qualifying settlement class members
coupons toward the purchase of specified UPS services and pay attorneys' fees in
an amount specified in, and subject to the terms and conditions of, the proposed
settlement. The proposed settlement's ultimate cost to us will depend upon a
number of factors. We do not believe this proposed settlement will have a
material effect on our financial condition, results of operations or liquidity.
Item 4. - Submission of Matters to a Vote of Security Holders
Our annual meeting of shareowners was held on May 17, 2001.
Proxies for the meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934. There was no solicitation in opposition to
management's nominees as listed in Item No. 1 in the proxy statement, and all of
such nominees were elected.
1. The results of the voting by the shareowners for directors are presented
below.
Director Percent of
Number of Votes Total Voting
William H. Brown, III For 5,120,863,549 98.41%
Withheld 82,759,835 1.59%
Calvin Darden For 5,085,951,949 97.74%
Withheld 117,671,435 2.26%
Michael L. Eskew For 5,164,670,526 99.25%
Withheld 38,952,858 0.75%
James P. Kelly For 5,158,183,929 99.13%
Withheld 45,439,455 0.87%
Ann M. Livermore For 5,148,831,208 98.95%
Withheld 54,792,176 1.05%
Gary E. MacDougal For 5,133,769,946 98.66%
Withheld 69,853,438 1.34%
Joseph R. Moderow For 5,158,503,437 99.13%
Withheld 45,119,947 0.87%
Kent C. Nelson For 5,055,311,416 97.15%
Withheld 148,311,968 2.85%
Victor A. Pelson For 5,145,987,590 98.89%
Withheld 57,635,794 1.11%
Lea N. Soupata For 4,941,956,742 94.97%
Withheld 261,666,642 5.03%
Robert M. Teeter For 5,137,830,168 98.74%
Withheld 65,793,216 1.26%
John W. Thompson For 5,152,327,908 99.01%
Withheld 51,295,476 0.99%
Thomas H. Weidemeyer For 5,152,541,262 99.02%
Withheld 51,081,122 0.98%
2. The proposal and the results of the voting by the shareowners for
ratification of our appointment of independent auditors are presented below.
Percent of
Total
Number of Votes Voting
To ratify the appointment of Deloitte &
Touche LLP, independent auditors, as For 5,126,804,263 98.52%
auditors of UPS and its subsidiaries for Against 59,802,342 1.15%
the year ending December 31, 2001 Abstain 17,016,779 0.33%
3. The proposal and the results of the voting by the shareowners for the
approval of the Discounted Employee Stock Purchase Plan are presented below.
Percent of
Total
Number of Votes Voting
To approve the United Parcel Service, Inc.
Discounted Employee Stock Purchase Plan. For 4,947,557,496 95.08%
Against 196,170,063 3.77%
Abstain 59,895,825 1.15%
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits: none
B) Reports on Form 8-K:
The Company filed a Form 8-K Current Report on June 26, 2001 (Date of
Earliest Event Reported: June 21, 2001), reporting a decision of the
Eleventh Circuit with respect to pending litigation involving UPS.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED PARCEL SERVICE, INC.
(Registrant)
Date: August 14, 2001 By: /S/ D. Scott Davis
D. Scott Davis
Senior Vice President,
Treasurer and
Chief Financial Officer