What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-22 compared with 2021-02-22 · 450 added, 559 removed, 2034 unchanged (33% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets

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Note 8—Goodwill and Intangible Assets

Note 9—Business Acquisitions

Note 10—Debt and Financing Arrangements

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Note 19—Transformation Strategy Costs

Note 19—Quarterly Information (Unaudited)

Note 2 0 —Subsequent Events

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company changed its method of accounting for leases due to the adoption of Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases (Topic 842) .

This change has been applied on a modified retrospective basis effective on January 1, 2019.

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Central States Pension Fund coordinating benefit obligation assumptions - Refer to Note 6, Company-Sponsored Employee Benefit Plans (Actuarial Assumptions - Central States Pension Fund), to the financial statements

Critical Audit Matter Description

The Company was a contributing employer to the Central States Pension Fund (“CSPF”) until 2007 when it withdrew and fully funded its allocable share of unvested benefits.

The Company agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) to CSPF participants whose last employer was the Company and who had not retired as of January 1, 2008 (the “UPS Transfer Group”) if the CSPF were to lawfully reduce benefits consistent with the terms of its withdrawal agreement with the Company.

The CSPF has asserted that, absent legislative reform, it will become insolvent in 2025.

If the CSPF were to become insolvent consistent with that assertion, the Company may be required to provide coordinating benefits through the UPS/IBT Plan to the UPS Transfer Group.

Under accounting standards generally accepted in the United States of America (“GAAP”), the Company is required to determine its best estimate of the eventual outcome of this matter and is prohibited from anticipating potential changes in law in making that best estimate.

The Company considered potential outcomes based on the existing legislative framework, including the eventual insolvency of the CSPF or an approved application to reduce benefits under the U.S.

Multiemployer Pension Reform Act (“MPRA”).

Due to the passage of time and further deterioration of the CSPF’s funded status, the Company believes the trustees of the CSPF (the “Trustees”) can no longer submit and implement another benefit reduction plan under MPRA.

As such, the Company developed a deterministic cash flow projection that reflects updated estimated CSPF cash flows and investment earnings, the lack of legislative action, and the projected financial assistance to the CSPF from the Pension Benefit Guaranty Corporation (“PBGC”) to fund the PBGC’s guaranteed benefit levels.

As a result, at the December 31, 2020 measurement date, the best estimate of the Company’s projected benefit obligation for coordinating benefits that may be required to be directly provided by the UPS/IBT Plan to the UPS Transfer Group increased by $2.9 billion.

At the December 31, 2020 measurement date, the total obligation for the CSPF coordinating benefits was $5.5 billion.

The assumptions require significant management judgment and the following audit considerations:

Auditing management’s assumption related to the level of financial assistance that CSPF may receive from the PBGC based on enacted law is subjective.

Auditing the actuarial assumptions used to estimate the timing and present value of future CSPF cash flows is challenging because the underlying data is limited to information made publicly available by the CSPF.

Auditing the sufficiency of the Company’s disclosure of this matter in the footnotes to the financial statements is challenging due to the number of uncertainties associated with the obligation.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures to address the Company’s assumptions used to measure its obligation to pay for CSPF coordinating benefits to the UPS Transfer Group (the “Coordinating Benefits”) included the following, among others:

• We tested the effectiveness of controls over Coordinating Benefits assumptions, including those over the determination of the accounting model, the key legal position relevant to the level of financial assistance guaranteed by the PBGC based upon enacted law, the other actuarial assumptions used to project the Coordinating Benefits obligation;

and the related financial statement disclosures.

• With the assistance of professionals in our firm having expertise in pension accounting, we evaluated the Company’s conclusions regarding the accounting model applied to the Coordinating Benefits obligation.

• With the assistance of our actuarial specialists, we tested the underlying data and actuarial model used by management to estimate the obligation to provide Coordinating Benefits, including consideration of (1) the discount rate;

(2) the projected contributions and benefit payments, including PBGC contributions to the CSPF and (3) the expected return on CSPF assets.

Further, because the data used by management is limited to publicly available CSPF information, we considered whether other available sources of data may yield a more precise estimate.

• We compared the Company’s footnote disclosure relating to this matter to the information communicated between management and the Company’s audit committee to evaluate whether significant uncertainties had been omitted from the disclosure.

Valuation of U.S.

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Deferred compensation obligations 16 20

Treasury stock ( 0.4 shares in 2020 and 2019)

Treasury stock ( 0.3 shares in 2021 and 0.4 shares in 2020)

( 16 ) ( 20 )

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Depreciation and amortization 2,953 2,698 2,360

Pension and postretirement benefit expense 7,125 3,141 2,242

Pension and postretirement benefit (income) expense ( 2,456 ) 7,125 3,141

Pension and postretirement benefit contributions ( 576 ) ( 3,125 ) ( 2,362 )

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Capital expenditures ( 4,194 ) ( 5,412 ) ( 6,380 )

Proceeds from disposals of property, plant and equipment 40 65 37

Proceeds from disposal of businesses, property, plant and equipment 872 40 65

Purchases of marketable securities ( 312 ) ( 254 ) ( 561 )

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Interest (net of amount capitalized) $ 697 $ 691 $ 628

Income taxes (net of refunds and overpayments) $ 1,138 $ 514 $ 2

Income taxes (net of refunds) $ 1,869 $ 1,138 $ 514

See notes to audited, consolidated financial statements.

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We provide transportation services, primarily domestic and international letter and package delivery.

Through our Supply Chain & Freight subsidiaries, we are also a global provider of transportation, logistics and financial services.

Through our Supply Chain Solutions subsidiaries, we are also a global provider of transportation, logistics and related services.

Use of Estimates

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In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic.

The severity, magnitude and duration of the pandemic, and the resulting economic consequences, remain uncertain, rapidly changing and difficult to predict.

The pandemic and its economic consequences remain uncertain, are changing and are difficult to predict.

As a result, our accounting estimates and assumptions may change over time.

Revenue Recognition

Domestic and International Package Operations:

United States ("U.S.") Domestic and International Package Operations:

Revenue is recognized over time as we perform the services in the contract.

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In our Logistics & Distribution business we have a right to consideration from customers in an amount that corresponds directly with the value to the customers of our performance completed to date, and as such we recognize revenue in the amount to which we have a right to invoice the customer.

Revenue is recognized over time as we perform the services in the contract.

Prior to divestiture, revenue was recognized over time as we performed the services in the contract.

Refer to note 4 for discussion of the divestiture.

Financial Services:

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Income on operating leases is recognized on the straight-line method over the terms of the underlying leases.

Principal vs.

Agent Considerations:

We utilize independent contractors and third-party carriers in the performance of some transportation services.

GAAP requires us to evaluate whether our businesses themselves promise to transfer services to the customer (as the principal) or to arrange for services to be provided by another party (as the agent) using a control model.

Based on our evaluation of the control model, we determined that all of our major businesses act as the principal rather than the agent within their revenue arrangements.

Revenue and the associated purchased transportation costs are reported on a gross basis within our statements of consolidated income.

Refer to note 2 for further discussion of our revenue recognition policies.

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Unrealized gains and losses on trading securities are reported as Investment income (expense) and other on the statements of consolidated income.

Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive income (“AOCI”), a separate component of shareowners’ equity.

Unrealized gains and losses on available-for-sale securities are reported as other comprehensive income, a separate component of shareowners’ equity.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity.

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Depreciation and amortization are provided by the straight-line method over the estimated useful lives of the assets, which are as follows:

12 to 40 years

7 to 40 years, based on aircraft type and original aircraft manufacture date

10 to 40 years

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Interest incurred during the construction period of certain property, plant and equipment is capitalized until the underlying assets are placed in service, at which time amortization of the capitalized interest begins, straight-line, over the estimated useful lives of the related assets.

Capitalized interest was $ 87 and $ 91 million in 2020 and 2019, respectively.

Capitalized interest was $ 58 and $ 87 million for the years ended December 31, 2021 and 2020, respectively.

We review long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on its undiscounted future cash flows.

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Fair values are determined based on quoted market values, discounted cash flows or external appraisals, as appropriate.

We review long-lived assets for impairment at the individual asset level or the asset group for which the lowest level of independent cash flows can be identified.

We test long-lived assets for impairment at the asset group level, which is the lowest level at which independent cash flows can be identified.

Refer to note 5 for a discussion of impairments of property, plant and equipment recognized during the year.

Leased Assets

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Costs of purchased businesses in excess of net identifiable assets acquired (goodwill) and indefinite-lived intangible assets are tested for impairment at least annually, unless changes in circumstances indicate an impairment may have occurred sooner.

We are required to test goodwill on a reporting unit basis.

A reporting unit is the operating segment unless, for businesses within that operating segment, discrete financial information is prepared and regularly reviewed by management, in which case such a component business is the reporting unit.

We are required to test goodwill on a reporting unit basis and we complete our annual goodwill impairment evaluation as of July 1st.

In assessing goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

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If this qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.

If the qualitative assessment is not conclusive, we calculate the fair value of a reporting unit to test goodwill for impairment.

If the qualitative assessment is not conclusive, we quantitatively assess the fair value of a reporting unit to test goodwill for impairment.

We assess the fair value of a reporting unit using a combination of discounted cash flow modeling and observable valuation multiples for comparable companies.

If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we record the excess amount as goodwill impairment, not to exceed the total amount of goodwill allocated to the reporting unit.

We primarily determine the fair value of our reporting units using a discounted cash flow model and supplement this with observable valuation multiples for comparable companies, as appropriate.

A trade name with a carrying value of $ 200 million and licenses with a carrying value of $ 5 million as of December 31, 2020 are considered to be indefinite-lived intangibles, and therefore are not amortized.

We determined that the income approach, specifically the relief from royalty method, is the most appropriate valuation method to estimate the fair value of the trade name.

The estimated fair value of the trade name is compared to the carrying value of the asset.

If the carrying value of the trade name exceeds its estimated fair value, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value.

When performing impairment tests of indefinite-lived intangible assets, the estimated fair value is compared to the carrying value of the asset.

If the carrying value of the asset exceeds its estimated fair value, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value.

Finite-lived intangible assets, including trademarks, licenses, patents, customer lists, non-compete agreements and franchise rights are amortized on a straight-line basis over the estimated useful lives of the assets, which range from 2 to 22 years.

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We self-insure costs associated with workers’ compensation claims, automobile liability, health and welfare and general business liabilities, up to certain limits.

Insurance reserves are established for estimates of the loss that we will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported.

Self-insurance reserves are established for estimates of the loss that we will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported.

The expected ultimate cost for claims incurred is estimated based upon historical loss experience and judgments about the present and expected levels of cost per claim.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Workers’ compensation, automobile liability and general liability insurance claims may take several years to completely settle.

Workers’ compensation, automobile liability and general liability insurance claims may take several years to completely resolve.

Consequently, actuarial estimates are required to project the ultimate cost that will be incurred to fully resolve a claim.

A number of factors can affect the actual cost of a claim, including the length of time the claim remains open, trends in healthcare costs, the results of any related litigation and with respect to workers’ compensation claims, changes in legislation.

Several factors can affect the actual cost, or severity, of a claim, including the length of time the claim remains open, trends in healthcare costs, the results of any related litigation and changes in legislation.

Furthermore, claims may emerge in a future year for events that occurred in a prior year at a rate that differs from actuarial projections.

All of these factors can result in revisions to actuarial projections and produce a material difference between estimated and actual operating results.

Based on our historical experience, in 2019 we changed our self-insurance reserves from the central estimate to the low end of the actuarial range of losses.

The principal result of this change was a decrease in expense of $ 94 million and an increase in net income of $ 72 million, or $ 0.08 per share on a basic and diluted basis.

All these factors can result in revisions to actuarial projections and produce a material difference between estimated and actual operating results.

We believe our estimated reserves for such claims are adequate, but actual experience in claim frequency and/or severity could materially differ from our estimates and affect our results of operations.

We sponsor a number of health and welfare insurance plans for our employees.

These liabilities and related expenses are based on estimates of the number of employees and eligible dependents covered under the plans, anticipated medical usage by participants and overall trends in medical costs and inflation.

We also sponsor a number of health and welfare insurance plans for our employees.

Liabilities and expenses related to these plans are based on estimates of the number of employees and eligible dependents covered under the plans, global health events, anticipated medical usage by participants and overall trends in medical costs and inflation.

Pension and Postretirement Benefits

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Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim remeasurement of any of our plans.

We recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of a corridor (defined as 10 % of the greater of the fair value of plan assets or the plan's projected benefit obligation) in Investment income (expense) and other annually at December 31st each year.

The remaining components of pension expense, primarily service and interest costs and the expected return on plan assets, are recorded on a quarterly basis.

For eligible employees hired after July 1, 2016, UPS contributes annually to a defined contribution plan.

We recognize expense for the required contribution quarterly, and we recognize a liability for any contributions due and unpaid within Other current liabilities.

The remaining components of pension expense, primarily service and interest costs and the expected return on plan assets, are recorded ratably on a quarterly basis.

We recognize expense for required contributions to defined contribution plans quarterly, and we recognize a liability for any contributions due and unpaid within Accrued group welfare and retirement plan contributions .

We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees covered under collective bargaining agreements.

Our contributions to these plans are determined in accordance with the respective collective bargaining agreements.

We recognize expense for the contractually required contribution for each period, and we recognize a liability for any contributions due and unpaid within Other current liabilities.

We recognize expense for the contractually required contribution for each period, and we recognize a liability for any contributions due and unpaid within Accrued group welfare and retirement plan contributions .

Income taxes are accounted for on an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns.

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Valuation allowances are provided if it is more likely than not that a deferred tax asset will not be realized.

Our current accounting policy for releasing income tax effects from other comprehensive income is based on a portfolio approach.

We recognize liabilities for uncertain tax positions based on a two-step process.

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We translate the results of operations of our foreign subsidiaries using average exchange rates during each period, whereas balance sheet accounts are translated using exchange rates at the end of each period.

Balance sheet currency translation adjustments are recorded in AOCI.

Balance sheet currency translation adjustments are recorded in other comprehensive income.

Pre-tax foreign currency transaction gains (losses) from remeasurement, net of hedging, included in Investment income (expense) and other were $( 36 ), $ 9 and $( 6 ) million in 2021, 2020 and 2019, respectively.

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All share-based awards to employees are measured based on their fair values and expensed over the period during which an employee is required to provide service in exchange for the award (the vesting period), less estimated forfeitures.

We have issued employee share-based awards under the UPS Incentive Compensation Plan that are subject to specific vesting conditions, including service conditions, where the awards cliff vest or vest ratably over a one, three, or five year period (the "nominal vesting period”) or at the date the employee retires (as defined by the plan), if earlier.

We have issued employee share-based awards under various incentive compensation plans that contain vesting conditions, including service conditions, where the awards cliff vest or vest ratably over a one, three, or five year period (the "nominal vesting period") or at the date the employee retires (as defined by the plan), if earlier.

Compensation cost is generally recognized immediately for awards granted to retirement-eligible employees, or over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting period.

We estimate forfeiture rates based on historical rates of forfeitures for awards with similar characteristics, historical rates of employee turnover and the nature and terms of the vesting conditions of the awards.

We estimate forfeiture rates based on historical rates of forfeitures for awards with similar characteristics, historical and projected rates of employee turnover and the nature and terms of the vesting conditions of the awards.

We reevaluate our forfeiture rates on an annual basis.

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A general description of the valuation methodologies used for assets and liabilities measured at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy, is included in each footnote with fair value measurements present.

For acquisitions, we allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values.

For business acquisitions, we allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Following the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Derivative Instruments

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A cash flow hedge refers to hedging the exposure to variability in expected future cash flows that is attributable to a particular risk.

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of AOCI, and reclassified into earnings in the period during which the hedged transaction affects earnings.

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of other comprehensive income, and reclassified into earnings in the period during which the hedged transaction affects earnings.

A fair value hedge refers to hedging the exposure to changes in the fair value of an existing asset or liability that is attributable to a particular risk.

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument is recognized during the current period, as well as the offsetting gain or loss on the hedged item.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A fair value hedge refers to hedging the exposure to changes in the fair value of an existing asset or liability that is attributable to a particular risk.

A net investment hedge refers to the use of cross currency swaps, forward contracts or foreign currency denominated debt to hedge portions of net investments in foreign operations.

For instruments that meet the hedge accounting requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in the foreign currency translation adjustment within AOCI, and are recorded in the income statement when the hedged item affects earnings.

For instruments that meet the hedge accounting requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in the foreign currency translation adjustment within other comprehensive income, and are recorded in the income statement when the hedged item affects earnings.

Adoption of New Accounting Standards

In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and lease obligation on their balance sheet for all leases with terms beyond twelve months.

The new standard also requires enhanced disclosures that provide more transparency and information to financial statement users about lease portfolios.

Effective January 1, 2019, we adopted the requirements of this ASU using the modified retrospective approach.

We elected the transition package of practical expedients permitted within the standard.

As a result, we did not reassess initial direct costs, lease classification, or whether our contracts contain or are leases.

We also made an accounting policy election to not recognize right-of-use assets and liabilities for leases with an original lease term of twelve months or less, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised.

The adoption on January 1, 2019 resulted in the recognition of right-of-use assets for operating leases of approximately $ 2.7 billion and operating lease liabilities of approximately $ 2.7 billion.

The consolidated financial statements for the years ended December 31, 2020 and 2019 are presented under the new standard, while earlier periods presented have not been adjusted and continue to be reported in accordance with the previous standard.

See note 11 for additional disclosures required by this ASU.

In June 2016, the FASB issued an ASU introducing an expected credit loss methodology for the measurement of financial assets not accounted for at fair value.

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We adopted this standard on January 1, 2020 by updating our process for calculating our allowance for credit losses to include reasonable and supportable forecasts that could affect expected collectability.

In 2020, we increased our allowance for credit losses by $ 45 million based upon our current forecasts that reflect ongoing economic uncertainty resulting from the COVID-19 pandemic.

As of December 31, 2021, we decreased our allowance for credit losses by $ 10 million, primarily based upon improvements in customer collections.

In January 2017, the FASB issued an ASU to simplify the accounting for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill using a hypothetical purchase price allocation.

Under this ASU, goodwill impairment is the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

We adopted this standard on January 1, 2020, applying the simplified approach to calculate the goodwill impairment charge of $ 494 million that we recorded in conjunction with the pending divestiture of UPS Freight.

In March 2017, the FASB issued an ASU requiring the premium on callable debt securities to be amortized to the earliest call date.

We adopted this standard on January 1, 2019.

It did not have a material impact on our consolidated financial position, results of operations or cash flows.

In August 2017, the FASB issued an ASU to enhance recognition of the economic results of hedging activities in the financial statements.

In addition, the update made certain targeted improvements to simplify the application of hedge accounting guidance and increase transparency regarding the scope and results of hedging activities.

We adopted this standard on January 1, 2019.

It did not have a material impact on our consolidated financial position, results of operations or cash flows but did require additional disclosures.

See note 17 for disclosures required by this ASU.

In February 2018, the FASB issued an ASU that allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act.

Effective January 1, 2018, we early adopted this ASU and elected to reclassify the income tax effects of the Tax Act from AOCI to retained earnings.

This resulted in a $ 735 million increase to retained earnings and a $ 735 million decrease to AOCI.

Our current accounting policy for releasing income tax effects from other comprehensive income is based on a portfolio approach.

We adopted this standard on January 1, 2020, applying the simplified approach to calculate the goodwill impairment charge of $ 494 million that we recorded in 2020 in conjunction with the divestiture of UPS Freight.

In December 2019, the FASB issued an ASU to simplify the accounting for income taxes.

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It did not have a material impact on our consolidated financial position, results of operations or cash flows.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), to temporarily ease the potential burden in accounting for reference rate reform.

The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform.

The guidance was effective upon issuance and generally can be applied through December 31, 2022.

The guidance was effective upon issuance and at present can generally be applied through December 31, 2022.

We are evaluating the potential impacts of reference rate reform on our various contractual positions to determine whether we may apply any of the practical expedients set forth in this standard;

however, we do not expect reference rate reform to have a material impact on our consolidated financial position, results of operations or cash flows.

Other accounting pronouncements adopted during the periods covered by the consolidated financial statements did not have a material impact on our consolidated financial position, results of operations or cash flows.

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Revenue Recognition

Substantially all of our revenues are from contracts associated with the pickup, transportation and delivery of packages and freight (“transportation services”), whether carried out by or arranged by UPS, either domestically or internationally, which generally occurs over a short period of time.

Substantially all of our revenues are from contracts associated with the pickup, transportation and delivery of packages and freight (“transportation services”) domestically and internationally.

These services may be carried out by or arranged by us and generally occur over a short period of time.

Additionally, we provide value-added logistics services to customers, both domestically and internationally, through our global network of company-owned and leased distribution centers and field stocking locations.

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Other 1,726 987 814

Supply Chain & Freight $ 15,184 $ 13,381 $ 13,826

Supply Chain Solutions $ 17,429 $ 15,184 $ 13,381

Consolidated revenue $ 97,287 $ 84,628 $ 74,094

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Costs to fulfill include labor and other direct costs and an allocation of indirect costs.

For our freight and freight forwarding contracts, an output method of progress based on time-in-transit is utilized as the timing of costs incurred does not best depict the transfer of control to the customer.

In our Logistics business we have a right to consideration from customers in an amount that corresponds directly with the value to the customers of our performance completed to date, and as such, we recognize revenue in the amount to which we have a right to invoice the customer.

For our freight forwarding contracts, an output method of progress based on time-in-transit is utilized as the timing of costs incurred does not best depict the transfer of control to the customer.

In our Logistics business we have a right to consideration from customers in an amount that corresponds directly with the value to the customers of our performance completed to date;

therefore we recognize revenue in the amount to which we have a right to invoice the customer.

Variable Consideration

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We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations.

Contract modifications that add additional distinct goods or services are treated as separate contracts.

Contract modifications that add distinct goods or services are treated as separate contracts.

Contract modifications that do not add distinct goods or services typically change the price of existing services.

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In our transportation businesses, we utilize independent contractors and third-party carriers in the performance of some transportation services.

GAAP requires us to evaluate, using a control model, whether our businesses themselves promise to transfer services to the customer (as the principal) or to arrange for services to be provided by another party (as the agent).

Based on our evaluation of the control model, we determined that all of our major businesses act as the principal rather than the agent within their revenue arrangements.

Based on our evaluation of the control model, we determined that all of our major businesses act as the principal rather than an agent within their revenue arrangements.

Revenue and the associated purchased transportation costs are both reported on a gross basis within our statements of consolidated income.

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This requires us to make our best estimate of the current expected losses inherent in our accounts receivable at each balance sheet date.

These estimates require consideration of historical loss experience, adjusted for current conditions, forwarding-looking indicators, trends in customer payment frequency, and judgments about the probable effects of relevant observable data, including present and future economic conditions and the financial health of specific customers and market sectors.

These estimates require consideration of historical loss experience, adjusted for current conditions, forward-looking indicators, trends in customer payment frequency, and judgments about the probable effects of relevant observable data, including present and future economic conditions and the financial health of specific customers and market sectors.

Our risk management process includes standards and policies for reviewing major account exposures and concentrations of risk.

We increased our allowance for expected credit losses by $ 45 million during 2020 based upon current forecasts that anticipate a slight decline in the economic outlook.

We decreased our allowance for expected credit losses by $ 10 million during 2021 based upon current forecasts that reflect changes in the economic outlook.

Our allowance for credit losses as of December 31, 2021 and 2020 was $ 128 and $ 138 million, respectively.

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Contract Assets and Liabilities

Contract assets include billed and unbilled amounts resulting from in-transit packages, as we have an unconditional right to payment only once all performance obligations have been completed (i.e.

packages have been delivered), and our right to payment is not solely based on the passage of time.

Contract assets include billed and unbilled amounts resulting from in-transit packages, as we have an unconditional right to payment only once all performance obligations have been completed (i.e., packages have been delivered) and our right to payment is not solely based on the passage of time.

Amounts may not exceed their net realizable value.

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Short-term contract liabilities are included within Other current liabilities in the consolidated balance sheets.

Long-term contract liabilities related to advance payments from customers were $ 26 million as of both December 31, 2020 and 2019.

Long-term contract liabilities related to advance payments from customers were $ 25 and $ 26 million as of December 31, 2021 and 2020, respectively.

Long-term contract liabilities are included within Other Non-Current Liabilities in the consolidated balance sheets.

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Corporate debt securities 121 — — 121

state and local municipal debt securities 5 — — 5

government debt securities 3 — — 3

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The gross realized gains on sales of available-for-sale marketable securities totaled $ 7 , $ 5 and $ 8 million in 2021, 2020 and 2019, respectively.

There were no gross realized gains on sales of available-for-sale marketable securities in 2018.

The gross realized losses on sales of available-for-sale marketable securities totaled $ 2 , $ 0 and $ 2 million in 2021, 2020 and 2019, respectively.

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Corporate debt securities 44 — 20 — 64 —

government debt securities — — — — — —

state and local municipal debt securities 5 — — — 5 —

Total marketable securities $ 200 $ ( 1 ) $ 75 $ — $ 275 $ ( 1 )

The unrealized losses for the U.S.

government and agency debt securities, mortgage and asset-backed debt securities, and corporate debt securities are primarily due to changes in market interest rates.

government and agency debt securities are primarily due to changes in market interest rates.

We have both the intent and ability to hold these securities for the time necessary to recover the cost basis.

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Non-Current Investments and Restricted Cash

We previously held various marketable securities and cash equivalents as collateral under an escrow agreement to guarantee our self-insurance obligations which were reflected in "Cash, Cash Equivalents and Restricted Cash" in the statements of consolidated cash flows.

In 2019 we fully liquidated our investment balance associated with this agreement and pledged the required collateral with a surety bond.

For additional information on surety bonds written as of December 31, 2020, see note 9.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We held a $ 23 and $ 21 million investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan as of December 31, 2020 and 2019, respectively.

The change in investment fair value is recognized in "Investment income (expense) and other" in the statements of consolidated income.

Additionally, we held escrowed cash related to the acquisition and disposition of certain assets of $ 2 and $ 3 million as of December 31, 2020 and 2019, respectively.

We hold an investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan.

The investment had a fair market value of $ 23 million as of both December 31, 2021 and 2020.

Changes in investment fair value are recognized in Investment income (expense) and other in the statements of consolidated income.

Additionally, we held cash in escrow related to the acquisition and disposition of certain assets of $ 3 and $ 2 million as of December 31, 2021 and 2020, respectively.

These amounts are classified as Investments and Restricted Cash in the consolidated balance sheets.

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Total cash, cash equivalents and restricted cash $ 10,255 $ 5,910 $ 5,238

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

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These securities are valued using market corroborated pricing, matrix pricing or other models that utilize observable inputs such as yield curves.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information about our investments measured at fair value on a recurring basis as of December 31, 2021 and 2020, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in millions):

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Corporate debt securities — 121 — 121

state and local municipal debt securities 5 — 5

Equity securities — 2 — 2

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Total $ 207 $ 222 $ — $ 429

There were no transfers of investments between Level 1 and Level 2 during 2020 or 2019.

There were no material transfers of investments between Level 1 and Level 2 during 2021 or 2020.

UNITED PARCEL SERVICE, INC.

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ASSETS HELD FOR SALE

On January 24, 2021, we entered into a definitive agreement to divest our UPS Freight business to TFI International Inc.

As previously disclosed, on January 24, 2021, we entered into an agreement to divest our UPS Freight business to TFI International Inc.

for $ 800 million, subject to working capital and other adjustments.

The following table summarizes the carrying values of the assets and liabilities classified as held for sale in our consolidated balance sheet as of December 31, 2020 (in millions):

As of December 31, 2020, we classified UPS Freight as held for sale and, as a result, recognized a total pre-tax impairment charge of $ 686 million ($ 629 million after tax), comprised of a goodwill impairment charge of $ 494 million and a valuation allowance of $ 192 million to adjust the carrying value of the disposal group to fair value less cost to sell.

As of March 31, 2021, we increased the valuation allowance by $ 66 million ($ 50 million after tax) to adjust the carrying value of the disposal group to our revised estimate of fair value less cost to sell.

On April 30, 2021, we completed the divestiture for cash proceeds of $ 848 million, which included our estimate of working capital and other adjustments.

Self-insurance reserves for UPS Freight and obligations for benefits earned within UPS-sponsored pension and postretirement medical benefit plans were retained by us.

In connection with the completion of the divestiture, we remeasured and amended certain of our company-sponsored U.S.

pension and postretirement medical benefit plans, resulting in a $ 2.1 billion reduction in the obligations included in our consolidated balance sheet.

Also in connection with the completion of the divestiture, we recorded a pre-tax gain of $ 101 million ($ 77 million after tax), which included the impact of the plan remeasurements and plan amendments.

For the twelve months ended December 31, 2021, we recorded a net pre-tax gain of $ 46 million ($ 35 million after tax).

The activity was recognized within Other expenses in the statements of consolidated income.

UPS and TFI also entered into an agreement for UPS Freight to continue to utilize our U.S.

Domestic Package network to fulfill shipments for an initial period of five years.

UPS also agreed to provide certain other services to TFI for a transitional period.

We recognize our performance under commercial agreements as revenue in the statements of consolidated income, with the associated expenses presented in the respective line items of operating expenses.

The following table summarizes the carrying values of the assets and liabilities classified as held for sale in our consolidated balance sheets as of December 31, 2021 and 2020 (in millions):

Accounts receivable, net $ — $ 263

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Net assets held for sale $ — $ 850

Self-insurance reserves for the UPS Freight business and obligations for benefits earned within UPS-sponsored pension and postretirement medical benefit plans will be retained by us at closing and are not included in the amounts presented above.

Upon classification as held for sale, we recognized a total impairment charge of $ 686 million within Other expenses in the statements of consolidated income.

This was comprised of a goodwill impairment charge of $ 494 million and a valuation allowance to adjust the carrying value of the disposal group to fair value less cost to sell of $ 192 million.

We expect the transaction, which is subject to customary closing conditions and regulatory approvals, to close during the second quarter of 2021.

UNITED PARCEL SERVICE, INC.

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Additionally, we monitor all other property, plant and equipment categories for any indicators that the carrying value of the assets may not be recoverable.

There were no material impairment charges during the years ended December 31, 2020 or 2019.

We recognized impairment charges of $ 71 million during the year ended December 31, 2021, due to the reevaluation of certain facility projects.

There were no material impairment charges during the year ended December 31, 2020.

UNITED PARCEL SERVICE, INC.

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The UPS Excess Coordinating Benefit Plan is a non-qualified plan that provides benefits to certain participants in the UPS Retirement Plan, hired prior to July 1, 2016, for amounts that exceed the benefit limits described above.

In the year ended December 31, 2017, we amended the UPS Retirement Plan and the UPS Excess Coordinating Benefit Plan to cease accruals of additional benefits for future service and compensation for non-union participants effective January 1, 2023.

The UPS Retirement Plan and the UPS Excess Coordinating Benefit Plan will cease accruals of additional benefits for future service and compensation for non-union participants effective January 1, 2023.

During the fourth quarter of 2019, certain former U.S.

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As the cost of these settlements did not exceed the plans' service cost and interest cost for the year, the impact of the settlement was not recognized in earnings.

On January 24, 2021, we entered into a definitive agreement to divest our UPS Freight business as discussed in note 4.

Upon closing, our U.S.

pension and postretirement plans may be subject to remeasurement of plan assets and pension benefit obligations.

On April 30, 2021, we completed the divestiture of UPS Freight as discussed in note 4.

The divestiture triggered an interim remeasurement of certain UPS-sponsored pension and postretirement medical benefit plans under Accounting Standards Codification Topic 715- Compensation- Retirement Benefits (“ASC 715”).

Accordingly, we remeasured the plan assets and benefit obligations of the UPS Pension Plan, UPS Retirement Plan and UPS Retired Employee Health Care Plan as of April 30, 2021.

The interim remeasurement resulted in an actuarial gain of $ 2.1 billion.

The actuarial gain reflects a $ 3.7 billion benefit from a 49 basis point increase in the discount rate compared to December 31, 2020 and a $ 0.1 billion benefit related to workforce reductions associated with the divestiture, offset by a $ 1.7 billion loss resulting from actual returns being approximately 430 basis points below expected returns.

The $ 2.1 billion actuarial gain was recorded in accumulated other comprehensive income ("AOCI") within the equity section of the consolidated balance sheet.

A pre-tax actuarial gain of $ 69 million ($ 52 million after tax) was immediately recognized for a prior service credit related to the divested group in the statement of consolidated income for the second quarter.

We also amended certain benefit terms within these plans as of April 30, 2021.

The amendment to the UPS Pension Plan resulted in the immediate recognition of a $ 66 million ($ 50 million after tax) loss in the statement of consolidated income for the second quarter.

The impacts of the plan remeasurements and plan amendments are included within Other expenses in the statements of consolidated income as components of the divestiture of UPS Freight.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

International Pension Benefits

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We are not directly responsible for providing benefits to participants of government-sponsored plans.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Postretirement Medical Benefits

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Contributions under this plan are subject to maximum compensation and contribution limits for a tax-qualified defined contribution plan as prescribed by the IRS.

The UPS Restoration Savings Plan is a non-qualified plan that provides benefits to certain participants in the UPS 401(k) Savings Plan for amounts that exceed the benefit limits described above.

Contributions charged to expense were $ 107 , $ 84 and $ 67 million for 2021, 2020 and 2019 respectively.

Effective June 23, 2017, the Company amended the UPS 401(k) Savings Plan so that non-union employees who currently participate in the UPS Retirement Plan will, in addition to current benefits under the UPS 401(k) Savings Plan, earn a retirement contribution beginning January 1, 2023.

On June 23, 2017, the Company amended the UPS 401(k) Savings Plan so that non-union employees who currently participate in the UPS Retirement Plan will, in addition to current benefits under the UPS 401(k) Savings Plan, earn a retirement contribution beginning January 1, 2023.

UPS will contribute 5 % to 8 % of eligible compensation to the UPS 401(k) Savings Plan based on years of vesting service.

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There was no impact to the statements of consolidated income for 2021, 2020 and 2019 as a result of this change.

The UPS Restoration Savings Plan is a non-qualified plan that provides benefits to certain participants in the UPS 401(k) Savings Plan for amounts that exceed the benefit limits described above.

Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements.

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Actuarial (gain) loss ( 3,284 ) 6,211 2,296 24 246 37 ( 12 ) 27 54

Curtailment and settlement loss — — — — — — — — —

Net periodic benefit cost $ ( 2,627 ) $ 6,710 $ 2,890 $ 135 $ 365 $ 167 $ 36 $ 50 $ 84

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We believe the bond matching approach reflects the process we would employ to settle our pension and postretirement benefit obligations.

In 2019, we refined the bond matching approach used to determine the discount rate for our U.S.

pension and postretirement plans.

Following a routine, periodic review of their standard bond matching tool which we reference to support discount rates, our external consultants refined their model to reflect the increased availability of longer duration high-quality corporate bonds, changes in the content and sources of available data and improvements in computational capabilities.

We believe these refinements enhance the simulation of bond portfolios that match the plans' expected cash flows and result in a better estimate of the plan discount rates.

These refinements resulted in an increase of approximately 10 basis points in the discount rates used to measure our plans, decreasing the total projected benefit obligation in our consolidated balance sheet at the December 31, 2019 measurement date by approximately $ 900 million and the resulting pre-tax mark-to-market charge within Other income and (expense) in our statements of consolidated income by approximately $ 810 million, and increasing net income by $ 616 million, or $ 0.71 per share on a basic and diluted basis.

For our international plans, the discount rate is determined by matching the expected cash flows of the plan, where available, or of a sample plan of similar duration, to a yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date.

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The Society of Actuaries ("SOA") published mortality tables and improvement scales are used in developing the best estimate of mortality for our U.S.

In October 2020, the SOA published an updated improvement scale which reduced expected mortality improvements from previously published improvement scales.

In October 2021, the SOA published an updated improvement scale which slightly increased expected mortality improvements from previously published improvement scales.

Based on our perspective of future longevity, we updated the mortality assumptions to incorporate the improvement scale for purposes of measuring pension and other postretirement benefit obligations.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assumptions for the expected return on plan assets are used to determine a component of net periodic benefit cost for the year.

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Strategic asset allocations are determined by plan, based on the nature of liabilities and considering the demographic composition of the plan participants.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Actuarial Assumptions - Central States Pension Fund

UPS was a contributing employer to the CSPF until 2007 when we withdrew from the CSPF and fully funded our allocable share of unfunded vested benefits by paying a $ 6.1 billion withdrawal liability.

UPS was a contributing employer to the CSPF until 2007 at which time UPS withdrew from the CSPF and paid a $ 6.1 billion withdrawal liability to satisfy our allocable share of unfunded vested benefits.

Under a collective bargaining agreement with the International Brotherhood of Teamsters (“IBT”), UPS agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 (“the UPS Transfer Group”) in the event that benefits are lawfully reduced by the CSPF in the future consistent with the terms of our withdrawal agreement with the CSPF.

Under our withdrawal agreement with the CSPF, benefits to the UPS Transfer Group cannot be reduced without our consent and can only be reduced in accordance with applicable law.

Under this withdrawal agreement, benefits to the UPS Transfer Group cannot be reduced without our consent and can only be reduced in accordance with applicable law.

The financial crisis of 2008 created extensive asset losses at the CSPF, contributing to the plan’s projected insolvency, at which time benefits would be reduced to the legally permitted Pension Benefit Guaranty Corporation ("PBGC") limits, triggering the coordination of benefits provision in the collective bargaining agreement.

In 2014, Congress passed the Multiemployer Pension Reform Act (“MPRA”).

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In 2016, Treasury rejected the proposed plan submitted by the CSPF.

In 2018, Congress established a Joint Select Committee to develop a recommendation to improve the solvency of multiemployer plans and the Pension Benefit Guaranty Corporation (“PBGC”) before a November 30, 2018 deadline.

While the Committee’s efforts failed to meet its deadline, the Committee made significant progress towards finding solutions that would address the long term solvency of multiemployer pension plans.

In 2019, the U.S.

House of Representatives passed the Rehabilitation for Multiemployer Pensions Act of 2019 to provide assistance to critical and declining multiemployer pension plans.

Additionally, in 2020, the U.S.

House of Representatives passed two versions of the Health and Economic Recovery Omnibus Emergency Solutions Act ("HEROES Act"), which would provide financial support to those same plans.

These bills remain with the U.S.

Senate for consideration.

UPS continues to work with all stakeholders, including legislators and regulators, to implement an acceptable solution.

The CSPF has said that it believes a legislative solution to its funded status is necessary or that it will become insolvent in 2025.

We expect that the CSPF will continue to explore options to avoid insolvency.

Numerous factors could affect the CSPF’s funded status and UPS’s potential obligation to pay coordinating benefits under the UPS/IBT Plan, including whether the CSPF submits a revised benefit reduction plan under MPRA and the terms thereof, or whether it otherwise seeks federal government assistance, as well as the terms of any applicable legislation, the extent to which benefits are paid by the PBGC and our ability to successfully defend legal positions we may take in the future under the MPRA, including the suspension ordering provisions, our withdrawal agreement and other applicable law.

We account for the potential obligation to pay coordinating benefits to the UPS Transfer Group under Accounting Standards Codification Topic 715- Compensation- Retirement Benefits (“ASC 715”), which requires us to provide a best estimate of various actuarial assumptions, including the eventual outcome of this matter, in measuring our pension benefit obligation at the December 31st measurement date.

While we currently believe the most likely outcome to this matter and the broader systemic problems facing multiemployer pension plans is intervention by the federal government, ASC 715 does not permit anticipation of changes in law in making a best estimate of pension liabilities.

As such, our best estimate in accordance with ASC 715 at the December 31, 2020 measurement date is that the CSPF can no longer submit and implement another benefit reduction plan under the MPRA.

In light of its financial difficulties, the CSPF stated that it believed a legislative solution to its funded status would be necessary or that it would become insolvent in 2025, at which time benefits would be reduced to the applicable PBGC benefit levels.

We account for the potential obligation to pay coordinating benefits to the UPS Transfer Group under ASC 715, which requires us to provide a best estimate of various actuarial assumptions, including the eventual outcome of this matter, in measuring our pension benefit obligation at the December 31st measurement date and at interim periods when a significant event occurs.

ASC 715 does not permit anticipation of changes in law when developing a best estimate.

At the December 31, 2020 measurement date, we developed our best estimate for the potential obligation to pay coordinating benefits to the UPS Transfer Group using a deterministic cash flow projection that reflected estimated CSPF cash flows and investment earnings, the lack of legislative action having been taken, the expectation of payment of guaranteed benefits by the PBGC and the lack of a benefit reduction plan under MPRA having been filed by the CSPF.

As a result, our best estimate at that time of the obligation for coordinating benefits that may have been required to be directly provided by the UPS/IBT Plan to the UPS Transfer Group was $ 5.5 billion.

In March 2021, the American Rescue Plan Act (“ARPA”) was enacted into law.

The ARPA contains provisions that allow for qualifying financially distressed multiemployer pension plans to apply for special financial assistance ("SFA") from the PBGC, which will be funded by Treasury.

Following approval of an application, a qualifying multiemployer pension plan will receive a lump sum payment to enable it to continue paying unreduced benefits through 2051.

The multiemployer plan is not obligated to repay the SFA.

The ARPA is intended to prevent both the PBGC and certain financially distressed multiemployer pension plans, including the CSPF, from becoming insolvent through 2051.

On July 9, 2021, the PBGC issued interim final regulations implementing the SFA program established under the ARPA.

We believe the CSPF will meet the eligibility requirements and will be allowed to apply for SFA beginning April 1, 2022.

We expect that the CSPF will apply for SFA during 2022 in order to continue payment of unreduced benefits through 2051.

The passage of the ARPA and the expected receipt of SFA by the CSPF currently eliminates our obligation to provide additional coordinating benefits to the UPS Transfer Group through 2051.

These matters also triggered a remeasurement under ASC 715.

Accordingly, we remeasured the plan assets and pension benefit obligation of the UPS/IBT Plan as of March 31, 2021.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We developed our best estimate using a deterministic cash flow projection that reflects updated estimated CSPF cash flows and investment earnings, the lack of legislative action, payment of guaranteed benefits by the PBGC and the absence of a benefit reduction plan under MPRA having been filed by the CSPF.

As a result, at the December 31, 2020 measurement date, the best estimate of our projected benefit obligation for coordinating benefits that may be required to be directly provided by the UPS/IBT Plan to the UPS Transfer Group increased by $ 2.3 billion.

Since 2018, we have recorded $4.9 billion for coordinating benefits that the UPS/IBT Plan may be required to pay.

At the December 31, 2020 measurement date, discount rate changes increased this liability to $ 5.5 billion.

The future value of this estimate will be influenced by a number of factors, including the terms and timing of any benefit reduction plan under MPRA, changes in our discount rate, rate of return on assets and other actuarial assumptions, the ability of the PBGC to sustain its commitments, as well as potential solutions resulting from federal government intervention.

Any such event may result in a decrease or an increase in the best estimate of our projected benefit obligation.

If a future change in law occurs, it may be a significant event requiring an interim remeasurement of the UPS/IBT Plan at the date the law is enacted.

We will continue to assess the impact of these uncertainties on our projected benefit obligation in accordance with ASC 715.

The March 31, 2021 interim remeasurement resulted in an actuarial gain of $ 6.4 billion, reflecting reduction of the liability for coordinating benefits of $ 5.1 billion and a gain from other updated actuarial assumptions of $ 1.3 billion.

The assumption gain reflects a $ 1.6 billion benefit from a 72 basis point increase in the discount rate compared to December 31, 2020, offset by $ 0.3 billion asset loss resulting from actual asset returns approximately 220 basis points below our expected return.

As a result, $ 3.1 billion of the actuarial gain was recorded in AOCI within the equity section of the consolidated balance sheet.

The remaining pre-tax actuarial gain of $ 3.3 billion ($ 2.5 billion after tax) that exceeded the corridor (defined as 10% of the greater of the fair value of plan assets and the plan's projected benefit obligation) was recognized as a mark-to-market gain in the statement of consolidated income.

The future value of this estimate will continue to be influenced by a number of factors, including interpretations of the ARPA, future legislative actions, actuarial assumptions and the ability of the PBGC to sustain its commitments.

Actual events may result in a change in our best estimate of the projected benefit obligation.

We will continue to assess the impact of these uncertainties in accordance with ASC 715.

Other Actuarial Assumptions

Healthcare cost trends are used to project future postretirement medical benefits payable from our plans.

For 2020 U.S.

plan obligations, future postretirement medical benefit costs were forecasted assuming an initial annual rate of increase of 6.5 %, decreasing to 4.5 % by the year 2029 and with consistent annual increases at that ultimate level thereafter.

For purposes of measuring our U.S.

plan obligations as of December 31, 2021, a 6.25 % annual rate of increase in the postretirement medical benefit costs was assumed;

the rate was assumed to decrease gradually to 4.5 % by the year 2029 and to remain at that level thereafter.

Funded Status

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The accumulated benefit obligation for our postretirement medical benefit plans as of the measurement dates in 2021 and 2020 was $ 2.6 and $ 2.8 billion, respectively.

Benefit payments under the pension plans include $ 26 and $ 27 million paid from employer assets in 2020 and 2019, respectively.

Benefit payments (net of participant contributions) under the postretirement medical benefit plans include $ 77 and $ 82 million paid from employer assets in 2020 and 2019, respectively.

Benefit payments under the pension plans include $ 29 a nd $ 26 million paid from employer assets in 2021 and 2020, respectively.

Benefit payments (net of participant contributions) under the postretirement medical benefit plans includ e $ 63 and $ 77 million paid from employer assets in 2021 and 2020, respectively.

Such benefit payments from employer assets are also categorized as employer contributions.

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Fair value of plan assets at end of year $ 55,954 $ 52,997 $ 115 $ 49 $ 2,106 $ 1,835

2020 - $ 10.1 billion pre-tax actuarial loss related to benefit obligation:

• Discount Rates ($ 7.3 billion pre-tax loss):

The weighted-average discount rate for our pension and postretirement medical plans decreased from 3.55 % as of December 31, 2019 to 2.87 % as of December 31, 2020, primarily due to a decline in U.S.

treasury yields that was slightly offset by an increase in credit spreads on AA-rated corporate bonds.

• Coordinating benefits attributable to the Central States Pension Fund ($ 2.3 billion pre-tax loss):

This represents our current best estimate of additional potential coordinating benefits that may be required to be paid related to the Central States Pension Fund before taking into account the impact of the change in discount rates.

2021 - $ 6.5 billion pre-tax actuarial gain related to benefit obligation:

• Discount Rates ( $ 2.4 billion pre-tax gain):

The weighted-average discount rate for our pension and postretirement medical plans increased from 2.87 % as of December 31, 2020 to 3.11 % as of December 31, 2021, primarily due to an increase in U.S.

treasury yields, slightly offset by a decrease in credit spreads on AA-rated corporate bonds.

• Coordinating benefits attributable to the Central States Pension Fund ( $ 5.1 billion pre-tax gain):

This represents the reduction in our best estimate of additional potential coordinating benefits that may be required to be paid related to the CSPF before taking into account the impact of the change in discount rates.

• Demographic and Assumption Changes ($ 973 million pre-tax loss):

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• Discount Rates ($ 7.3 billion pre-tax loss):

The weighted-average discount rate for our pension and postretirement medical plans decreased from 4.45 % as of December 31, 2018 to 3.55 % as of December 31, 2019, primarily due to both a decline in U.S.

treasury yields and a decrease in credit spreads on AA-rated corporate bonds.

This was partially offset by a refinement to the bond matching approach used to determine the discount rate for our U.S.

pension and postretirement plans discussed above.

• Coordinating benefits attributable to the Central States Pension Fund ($ 603 million pre-tax loss):

The weighted-average discount rate for our pension and postretirement medical plans decreased from 3.55 % as of December 31, 2019 to 2.87 % as of December 31, 2020, primarily due to a decline in U.S.

treasury yields that was slightly offset by an increase in credit spreads on AA-rated corporate bonds.

• Coordinating benefits attributable to the Central States Pension Fund ($ 2.3 billion pre-tax loss):

• Demographic and Assumption Changes ($ 40 million pre-tax gain):

• Demographic and Assumption Changes ($ 513 million pre-tax loss):

This represents the difference between actual and estimated participant data and demographic factors, including items such as healthcare cost trends, compensation changes, rates of termination, retirement, mortality and other changes.

Pension and Postretirement Plan Assets

Under the governance of plan trustees, the Investment Committee establishes investment guidelines and strategies and regularly monitors the performance of investments and investment managers.

The investment guidelines address items such as establishing appropriate governance provisions;

defining investment objectives;

determining strategic asset allocation;

monitoring and reporting the investments on a regular basis;

appointing/dismissing investment managers, custodians, consultants and advisors;

risk management;

determining/defining the mandates for investment managers;

rebalancing of assets and determining investment restrictions/prohibited investments.

Plan assets are invested in accordance with applicable laws and regulations.

The primary long-term investment objective for pension assets is to provide for a reasonable amount of long-term growth of capital given prudent levels of risk exposure while minimizing permanent loss of capital.

To meet this objective, investment managers are engaged to actively manage assets within the guidelines and strategies set forth by the Investment Committee.

Pension assets are invested in accordance with applicable laws and regulations, as well as investment guidelines established by plan trustees.

The strategic asset mixes are specifically tailored for each plan given distinct factors, including liability and liquidity needs.

Equities, alternative investments, and other higher yielding assets are utilized to generate returns and promote growth.

Derivatives, repurchase/reverse repurchase agreements and fixed income securities are utilized as tools for duration management, mitigating interest rate risk, and minimizing funded status volatility.

The primary long-term investment objectives for pension assets are to provide for a reasonable amount of long-term growth of capital to meet future obligations while minimizing risk exposures and reducing funded status volatility.

To meet these objectives, investment managers are engaged to actively manage assets within the guidelines and strategies set forth by the Investment Committee.

Active managers are monitored regularly and their performance is compared to applicable benchmarks.

As a result of our long-term U.S.

investment objectives for pension assets, the weighted-average long-term expected rate of return on assets decreased from 7.77 % during 2020 to 6.50 % in 2021.

Fair Value Measurements

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Fair values were determined by closing prices for those securities traded on national stock exchanges, while securities traded in the over-the-counter market and listed securities for which no sale was reported on the valuation date are valued at the mean between the last reported bid and ask prices.

Level 2 assets include certain bonds that are valued based on yields currently available on comparable securities of other issues with similar credit ratings;

Level 2 assets include fixed income securities that are valued based on yields currently available on comparable securities of other issues with similar credit ratings;

mortgage-backed securities that are valued based on cash flow and yield models using acceptable modeling and pricing conventions;

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Fair value estimates for certain investments are based on unobservable inputs that are not corroborated by observable market data and are thus classified as Level 3.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments that do not have a readily determinable fair value, and which provide a net asset value ("NAV") or its equivalent developed consistent with FASB measurement principles, are valued using NAV as a practical expedient.

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No unfunded commitments existed with respect to hedge funds as of December 31, 2021.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Risk Parity Funds:

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Government Securities (2)

12,083 25,358 ( 13,275 ) —

Corporate Bonds 6,156 — 6,142 14

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(1) Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the category totals.

(2) Level 2 U.S.

Government Securities includes repurchase and reverse repurchase agreements.

(3) Represents mortgage and asset-backed securities.

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Balance on December 31, 2021 $ 14 $ 74 $ 88

There were no shares of UPS class A or B common stock directly held in plan assets as of December 31, 2020 or 2019.

There were no shares of UPS class A or B common stock directly held in plan assets as of December 31, 2021 or December 31, 2020.

Expected Cash Flows

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2027 - 2031 14,160 813 425

Our funding policy for U.S.

plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations, or to directly fund payments to plan participants, as applicable.

Our current funding policy guideline for U.S.

plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations.

International plans will be funded in accordance with local regulations.

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We contribute to a number of multiemployer defined benefit plans under the terms of collective bargaining agreements that cover our union-represented employees.

These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility/participation requirements, vesting periods and benefit formulas.

These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility and participation requirements, vesting periods and benefit formulas.

The risks of participating in multiemployer plans are different from single-employer plans in the following respects:

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Such surcharges would cease upon the ratification of a new collective bargaining agreement and could not recur unless a plan re-entered critical status at a later date.

The discussion that follows sets forth the financial impact on our results of operations and cash flows for 2020, 2019 and 2018, from our participation in multiemployer benefit plans.

The discussion that follows sets forth the financial impact on our results of operations and cash flows for December 31, 2021, 2020 and 2019, from our participation in multiemployer benefit plans.

As part of the overall collective bargaining process for wage and benefit levels, we have agreed to contribute certain amounts to the multiemployer benefit plans during the contract period.

The multiemployer benefit plans set benefit levels and are responsible for benefit delivery to participants.

Future contribution amounts to multiemployer benefit plans are determined only through collective bargaining, and we have no additional legal or constructive obligation to increase contributions beyond the agreed-upon amounts (except potential surcharges under the Pension Protection Act of 2006 described above).

Future contributions to multiemployer benefit plans are determined only through collective bargaining, and we have no additional legal or constructive obligation to increase contributions beyond the agreed-upon amounts (except potential surcharges under the Pension Protection Act of 2006 described above).

The number of employees covered by our multiemployer pension plans has increased with the growth in our business.

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Status of Collective Bargaining Agreements

As of December 31, 2020, we had approximately 327,000 employees employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters, of which approximately 11,000 are employees of UPS Freight.

As of December 31, 2021, we had approximately 327,000 employees employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters.

These agreements run through July 31, 2023.

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The collective bargaining agreement with the IAM runs through July 31, 2024.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Multiemployer Pension Plans

The following table outlines our participation in multiemployer pension plans for 2020, 2019 and 2018, and sets forth our calendar year contributions and accruals for each plan.

The following table outlines our participation in multiemployer pension plans for December 31, 2021, 2020 and 2019, and sets forth our calendar year contributions and accruals for each plan.

The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit plan number.

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As of December 31, 2021, all plans that have either a FIP or RP requirement have had the respective plan implemented.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our collectively-bargained contributions satisfy the requirements of all implemented FIPs and RPs and do not currently require the payment of any surcharges.

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For all plans detailed in the following table, we provided more than 5 % of the total plan contributions from all employers for 2021, 2020 and 2019 (as disclosed in the annual filing with the Department of Labor for each respective plan).

Certain plans have been aggregated in the “All Other Multiemployer Pension Plans” line in the following table, as the contributions to each of these individual plans are not material.

Certain plans have been aggregated in the “All Other Multiemployer Pension Plans” line in the following table, as contributions to each of these individual plans are not material.

EIN / Pension

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Hagerstown Motor Carriers and Teamsters Pension Fund 52-6045424-001 Red Red Yes Implemented 12 11 10 No

National Pension Fund / National Pension Plan 51-6031295-002 Red Green Yes Implemented 44 41 38 No

National Pension Fund / National Pension Plan 51-6031295-002 Red Red Yes Implemented 48 44 41 No

International Brotherhood of Teamsters Union Local No.

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Local 804 I.B.T.

& Local 447 I.A.M.—UPS Multiemployer Retirement Plan 51-6117726-001 Yellow Yellow Yes Implemented 124 112 116 No

& Local 447 I.A.M.—UPS Multiemployer Retirement Plan 51-6117726-001 Green Yellow No NA 135 124 112 No

Milwaukee Drivers Pension Trust Fund 39-6045229-001 Green Green No NA 58 53 48 No

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United Parcel Service, Inc.—Local 177, I.B.T.

Multiemployer Retirement Plan 13-1426500-419 Red Red Yes Implemented 107 100 95 No

Multiemployer Retirement Plan 13-1426500-419 Yellow Red Yes Implemented 116 107 100 No

Western Conference of Teamsters Pension Plan 91-6145047-001 Green Green No NA 1,260 1,138 939 No

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Total Contributions $ 2,787 $ 2,555 $ 2,220

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Agreement with the New England Teamsters and Trucking Industry Pension Fund

In 2012, we reached an agreement with the New England Teamsters and Trucking Industry Pension Fund ("NETTI Fund"), a multiemployer pension plan in which UPS is a participant, to restructure the pension liabilities for approximately 10,200 UPS employees represented by the Teamsters.

As of December 31, 2020 and 2019, we had $ 837 and $ 845 million, respectively, recognized in "Other Non-Current Liabilities" as well as $ 7 million as of December 31, 2020 and 2019 recorded in "Other current liabilities" in our consolidated balance sheets, representing the remaining balance of the NETTI Fund withdrawal liability.

As of December 31, 2021 and 2020, we had $ 830 and $ 837 million, respectively, recognized in Other Non-Current Liabilities as well as $ 8 and $ 7 million as of December 31, 2021 and 2020, respectively, recorded in Other current liabilities in our consolidated balance sheets, representing the remaining balance of the NETTI Fund withdrawal liability.

This liability is payable in equal monthly installments over a remaining term of approximately 41 years.

Based on the borrowing rates currently available to us for long-term financing of a similar maturity, the fair value of the NETTI Fund withdrawal liability as of December 31, 2020 and 2019 was $ 1.0 billion and $ 929 million, respectively.

We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

Based on the borrowing rates currently available to us for long-term financing of a similar maturity, the fair value of the NETTI Fund withdrawal liability as of December 31, 2021 and 2020 was $ 963 million and $ 1.0 billion, respectively.

We utilized Level 2 inputs in the fair value hierarchy to determine the fair value of this liability.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Multiemployer Health and Welfare Plans

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GOODWILL AND INTANGIBLE ASSETS

The following table indicates the allocation of goodwill by segment (in millions):

The following table indicates the allocation of goodwill (in millions):

Package International

Package Supply Chain

Freight Consolidated

Solutions Consolidated

Balance on January 1, 2020 $ 715 $ 416 $ 2,682 $ 3,813

Acquired — — — —

Impairments — — ( 494 ) ( 494 )

Currency / Other — 6 42 48

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Acquired 132 — 243 375

Impairments — — ( 494 ) ( 494 )

Currency / Other — ( 19 ) ( 31 ) ( 50 )

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2021 Goodwill Activity

As of December 31, 2020 we classified our UPS Freight reporting unit as held for sale, which resulted in a goodwill impairment charge of $ 494 million for the Supply Chain & Freight segment.

The remaining change in goodwill for both the Supply Chain & Freight and International Package segments was due to immaterial purchase accounting adjustments and the impact of changes in the value of the U.S.

The goodwill acquired in U.S.

Domestic Package and Supply Chain Solutions related to our October 2021 acquisition of Roadie.

The purchase price allocation for acquired businesses may be modified for up to one year from the date of acquisition if additional facts or circumstances lead to changes in our preliminary purchase accounting estimates.

See note 9 for further discussion of business acquisitions.

The remaining change in goodwill for both Supply Chain Solutions and International Package was attributable to the impact of changes in the value of the U.S.

Dollar on the translation of non-U.S.

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2020 Goodwill Activity

The change in goodwill acquired for the International Package segment was due to our January 2019 acquisition of Transmodal Services Private Limited in India.

The goodwill acquired in the Supply Chain & Freight segment was primarily due to our July 2019 acquisitions by Marken in Europe.

The remaining change in goodwill for the International Package segment was due to immaterial purchase accounting adjustments and the impact of changes in the value of the U.S.

As of December 31, 2020 we classified our UPS Freight reporting unit as held for sale, which resulted in a goodwill impairment charge of $ 494 million within Supply Chain Solutions.

The remaining change in goodwill for both Supply Chain Solutions and International Package was due to immaterial purchase accounting adjustments and the impact of changes in the value of the U.S.

Dollar on the translation of non-U.S.

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Goodwill Impairment

We completed our annual goodwill impairment evaluation as of July 1st on a reporting unit basis.

Except as discussed below, no triggering events were identified for the periods presented that required an interim impairment test.

Domestic Package is our largest reporting segment and reporting unit.

In our International Package reporting segment, we have the following reporting units:

Europe, Asia, Americas and ISMEA.

In our Supply Chain & Freight reporting segment we have the following reporting units:

Forwarding, Logistics, UPS Mail Innovations, UPS Freight, The UPS Store, UPS Capital, Marken and Coyote.

In assessing goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If the qualitative assessment is not conclusive, we calculate the fair value of a reporting unit to test goodwill for impairment.

We primarily determine the fair value of our reporting units using a discounted cash flow model, and supplement this with observable valuation multiples for comparable companies, as applicable.

A comparison of the fair value of the reporting unit with its aggregate carrying value, including goodwill, is performed.

If the carrying amount of a reporting unit exceeds its fair value, we record the excess amount as goodwill impairment, not to exceed the total amount of goodwill allocated to the reporting unit.

In 2020, we utilized a qualitative assessment to determine that it was more likely than not that the reporting unit fair value exceeded the carrying value for U.S.

Domestic Package, Europe Package, Asia Package, Americas Package, ISMEA Package, The UPS Store and UPS Capital.

For the remaining reporting units owned at the annual goodwill impairment testing date, we utilized the quantitative process to test goodwill for impairment.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We did not record any impairments of goodwill during 2021.

In the fourth quarter of 2020, we determined that our UPS Freight reporting unit should be classified as held for sale.

Accordingly, we tested goodwill for impairment as of December 31, 2020, and determined that the fair value of the reporting unit had decreased.

A goodwill impairment charge of $ 494 million, representing the remaining goodwill balance for UPS Freight, is included within Other expenses in the statements of consolidated income.

We did no t record any goodwill impairment charges in 2019 or 2018.

Cumulatively, our Supply Chain & Freight segment has recorded $ 1.1 billion of goodwill impairment charges, while our International and U.S.

For the year ended December 31, 2020, a goodwill impairment charge of $ 494 million, representing the remaining goodwill balance for UPS Freight, is included within Other expenses in the statements of consolidated income.

We did no t record any goodwill impairments during 2019.

Cumulatively, we have recorded $ 1.1 billion of goodwill impairment charges in Supply Chain Solutions, while our International and U.S.

Domestic Package segments have no t recorded any goodwill impairment charges.

For additional information on the pending divestiture of UPS Freight, see note 4.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

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Customer relationships 733 ( 408 ) 325 10.6

Trade name 200 — 200 N/M

Trade name 67 ( 1 ) 66 10.3

Trademarks, patents and other 158 ( 15 ) 143 8.4

Amortizable intangible assets $ 6,045 $ ( 3,763 ) $ 2,282 7.6

Indefinite lived intangible assets 204 — 204

Total Intangible Assets $ 6,249 $ ( 3,763 ) $ 2,486

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Customer relationships 729 ( 344 ) 385

Trade name 200 — 200

Trademarks, patents and other 18 ( 13 ) 5

Amortizable intangible assets $ 5,538 $ ( 3,469 ) $ 2,069

Indefinite lived intangible assets 205 — 205

Total Intangible Assets $ 5,743 $ ( 3,469 ) $ 2,274

A trade name and licenses with carrying values of $ 200 and $ 4 million, respectively, as of December 31, 2021 are deemed to be indefinite-lived intangible assets, and therefore are not amortized.

Impairment tests for indefinite-lived intangible assets are performed on an annual basis.

Impairment tests for indefinite-lived intangible assets are performed annually.

Our annual impairment test as of July 1, 2021 indicated that the fair value of the trade name, which is associated with our truckload brokerage business, remained greater than its carrying value, but that the excess was less than 10 percent.

There were no events or changes in circumstances that would indicate the carrying amount of our indefinite-lived intangible assets may have been impaired as of December 31, 2021.

All of our other recorded intangible assets are deemed to be finite-lived intangibles, and are amortized over their estimated useful lives.

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Impairments of finite-lived intangible assets were $ 19 , $ 13 , and $ 2 million in 2021, 2020, and 2019, respectively.

Amortization of intangible assets was $ 416 , $ 377 and $ 339 million during 2020, 2019 and 2018, respectively.

Amortization of intangible assets was $ 475 , $ 416 and $ 377 million in each of 2021, 2020 and 2019, respectively.

Expected amortization of finite-lived intangible assets recorded as of December 31, 2021 for the next five years is as follows (in millions):

Amortization expense in future periods will be affected by business acquisitions and divestitures, software development, licensing agreements, franchise rights purchased and other factors.

Amortization expense in future periods will be affected by business acquisitions and divestitures, software development, licensing agreements, purchase of development areas or similar franchise rights and other factors.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BUSINESS ACQUISITIONS

In October 2021, we acquired Roadie, Inc.

("Roadie"), a technology platform that provides local same-day delivery with operations throughout the United States.

The Roadie technology platform is purpose-built to connect merchants and consumers with contract drivers to enable efficient and scalable same-day local delivery services for items that are not compatible with the UPS network.

The acquisition was funded using cash from operations.

We report Roadie within Supply Chain Solutions.

The financial results of the acquired business were not material to our results of operations for the fourth quarter or the year.

The estimated fair value of assets acquired and liabilities assumed are subject to change based on completion of our purchase accounting.

The purchase price allocation for acquired companies can be modified for up to one year from the date of acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (in millions):

Cash and cash equivalents $ 12

Accounts receivable 15

Intangible assets 231

Deferred tax liability ( 47 )

Total purchase price $ 586

Goodwill recognized of approximately $ 375 million is attributable to expected synergies from future growth, including synergies to our U.S.

Domestic Package segment.

We have allocated $ 243 and $ 132 million of the recognized goodwill to Supply Chain Solutions and the U.S.

Domestic Package segment, respectively.

None of the goodwill is expected to be deductible for income tax purposes.

The intangible assets acquired of approximately $ 231 million primarily consist of $ 145 million of technology (amortized over 8 years), $ 67 million of trade name (amortized over 10 years), and an additional $ 19 million in other intangibles (amortized over an average of 8 years).

The carrying value of accounts receivable approximates fair value.

Acquisition related costs were not material, and were expensed as incurred and included in Other expenses within the statements of consolidated income.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DEBT AND FINANCING ARRANGEMENTS

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2.050 % senior notes

700 2021 700 699

2.450 % senior notes

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7.620 % debentures (1)

8.375 % debentures

276 2030 280 281

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567 2032 564 611

Floating-rate senior notes — 2020 — 559

Canadian senior notes:

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Long-term debt $ 19,784 $ 22,031

(1) On April 1, 2020, the interest rate on these debentures decreased from 8.375 % to 7.620 % for the remaining 10 years until maturity.

UNITED PARCEL SERVICE, INC.

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commercial paper program and € 5.0 billion (in a variety of currencies) under a European commercial paper program.

As of December 31, 2020 we had U.S.

commercial paper outstanding of $ 15 million with an average interest rate of 0.17 % and we had no outstanding balances under our European commercial paper program.

As of December 31, 2020, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheets.

As of December 31, 2021 we had no outstanding balances under these commercial paper programs.

The amount of commercial paper outstanding under these programs in 2022 is expected to fluctuate.

Debt Repayments

On July 15, 2020 our Euro floating-rate senior notes with a principal balance of € 500 million ($ 566 million) matured and were repaid in full.

On April 1, 2020, our 8.375% senior notes with a principal balance of $ 424 million matured and were repaid in full.

Debt Issuances

On March 24, 2020 we issued four series of notes, in the following principal amounts:

$ 1.0 billion, $ 750 million, $ 500 million and $ 1.25 billion.

These notes bear interest at 3.90 %, 4.45 %, 5.20 % and 5.30 %, respectively, and will mature on April 1, 2025, April 1, 2030, April 1, 2040 and April 1, 2050, respectively.

Interest on the notes is payable semi-annually, beginning October 2020.

Each series of notes is callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of scheduled payments of principal and interest, plus accrued and unpaid interest.

In such event, the present values of scheduled principal and interest payments are discounted to the redemption date on a semi-annual basis at the discount rate of the Treasury Rate plus 50 basis points, and are determined as follows:

• On the 3.90 % notes, payments from the redemption date until one month prior to maturity

• On the 4.45 % notes, payments from the redemption date until three months prior to maturity

• On the 5.20 % and 5.30 % notes, payments from the redemption date until six months prior to maturity

On January 15, 2021, our 3.125 % senior notes with a principal balance of $ 1.5 billion matured and were repaid in full.

On April 1, 2021, our 2.050 % fixed-rate senior notes with a principal balance of $ 700 million and our floating rate senior notes with a principal balance of $ 350 million matured and were both repaid in full.

Fixed-Rate Senior Notes

All of our fixed-rate notes pay interest semi-annually, and allow for redemption by UPS at any time by paying the greater of the principal amount or a “make-whole” amount, plus accrued interest.

We subsequently entered into interest rate swaps on several of these notes, which effectively converted the fixed interest rates on the notes to variable LIBOR-based interest rates.

The average interest rate payable on the notes where fixed interest rates were swapped to variable-based interest rates, including the impact of the interest rate swaps, for 2020 and 2019 were as follows:

We subsequently entered into interest rate swaps on certain of these notes, which effectively converted the fixed interest rates on the notes to variable interest rates.

The average interest rates payable on the notes where fixed interest rates were swapped to variable interest rates, including the impact of the interest rate swaps, for 2021 and 2020 were as follows:

Principal Average Effective Interest Rate

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1,000 2022 0.76 % 1.55 %

2.450 % senior notes

1,000 2022 1.55 % 3.03 %

7.620 % Debentures

The 8.375 % debentures consist of two separate tranches, as follows:

• $ 276 million of the debentures have a maturity of April 1, 2030.

These debentures have an 8.375 % interest rate until April 1, 2020, and, thereafter, the interest rate will be 7.62 % for the final 10 years.

The $ 276 million debentures have a maturity of April 1, 2030.

These debentures had an interest rate of 8.375 % until April 1, 2020, at which time the interest rate decreased to 7.620 % for the remaining term.

These debentures are redeemable in whole or in part at our option at any time.

The redemption price is equal to the greater of 100 % of the principal amount and accrued interest, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption (at a benchmark treasury yield plus five basis points) plus accrued interest.

• $ 424 million of the debentures matured and were paid in full on April 1, 2020.

These debentures were not subject to redemption prior to maturity.

The redemption price is equal to the greater of the principal amount plus accrued interest, or the present value of remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark treasury yield plus five basis points, plus accrued interest.

Interest is payable semi-annually in April and October, and the debentures are not subject to sinking fund requirements.

Floating-Rate Senior Notes

Our floating-rate senior notes bear interest at rates that reference the London Interbank Offer Rate ("LIBOR") for U.S.

As part of a broader program of reference rate reform, it is expected that U.S.

Dollar LIBOR rates will cease to be published after June 2023.

We have floating-rate senior notes in the principal amounts of $ 400 and $ 500 million that bear interest at three-month LIBOR, plus a spread of 38 and 45 basis points, respectively.

These notes are not callable.

The $ 400 million notes mature in 2022 and the $ 500 million notes mature in 2023, prior to the expected discontinuance of U.S.

Dollar LIBOR.

The average interest rate for 2021 and 2020, including interest on the $ 350 million floating-rate senior notes that matured on April 1, 2021, was 0.58 % and 1.29 %, respectively.

The remaining floating-rate senior notes, with principal amounts totaling $ 1.0 billion, bear interest at either one or three-month LIBOR, less a spread ranging from 30 to 45 basis points.

These notes have maturities ranging from 2049 through 2067 and will be impacted by the discontinuance of U.S.

Dollar LIBOR rates in June 2023.

We are currently working to transition these notes to an alternative reference rate.

We anticipate that the Secured Overnight Financing Rate ("SOFR") will be adopted in accordance with recommendations of the Alternative Reference Rates Committee.

The average interest rate on the remaining floating-rate senior notes for 2021 and 2020 was 0.00 % and 0.40 %, respectively.

These notes are callable at various times after 30 years at a stated percentage of par value, and redeemable at the option of the note holders at various times after one year at a stated percentage of par value.

We have classified these floating-rate senior notes as long-term liabilities in our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest is payable semi-annually in April and October for both tranches and neither tranche is subject to sinking fund requirements.

We subsequently entered into interest rate swaps on the 2020 debentures, which effectively converted the fixed interest rates on the debentures to variable LIBOR-based interest rates.

The average interest rate payable on the 2020 debentures, including the impact of the interest rate swaps, for 2020 and 2019 was 6.66 % and 7.20 %, respectively.

Floating-Rate Senior Notes

The floating-rate senior notes, with principal amounts totaling $ 1.0 billion, bear interest at either one or three-month LIBOR, less a spread ranging from 30 to 45 basis points.

The average interest rate for 2020 and 2019 was 0.40 % and 2.05 %, respectively.

These notes are callable at various times after 30 years at a stated percentage of par value, and putable by the note holders at various times after one year at a stated percentage of par value.

The notes have maturities ranging from 2049 through 2067.

We classified the floating-rate senior notes that are putable by the note holder as long-term liabilities in our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised by the note holder.

The remaining three floating-rate senior notes in the principal amounts of $ 350 , $ 400 and $ 500 million, bear interest at three-month LIBOR, plus a spread ranging from 15 to 45 basis points.

The average interest rate for 2020 and 2019 was 1.29 % and 2.82 %, respectively.

These notes are not callable.

The notes have maturities ranging from 2021 through 2023.

Finance Lease Obligations

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• Bonds with a principal balance of $ 29 million issued by the Dallas / Fort Worth International Airport Facility Improvement Corporation associated with our Dallas, Texas airport facilities.

The bonds are due in May 2032 and bear interest at a variable rate, however the variable cash flows on the obligation have been swapped to a fixed 5.11 %.

The bonds are due in May 2032 and bear interest at a variable rate, however the variable cash flows on the obligation have been swapped to a fixed rate of 5.11 %.

• Bonds with a principal balance of $ 100 million issued by the Delaware County, Pennsylvania Industrial Development Authority associated with our Philadelphia, Pennsylvania airport facilities.

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• Notes with a principal amount of £ 455 million accrue interest at a 5.125 % fixed rate, and are due in February 2050.

These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount plus accrued interest, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark U.K.

These notes are callable at our option at a redemption price equal to the greater of the principal amount plus accrued interest, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark U.K.

government bond yield plus 15 basis points, plus accrued interest.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Canadian Dollar Senior Notes

The Canadian Dollar notes consist of a single series, as follows:

• Notes in the principal amount of C$ 750 million, which bear interest at a 2.125 % fixed interest rate and mature in May 2024.

• Notes in the principal amount of C$ 750 million, which bear interest at a 2.125 % fixed rate and mature in May 2024.

Interest on the notes is payable semi-annually.

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Interest is payable annually on the notes.

These notes are callable at our option at a redemption price equal to the greater of 100 % of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable German government bond yield plus 15 basis points, plus accrued interest.

These notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable German government bond yield plus 15 basis points, plus accrued interest.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Notes with a principal amount of € 700 million accrue interest at a 1.625 % fixed rate and are due in November 2025.

Interest is payable annually on the notes.

These notes are callable at our option at a redemption price equal to the greater of 100 % of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark German government bond yield plus 20 basis points, plus accrued interest.

These notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark German government bond yield plus 20 basis points, plus accrued interest.

• Notes with principal amounts of € 700 million and € 500 million accrue interest at 0.375 % and 1.50 % fixed rates, respectively, and are due in November 2023 and November 2032, respectively.

Interest on these notes is payable annually.

The notes are callable at our option at a redemption price equal to the greater of 100 % of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable government bond yield plus 10 and 20 basis points, respectively, plus accrued interest.

The notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable government bond yield plus 10 and 20 basis points, respectively, plus accrued interest.

Contractual Commitments

The following table sets forth the aggregate annual principal payments due under our long-term debt and the aggregate amounts expected to be spent for purchase commitments (in millions):

Year Debt Principal Purchase

The following table sets forth the aggregate annual principal and anticipated interest payments on our long-term debt and our projected aggregate annual purchase commitments (in millions):

Year Debt Principal Debt Interest (1)

Commitments (1)

2022 $ 2,003 $ 722 $ 2,454

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Total $ 21,677 $ 10,346 $ 5,373

(1) Debt interest and purchase commitments include estimates of future amounts yet to be recognized in our financial statements.

The amount of interest on our debt was calculated as the contractual interest payments due on our fixed-rate debt and variable-rate debt based on interest rates as of December 31, 2021, taking into account the effect of any interest rate swap agreements.

For debt denominated in a foreign currency, the U.S.

Dollar equivalent principal amount of the debt at the end of the year was used as the basis to project future interest payments.

Purchase commitments represent contractual agreements to purchase assets, goods or services that are legally binding, including contracts for aircraft, construction of new or expanded facilities and orders for technology equipment and vehicles.

As of December 31, 2021, we had outstanding letters of credit totaling approximately $ 1.7 billion issued in connection with our self-insurance reserves and other routine business requirements.

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The first of these agreements provides revolving credit facilities of $ 1.0 billion and expires on December 6, 2022.

Amounts outstanding under this agreement bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus a margin of 0.875%.

Amounts outstanding under this agreement bear interest at a periodic fixed rate equal to the term SOFR rate, plus 0.10 % per annum and an applicable margin based on our then-current credit rating.

The applicable margin from the credit pricing grid as of December 31, 2021 was 0.875 %.

Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States;

(2) the Federal Funds effective rate plus 0.50 %;

or (3) LIBOR for a one-month interest period plus 1.0 %, may be used at our discretion.

or (3) the Adjusted Term SOFR Rate for a one month interest period plus 1 %, may be used at our discretion.

UNITED PARCEL SERVICE, INC.

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The second agreement provides revolving credit facilities of $ 2.0 billion and expires on December 7, 2026.

Amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an applicable margin.

Amounts outstanding under this facility bear interest at a periodic fixed rate equal to the term SOFR rate plus 0.10 % per annum and an applicable margin based on our then-current credit rating.

The applicable margin from the credit pricing grid as of December 31, 2021 was 0.875 %.

Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States;

(2) the Federal Funds effective rate plus 0.50 %;

and (3) LIBOR for a one month interest period plus 1.00 %, plus an applicable margin, may be used at our discretion.

The applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd.

for our one-year credit default swap spread, subject to a minimum rate of 0.10 % and a maximum rate of 0.75 % per annum.

The rate is interpolated for a period of time from the date of determination of such credit default swap spread in connection with a new interest period until the latest maturity date of the facility then in effect (but not less than a period of one year).

The applicable margin for advances bearing interest based on the prime rate is 1.00 % below the applicable margin for LIBOR advances (but not lower than 0 %).

and (3) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00 %, plus an applicable margin, may be used at our discretion.

If the credit ratings established by S&P and Moody’s differ, the higher rating will be used, except in cases where the lower rating is two or more levels lower.

In these circumstances, the rating one step below the higher rating will be used.

We are also able to request advances under these facilities based on competitive bids for the applicable interest rate.

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Fair Value of Debt

Based on the borrowing rates currently available to us for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, is approximately $ 28.3 and $ 26.9 billion as of December 31, 2020 and 2019, respectively.

Based on the borrowing rates currently available to us for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $ 25.1 billion and $ 28.3 billion as of December 31, 2021 and 2020, respectively.

We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of all of our debt instruments.

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In the second quarter of 2019, the court granted our motion for judgment on the pleadings related to the wage-and-hour claims.

The plaintiffs have appealed this decision.

The plaintiffs appealed this decision.

The appeal was denied;

however, plaintiffs have sought discretionary review by the Kentucky Supreme Court.

Other Matters

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There are also unresolved questions of law and fact that could be important to the ultimate resolution of this matter.

In May 2020, the Environmental Protection Agency (“EPA”) sent us an information request related to hazardous waste regulatory compliance at certain of our facilities.

The EPA indicated that it was investigating potential recordkeeping violations of the Resource Conservation and Recovery Act at those facilities.

We have settled this matter with the payment of an immaterial amount.

In November 2021, the Environmental Protection Agency (the "EPA") sent us an information request related to hazardous waste regulatory compliance at certain of our facilities.

The EPA has indicated that it is investigating potential recordkeeping violations of the Resource Conservation and Recovery Act at those facilities.

We are cooperating with the EPA.

An immaterial accrual with respect to this matter is included in our consolidated balance sheets.

We do not believe that any loss from this matter would have a material impact on our operations or financial condition, although we are unable to predict what action, if any, might be taken in the future by the EPA as a result of this request.

We are a party in various other matters that arose in the normal course of business.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We recognize a right-of-use ("ROU") asset and lease obligation for all leases.

We have finance and operating leases for package centers, airport facilities, warehouses, office space, aircraft, aircraft engines, information technology equipment (primarily mainframes, servers and copiers), vehicles and various other equipment used in operating our business.

Certain leases for real estate and aircraft contain options to purchase, extend or terminate the lease.

We recognize a right-of-use ("ROU") asset and lease obligation for all leases greater than twelve months.

Some of our leases contain both lease and non-lease components, which we have elected to treat as a single lease component.

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Lease costs for short-term leases are recognized on a straight-line basis over the lease term.

We elected the package of transition practical expedients for existing contracts, which allowed us to carry forward our historical assessments of whether contracts are, or contain, leases, lease classification and determination of initial direct costs.

We lease property and equipment under finance and operating leases.

Certain leases for real estate and aircraft contain options to purchase, extend or terminate the lease.

Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease obligation for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and whether the optional period and payments should be included in the calculation of the associated ROU asset and lease obligation.

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A majority of the obligations associated with the aircraft classified as finance leases have been legally defeased.

Most of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline.

A majority of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline.

In order to meet customers' needs, we charter aircraft to handle package and cargo volume on certain international trade lanes and domestic routes.

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The components of lease expense for the years ended December 31, 2021, 2020 and 2019 were as follows (in millions):

2021 2020 2019

Operating lease costs $ 729 $ 711 $ 643

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Total lease costs $ 2,596 $ 2,354 $ 2,063

We perform impairment assessments for our ROU assets when events or changes in circumstances indicate that their carrying values may not be recoverable.

In addition to the lease costs disclosed in the table above, impairment charges for ROU assets were $ 17 million in 2020.

We did no t record any impairment charges in 2019 or 2018.

Rent expense related to our operating leases was $ 959 million for 2018.

In addition to the lease costs disclosed in the table above, we monitor all lease categories for any indicators that the carrying value of the assets may not be recoverable.

We recognized impairment charges of $ 17 million for the year ended December 31, 2020.

There were no impairments recognized for the years ended December 31, 2021 and 2019.

UNITED PARCEL SERVICE, INC.

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Finance leases 2.79 % 4.14 %

Supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019 were as follows (in millions):

Supplemental cash flow information related to leases for the years ended December 31, 2021 and 2020 is as follows (in millions):

Cash paid for amounts included in measurement of obligations:

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Capital Stock, Additional Paid-In Capital, Retained Earnings and Non-Controlling Minority Interests

We maintain two classes of common stock, which are distinguished from each other by their respective voting rights.

We are authorized to issue two classes of common stock, which are distinguished from each other by their respective voting rights.

Class A shares of UPS are entitled to 10 votes per share, whereas class B shares are entitled to one vote per share.

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( 3,604 ) ( 3,552 ) ( 3,341 )

Common stock purchases — — ( 141 )

Reclassification from AOCI pursuant to the early adoption of ASU 2018-02 — — 735

Other ( 3 ) — —

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In May 2016, the Board of Directors approved a share repurchase authorization of $ 8.0 billion for shares of class A and class B common stock, which has no expiration date.

In May 2016, the Board of Directors approved a share repurchase authorization of $ 8.0 billion of class A and class B common stock.

For the years ended December 31, 2020 and 2019, we repurchased a total of 2.1 and 9.1 million shares of class A and class B common stock for $ 217 million and $ 1.0 billion, respectively under this program ($ 224 million and $ 1.0 billion in repurchases for 2020 and 2019, respectively, are reported on the statements of consolidated cash flows due to the timing of settlements).

We did no t repurchase any shares under this program during 2021.

In August 2021, the Board of Directors terminated this authorization and approved a new share repurchase authorization of $ 5.0 billion for class A and class B common stock.

We repurchased 2.6 million shares of class B common stock for $ 500 million under an accelerated stock repurchase transaction pursuant to this authorization during the year ended December 31, 2021.

As of December 31, 2021, we had $ 4.5 billion of this share repurchase authorization available.

Unless terminated earlier by the Board of Directors, this program will expire when we have purchased all shares authorized for repurchase under the program.

Share repurchases may be in the form of accelerated share repurchase programs, open market purchases or other methods we deem appropriate.

The timing of share repurchases will depend upon market conditions.

Unless terminated earlier by the Board, the program will expire when we have purchased all shares authorized for repurchase under the program.

On April 28, 2020, we announced our intention to suspend stock repurchases.

For the years ended December 31, 2020, 2019 and 2018, we repurchased a total of 2.1 , 9.1 and 8.9 million shares of class A and class B common stock for $ 217 million, $ 1.0 and $ 1.0 billion, respectively ($ 224 million, $ 1.0 and $ 1.0 billion in repurchases for 2020, 2019 and 2018, respectively, are reported on the statements of consolidated cash flows due to the timing of settlements).

In order to lower the average cost of acquiring shares in our ongoing share repurchase program, we periodically enter into structured repurchase agreements involving the use of capped call options for the purchase of UPS class B shares.

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If the closing market price of our common stock is at or below the pre-determined price, we will receive the number of shares specified in the agreement.

We received net premiums of $ 21 and $ 34 million during the years ended December 31, 2019 and 2018, respectively, related to entering into and settling capped call options for the purchase of class B shares.

As of December 31, 2020, we had no capped call options outstanding, nor did we enter into any of these structured repurchase agreements during the year.

We received net premiums of $ 21 million during the year ended December 31, 2019 related to entering into and settling capped call options for the purchase of class B shares.

We had no capped call options outstanding, nor did we enter into any of these structured repurchase agreements, during the years ended December 31, 2021 or 2020.

Movements in additional paid-in capital in respect of stock award plans comprise accruals for unvested awards, offset by adjustments for awards that vest during the period.

The movement year over year was driven by changes in the vesting schedule for certain of our awards.

The movement year over year was driven by changes in award payouts and by the acceleration of vesting for certain of our awards in 2020.

UNITED PARCEL SERVICE, INC.

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We recognize activity in AOCI for foreign currency translation adjustments, unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized pension and postretirement benefit costs.

The activity in AOCI for the years ended December 31, 2020, 2019 and 2018 was as follows (in millions):

The activity in AOCI for the years ended December 31, 2021, 2020 and 2019 is as follows (in millions):

2021 2020 2019

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( 181 ) 97 48

Reclassification to retained earnings pursuant to the early adoption of ASU 2018-02 — — ( 47 )

Balance at end of year $ ( 1,162 ) $ ( 981 ) $ ( 1,078 )

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( 55 ) ( 143 ) ( 123 )

Reclassification to retained earnings pursuant to the early adoption of ASU 2018-02 — — ( 79 )

Balance at end of year $ ( 17 ) $ ( 223 ) $ 112

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Balance at beginning of year $ ( 5,915 ) $ ( 5,035 ) $ ( 3,906 )

Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $( 1,885 ), $( 979 )and $( 355 ))

Net actuarial gain (loss) resulting from remeasurements of plan assets and liabilities (net of tax effect of $ 1,956 , $( 1,885 ) and $( 979 ))

6,195 ( 5,984 ) ( 3,117 )

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( 2,378 ) 5,104 1,988

Reclassification to retained earnings pursuant to the early adoption of ASU 2018-02 — — ( 609 )

Balance at end of year $ ( 2,098 ) $ ( 5,915 ) $ ( 5,035 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the years ended December 31, 2020, 2019 and 2018 was as follows (in millions):

Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the years ended December 31, 2021, 2020 and 2019 is as follows (in millions):

Amount Reclassified from AOCI Affected Line Item in the Income Statement

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Prior service costs ( 148 ) ( 227 ) ( 227 ) Investment income (expense) and other

Prior service credit for divested business 69 — — Other expenses

Plan amendments for divested business ( 66 ) — — Other expenses

Remeasurement of benefit obligation 3,272 ( 6,484 ) ( 2,387 ) Investment income (expense) and other

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compensation obligations is included in the denominator in both the basic and diluted earnings per share calculations.

are generally no longer able to defer the gains from stock options exercised subsequent to December 31, 2004.

Activity in the deferred compensation program for the years ended December 31, 2020, 2019 and 2018 is as follows (in millions):

are generally not able to defer the gains from stock options exercised subsequent to December 31, 2004.

Activity in the deferred compensation program for the years ended December 31, 2021, 2020 and 2019 was as follows (in millions):

2021 2020 2019

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STOCK - BASED COMPENSATION

The UPS Incentive Compensation Plan permits the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units, and restricted performance shares and units to eligible employees.

On May 14, 2018, our shareholders approved our 2018 Omnibus Incentive Compensation Plan under which we are authorized to issue an additional 26 million shares.

Each share issued in the form of restricted stock units and restricted performance units (collectively referred to as "Restricted Units"), stock options and other permitted awards reduces the share reserve by one share.

Our various incentive compensation plans permit the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units ("RSUs"), and restricted performance shares and performance units ("RPUs", collectively with RSUs, "Restricted Units").

On May 13, 2021, our shareholders approved our 2021 Omnibus Incentive Compensation Plan under which we are authorized to issue awards underlying 25 million shares.

Each award issued in the form of Restricted Units, stock options and other permitted awards reduces the share reserve by one share.

We had 19 million shares available to be issued under the UPS Incentive Compensation Plan as of December 31, 2021.

The primary compensation programs offered under the UPS Incentive Compensation Plan include the UPS Management Incentive Award program, the UPS Long-Term Incentive Performance Award program and the UPS Stock Option program.

These awards are discussed in the following paragraphs.

We also match a portion of participating employees’ contributions to the UPS 401(k) Savings Plan in shares of UPS class A common stock.

The total expense recognized in our statements of consolidated income under all stock compensation programs was $ 796 , $ 915 and $ 634 million during 2020, 2019 and 2018, respectively.

The associated income tax benefit recognized in our statements of consolidated income was $ 210 , $ 216 and $ 186 million during 2020, 2019 and 2018, respectively.

The cash income tax benefit received from the exercise of stock options and conversion of Restricted Units to class A shares was $ 272 , $ 148 and $ 175 million during 2020, 2019 and 2018, respectively.

Our primary equity compensation programs are the UPS Management Incentive Award program (the "MIP"), the UPS Long-Term Incentive Performance Award program (the "LTIP") and the UPS Stock Option program.

Additionally, our matching contributions to our primary employee defined contribution savings plan are made in shares of UPS class A common stock.

The total expense recognized in our statements of consolidated income under all stock compensation programs during 2021, 2020 and 2019 was $ 878 , $ 796 and $ 915 million, respectively.

The associated income tax benefit recognized in our statements of consolidated income during 2021, 2020 and 2019 was $ 301 , $ 210 and $ 216 million, respectively.

The cash income tax benefit received from the exercise of stock options and conversion of Restricted Units to class A shares during 2021, 2020 and 2019 was $ 278 , $ 272 and $ 148 million, respectively.

Management Incentive Award Program ("MIP")

Non-executive management earning the right to receive MIP awards is determined annually by the Salary Committee, which is comprised of executive officers of UPS.

Non-executive management eligibility for MIP awards is determined annually by the executive officers of UPS.

Awards granted to executive officers are determined annually by the Compensation Committee of the UPS Board of Directors.

Our MIP provides, with certain exceptions, that one-half to two-thirds of the annual award will be made in Restricted Units, depending upon the level of management involved.

Our MIP provides, with certain exceptions, that one-half to two-thirds of the annual award will be made in RPUs, depending upon the level of management.

The remaining one-third to one-half of the award is electable in the form of cash or unrestricted shares of class A common stock, and is fully vested at the time of grant.

Upon conversion, Restricted Units result in the issuance of an equivalent number of UPS class A common shares after required tax withholdings.

Except in the case of death, Restricted Units granted under the MIP prior to 2019 previously vested over a five-year period with approximately 20 % of the award vesting and converting to class A shares at the anniversary of each grant date.

The grant value, less estimated forfeitures, was expensed on a straight-line basis over the requisite service period except in the case of death, disability or retirement, in which case immediate expensing occurred.

On November 3, 2020, the Compensation Committee of the UPS Board of Directors approved an acceleration of the five-year vesting period for all outstanding Restricted Units granted to non-executive management under the MIP prior to 2019.

These Restricted Units became fully vested as of December 31, 2020, however, conversion to class A shares will continue to occur over a five-year period.

The elimination of the future service requirement for these awards resulted in the recognition of an additional $ 133 million of stock compensation expense for the year, of which approximately $ 104 million was recorded in U.S.

Domestic Package.

Beginning with the MIP grant in the first quarter of 2019, Restricted Units vest one year following the grant date, except in the case of death, disability or retirement, in which case immediate vesting occurs.

Upon conversion, RPUs result in the issuance of an equivalent number of UPS class A shares after required tax withholdings.

Beginning with the MIP grant in the first quarter of 2019, RPUs vest one year following the grant date based on continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurs).

The grant value is expensed on a straight-line basis (less estimated forfeitures) over the requisite service period (except in the case of death, disability or retirement, in which case immediate expensing occurs).

All Restricted Units granted are subject to early cancellation or vesting under certain conditions.

Dividends earned on Restricted Units are reinvested in additional Restricted Units at each dividend payable date until they have fully vested.

As of December 31, 2020, we had the following outstanding Restricted Units, including reinvested dividends, granted under the MIP:

Restricted Units

RPUs granted under the MIP prior to 2019 vest over a five-year period with approximately 20 % of the award vesting and converting to class A shares at the anniversary of each grant date.

As of December 31, 2020, outstanding RPUs granted to non-executive management prior to 2019 became fully vested.

The elimination of the future service requirement for these awards resulted in the recognition of an additional $ 133 million of stock compensation expense in 2020.

Conversion to class A shares will continue to occur over the remaining five-year period.

All RPUs granted are subject to early cancellation or vesting under certain conditions.

Dividends earned on RPUs are reinvested in additional RPUs at each dividend payable date until they have fully vested.

As of December 31, 2021, we had the following outstanding RPUs, including reinvested dividends, granted under the MIP:

(in thousands) Weighted-Average

Fair Value Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic

Value (in millions)

Non-vested as of January 1, 2021 2,293 $ 102.91

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Non-vested as of December 31, 2021 3,467 $ 163.32

The fair value of each RPU is the NYSE closing price of class B common stock on the date of grant.

The weighted-average grant date fair value of RPUs granted during 2021, 2020 and 2019 was $ 165.27 , $ 102.54 and $ 108.78 , respectively.

The total fair value of RPUs vested was $ 716 , $ 827 and $ 457 million in 2021, 2020 and 2019, respectively.

As of December 31, 2021, there was $ 85 million of total unrecognized compensation cost related to non-vested RPUs.

That cost is expected to be recognized over a weighted-average period of four months .

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each Restricted Unit is the NYSE closing price of class B common stock on the date of grant.

The weighted-average grant date fair value of Restricted Units granted during 2020, 2019 and 2018 was $ 102.54 , $ 108.78 and $ 110.95 , respectively.

The total fair value of Restricted Units vested was $ 827 , $ 457 and $ 596 million in 2020, 2019 and 2018, respectively.

As of December 31, 2020, there was $ 37 million of total unrecognized compensation cost related to non-vested Restricted Units.

That cost is expected to be recognized over a weighted-average period of eight months .

Long-Term Incentive Performance Award Program ("LTIP")

We award Restricted Units under the LTIP to certain eligible management employees.

These Restricted Units generally vest at the end of a three-year performance period except in the case of death, disability or retirement, in which case immediate vesting occurs on a prorated basis.

The number of Restricted Units earned is based on the achievement of the performance targets established on the grant date.

For awards granted prior to 2020, the performance targets are equally weighted among consolidated operating return on

invested capital ("ROIC"), growth in currency-constant consolidated revenue and total shareholder return ("RTSR") relative to a

peer group of companies.

For the two-thirds of the award related to ROIC and growth in currency-constant consolidated revenue, we recognize the grant date fair value of these Restricted Units, less estimated forfeitures, as compensation expense ratably over the vesting period, based on the number of awards expected to be earned.

The remaining one-third of the award related to RTSR is valued using a Monte Carlo model.

We recognize the grant date fair value of this portion of the award, less estimated forfeitures, as compensation expense ratably over the vesting period.

Beginning with the LTIP grant in 2020, the performance targets are equally weighted between adjusted earnings per share and adjusted cumulative free cash flow.

The final number of Restricted Units earned will then be subject to adjustment based on RTSR relative to the companies within the Standard & Poor's 500 Index.

We determine the grant date fair value of the Restricted Units using a Monte Carlo model and recognize compensation expense, less estimated forfeitures, ratably over the vesting period based on the number of awards expected to be earned.

For the 2020 award, the LTIP will be subdivided into two measurement periods.

The first measurement period will evaluate the achievement of performance targets for the year 2020.

The second measurement period will evaluate the achievement of performance targets for the years 2021 through 2022.

The performance targets for the second measurement period will be determined at a future date.

RPUs issued under the LTIP vest at the end of a three-year performance period, assuming continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurs on a prorated basis).

The number of RPUs earned is based on achievement of the performance targets established on the grant date.

For LTIP awards with a performance period ended December 31, 2021, the performance targets were equally weighted among consolidated operating return on invested capital ("ROIC"), growth in currency-constant consolidated revenue and total shareholder return ("RTSR") relative to a peer group of companies.

For the two-thirds of the award related to ROIC and growth in currency-constant consolidated revenue, we recognized the grant date fair value of these RPUs (less estimated forfeitures) as compensation expense ratably over the vesting period, based on the number of awards expected to be earned.

The remaining one-third of the award was valued using a Monte Carlo model.

We recognized the grant date fair value of this portion of the award (less estimated forfeitures) as compensation expense ratably over the vesting period.

For LTIP awards with a performance period ending in 2022 and 2023, the performance targets are equally weighted between adjusted earnings per share and adjusted cumulative free cash flow.

The final number of RPUs earned will then be subject to adjustment based on RTSR relative to the Standard & Poors 500 Index ("S&P 500").

We determine the grant date fair value of the RPUs using a Monte Carlo model and recognize compensation expense (less estimated forfeitures) ratably over the vesting period, based on the number of awards expected to be earned.

For the 2020 LTIP award, the performance period was divided into two measurement periods.

The first measurement period evaluated the achievement of the performance targets for 2020.

The second measurement period will evaluate the achievement of the performance targets for 2021 and 2022.

The weighted-average assumptions used in our Monte Carlo models for each award year were as follows:

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There is no expected dividend yield as units earn dividend equivalents.

As of December 31, 2020, we had the following Restricted Units outstanding, including reinvested dividends, that were granted under our LTIP program:

Restricted Units

As of December 31, 2021, we had the following RPUs outstanding, including reinvested dividends, that were granted under our LTIP program:

(in thousands) Weighted-Average

Fair Value Weighted-Average Remaining

Contractual Term

(in years) Aggregate Intrinsic

Value (in millions)

Non-vested as of January 1, 2021 1,004 $ 104.15

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Non-vested as of December 31, 2021 1,636 $ 159.34

The fair value of each RPU is the NYSE closing price of class B common stock on the date of grant.

The weighted-average grant date fair value of RPUs granted during 2021, 2020 and 2019 was $ 168.10 , $ 92.76 and $ 107.30 , respectively.

The total fair value of RPUs vested was $ 160 , $ 112 and $ 71 million in 2021, 2020 and 2019, respectively.

As of December 31, 2021, there was $ 160 million of total unrecognized compensation cost related to non-vested RPUs.

That cost is expected to be recognized over a weighted-average period of one year and six months.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each Restricted Unit is the NYSE closing price of class B common stock on the date of grant.

The weighted-average grant date fair value of Restricted Units granted during 2020, 2019 and 2018 was $ 92.76 , $ 107.30 and $ 111.42 , respectively.

The total fair value of Restricted Units vested was $ 112 , $ 71 and $ 97 million in 2020, 2019 and 2018, respectively.

As of December 31, 2020, there was $ 31 million of total unrecognized compensation cost related to non-vested Restricted Units.

That cost is expected to be recognized over a weighted-average period of one year .

Non-qualified Stock Options

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We grant non-qualified stock options to a limited group of eligible senior management employees annually, in which the value granted is determined as a percentage of salary.

Options granted generally vest over a five -year period with approximately 20 % of the award vesting at each anniversary of the grant date except in the case of death, disability or retirement, in which case immediate vesting occurs.

The options granted expire 10 years after the date of the grant.

Stock option awards vest over a five-year period with approximately 20 % of the award vesting at each anniversary of the grant date (except in the case of death, disability or retirement, in which case immediate vesting occurs).

The option grants expire 10 years after the date of the grant.

Option holders may exercise their options via the payment of cash or class A common stock and new class A shares are issued upon exercise.

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Forfeited / Expired — —

Outstanding at December 31, 2020 1,564 $ 103.60 6.84 $ 101

Outstanding as of December 31, 2021 1,599 $ 112.18 6.46 $ 163

Options Vested and Expected to Vest 1,599 $ 112.18 6.46 $ 163

Exercisable at December 31, 2020 801 $ 101.33 5.46 $ 54

Exercisable as of December 31, 2021 1,050 $ 104.15 5.52 $ 116

The fair value of each option grant is estimated using the Black-Scholes option pricing model.

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That cost is expected to be recognized over a weighted-average period of three years and five months.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2020:

Options Outstanding Options Exercisable

Exercise Price Range Options

(in thousands) Weighted-Average

Remaining Contractual Term

(in years) Weighted-Average

Price Options

(in thousands) Weighted-Average

$65.01 - $80.00 67 0.90 $ 76.02 67 $ 76.02

$80.01 - $95.00 46 2.17 82.87 46 82.87

$95.01 - $110.00 1,208 7.09 104.28 587 103.87

$110.01 - $125.00 243 8.12 111.80 101 111.80

1,564 6.84 $ 103.60 801 $ 101.33

Discounted Employee Stock Purchase Plan

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SEGMENT AND GEOGRAPHIC INFORMATION

We report our operations in three reporting segments:

Domestic Package, International Package and Supply Chain & Freight.

Package operations represent our most significant business and are broken down into regional operations around the world.

We have two reportable segments:

Domestic Package and International Package, which are together referred to as our global small package operations.

Our remaining businesses are reported as Supply Chain Solutions.

Global small package operations represent our most significant business and are broken down into regional operations around the world.

Regional operations managers are responsible for both domestic and export products within their geographic area.

Supply Chain Solutions comprises the results of non-reportable operating segments that do not meet the quantitative and qualitative criteria of a reportable segment as defined under ASC Topic 280 – Segment Reporting.

Domestic Package

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Our International Package reporting segment includes our operations in Europe, Asia, Americas and ISMEA.

Supply Chain & Freight

Supply Chain & Freight includes our Forwarding, Logistics, Coyote, Marken, UPS Mail Innovations, UPS Freight and other aggregated business units.

Supply Chain Solutions

Supply Chain Solutions includes our Forwarding, Logistics, Coyote, Marken, UPS Mail Innovations and other businesses.

Our Forwarding, Logistics and UPS Mail Innovations units provide services in more than 200 countries and territories worldwide and include international air and ocean freight forwarding, customs brokerage, distribution and post-sales services, mail and consulting services.

UPS Freight offers a variety of less-than-truckload and truckload services to customers in North America.

On January 24, 2021, we entered into a definitive agreement to sell our UPS Freight business as discussed in note 4.

Coyote offers truckload brokerage services primarily in the United States.

Marken is a global provider of supply chain solutions to the healthcare and life sciences industry, specializing in clinical trials logistics.

Other aggregated business units within this segment include The UPS Store and UPS Capital.

Other businesses within this segment include The UPS Store, UPS Capital and Roadie.

This segment also included UPS Freight prior to its divestiture, details of which are set out in note 4.

In evaluating financial performance, we focus on operating profit as a segment’s measure of profit or loss.

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Accordingly, expenditures on property, plant and equipment by segment are not presented.

Unallocated assets are comprised primarily of cash, marketable securities and certain investment partnerships.

In 2018, we changed the segment allocation methodology for certain shared assets.

All prior periods have been recast to reflect this change in methodology.

Unallocated assets are comprised primarily of cash and marketable securities.

UNITED PARCEL SERVICE, INC.

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International Package 19,541 15,945 14,220

Supply Chain & Freight 15,184 13,381 13,826

Supply Chain Solutions 17,429 15,184 13,381

Consolidated revenue $ 97,287 $ 84,628 $ 74,094

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International Package 4,646 3,436 2,657

Supply Chain & Freight 357 977 852

Supply Chain Solutions 1,728 357 977

Consolidated operating profit $ 12,810 $ 7,684 $ 7,798

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International Package 17,225 15,717 14,044

Supply Chain & Freight (1)

9,041 9,045 8,411

Supply Chain Solutions 9,556 9,041 9,045

Unallocated 6,878 2,583 1,973

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International Package 685 597 547

Supply Chain & Freight 296 293 306

Supply Chain Solutions 210 296 293

Consolidated depreciation and amortization expense $ 2,953 $ 2,698 $ 2,360

(1) Includes $ 1.2 billion of assets held for sale related to the UPS Freight divestiture.

Revenue by product type for the years ended December 31, 2021, 2020 and 2019 is as follows (in millions):

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Total International Package 19,541 15,945 14,220

Supply Chain & Freight:

Supply Chain Solutions:

Forwarding 9,872 6,975 5,867

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Other 1,726 987 814

Total Supply Chain & Freight 15,184 13,381 13,826

Total Supply Chain Solutions 17,429 15,184 13,381

Consolidated revenue $ 97,287 $ 84,628 $ 74,094

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No countries outside of the United States provided 10% or more of consolidated revenue for the years ended December 31, 2021, 2020 or 2019.

For the year ended December 31, 2020, Amazon.com, Inc.

and its affiliates ("Amazon") represented 13.3 % of our consolidated revenues.

For the years ended December 31, 2021, 2020 and 2019, Amazon.com, Inc.

and its affiliates ("Amazon") represented 11.7 %, 13.3 % and 11.6 % of our consolidated revenues, respectively.

Substantially all of this revenue was attributed to U.S.

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Amazon accounted for approximately 15.5 %, 18.1 % and 16.9 % of accounts receivable, net, included within the consolidated balance sheets as of December 31, 2021, 2020 and 2019, respectively.

No single customer represented 10% or more of our consolidated revenues for the year ended December 31, 2018.

UNITED PARCEL SERVICE, INC.

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2021 Discrete Items

In the fourth quarter of 2020, we recognized an income tax benefit of $ 1.6 billion related to pre-tax mark-to-market losses of $ 6.5 billion on our pension and postretirement defined benefit plans.

We recognized an income tax expense of $ 784 million related to a pre-tax mark-to-market gain of $ 3.3 billion on our pension and U.S.

postretirement defined benefit plans.

This income tax expense was generated at a higher average tax rate than the 2021 U.S.

federal statutory tax rate because it included the effect of U.S.

state and local and foreign taxes.

We recorded pre-tax transformation strategy costs of $ 380 million during the year ended December 31, 2021.

As a result, we recorded an additional income tax benefit of $ 95 million.

This income tax benefit was generated at a higher average tax rate than the 2021 U.S.

federal statutory tax rate due to the effect of U.S.

state and local and foreign taxes.

We recorded a pre-tax gain of $ 46 million during the year ended December 31, 2021 related to the divestiture of UPS Freight.

As a result, we recorded an additional income tax expense of $ 11 million.

This income tax expense was generated at a higher average tax rate than the 2021 U.S.

federal statutory tax rate due to the effect of U.S.

state and local taxes.

The recognition of excess tax benefits and deficiencies related to share-based compensation in income tax expense resulted in a net tax benefit of $ 105 million and reduced our effective tax rate by 0.6 % during the year ended December 31, 2021.

2020 Discrete Items

In the fourth quarter of 2020, we recognized an income tax benefit of $ 1.6 billion related to pre-tax mark-to-market losses of $ 6.5 billion on our pension and U.S.

postretirement defined benefit plans.

This income tax benefit was generated at a higher average tax rate than the 2020 U.S.

federal statutory tax rate because it included the effect of U.S.

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state and local and foreign taxes.

We recorded goodwill and other asset impairment charges of $ 686 million during the year ended December 31, 2020.

We recorded pre-tax goodwill and other asset impairment charges of $ 686 million during the year ended December 31, 2020.

As a result, we recorded an additional income tax benefit of $ 57 million.

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2019 Discrete Items

In the fourth quarter of 2019, we recognized an income tax benefit of $ 571 million related to pre-tax mark-to-market losses of $ 2.4 billion on our pension and postretirement defined benefit plans.

In the fourth quarter of 2019, we recognized an income tax benefit of $ 571 million related to pre-tax mark-to-market losses of $ 2.4 billion on our pension and U.S.

postretirement defined benefit plans.

This income tax benefit was generated at a higher average tax rate than the 2019 U.S.

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federal statutory tax rate due to the portion of the accrual related to penalties, which are not deductible for tax purposes.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2018, we maintained a valuation allowance against certain deferred tax assets, primarily related to foreign net operating loss carryforwards.

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Other factors that impacted our 2019 effective tax rate include favorable tax provisions enacted in the Taxpayer Certainty and Disaster Tax Relief Act of 2019.

2018 Discrete Items

In the fourth quarter of 2018, we recognized an income tax benefit of $ 390 million related to pre-tax mark-to-market losses of $ 1.6 billion on our pension and postretirement defined benefit plans.

This income tax benefit was generated at a higher average tax rate than the 2018 U.S.

federal statutory tax rate because it included the effect of U.S.

state and local and foreign taxes.

We recorded pre-tax transformation strategy costs of $ 360 million during the year ended December 31, 2018.

As a result, we recorded an additional income tax benefit of $ 87 million.

This income tax benefit was generated at a higher average tax rate than the 2018 U.S.

federal statutory tax rate due to the effect of U.S.

state and local and foreign taxes.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The recognition of excess tax benefits and deficiencies related to share-based compensation in income tax expense resulted in a net tax benefit of $ 38 million and reduced our effective tax rate by 0.6 % during the year ended December 31, 2018.

Other factors that impacted our 2018 effective tax rate include favorable resolutions of uncertain tax positions, favorable U.S.

state and local tax law changes, favorable tax provisions enacted in the Bipartisan Budget Act of 2018 and discrete tax credits associated with the filing of our 2017 U.S.

federal income tax return.

Beginning in 2012, we were granted a tax incentive for certain of our non-U.S.

operations, which is effective through December 31, 2021.

The tax incentive is conditional upon our meeting specific employment and investment thresholds.

operations, which was effective through December 31, 2021.

The tax incentive was conditioned upon our meeting specific employment and investment thresholds.

The impact of this tax incentive decreased non-U.S.

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federal capital loss carryforward of $ 185 million as of December 31, 2021, $ 18 million of which expires on December 31, 2025 and the remainder of which expires on December 31, 2026.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Further, we have U.S.

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state and local credit carryforwards $ 90 $ 108

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

state and local operating loss carryforwards and credits can be carried forward for periods ranging from one year to indefinitely.

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Undistributed earnings and profits ("E&P") of our foreign subsidiaries amounted to $ 5.4 billion as of December 31, 2021.

Currently, $ 1.4 billion of the undistributed E&P of our foreign subsidiaries is considered to be indefinitely reinvested and, accordingly, no deferred income taxes have been provided thereon.

Currently, $ 834 million of the undistributed E&P of our foreign subsidiaries is considered to be indefinitely reinvested and, accordingly, no deferred income taxes have been provided thereon.

Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to U.S.

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Determination of the amount of unrecognized deferred income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

In December 2017, the United States enacted into law the Tax Act, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries.

We elected to pay the tax over eight years based on an installment schedule outlined in the Tax Act.

The remaining liability of $ 123 million, to be paid between 2023 and 2025, is reflected as a non-current liability on the balance sheet.

The following table summarizes the activity related to our uncertain tax positions (in millions):

Tax Interest Penalties

Balance at January 1, 2018 $ 160 $ 43 $ 9

Balance as of January 1, 2019 $ 167 $ 44 $ 5

Additions for tax positions of the current year 6 — —

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Balance as of December 31, 2021 $ 480 $ 78 $ 2

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total amount of gross uncertain tax positions as of December 31, 2021, 2020 and 2019 that, if recognized, would affect the effective tax rate was $ 479 , $ 332 and $ 171 million, respectively.

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Restricted performance units 3 4 5

Stock options 1 — —

Denominator for diluted earnings per share 878 871 869

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This collateral is included in Cash and cash equivalents in the consolidated balance sheets and its use by UPS is not restricted.

As of December 31, 2020, $ 158 million of collateral was required to be posted with our counterparties.

As of December 31, 2021, no collateral was required to be posted with our counterparties.

As of December 31, 2020, we were required to post $ 158 million with our counterparties.

Events such as a counterparty credit rating downgrade (depending on the ultimate rating level) could also allow us to take additional protective measures such as the early termination of trades.

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Commodity Risk Management

Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the primary means of reducing the risk of adverse fuel price changes on our business.

In order to mitigate the impact of fuel surcharges imposed on us by outside carriers, we regularly adjust the rates we charge for our freight brokerage, inter-modal and truckload services.

Currently, the fuel surcharges that we apply to our domestic and international package are the primary means of reducing the risk of adverse fuel price changes on our business.

In order to mitigate the impact of fuel surcharges imposed on us by outside carriers, we regularly adjust the rates we charge for our freight brokerage services.

Foreign Currency Risk Management

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We normally designate and account for these contracts as cash flow hedges of anticipated foreign currency denominated revenue and, therefore, the resulting gains and losses from these hedges are recognized as a component of international package revenue when the underlying sales transactions occur.

We also hedge portions of our anticipated cash settlements of intercompany transactions and interest payments on certain debt subject to foreign currency remeasurement using foreign currency forward contracts.

We normally designate and account for these contracts as cash flow hedges of forecasted foreign currency denominated transactions;

therefore, the resulting gains and losses from these hedges are recognized as a component of Investment income (expense) and other when the underlying transactions are subject to currency remeasurement.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We normally designate and account for these contracts as cash flow hedges of forecasted foreign currency denominated transactions;

We hedge our net investment in certain foreign operations with foreign currency denominated debt instruments.

The use of foreign denominated debt as the hedging instrument allows the debt to be remeasured to foreign currency translation adjustment within AOCI to offset the translation risk from those investments.

The use of foreign denominated debt as the hedging instrument allows the debt to be remeasured to foreign currency translation adjustment within other comprehensive income to offset the translation risk from those investments.

Balances in the cumulative translation adjustment accounts remain until the sale or substantially complete liquidation of the foreign entity, upon which they are recognized as a component of Investment income (expense) and other .

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We have designated and account for interest rate swaps that convert floating-rate interest payments into fixed-rate interest payments as cash flow hedges of the forecasted payment obligations.

The gains and losses resulting from fair value adjustments to these interest rate swaps are recorded to AOCI.

The gains and losses resulting from fair value adjustments to these interest rate swaps are recorded to other comprehensive income.

We periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings by using forward starting interest rate swaps, interest rate locks or similar derivatives.

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Outstanding Positions

The notional amounts of our outstanding derivative positions were as follows as of December 31, 2020 and 2019 (in millions):

The notional amounts of our outstanding derivative positions as of December 31, 2021 and 2020 were as follows (in millions):

Currency hedges:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our fixed to floating interest rate swaps are designated as a fair value hedge of our 2.450 % fixed rate notes that mature in October 2022.

These instruments utilize LIBOR as the reference rate to determine the floating interest rate to be paid.

As these instruments will settle before the applicable U.S.

Dollar LIBOR rate ceases to be published in June 2023, we have not evaluated the application of ASC Topic 848 to these instruments.

Balance Sheet Recognition

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Foreign currency exchange contracts Other current assets Level 2 2 4 2 4

Interest rate contracts Other non-current assets Level 2 — 12 — 11

Total Asset Derivatives $ 236 $ 126 $ 185 $ 81

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Foreign currency exchange contracts Other current liabilities Level 2 — 2 — 2

Interest rate contracts Other current liabilities 1 — 1 —

Interest rate contracts Other non-current liabilities Level 2 — 3 — 2

Interest rate contracts Other current liabilities Level 2 — 1 — 1

Total Liability Derivatives $ 62 $ 192 $ 11 $ 147

Our foreign currency exchange, interest rate and investment market price derivatives are largely comprised of over-the-counter derivatives, which are primarily valued using pricing models that rely on market observable inputs such as yield curves, currency exchange rates and investment forward prices;

Our foreign currency exchange rate, interest rate and investment market price derivatives are largely comprised of over-the-counter derivatives, which are primarily valued using pricing models that rely on market observable inputs such as yield curves, currency exchange rates and investment forward prices;

therefore, these derivatives are classified as Level 2.

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Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded $ 83 $ ( 11 ) $ — $ 196 $ ( 8 ) $ —

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table indicates the amount of gains and (losses) that have been recognized in AOCI for the years ended December 31, 2021 and 2020 for those derivatives designated as cash flow hedges (in millions):

Derivative Instruments in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives

December 31, 2021 December 31, 2020

Interest rate contracts $ 2 $ —

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The maximum term over which we are hedging exposures to the variability of cash flows is approximately 10 years.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table indicates the amount of gains and (losses) that have been recognized in AOCI within foreign currency translation adjustment for the years ended December 31, 2021 and 2020 for those instruments designated as net investment hedges (in millions):

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TRANSFORMATION STRATEGY COSTS

In the first quarter of 2018, we launched the first phase of a multi-year, enterprise-wide transformation strategy impacting our organization.

Over the next several years additional phases will be implemented.

In 2018, we launched a multi-year, enterprise-wide transformation strategy impacting our organization.

The program includes investments, as well as changes in processes and technology, that impact global direct and indirect operating costs.

The table below presents the transformation strategy costs for the years ended December 31, 2021, 2020 and 2019 (in millions):

Transformation Strategy Costs 2020 2019 2018

2021 2020 2019

Compensation and benefits $ 206 $ 211 $ 166

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERLY INFORMATION (UNAUDITED)

Our segment revenue, segment operating profit, other income and (expense), net income (loss), basic and diluted earnings (loss) per share on a quarterly basis are presented below (in millions, except per share amounts):

First Quarter Second Quarter Third Quarter Fourth Quarter

2020 2019 2020 2019 2020 2019 2020 2019

Domestic Package $ 11,456 $ 10,480 $ 13,074 $ 11,150 $ 13,225 $ 11,455 $ 15,744 $ 13,408

International Package 3,383 3,459 3,705 3,505 4,087 3,494 4,770 3,762

Supply Chain & Freight 3,196 3,221 3,680 3,393 3,926 3,369 4,382 3,398

Total revenue 18,035 17,160 20,459 18,048 21,238 18,318 24,896 20,568

Operating Profit (Loss):

Domestic Package 364 666 1,182 1,208 1,098 1,216 1,247 1,074

International Package 551 528 771 663 966 667 1,148 799

Supply Chain & Freight 157 200 259 272 299 245 ( 358 ) 260

Total operating profit 1,072 1,394 2,212 2,143 2,363 2,128 2,037 2,133

Total Other Income and (Expense) $ 178 $ 46 $ 145 $ 61 $ 162 $ 78 $ ( 6,325 ) $ ( 2,331 )

Net Income (Loss) $ 965 $ 1,111 $ 1,768 $ 1,685 $ 1,957 $ 1,750 $ ( 3,347 ) $ ( 106 )

Net Income (Loss) Per Share:

Basic Earnings (Loss) Per Share $ 1.12 $ 1.28 $ 2.04 $ 1.95 $ 2.25 $ 2.03 $ ( 3.84 ) $ ( 0.12 )

Diluted Earnings (Loss) Per Share $ 1.11 $ 1.28 $ 2.03 $ 1.94 $ 2.24 $ 2.01 $ ( 3.84 ) $ ( 0.12 )

Our quarterly results were impacted by restructuring and other costs, legal contingencies and expenses and defined benefit plans mark-to-market charges.

The table below presents the impact on operating profit and other income and (expense) for each period (in millions, except per share amounts):

First Quarter Second Quarter Third Quarter Fourth Quarter

2020 2019 2020 2019 2020 2019 2020 2019

Impact to Operating Profit

Restructuring & Other - Employee Benefits $ 12 $ 106 $ 81 $ 2 $ 18 $ 41 $ 100 $ 17

Restructuring & Other - Other Costs 33 17 31 19 26 22 47 31

Restructuring & Other - Impairment Charges — — — — — — 686 —

Legal Contingencies and Expenses — — — — — — — 97

Allocation of Matters Impacting Operating Profit to Segments

Domestic Package $ 37 $ 28 $ 33 $ 18 $ 35 $ 26 $ 132 $ 133

International Package 7 84 71 2 6 26 12 10

Supply Chain & Freight 1 11 8 1 3 11 689 2

Impact to Other Income and (Expense)

Defined Benefit Plans Mark-to-Market Charges $ — $ — $ — $ — $ — $ — $ 6,484 $ 2,387

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUBSEQUENT EVENTS

On January 24, 2021, we entered into a definitive agreement to divest our UPS Freight business to TFI International Inc.

for $ 800 million, subject to working capital and other adjustments.

This agreement provides for the continuation of certain pension and postretirement benefits within UPS-sponsored plans that we estimate will require us to record an additional pre-tax expense when we close on the UPS Freight divestiture and amend the impacted plans.

Upon closing, we also anticipate recording a pre-tax curtailment gain resulting from the acceleration of prior service credits.

We currently anticipate that a favorable impact from reducing future benefit accruals for UPS Freight employees will be offset by net losses recorded in AOCI.

The divestiture of UPS Freight may require an interim measurement of certain of our U.S.

pension and postretirement benefit plans.

We expect to record the impacts discussed herein by the second quarter of 2021.

As of December 31, 2020, UPS Freight was classified as held for sale in the consolidated balance sheet.

For additional information, see note 4.

On February 17, 2022, we announced the Canada Small Package Retirement Plan will cease accruals of additional benefits for future service and compensation for participants effective December 31, 2023.

Upon adoption of the plan amendments, the elimination of defined benefit accruals for all current employees will trigger a pension curtailment event and the plan assets and pension benefit obligation will be remeasured.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data