What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-21 compared with 2022-02-22 · 519 added, 613 removed, 1871 unchanged (38% of the section changed)

8 unchanged sentences

Note 2—Revenue Recognition

Note 3—Investments and Restricted Cash

Note 4—Assets Held for Sale

Note 3—Marketable Securities and Non-Current Investments

Note 4 —Property, Plant and Equipment

2 unchanged sentences

Note 7 —Goodwill and Intangible Assets

Note 9—Business Acquisitions

Note 8—Acquisitions

Note 9 —Debt and Financing Arrangements

8 unchanged sentences

Note 1 8 —Transformation Strategy Costs

Note 2 0 —Subsequent Events

Report of Independent Registered Public Accounting Firm

68 unchanged sentences

Accounts receivable, net 12,583 12,541

Assets held for sale — 1,197

Other current assets 2,039 1,800

4 unchanged sentences

Intangible Assets, Net 2,796 2,486

Investments and Restricted Cash 26 25

Deferred Income Tax Assets 139 176

9 unchanged sentences

Accrued group welfare and retirement plan contributions 1,076 1,038

Liabilities to be disposed of — 347

Other current liabilities 1,472 1,430

6 unchanged sentences

Shareowners’ Equity:

Class A common stock ( 138 and 147 shares issued in 2021 and 2020)

Class B common stock ( 732 and 718 shares issued in 2021 and 2020)

Class A common stock ( 134 and 138 shares issued in 2022 and 2021, respectively)

Class B common stock ( 725 and 732 shares issued in 2022 and 2021, respectively)

Additional paid-in capital — 1,343

2 unchanged sentences

Deferred compensation obligations 13 16

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

Treasury stock ( 0.2 and 0.3 shares in 2022 and 2021, respectively)

( 13 ) ( 16 )

57 unchanged sentences

Other (gains) losses 123 137 917

Changes in assets and liabilities, net of effects of business acquisitions:

Changes in assets and liabilities, net of effects of acquisitions:

Accounts receivable ( 322 ) ( 2,147 ) ( 1,562 )

5 unchanged sentences

Net cash from operating activities 14,104 15,007 10,459

15,007 10,459 8,639

Cash Flows From Investing Activities:

4 unchanged sentences

Net change in finance receivables 24 34 44

Cash paid for business acquisitions, net of cash and cash equivalents acquired ( 602 ) ( 20 ) ( 6 )

Acquisitions, net of cash acquired ( 755 ) ( 602 ) ( 20 )

Other investing activities ( 333 ) 18 ( 41 )

34 unchanged sentences

Revenue Recognition

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

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

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

Freight forwarding revenue and the expense related to the transportation of freight are recognized over time as we perform the services.

Truckload brokerage revenue and related transportation costs are recognized over time as we perform the services.

Freight forwarding revenue, including truckload brokerage revenue, and expenses related to the transportation of freight are recognized over time as we perform the services.

Customs brokerage revenue is recognized upon completing documents necessary for customs entry purposes.

Logistics & Distribution:

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.

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:

Income on loans and direct finance leases is recognized on the effective interest method.

Accrual of interest income is suspended at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days delinquent.

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

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

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.

Prior to the divestiture in 2021, revenue was recognized over time as we performed the services in the contract.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments that are readily convertible into cash.

We consider securities with maturities of three months or less, when purchased, to be cash equivalents.

We consider securities with maturities of three months or less and insignificant credit risk, when purchased, to be cash equivalents.

The carrying amount of these securities approximates fair value because of the short-term maturity of these instruments.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt securities are either classified as trading or available-for-sale securities and are carried at fair value.

As of December 31, 2022 and 2021, we did no t have any restricted cash balances.

Marketable Securities and Non-Current Investments

Debt securities are classified as either trading or available-for-sale securities and are carried at fair value.

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

1 unchanged sentence

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

Such amortization and accretion is included in Investment income (expense) and other , along with interest and dividends.

Such amortization and accretion is included in Investment income (expense) and other , together with interest and dividends.

The cost of securities sold is based on the specific identification method;

realized gains and losses resulting from such sales are included in Investment income (expense) and other .

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We periodically review our available-for-sale investments for indications of other-than-temporary impairment considering many factors, including the extent and duration to which a security’s fair value has been less than its cost, overall economic and market conditions and the financial condition and specific prospects for the issuer.

Impairment of available-for-sale securities results in a charge to income when a market decline below cost is other-than-temporary.

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

If a decline in fair value is determined to be the result of a credit loss, then the decrease is recognized in income through an allowance for credit losses.

Investments in equity securities through which we exercise significant influence but do not have control over the investee are accounted for under the equity method.

We record the investment at cost and subsequently increase or decrease the carrying amount of the investment by our proportionate share of the net earnings or losses and other comprehensive income of the investee.

Gains and losses from equity method investments are reported in Investment income (expense) and other on the statements of consolidated income.

We record dividends or other equity distributions as reductions of the carrying value of the investment.

Equity method investments are included within Other Non-Current Assets on our consolidated balance sheets.

Fuel and other materials and supplies inventories are recognized as inventory when purchased, and then charged to expense when used in our operations.

14 unchanged sentences

5 to 15 years

Routine maintenance and repairs are generally charged to expense as incurred.

For substantially all of our aircraft, the costs of major airframe and engine overhauls, as well as routine maintenance and repairs, are charged to expense as incurred.

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.

Interest incurred during the construction of 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 $ 60 and $ 58 million for the years ended December 31, 2022 and 2021, 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.

We monitor our property, plant and equipment for any indicators that the carrying value of the assets may not be recoverable, at which time we review long-lived assets for impairment based on undiscounted future cash flows.

If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded.

1 unchanged sentence

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

For a discussion of our accounting policies related to leased assets, refer to note 12.

Refer to note 4 for a discussion of impairments of property, plant and equipment.

We recognize a right-of-use ("ROU") asset and lease obligation for all leases greater than twelve months, including reasonably certain renewal or purchase options.

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

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

UNITED PARCEL SERVICE, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain of our leases contain future payments that are dependent on an index or rate, such as the consumer price index.

We initially measure the lease obligation and ROU asset using the index or rate at the commencement date.

In subsequent periods, lease payments dependent on an index or rate are not remeasured.

Rather, changes to payments due to a change in an index or rate are recognized in our statements of consolidated income in the period of the change.

When available, we use the rate implicit in the lease to discount lease payments;

however, the rate implicit in the lease is not readily determinable for substantially all of our leases.

For these leases, we use an estimate of our incremental borrowing rate to discount lease payments based on information available at lease commencement.

The incremental borrowing rate is derived using multiple inputs including our credit rating, the impact of full collateralization, lease term and denominated currency.

Goodwill and Intangible Assets

9 unchanged sentences

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.

Finite-lived intangible assets, including trademarks, licenses, patents, customer lists, non-compete agreements and franchise rights are amortized on a straight-line basis over their estimated useful lives, which range from 2 to 21 years.

Capitalized software is generally amortized over 7 years.

7 unchanged sentences

• it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell and recognize any loss in the period in which the held for sale criteria are met.

3 unchanged sentences

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

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.

Self-insurance reserves are established for estimates of the losses 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.

Trends in actual experience are a significant factor in the determination of our reserves.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 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.

In November 2022, we transferred a portion of our workers' compensation liability related to policy years 2007 through 2016 to a third-party insurer.

We paid $ 341 million to transfer a portfolio of claims for which we carried reserves of $ 332 million, recognizing a pre-tax loss of $ 9 million that was recorded in Other expenses in the statement of consolidated income for the year ended December 31, 2022.

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

1 unchanged sentence

Pension and Postretirement Benefits

We incur certain employment-related expenses associated with pension and postretirement medical benefits.

These pension and postretirement medical benefit costs for company-sponsored defined benefit plans are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation, compensation increase rates, mortality rates and coordination of benefits with plans not sponsored by UPS.

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

We incur certain employment-related expenses associated with company-sponsored defined benefit pension and postretirement medical benefits.

These expenses are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation, compensation increase rates, mortality rates and coordination of benefits with plans not sponsored by UPS.

Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim measurement 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 upon remeasurement of a plan.

8 unchanged sentences

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6 unchanged sentences

Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Foreign Currency Translation and Remeasurement

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.

We translate the results of operations of our foreign subsidiaries using average exchange rates for 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 other comprehensive income.

1 unchanged sentence

Stock-Based Compensation

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 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.

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 various incentive compensation plans that contain vesting conditions, including service conditions, where the awards cliff vest after one or three years or vest ratably over periods up to five years (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.

7 unchanged sentences

Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis, including property, plant, and equipment, goodwill and intangible assets.

These assets are subject to fair value adjustments in certain circumstances, such as when there is evidence of an impairment.

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 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.

These assets are subject to fair value adjustments in certain circumstances, such as when there is an impairment.

For business acquisitions, we allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and identified intangible assets 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.

1 unchanged sentence

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments

5 unchanged sentences

• 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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

• 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.

1 unchanged sentence

Adoption of New Accounting Standards

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.

The methodology replaced the probable, incurred loss model for those assets.

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.

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 2020 in conjunction with the divestiture of UPS Freight.

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

In December 2019, the Financial Accounting Standards Board issued an Accounting Standards Update ("ASU") to simplify the accounting for income taxes.

The update removes certain exceptions to the general income tax principles.

Effective October 1, 2020, we early adopted this ASU.

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

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.

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

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), and in December 2022 subsequently issued ASU 2022-06, 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.

1 unchanged sentence

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.

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

Accounting Standards Issued But Not Yet Effective

Accounting pronouncements issued, but not effective until after December 31, 2021, are not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

In September 2022, the FASB issued an ASU to enhance the disclosure of supplier finance programs.

The update will be effective for us in the first quarter of 2023.

We are evaluating the impact of its adoption on our consolidated financial statements and internal control over financial reporting environment but do not expect this ASU to have a material impact on our consolidated financial position, results of operations, cash flows or internal controls.

Other accounting pronouncements issued, but not effective until after December 31, 2022, are not expected to have a material impact on our consolidated financial position, results of operations, cash flows or internal controls.

UNITED PARCEL SERVICE, INC.

3 unchanged sentences

Revenue Recognition

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

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

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.

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

Disaggregation of Revenue

17 unchanged sentences

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the basis of revenue recognition in accordance with GAAP.

To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as a single contract, and whether the combined or single contract should be accounted for as more than one performance obligation.

This evaluation requires judgment, and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

Within most of our contracts, the customer contracts with us to provide distinct services, such as transportation services.

The vast majority of our contracts with customers for transportation services include only one performance obligation;

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the basis of revenue recognition.

The vast majority of our contracts with customers are for transportation services that include only one performance obligation;

the transportation services themselves.

However, if a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation.

We frequently sell standard transportation services with observable standalone sales prices.

In these instances, the observable standalone sales are used to determine the standalone selling price.

If a contract contains more than one performance obligation, we allocate the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the services underlying each performance obligation.

In certain business units, such as Logistics, we sell customized, customer-specific solutions in which we integrate a complex set of tasks and components into a single capability that is accounted for as one performance obligation.

Satisfaction of Performance Obligations

We generally recognize revenue over time as we perform services in the contract because our customers receive the benefit of our services as goods are transported from one location to another.

Further, if we were unable to complete delivery to the final location, those services would not need to be re-performed.

UNITED PARCEL SERVICE, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In certain business units, such as Logistics, we sell customized, customer-specific solutions in which we integrate a complex set of tasks and components into a single capability (even if that single capability results in the delivery of multiple units).

Hence, the entire contract is accounted for as one performance obligation.

In these cases we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Satisfaction of Performance Obligations

We generally recognize revenue over time as we perform the services in the contract because of the continuous transfer of control to the customer.

Our customers receive the benefit of our services as the goods are transported from one location to another.

Further, if we were unable to complete delivery to the final location, another entity would not need to reperform the transportation service already performed.

As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided.

We use the cost-to-cost measure of progress for our package delivery contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts.

Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

We recognize revenue based on the extent of progress towards completion of our services.

We use the cost-to-cost measure of progress for our package delivery contracts because it best depicts the benefit received by the customer, which occurs as we incur costs on our contracts.

Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the service.

Revenues, including ancillary or accessorial fees and reductions for estimated customer incentives, are recorded proportionally as costs are incurred.

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

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.

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 benefit 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;

1 unchanged sentence

Variable Consideration

It is common for our contracts to contain customer incentives, guaranteed service refunds or other provisions that can either increase or decrease the transaction price.

Our contracts commonly contain customer incentives, guaranteed service refunds or other provisions that can either increase or decrease the rates paid for services.

These variable amounts are generally dependent upon achievement of certain incentive tiers or performance metrics.

We estimate variable consideration at the most likely amount to which we expect to be entitled.

We include estimated amounts of revenue, which may be reduced by incentives or other contract provisions, in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of anticipated customer spending and all information (historical, current and forecasted) that is reasonably available to us.

We record revenue, which may be reduced by incentives or other contract provisions, to the extent it is probable that a significant reversal of cumulative amounts recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Our estimates of revenue are based on an assessment of anticipated customer spending and all information (historical, current and forecasted) that is reasonably available to us.

Contract Modifications

5 unchanged sentences

Payment Terms

Under the typical payment terms of our customer contracts, the customer pays at periodic intervals, which are generally seven days within our U.S.

Under the typical payment terms of our customer contracts, customers pay at periodic intervals, which are generally seven days within our U.S.

Domestic Package business, for shipments included on invoices received.

2 unchanged sentences

It is not customary business practice to extend payment terms past 90 days, and as such, we do not have a practice of including a significant financing component within our contracts with customers.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Principal vs.

Agent Considerations

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 an agent).

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.

In our transportation businesses, we may utilize independent contractors and third-party carriers to perform transportation services.

We have determined that all our major businesses act as principal rather than agent within their revenue arrangements.

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

Accounts Receivable, Net

5 unchanged sentences

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

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We increased our allowance for expected credit losses by $ 18 million during 2022 based upon current forecasts that reflect changes in the economic outlook.

Our allowance for credit losses as of December 31, 2022 and 2021 was $ 146 and $ 128 million, respectively.

1 unchanged sentence

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.

Amounts may not exceed their net realizable value.

Contract assets include billed and unbilled amounts resulting from in-transit shipments, as we have an unconditional right to payment only when services have been completed (i.e., shipments have been delivered).

Amounts do not exceed their net realizable value.

Contract assets are generally classified as current and the full balance is converted each quarter based on the short-term nature of the transactions.

1 unchanged sentence

Advance payments and billings in excess of revenue represent payments received from our customers that will be earned over the contract term.

Deferred revenue represents the amount of consideration due from customers related to in-transit shipments that has not yet been recognized as revenue based on our selected measure of progress.

We classify advance payments and billings in excess of revenue as either current or long-term, depending on the period over which the advance payment will be earned.

We classify deferred revenue as current based on the timing of when we expect to recognize revenue, which typically occurs within a short window after period-end.

The full balance of deferred revenue is converted each quarter based on the short-term nature of the transactions.

Deferred revenue represents the amount due from customers related to in-transit shipments that has not yet been recognized as revenue based on our selected measure of progress.

We classify advance payments and billings in excess of revenue as either current or long-term, depending on the period over which the amount will be earned.

We classify deferred revenue as current based on the short-term nature of the transactions.

Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.

In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that deferred revenue balance.

Contract assets related to in-transit packages were $ 304 and $ 279 million as of December 31, 2021 and 2020, respectively, net of deferred revenue related to in-transit packages of $ 314 and $ 279 million as of December 31, 2021 and 2020, respectively.

Contract assets are included within Other current assets in the consolidated balance sheets.

Short-term contract liabilities related to advance payments from customers were $ 27 and $ 21 million as of December 31, 2021 and 2020, respectively.

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 $ 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.

Contract assets and liabilities as of December 31, 2022 and 2021 were as follows (in millions):

Balance Sheet Location 2022 2021

Contract Assets:

Revenue related to in-transit packages Other current assets $ 308 $ 304

Contract Liabilities:

Short-term advance payments from customers Other current liabilities $ 11 $ 27

Long-term advance payments from customers Other non-current liabilities $ 26 $ 25

UNITED PARCEL SERVICE, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVESTMENTS AND RESTRICTED CASH

MARKETABLE SECURITIES AND NON-CURRENT INVESTMENTS

The following is a summary of marketable securities classified as trading and available-for-sale as of December 31, 2022 and 2021 (in millions):

25 unchanged sentences

Corporate debt securities 121 — — 121

state and local municipal debt securities 5 — — 5

government debt securities 3 — — 3

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment Impairments

We have concluded that no material impairment losses existed as of December 31, 2021.

In making this determination, we considered the financial condition and prospects of each issuer, the magnitude of the losses compared with the cost, the probability that we will be unable to collect all amounts due according to the contractual terms of the security, the credit rating of the security and our ability and intent to hold these investments until the anticipated recovery in market value occurs.

Unrealized Losses

7 unchanged sentences

Total marketable securities $ 808 $ ( 7 ) $ 123 $ ( 7 ) $ 931 $ ( 14 )

The unrealized losses for the U.S.

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.

Maturity Information

7 unchanged sentences

Equity securities 2 2

Non-Current Investments and Restricted Cash

$ 2,007 $ 1,993

Non-current investments

We hold non-current investments that are reported within Other Non-Current Assets on our consolidated balance sheets.

Cash paid for these investments is included in Other investing activities in our statements of consolidated cash flows.

• Equity method investments:

During the fourth quarter of 2022 we invested $ 252 million in the parent company of CommerceHub, Inc., a software provider connecting retailers and brands with marketplaces, drop ship solutions and delivery providers.

We determined there is no amortizable basis difference between the purchase price for our investment and the underlying books and records of the investee.

As of December 31, 2022 and 2021, equity securities accounted for under the equity method had a carrying value of $ 256 and $ 28 million, respectively.

• Other equity securities:

Certain equity securities that do not have readily determinable fair values are reported in accordance with the measurement alternative in Accounting Standards Codification Topic 321 Investments – Equity Securities .

As of December 31, 2022 and 2021, we had equity securities of $ 31 and $ 26 million, respectively, accounted for under the measurement alternative.

• Other investments:

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.

A reconciliation of cash and cash equivalents and restricted cash from the consolidated balance sheets to the statements of consolidated cash flows is shown below (in millions):

December 31, 2021 December 31, 2020 December 31, 2019

Cash and cash equivalents $ 10,255 $ 5,910 $ 5,238

Restricted cash — — —

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The investment had a fair market value of $ 18 and $ 23 million as of December 31, 2022 and 2021, respectively.

Fair Value Measurements

3 unchanged sentences

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, 2022 and 2021, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in millions):

15 unchanged sentences

Total $ 279 $ 1,732 $ — $ 2,011

(1) Represents a variable life insurance policy funding benefits for the UPS Excess Coordinating Benefit Plan.

Quoted Prices in

9 unchanged sentences

Corporate debt securities — 121 — 121

state and local municipal debt securities — 5 — 5

Equity securities — 2 — 2

3 unchanged sentences

Total $ 200 $ 161 $ — $ 361

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASSETS HELD FOR SALE

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.

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

Other current assets — 62

Property, plant and equipment, net — 940

Other non-current assets — 124

Total assets — 1,389

Valuation allowance — ( 192 )

Total assets held for sale $ — $ 1,197

Accounts payable $ — $ 50

Other current liabilities — 112

Other non-current liabilities — 185

Total liabilities to be disposed of $ — $ 347

Net assets held for sale $ — $ 850

(1) Represents a variable life insurance policy funding benefits for the UPS Excess Coordinating Benefit Plan.

There were no transfers of investments into or out of Level 3 during 2022 or 2021.

UNITED PARCEL SERVICE, INC.

2 unchanged sentences

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, including both owned assets as well as assets subject to finance leases, consists of the following as of December 31, 2021 and 2020 (in millions):

Property, plant and equipment, including owned assets and assets subject to finance leases, consisted of the following as of December 31, 2022 and 2021 (in millions):

Vehicles $ 10,628 $ 10,018

10 unchanged sentences

Property, plant and equipment purchased on account was $ 176 and $ 248 million as of December 31, 2022 and 2021, respectively.

We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aviation fuel prices and other factors.

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

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, 2022.

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

During 2022, we reduced the estimated residual value of our MD-11 aircraft to zero, incurring a one-time charge on our fully-depreciated aircraft during the fourth quarter.

This resulted in an increase in depreciation expense of $ 76 million, and a decrease in net income of $ 58 million, or $ 0.07 per share on a basic and diluted basis.

The change in estimate for the remainder of our MD-11 fleet will be accounted for prospectively.

UNITED PARCEL SERVICE, INC.

5 unchanged sentences

we maintain the following single-employer defined benefit pension plans:

the UPS Retirement Plan, the UPS Pension Plan, the UPS/IBT Full-Time Employee Pension Plan and the UPS Excess Coordinating Benefit Plan, a non-qualified plan.

• The UPS Retirement Plan is noncontributory and includes substantially all eligible employees of participating domestic subsidiaries hired prior to July 1, 2016 who are not members of a collective bargaining unit, as well as certain employees covered by a collective bargaining agreement.

6 unchanged sentences

• 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.

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.

employees were offered the option to receive a one-time payment of their vested pension benefit.

Approximately 18,800 former employees accepted this option, accelerating $ 820 million in benefit payments during 2019 while reducing the number of participants who are due future payments from U.S.

pension plans.

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 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

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

The divestiture of UPS Freight in 2021 triggered an interim remeasurement of 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, reflecting updated actuarial assumptions, and was recorded in other comprehensive income within the equity section of the consolidated balance sheet.

An actuarial gain of $ 69 million ($ 52 million after tax) for a prior service credit related to the divested group and a $ 66 million loss ($ 50 million after tax) for certain plan amendments to the UPS Pension Plan were immediately recognized within Other expenses in the statement of consolidated income for the year ended December 31, 2021.

During 2021, we remeasured the UPS/IBT Full-Time Employee Pension Plan following the enactment into law of the American Rescue Plan Act, which is discussed below.

The interim remeasurement resulted in a pre-tax mark-to-market gain of $ 3.3 billion ($ 2.5 billion after tax) during the year.

The gain was included within Investment income (expense) and other in the statement of consolidated income for the year ended December 31, 2021.

International Pension Benefits

3 unchanged sentences

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

During 2022, we amended certain Canadian defined benefit pension plans to cease future benefit accruals effective December 31, 2023.

We remeasured plan assets and benefit obligations for the plans, which resulted in curtailment gains of $ 34 million ($ 24 million after tax).

These gains are included in Investment income (expense) and other in the statement of consolidated income.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Postretirement Medical Benefits

12 unchanged sentences

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.

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 these benefit limits.

Contributions charged to expense were $ 83 , $ 107 and $ 84 million for 2022, 2021 and 2020 respectively.

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.

On June 23, 2017, the Company amended the UPS 401(k) Savings Plan so that non-union employees who participated 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.

16 unchanged sentences

Actuarial (gain) loss ( 875 ) ( 3,284 ) 6,211 — 24 246 ( 152 ) ( 12 ) 27

Curtailment and settlement (gain) loss — — — — — — ( 34 ) — —

Net periodic benefit cost $ ( 88 ) $ ( 2,627 ) $ 6,710 $ 109 $ 135 $ 365 $ ( 150 ) $ 36 $ 50

35 unchanged sentences

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 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.

In October 2022, the SOA elected to not release a new mortality improvement scale.

Based on our perspective of future longevity, we elected to maintain the MP 2021 mortality scale assumption for purposes of measuring pension and other postretirement benefit obligations.

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

1 unchanged sentence

plans is developed using a long-term projection of returns for each asset class.

Our asset allocation targets are reviewed and, if necessary, updated taking into consideration plan changes, funded status and actual performance.

Our asset allocation targets are reviewed annually and, if necessary, updated taking into consideration plan changes, funded status and actual performance.

The expected return for each asset class is a function of passive, long-term capital market assumptions and excess returns generated from active management.

The capital market assumptions used are provided by independent investment advisors, while excess return assumptions are supported by historical performance, fund mandates and investment expectations.

For plans outside the U.S., consideration is given to local market expectations of long-term returns.

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

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

capital market assumptions and investment objectives for pension assets, the weighted-average long-term expected rate of return on assets decreased from 6.50 % during 2021 to 5.90 % in 2022.

UNITED PARCEL SERVICE, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For plans outside the U.S., consideration is given to local market expectations of long-term returns.

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

Actuarial Assumptions - Central States Pension Fund

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 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”).

This change in law for the first time permitted multiemployer pension plans to reduce benefit payments to retirees, subject to specific guidelines in the statute and government approval.

In 2015, the CSPF submitted a proposed pension benefit reduction plan to the U.S.

Department of the Treasury (“Treasury”).

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

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.

UPS was a contributing employer to the CSPF until 2007, at which time UPS withdrew from the CSPF.

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 reduced by the CSPF consistent with the terms of our withdrawal agreement with the CSPF.

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

Subsequent to our withdrawal, the CSPF incurred extensive asset losses and indicated that it was projected to become insolvent.

In such event, the CSPF benefits would be reduced to the legally permitted Pension Benefit Guaranty Corporation ("PBGC") limits, triggering the coordinating benefits provision in the collective bargaining agreement.

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

Following SFA approval, a qualifying multiemployer pension plan will receive a lump sum payment to enable it to continue paying unreduced pension 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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The CSPF submitted an application for SFA that was approved in December 2022.

In January 2023, $35.8 billion was paid to the CSPF by the PBGC.

The passage of the ARPA triggered a remeasurement of the UPS/IBT Plan under ASC 715.

Accordingly, we remeasured the plan assets and pension benefit obligation as of March 31, 2021, which resulted in an actuarial gain of $ 6.4 billion, reflecting a reduction of the liability for coordinating benefits of $ 5.1 billion and a gain from other updated actuarial assumptions of $ 1.3 billion.

We account for the potential obligation to pay coordinating benefits under ASC 715, which requires us to provide a best estimate of various actuarial assumptions in measuring our pension benefit obligation at the December 31st measurement date.

As of December 31, 2022, our best estimate of coordinating benefits that may be required to be paid by the UPS/IBT Plan after SFA funds have been exhausted was immaterial.

The value of our estimate for future coordinating benefits 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 CSPF to sustain its long-term commitments.

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

3 unchanged sentences

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.

plan obligations as of December 31, 2022, a 7.50 % annual rate of increase in postretirement medical benefit costs was assumed;

the rate was assumed to decrease gradually to 4.5 % by 2035 and to remain at that level thereafter.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Funded Status

13 unchanged sentences

Pension and postretirement benefit obligations ( 2,830 ) ( 5,400 ) ( 1,794 ) ( 2,359 ) ( 183 ) ( 288 )

Net liability $ ( 5,424 ) $ ( 12,925 ) $ ( 2,477 ) $ ( 2,710 ) $ — $ ( 342 )

Net asset (liability) $ ( 1,446 ) $ ( 5,424 ) $ ( 1,801 ) $ ( 2,477 ) $ 227 $ —

Amounts Recognized in AOCI (1) :

4 unchanged sentences

Net unrecognized cost $ ( 486 ) $ ( 1,989 ) $ 150 $ ( 180 ) $ 77 $ 71

The accumulated benefit obligation for our pension plans as of the measurement dates in 2021 and 2020 was $ 62.7 and $ 66.9 billion, respectively.

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 $ 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.

(1) Accumulated Other Comprehensive Income

The accumulated benefit obligation for our pension plans as of December 31, 2022 and 2021 was $ 44.8 and $ 62.7 billion, respectively.

The accumulated benefit obligation for our postretirement medical benefit plans as of December 31, 2022 and 2021 was $ 2.0 and $ 2.6 billion, respectively.

Benefit payments under the pension plans include $ 31 a nd $ 29 million paid from employer assets for the years ended December 31, 2022 and 2021, respectively.

Benefit payments (net of participant contributions) under the postretirement medical benefit plans includ e $ 174 and $ 63 million paid from employer assets for the years ended December 31, 2022 and 2021, respectively.

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021, the projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets for pension plans with benefit obligations in excess of plan assets were as follows (in millions):

53 unchanged sentences

The weighted-average discount rate for our pension and postretirement medical plans increased from 3.11 % as of December 31, 2021 to 5.77 % as of December 31, 2022, primarily due to an increase in U.S.

treasury yields, as well as an increase in credit spreads on AA-rated corporate bonds.

• Demographic and Assumption Changes ($ 0.2 b illion pre-tax loss):

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

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):

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.

UNITED PARCEL SERVICE, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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

This represents the reduction in our best estimate of 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 ($ 1.0 billion pre-tax loss):

Pension and Postretirement Plan Assets

3 unchanged sentences

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.

The primary long-term investment objectives for pension assets are to provide for a reasonable amount of long-term capital growth 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 our 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

35 unchanged sentences

The fair values of U.S.

and international pension and postretirement benefit plan assets by asset category as of December 31, 2021 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations:

Level 1 Level 2 Level 3 Percentage of

Plan Assets Target

and international pension and postretirement benefit plan assets by asset category, including derivative assets and liabilities, as of December 31, 2022 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations:

Level 1 Level 2 Level 3 Percentage of Plan Assets Target

Asset Category (U.S.

21 unchanged sentences

170 — 170 — 0.4 0 - 5

Risk Parity Funds 295 — — — 0.5 1 - 10

Plan Assets $ 42,273 $ 22,983 $ 9,719 $ — 100.0 %

25 unchanged sentences

The fair values of U.S.

and international pension and postretirement benefit plan assets by asset category as of December 31, 2020 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations:

and international pension and postretirement benefit plan assets by asset category, including derivative assets and liabilities, as of December 31, 2021 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations:

Level 1 Level 2 Level 3 Percentage of

11 unchanged sentences

Government Securities (2)

12,083 25,358 ( 13,275 ) —

Corporate Bonds 6,156 — 6,142 14

30 unchanged sentences

(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.

4 unchanged sentences

Corporate Bonds Other Total

Balance on January 1, 2020 $ — $ 12 $ 12

Balance as of January 1, 2021 $ 3 $ 62 $ 65

Actual Return on Assets:

4 unchanged sentences

Transfers Into (Out of) Level 3 — — —

Balance on December 31, 2020 $ 3 $ 62 $ 65

Balance as of December 31, 2021 $ 14 $ 74 $ 88

Actual Return on Assets:

4 unchanged sentences

Transfers Into (Out of) Level 3 ( 1 ) — ( 1 )

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, 2021 or December 31, 2020.

Balance as of December 31, 2022 $ — $ 77 $ 77

There were no shares of UPS class A or class B common stock directly held in plan assets as of December 31, 2022 or 2021.

Expected Cash Flows

Information about expected cash flows for the pension and postretirement medical benefit plans is as follows (in millions):

Information about expected cash flows for our pension and postretirement medical benefit plans is as follows (in millions):

Pension Benefits U.S.

2 unchanged sentences

Expected Employer Contributions:

2022 to plan trusts $ 1,887 $ 177 $ 96

2023 to plan trust $ 1,180 $ 72 $ 69

2023 to plan participants 25 46 7

10 unchanged sentences

Additional discretionary contributions may be made when deemed appropriate to meet the long-term obligations of the plans.

Expected benefit payments for pensions will be primarily paid from plan trusts.

Expected benefit payments for pensions will be paid primarily from plan trusts.

Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets.

3 unchanged sentences

MULTIEMPLOYER EMPLOYEE BENEFIT PLANS

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

We contribute to a number of multiemployer pension 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 and participation requirements, vesting periods and benefit formulas.

1 unchanged sentence

• Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

• If we negotiate to cease participating in a multiemployer plan, we may be required to pay that plan an amount based on our allocable share of its underfunded status, referred to as a "withdrawal liability".

• If we negotiate to cease participating in a multiemployer pension plan, we may be required to pay that plan an amount based on our allocable share of its underfunded status, referred to as a "withdrawal liability".

However, cessation of participation in a multiemployer plan and subsequent payment of any withdrawal liability is subject to the collective bargaining process.

• If any of the multiemployer pension plans in which we participate enter critical status, and our contributions are not sufficient to satisfy any rehabilitation plan funding schedule, we could be required under the Pension Protection Act of 2006 to make additional surcharge contributions to the multiemployer pension plan in the amount of five to ten percent of the existing contributions required by our labor agreement.

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 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 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.

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

The discussion that follows sets forth the impact on our results of operations and cash flows for December 31, 2022, 2021 and 2020, from our participation in multiemployer pension plans.

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

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

Future contributions to the 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 multiemployer pension plans remained relatively flat in 2022, having increased in 2021 due to business growth.

Contributions increased in accordance with the terms of our collective bargaining agreements.

There have been no other significant changes that affect the comparability of 2022, 2021 and 2020 contributions.

We recognize expense for the contractually-required contribution for each period, and we recognize a liability for any contributions due and unpaid at the end of a reporting period.

We recognize expense for the contractually-required contributions for each period, and we recognize a liability for any contributions due and unpaid at the end of a reporting period.

Status of Collective Bargaining Agreements

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.

We have approximately 330,000 employees in the U.S.

employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters.

These agreements run through July 31, 2023.

We have begun negotiating the various supplemental agreements with the Teamsters and expect that negotiations with respect to the national master agreement will commence in April 2023.

We are negotiating in good faith in an effort to reach an agreement that is in the best interests of our employees, the Teamsters and UPS;

however, no assurances of our ability to do so, or the timing or terms thereof, can be provided.

Customers may reduce their business or stop doing business with us if they believe that such actions or threatened actions may adversely affect our ability to provide services.

We may permanently lose customers if we are unable to provide uninterrupted service, and this could materially adversely affect us.

The terms of future collective bargaining agreements also may affect our competitive position and results of operations.

Furthermore, our actions or responses to any such negotiations, labor disputes, strikes or work stoppages could negatively impact how our brand is perceived and our corporate reputation and have adverse effects on our business, including our results of operations.

We have approximately 10,000 employees in Canada employed under a collective bargaining agreement with the Teamsters which runs through July 31, 2025.

We have approximately 3,500 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association ("IPA").

3 unchanged sentences

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 December 31, 2021, 2020 and 2019, and sets forth our calendar year contributions and accruals for each plan.

The following table outlines our participation in multiemployer pension plans as of December 31, 2022, 2021 and 2020, 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.

The most recent Pension Protection Act zone status available in 2021 and 2020 relates to the plans’ two most recent fiscal year ends.

The most recent Pension Protection Act zone status available in 2022 and 2021 relates to each plan's two most recent fiscal year ends.

The zone status is based on information that we received from the plans’ administrators and is certified by each plan’s actuary.

3 unchanged sentences

and plans certified in the green zone are at least 80 % funded.

Certain plans have applied for special financial assistance ("SFA") from the PBGC.

These plans' zone status may change if the funds are received and incorporated into the plan administrators' information.

The FIP / RP Status Pending / Implemented column indicates whether a financial improvement plan ("FIP") for yellow/orange zone plans, or a rehabilitation plan ("RP") for red zone plans, is either pending or has been implemented.

As of December 31, 2022, 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.

3 unchanged sentences

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.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EIN / Pension

5 unchanged sentences

Pension Fund 2022 2021 2022 2021 2020

Alaska Teamster-Employer Pension Plan 92-6003463-024 Red Red Yes Implemented 10 9 8 No

Central Pennsylvania Teamsters Defined Benefit Plan 23-6262789-001 Green Green No NA 75 65 57 No

Eastern Shore Teamsters Pension Fund 52-0904953-001 Green Green No NA 10 8 7 No

Employer-Teamsters Local Nos.

4 unchanged sentences

710 Pension Fund 36-2377656-001 Green Green No NA 191 180 161 No

Local 705, International Brotherhood of Teamsters Pension Plan 36-6492502-001 Yellow Yellow Yes Implemented 131 120 113 No

Local 705, International Brotherhood of Teamsters Pension Plan 36-6492502-001 Green Yellow No NA 136 131 120 No

Local 804 I.B.T.

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

& Local 447 I.A.M.—UPS Multiemployer Retirement Plan 51-6117726-001 Green Green No NA 144 135 124 No

Milwaukee Drivers Pension Trust Fund 39-6045229-001 Green Green No NA 62 58 53 No

1 unchanged sentence

New York State Teamsters Conference Pension and Retirement Fund 16-6063585-074 Red Red Yes Implemented 149 147 135 No

Teamster Pension Fund of Philadelphia and Vicinity 23-1511735-001 Yellow Yellow Yes Implemented 94 85 74 No

Teamster Pension Fund of Philadelphia and Vicinity 23-1511735-001 Green Yellow No NA 100 94 85 No

Teamsters Joint Council No.

5 unchanged sentences

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

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

Multiemployer Retirement Plan 13-1426500-419 Green Yellow No NA 124 116 107 No

Western Conference of Teamsters Pension Plan 91-6145047-001 Green Green No NA 1,310 1,260 1,138 No

4 unchanged sentences

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, 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.

As of December 31, 2022 and 2021, we had $ 821 and $ 830 million, respectively, recognized in Other Non-Current Liabilities and $ 8 million as of December 31, 2022 and 2021, 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 40 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, 2021 and 2020 was $ 963 million and $ 1.0 billion, respectively.

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, 2022 and 2021 was $ 686 and $ 963 million, respectively.

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

15 unchanged sentences

Joint Council #83 Health & Welfare Fund 62 56 50

Local 401 Teamsters Health & Welfare Fund 22 19 15

Local 804 Welfare Trust Fund 129 123 110

25 unchanged sentences

Solutions Consolidated

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

Balance as of January 1, 2021 $ 715 $ 422 $ 2,230 $ 3,367

Acquired 132 — 243 375

Impairments — — ( 494 ) ( 494 )

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

Balance on December 31, 2020 $ 715 $ 422 $ 2,230 $ 3,367

Balance as of December 31, 2021 $ 847 $ 403 $ 2,442 $ 3,692

Acquired — 105 491 596

Currency / Other — ( 16 ) ( 49 ) ( 65 )

Balance on December 31, 2021 $ 847 $ 403 $ 2,442 $ 3,692

Balance as of December 31, 2022 $ 847 $ 492 $ 2,884 $ 4,223

2022 Goodwill Activity

The goodwill acquired in U.S.

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

The goodwill acquired during 2022 primarily relates to our acquisitions of Delivery Solutions in May 2022 and Bomi Group in November 2022.

Goodwill associated with Delivery Solutions is reported in Supply Chain Solutions.

Goodwill associated with Bomi Group is reported in International Package and Supply Chain Solutions .

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.

4 unchanged sentences

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 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.

The goodwill acquired in U.S.

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

See note 8 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.

1 unchanged sentence

Goodwill Impairment

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.

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.

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

Our annual impairment testing indicated that the fair value of goodwill associated with our Roadie reporting unit remained greater than its carrying value as of our July 1st testing date, although this excess was less than 10 percent.

The goodwill associated with our Roadie reporting unit as of December 31, 2022 was $ 241 million.

We did not identify any triggering events for the periods presented that required an interim impairment test.

We did not record any goodwill impairment charges for the years ended December 31, 2022 and 2021.

During 2020, we recorded a goodwill impairment charge of $ 494 million in connection with designating our UPS Freight business as held for sale.

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

24 unchanged sentences

Customer relationships 733 ( 408 ) 325

Trade name 67 ( 1 ) 66

Trademarks, patents and other 158 ( 15 ) 143

4 unchanged sentences

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, 2022.

4 unchanged sentences

Expected amortization of finite-lived intangible assets recorded as of December 31, 2022 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, purchase of development areas or similar franchise rights and other factors.

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

UNITED PARCEL SERVICE, INC.

1 unchanged sentence

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.

In May 2022, we acquired Delivery Solutions, a digital platform that optimizes customer deliveries across multiple networks and provides real-time customer tracking and notifications.

In November 2022, we acquired Bomi Group to accelerate our growth in healthcare logistics by expanding our international presence and increasing our cold chain capabilities in major European and Latin American markets.

Delivery Solutions and Bomi Group are both reported within Supply Chain Solutions.

During 2022, we also acquired development areas for The UPS Store, which are recorded as intangible assets within Supply Chain Solutions.

The aggregate purchase price of acquisitions in 2022 was approximately $ 755 million, net of cash acquired.

Acquisitions were funded using cash from operations.

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

Certain areas, including our estimates of tax positions for Bomi Group, are preliminary as of December 31, 2022.

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 $ 29

Accounts receivable 90

Other current assets 17

Property, Plant, and Equipment 58

Operating Lease Right-Of-Use Assets 111

Intangible Assets (1)

Accounts Payable and other current liabilities ( 159 )

Non-Current Operating Leases ( 85 )

Long-Term Debt and Finance Leases ( 190 )

Deferred Income Tax Liabilities ( 68 )

Total purchase price $ 784

(1) Includes acquisitions of development areas for The UPS Store

Goodwill recognized of approximately $ 596 million is attributable to expected synergies from future growth, including synergies to other segments.

We have allocated $ 105 and $ 491 million of the recognized goodwill to reporting units within International Package and Supply Chain Solutions, respectively.

Deductible goodwill for income tax purposes is not expected to be material.

The intangible assets acquired of approximately $ 385 million primarily consist of $ 176 million of customer relationships (amortized over a weighted-average of 15 years), $ 113 million of franchise rights (amortized over 20 years), $ 72 million of trade names (amortized over a weighted-average of 5 years), $ 14 million of technology (amortized over a weighted-average of 6 years) and $ 10 million in other intangibles (amortized over a weighted-average of 5 years).

The carrying value of accounts receivable approximates fair value.

Acquisition-related costs in 2022 were approximately $ 25 million.

These were expensed as incurred and are included in Other expenses within the statements of consolidated income.

In October 2021, we acquired 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.

1 unchanged sentence

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.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Subsequent measurement period adjustments during 2022 were not material.

Cash and cash equivalents $ 12

3 unchanged sentences

Total purchase price $ 586

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

Goodwill recognized of approximately $ 375 million was 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.

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

Domestic Package, 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.

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

The carrying value of accounts receivable approximated fair value.

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

6 unchanged sentences

Amount Maturity 2022 2021

Commercial paper $ — 2021 $ — $ 15

Fixed-rate senior notes:

38 unchanged sentences

1,250 2050 1,231 1,231

3.400 % senior notes

700 2049 688 688

5.300 % senior notes

1,250 2050 1,231 1,231

Floating-rate senior notes:

2 unchanged sentences

Floating-rate senior notes 1,039 2049-2067 1,027 1,027

7.620 % debentures

17 unchanged sentences

554 2024 553 585

Finance lease obligations 408 2022 – 2046 408 342

Finance lease obligations (see note 11)

390 2023 – 2063 390 408

Facility notes and bonds 320 2029 – 2045 320 320

3 unchanged sentences

Long-term debt $ 17,321 $ 19,784

(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.

7 unchanged sentences

Debt Repayments

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.

On May 15, 2022, our 2.350 % senior notes with a principal balance of $ 600 million and our floating-rate senior notes with a principal balance of $ 400 million matured and were repaid in full.

On October 1, 2022, our 2.450 % senior notes with a principal balance of $ 1.0 billion matured and were repaid in full.

Additionally, we repaid € 142 million of debt assumed in the Bomi Group acquisition during the fourth quarter of 2022.

Fixed-Rate Senior Notes

1 unchanged sentence

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:

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 the years ended December 31, 2022 and 2021 were as follows:

Principal Average Effective Interest Rate

4 unchanged sentences

1,000 2022 1.75 % 0.76 %

7.620 % Debentures

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 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.

Both the 3.125 % and 2.450 % senior notes matured and have been repaid in full.

Floating-Rate Senior Notes

2 unchanged sentences

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.

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

Interest is payable semi-annually.

These notes are not callable and 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 average interest rate for 2022 and 2021, including interest on our $ 400 million floating-rate senior notes that matured on May 1, 2022, was 1.93 % and 0.58 %, 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.

These notes have maturities ranging from 2049 through 2067.

Interest is payable monthly for notes maturing through 2053 and quarterly for notes maturing from 2064 through 2067.

These notes will be impacted by the expected discontinuance of U.S.

Dollar LIBOR rates in June 2023.

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.620 % Debentures

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

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

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

Pound Sterling Notes

The Pound Sterling notes consist of two separate tranches, as follows:

• Notes with a principal amount of £ 66 million accrue interest at a fixed rate of 5.50 % and are due in February 2031.

Interest is payable semi-annually and these notes are not callable.

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

Interest is payable semi-annually.

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.

Euro Senior Notes

The Euro notes consist of three separate issuances, as follows:

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

Interest is payable annually.

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.

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

Interest is payable annually.

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 in the principal amount of € 500 million accrue interest at a fixed rate of 1.00 % and are due in November 2028.

Interest is payable annually.

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.

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 fixed rate of 2.125 % and mature in May 2024.

Interest is payable semi-annually.

The notes are callable at our option, in whole or in part, at the Government of Canada yield plus 21.5 basis points, and on or after the par call date at par value.

Finance Lease Obligations

1 unchanged sentence

For additional information on finance lease obligations, see note 11.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Facility Notes and Bonds

1 unchanged sentence

These facilities are located around airport properties in Louisville, Kentucky;

Dallas, Texas;

and Philadelphia, Pennsylvania.

Dallas, Texas and Philadelphia, Pennsylvania.

Under these arrangements, we enter into a lease or loan agreement that covers the debt service obligations on the bonds issued by these entities, as follows:

• Bonds with a principal balance of $ 149 million issued by the Louisville Regional Airport Authority associated with our Worldport facility in Louisville, Kentucky.

The bonds, which are due in January 2029, bear interest at a variable rate, and the average interest rates for 2021 and 2020 were 0.05 % and 0.50 %, respectively.

• Bonds with a principal balance of $ 42 million and due in November 2036 issued by the Louisville Regional Airport Authority associated with our air freight facility in Louisville, Kentucky.

The bonds bear interest at a variable rate, and the average interest rates for 2021 and 2020 were 0.07 % and 0.56 %, respectively.

The bonds are due in January 2029 and bear interest at a variable rate that is payable monthly.

The average interest rates for 2022 and 2021 were 0.16 % and 0.05 %, respectively.

• Bonds with a principal balance of $ 42 million issued by the Louisville Regional Airport Authority associated with our airfreight facility in Louisville, Kentucky.

The bonds are due in November 2036 and bear interest at a variable rate that is payable monthly.

The average interest rates for 2022 and 2021 were 1.08 % and 0.07 %, respectively.

• 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 rate of 5.11 %.

The bonds are due in May 2032 and bear interest at a variable rate that is payable quarterly.

The variable cash flows on this 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.

These bonds, which are due September 2045, bear interest at a variable rate.

These bonds are due September 2045 and bear interest at a variable rate that is payable monthly.

The average interest rate for 2022 and 2021 was 1.03 % and 0.05 %, respectively.

Pound Sterling Notes

The Pound Sterling notes consist of two separate tranches, as follows:

• Notes with a principal amount of £ 66 million accrue interest at a 5.50 % fixed rate, and are due in February 2031.

These notes are not callable.

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

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

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 rate and mature in May 2024.

Interest on the notes is payable semi-annually.

The notes are callable at our option, in whole or in part, at the Government of Canada yield plus 21.5 basis points, and on or after the par call date at par value.

Euro Senior Notes

The Euro notes consist of three separate issuances, as follows:

• Notes in the principal amount of € 500 million accrue interest at a 1.00 % fixed rate and are due in November 2028.

Interest is payable annually on the notes.

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.

• 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.

Contractual Commitments

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)

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

Year Debt Principal Purchase

Commitments (1)

2 unchanged sentences

2025 1,748 846

2025 1,794 636 363

2026 500 523 81

After 2027 12,454 —

Total $ 19,436 $ 4,242

(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.

(1) Purchase commitments include estimates of future amounts yet to be recognized in our financial statements.

Purchase commitments represent contractual agreements for capital expenditures that are legally binding, including contracts for aircraft, construction of new or expanded facilities and vehicles.

Sources of Credit

Letters of Credit

As of December 31, 2022, we had outstanding letters of credit totaling approximately $ 1.7 billion issued in connection with our self-insurance reserves and other routine business requirements.

We also issue surety bonds as an alternative to letters of credit in certain instances and, as of December 31, 2022, we had $ 1.5 billion of surety bonds written.

Sources of Credit

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revolving Credit Facilities

We maintain two credit agreements with a consortium of banks.

5 unchanged sentences

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4 unchanged sentences

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.

If the credit ratings established by Standard & Poor's 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.

There were no amounts outstanding under these facilities as of December 31, 2021.

There were no amounts outstanding under our revolving credit facilities as of December 31, 2022.

Debt Covenants

13 unchanged sentences

We are involved in a number of judicial proceedings and other matters arising from the conduct of our business.

Although there can be no assurance as to the ultimate outcome, we have generally denied, or believe we have meritorious defenses and will deny, liability in all pending matters, including (except as otherwise noted herein) the matters described below, and we intend to vigorously defend each matter.

Although there can be no assurances as to the ultimate outcome, we have generally denied, or believe we have meritorious defenses and will deny, liability in all pending matters, including (except as otherwise noted herein) the matters described below, and we intend to vigorously defend each matter.

We accrue amounts associated with legal proceedings when and to the extent a loss becomes probable and can be reasonably estimated.

10 unchanged sentences

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 appealed this decision.

The appeal was denied;

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

The plaintiffs' appeal of this decision was denied;

however, in the second quarter of 2022 the plaintiffs were granted discretionary review of these claims by the Kentucky Supreme Court.

Other Matters

In October 2015, the Department of Justice ("DOJ") informed us of an industry-wide inquiry into the transportation of mail under the United States Postal Service ("USPS") International Commercial Air contracts.

In October 2017, we received a Civil Investigative Demand seeking certain information relating to our contracts.

The DOJ has indicated it is investigating potential violations of the False Claims Act or other statutes.

We are cooperating with the DOJ.

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 any government authorities as a result of their investigation.

In August 2016, Spain’s National Markets and Competition Commission ("CNMC") announced an investigation into 10 companies in the commercial delivery and parcel industry, including UPS, related to alleged nonaggression agreements to allocate customers.

In May 2017, UPS received a Statement of Objections issued by the CNMC.

In July 2017, UPS received a Proposed Decision from the CNMC.

On March 8, 2018, the CNMC adopted a final decision, finding an infringement and imposing an immaterial fine on UPS.

UPS appealed the decision and, in September 2018, obtained a suspension of the implementation of the decision (including payment of the fine).

The appeal is pending.

In May 2017, we received a Statement of Objections issued by the CNMC.

In July 2017, we received a Proposed Decision from the CNMC.

In March 2018, the CNMC adopted a final decision, finding an infringement and imposing an immaterial fine on UPS.

We appealed the decision.

In December 2022, the appeal was dismissed, although we intend to appeal this judgment before the Spanish Supreme Court.

We do not believe that any loss from this matter would have a material impact on our operations or financial condition.

1 unchanged sentence

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

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

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

We have finance and operating leases for real estate (primarily package centers, airport facilities and warehouses), aircraft and engines, information technology equipment, 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.

We have also elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase options, of twelve months or less in our consolidated balance sheets for all classes of underlying assets.

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

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.

In making this determination, we consider all relevant economic factors that would compel us to exercise or not exercise an option.

When our leases contain future payments that are dependent on an index or rate, such as the consumer price index, we initially measure the lease obligation and ROU asset using the index or rate at the commencement date.

In subsequent periods, lease payments dependent on an index or rate are not remeasured.

Rather, changes to payments due to a change in an index or rate are recognized in our statements of consolidated income in the period of the change.

When available, we use the rate implicit in the lease to discount lease payments;

however, the rate implicit in the lease is not readily determinable for substantially all of our leases.

For these leases, we use an estimate of our incremental borrowing rate to discount lease payments based on information available at lease commencement.

The incremental borrowing rate is derived using multiple inputs including our credit rating, the impact of full collateralization, lease term and denominated currency.

The remaining lease terms vary from 1 month to 139 years.

In addition to the aircraft that we own, we have leases for 329 aircraft.

Of these leased aircraft, 22 are classified as finance leases, 18 are classified as operating leases and the remaining 289 are classified as short-term leases.

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

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.

In addition to the aircraft that we own, we charter aircraft to handle package and cargo volume on certain international trade lanes and domestic routes.

Due to the nature of these agreements, primarily being that either party can cancel the agreement with short notice, we have classified these as short-term leases.

Additionally, the lease payments associated with these charter agreements are variable in nature based on the number of hours flown.

We have operating and finance leases for package centers, airport facilities, warehouses, office space and expansion facilities utilized during peak shipping periods.

Many of our leases contain charges for common area maintenance or other expenses that are updated based on landlord estimates.

Due to this variability, the cash flows associated with these charges are not included in the minimum lease payments used in determining the ROU asset and associated lease obligation.

Some of our real estate leases contain options to renew or extend the lease or terminate the lease before the expiration date.

These options are factored into the determination of the lease term and lease payments when their exercise is considered to be reasonably certain.

We also enter into real estate leases that contain lease incentives, such as tenant improvement allowances or move-in allowances, that are received or receivable at lease commencement.

These incentives reduce lease payments for classification purposes and reduce the initial ROU asset.

When lease incentives are receivable at lease commencement, they also reduce the initial lease obligation.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

From time to time, we enter into leases with the intention of purchasing the property, either through purchase options with a fixed price or a purchase agreement negotiated contemporaneously with the lease agreement.

We classify these leases as finance leases and include the purchase date and purchase price in the determination of the lease term and lease payments, respectively, when the option to exercise or purchase is reasonably certain.

Transportation equipment and other equipment

1 unchanged sentence

Some of these assets are leased on a month-to-month basis and the leases can be terminated without penalty.

The lease term for these types of leases is determined by the length of the underlying customer contract or based on the judgment of the business unit.

We also enter into multi-year leases for trailers to increase capacity during periods of high demand, which are typically only used for 90-120 days during the year.

We also enter into equipment leases to increase capacity during periods of high demand.

These leases are treated as short-term as the cumulative right of use is less than 12 months over the term of the contract.

The remainder of our leases are primarily related to equipment used in our air operations, vehicles required to meet capacity needs during periods of higher demand for our shipping services, technology equipment and office equipment used in our facilities.

Some of our transportation and technology equipment leases require us to make additional lease payments based on the underlying usage of the assets.

Due to the variable nature of these costs, these are expensed as incurred and are not included in the ROU asset and associated lease obligation.

Due to the variable nature of these costs, these are expensed as incurred and are not included in the right of use lease asset and associated lease obligation.

The components of lease expense for the years ended December 31, 2022, 2021 and 2020 were as follows (in millions):

10 unchanged sentences

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.

There were no material impairments recognized for the years ended December 31, 2022 or 2021.

UNITED PARCEL SERVICE, INC.

29 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of lease obligations as of December 31, 2021 are as follows (in millions):

Future payments for lease obligations as of December 31, 2022 are as follows (in millions):

Finance Leases Operating Leases

6 unchanged sentences

Long-term lease obligations $ 298 $ 3,238

As of December 31, 2021, we have additional leases which have not commenced of $ 348 million.

These leases will commence in 2022 and 2023 when we are granted access to the property, such as when leasehold improvements are completed by the lessor or a certificate of occupancy is obtained.

As of December 31, 2022, we have additional leases which have not commenced of $ 1.2 billion.

These leases will commence between 2023 and 2024 when we are granted access to the property, such as when leasehold improvements are completed by the lessor or a certificate of occupancy is obtained.

UNITED PARCEL SERVICE, INC.

3 unchanged sentences

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

We are authorized to issue 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 primarily 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.

9 unchanged sentences

Balance at beginning of year 138 $ 2 147 $ 2 156 $ 2

Common stock purchases — — — — ( 3 ) —

Stock award plans 5 — 6 — 6 —

12 unchanged sentences

Common stock issuances 495 404 434

Option premiums received (paid) — — 21

Balance at end of year $ — $ 1,343 $ 865

4 unchanged sentences

( 5,363 ) ( 3,604 ) ( 3,552 )

Common stock purchases ( 1,038 ) — —

Other — ( 3 ) —

10 unchanged sentences

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).

For the year ended December 31, 2020, we repurchased a total of 2.1 million shares of class A and class B common stock for $ 217 million under this program ($ 224 million is 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.

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

We repurchased 19.0 and 2.6 million shares of class B common stock for $ 3.5 billion and $ 500 million under this authorization during the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had $ 1.0 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.

In January 2023, the Board of Directors terminated the 2021 Authorization and approved a new share repurchase authorization of $ 5.0 billion for class A and class B common stock.

Future 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.

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.

We pay a fixed sum of cash upon execution of each agreement in exchange for the right to receive either a predetermined amount of cash or stock.

Upon expiration of each agreement, if the closing market price of our common stock is above the predetermined price, we will have our initial investment returned with a premium in either cash or shares (at our election).

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 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.

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

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 award payouts and by the acceleration of vesting for certain of our awards in 2020.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Income (Loss)

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, 2021, 2020 and 2019 is as follows (in millions):

We recognize activity in other comprehensive income 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 accumulated other comprehensive income for the years ended December 31, 2022, 2021 and 2020 is as follows (in millions):

2022 2021 2020

3 unchanged sentences

( 315 ) ( 181 ) 97

Reclassification to earnings (net of tax effect of $ 2 , $ 0 and $ 0 )

Balance at end of year $ ( 1,446 ) $ ( 1,162 ) $ ( 981 )

2 unchanged sentences

Current period changes in fair value (net of tax effect of $( 3 ), $ 0 and $ 1 )

( 12 ) ( 2 ) 6

Reclassification to earnings (net of tax effect of $ 1 , $ 0 and $( 1 ))

10 unchanged sentences

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

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

Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $ 810 , $ 1,956 and $( 1,885 ))

2,576 6,195 ( 5,984 )

9 unchanged sentences

2022 2021 2020

Unrealized Gain (Loss) on Foreign Currency Translation:

Realized gain (loss) on business wind-down ( 33 ) — — Other expenses

Income tax (expense) benefit 2 — — Income tax expense

Impact on net income ( 31 ) — — Net income

Unrealized Gain (Loss) on Marketable Securities:

5 unchanged sentences

Foreign currency exchange contracts 304 83 196 Revenue

Foreign currency exchange contracts ( 1 ) — — Investment income (expense) and other

Income tax (expense) benefit ( 70 ) ( 17 ) ( 45 ) Income tax expense

5 unchanged sentences

Remeasurement of benefit obligation 1,027 3,272 ( 6,484 ) Investment income (expense) and other

Curtailment of benefit obligation 34 — — Investment income (expense) and other

Income tax (expense) benefit ( 230 ) ( 749 ) 1,607 Income tax expense

3 unchanged sentences

We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer the gains on stock option exercises by deferring the shares received upon exercise into a rabbi trust.

The shares held in this trust are classified as treasury stock, and the liability to participating employees is classified as Deferred compensation obligations in the shareowners’ equity section of the consolidated balance sheets.

The number of shares needed to settle the liability for deferred

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

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

The shares held in this trust are classified as treasury stock, and the liability to participating employees is classified as Deferred compensation obligations in the S hareowners’ Equity section of the consolidated balance sheets.

The number of shares needed to settle the liability for deferred compensation obligations is included in the denominator in both the basic and diluted earnings per share calculations.

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Activity in the deferred compensation program for the years ended December 31, 2022, 2021 and 2020 was as follows (in millions):

20 unchanged sentences

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.

Our matching contributions to our primary employee defined contribution savings plan were also made in shares of UPS class A common stock through 2022.

Beginning in 2023, these matching contributions will be made in cash.

The total expense recognized in our statements of consolidated income under all stock compensation programs during 2022, 2021 and 2020 was $ 1,568 , $ 878 and $ 796 million, respectively.

3 unchanged sentences

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 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, 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).

Awards granted to executive officers are determined annually by the Compensation and Human Capital Committee of the UPS Board of Directors (the "Compensation Committee").

For awards earned through 2022, our MIP provided, with certain exceptions, that one-half to two-thirds of the annual award would be made in RPUs, depending upon the level of management.

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

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

On November 2, 2022, the Compensation Committee amended and restated the terms and conditions of the MIP effective January 1, 2023, such that awards earned will be fully electable in the form of cash or unrestricted shares of class A common stock.

Beginning with the MIP granted in 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).

2 unchanged sentences

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.

Conversion to class A shares continues to occur over the remaining five-year period with the final conversion occurring in the first quarter of 2023.

On November 2, 2022, the Compensation Committee amended and restated the terms and conditions governing the 2022 MIP to fully vest RPUs to be issued in connection therewith as of December 31, 2022.

The elimination of a future service requirement for this award resulted in the recognition of an additional $ 505 million of stock compensation expense in 2022, of which approximately $ 431 million was recorded in U.S.

Domestic Package.

Conversion to class A shares will occur one year from the grant date.

As of December 31, 2022, this award was classified as a compensation obligation and recorded in Accrued wages and withholdings on the consolidated balance sheet.

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:

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022, we had the following outstanding, non-vested Restricted Units granted under the MIP:

Restricted Units

(in thousands) Weighted-Average

5 unchanged sentences

Non-vested as of December 31, 2022 3,106 $ 221.97

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 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 2022, 2021 and 2020 was $ 223.72 , $ 165.27 and $ 102.54 , respectively.

The total fair value of RPUs vested was $ 923 , $ 716 and $ 827 million in 2022, 2021 and 2020, respectively.

As of December 31, 2022, there was $ 93 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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

5 unchanged sentences

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").

For LTIP awards with a performance period ending in 2022 or later, 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 & Poor's 500 Index.

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.

1 unchanged sentence

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 second measurement period evaluated 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:

5 unchanged sentences

There is no expected dividend yield as units earn dividend equivalents.

As of December 31, 2021, we had the following RPUs outstanding, including reinvested dividends, that were granted under our LTIP program:

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022, we had the following outstanding, non-vested RPUs granted under our LTIP program:

(in thousands) Weighted-Average

9 unchanged sentences

As of December 31, 2022, there was $ 139 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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

That cost is expected to be recognized over a weighted-average period of one year and nine months.

Non-qualified Stock Options

10 unchanged sentences

(in years) Aggregate Intrinsic

Value (in millions)

(in millions)

Outstanding at January 1, 2022 1,599 $ 112.18

1 unchanged sentence

Granted 109 214.58

Forfeited / Expired — —

Forfeited / Expired ( 50 ) N/A

Outstanding as of December 31, 2022 1,466 $ 120.51 5.96 $ 82

9 unchanged sentences

Weighted-average fair value of options granted $ 48.45 $ 23.71 $ 11.74

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The expected dividend yield is based on the recent historical dividend yields for our stock, taking into account changes in dividend policy.

The risk-free interest rate is based on the term structure of interest rates at the time of the option grant.

The expected life represents an estimate of the period of time options are expected to remain outstanding, and we have relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule of the grants and an index of peer companies with similar grant characteristics in estimating this variable.

The expected life represents an estimate of the period of time options are expected to remain outstanding.

In determining this, we have relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics and the contractual term of the grants.

Expected volatilities are based on the historical returns on our stock and the implied volatility of our publicly-traded options.

22 unchanged sentences

International Package operations include delivery to more than 220 countries and territories worldwide, including shipments wholly outside the United States, as well as shipments with either origin or destination outside the United States.

Our International Package reporting segment includes our operations in Europe, Asia, Americas and ISMEA.

Our International Package reporting segment includes our operations in Europe, Asia, the Indian sub-continent, the Middle East, Africa, Canada and Latin America.

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.

Our Forwarding, Logistics and UPS Mail Innovations businesses 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.

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 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.

Marken and Bomi Group provide supply chain solutions to the healthcare and life sciences industry.

Other businesses within this segment include The UPS Store, UPS Capital, Roadie, and Delivery Solutions.

In evaluating financial performance, we focus on operating profit as a segment’s measure of profit or loss.

Operating profit is before investment income (expense) and other, interest expense and income tax expense.

Certain expenses are allocated between the segments using activity-based costing methods as described in Part I, "Item 7.

Supplemental Information - Items Affecting Comparability" section of Management's Discussion and Analysis.

Certain expenses are allocated between the segments using activity-based costing methods.

These activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed to each segment.

Changes in these estimates directly impact the amount of expense allocated to each segment, and therefore the operating profit of each reporting segment.

Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.

In 2021, we updated our cost allocation methodology for aircraft engine maintenance expense to better align with aircraft utilization by segment, resulting in an immaterial reallocation of expense from our U.S.

Domestic Package segment to our International Package segment.

As we operate an integrated, global multimodal network, we evaluate many of our capital expenditure decisions at a network level.

93 unchanged sentences

Net uncertain tax positions 0.4 0.6 3.6

valuation allowance release — — ( 1.2 )

Other ( 0.9 ) ( 1.1 ) 2.1

8 unchanged sentences

2022 Discrete Items

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.

We recognized an income tax expense of $ 255 million related to pre-tax defined benefit pension and postretirement medical plan gains of $ 1.1 billion.

This income tax expense was generated at a higher average tax rate than the 2022 U.S.

3 unchanged sentences

As a result, we recorded an additional income tax benefit of $ 36 million.

This income tax benefit was generated at a lower average tax rate than the 2022 U.S.

federal statutory tax rate due to the effect of foreign taxes.

We recorded pre-tax expenses of $ 505 million in connection with incentive compensation program design changes during the year ended December 31, 2022.

As a result, we recorded an additional income tax benefit of $ 121 million.

This income tax benefit was generated at a higher average tax rate than the 2022 U.S.

1 unchanged sentence

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.

We recorded pre-tax expenses of $ 76 million as a result of a reduction in estimated residual value for certain aircraft during the year ended December 31, 2022.

As a result, we recorded an additional income tax benefit of $ 18 million.

This income tax benefit was generated at a higher average tax rate than the 2022 U.S.

federal statutory tax rate due to the effect of U.S.

2 unchanged sentences

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 U.S.

postretirement defined benefit plans.

This income tax benefit was generated at a higher average tax rate than the 2020 U.S.

We recognized an income tax expense of $ 784 million related to pre-tax defined benefit pension and postretirement medical plan gains of $ 3.3 billion.

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.

5 unchanged sentences

state and local and foreign taxes.

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.

This income tax benefit was generated at a lower average tax rate than the U.S.

federal statutory tax rate due to the portion of the costs related to goodwill impairment, which is not deductible for tax purposes.

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.

Our 2020 effective tax rate was also unfavorably impacted by new uncertain tax positions.

2020 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 U.S.

postretirement defined benefit plans.

In the fourth quarter of 2020, we recognized an income tax benefit of $ 1.6 billion related to pre-tax defined benefit pension and postretirement medical plan losses of $ 6.5 billion.

This income tax benefit was generated at a higher average tax rate than the 2020 U.S.

6 unchanged sentences

state and local and foreign taxes.

Legal contingencies and expenses of $ 97 million were accrued during 2019 in respect of certain legal proceedings for which we recorded an additional income tax benefit of $ 6 million.

We recorded 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.

This income tax benefit was generated at a lower average tax rate than the U.S.

federal statutory tax rate due to the portion of the accrual related to penalties, which are not deductible for tax purposes.

federal statutory tax rate due to the portion of the costs related to goodwill impairment, which is not deductible for tax purposes.

The recognition of excess tax benefits and deficiencies related to share-based compensation in income tax expense resulted in a net tax benefit of $ 28 million and reduced our effective tax rate by 1.5 % during the year ended December 31, 2020.

UNITED PARCEL SERVICE, INC.

1 unchanged sentence

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.

As of each reporting date, we consider new evidence, both positive and negative, that could affect the future realization of deferred tax assets.

During 2019, we determined that there was sufficient positive evidence to conclude that it was more likely than not that the deferred tax assets related to certain foreign net operating loss carryforwards would be realized.

This conclusion was primarily related to achieving cumulative three-year income and anticipated future earnings within the relevant jurisdiction.

Accordingly, we reversed the related valuation allowance and recognized a discrete tax benefit of approximately $ 68 million.

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.

Our 2020 effective tax rate was also unfavorably impacted by new uncertain tax positions.

Beginning in 2012, we were granted a tax incentive for certain of our non-U.S.

operations, which was effective through December 31, 2021.

The tax incentive was conditioned upon our meeting specific employment and investment thresholds.

During 2022, the tax incentive was renegotiated and extended through December 31, 2026.

The tax incentive is conditional upon our meeting specific employment and investment thresholds.

The impact of this tax incentive decreased non-U.S.

22 unchanged sentences

We have a U.S.

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.

federal capital loss carryforward of $ 213 million as of December 31, 2022, $ 6 million of which expires on December 31, 2025, $ 156 million of which expires on December 31, 2026 and the remainder of which expires on December 31, 2027.

UNITED PARCEL SERVICE, INC.

10 unchanged sentences

federal, state and non-U.S.

carryforwards and outside basis differences due to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions and other limitations.

carryforwards due to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions and other limitations.

Undistributed earnings and profits ("E&P") of our foreign subsidiaries amounted to $ 5.6 billion as of December 31, 2022.

3 unchanged sentences

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.

In December 2017, the United States enacted into law the Tax Cuts and Jobs Act (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 remaining liability of $ 123 million is reflected in current and non-current liabilities on the consolidated balance sheets based on the timing of payment.

This balance will be paid between 2023 and 2025.

The following table summarizes the activity related to our uncertain tax positions (in millions):

35 unchanged sentences

It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions.

It is reasonably possible that the liability for uncertain tax positions could significantly increase or decrease within the next twelve months.

Items that may cause changes to uncertain tax positions include the timing of interest deductions and the allocation of income and expense between tax jurisdictions.

Items that may cause changes to unrecognized tax benefits include the allowance or disallowance of deductions, the timing of deductions and the allocation of income and expense between tax jurisdictions.

These changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of the statute of limitations, or other unforeseen circumstances.

At this time, an estimate of the range of the reasonably possible change cannot be made.

Over the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits may decrease by up to $ 175 million.

UNITED PARCEL SERVICE, INC.

23 unchanged sentences

Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations and we actively monitor these exposures.

To manage the impact of these exposures, we may enter into a variety of derivative financial instruments.

Our objective is to manage, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates, commodity prices and interest rates.

It is our policy and practice to use derivative financial instruments only to the extent necessary to manage exposures.

As we use price sensitive instruments to hedge a certain portion of our existing and anticipated transactions, we expect that any loss in value from those instruments generally would be offset by increases in the value of those hedged transactions.

Where deemed appropriate, to manage the impact of these exposures on earnings and/or cash flows, we may enter into a variety of derivative financial instruments.

We do not hold or issue derivative financial instruments for trading or speculative purposes.

1 unchanged sentence

The forward contracts, swaps and options discussed below contain an element of risk that the counterparties may be unable to meet the terms of the agreements;

however, we seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines and by monitoring counterparties to prevent concentrations of credit risk with any single counterparty.

We have agreements with all of our active counterparties (covering the majority of our derivative positions) containing early termination rights and/or zero threshold bilateral collateral provisions whereby cash is required based on the net fair value of derivatives associated with those counterparties.

however, we seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines.

We may further manage credit risk through the use of zero threshold bilateral collateral provisions and/or early termination rights utilizing master netting arrangements, whereby cash is exchanged based on the net fair value of derivatives associated with each counterparty.

As of December 31, 2022 and 2021, we held cash collateral of $ 534 and $ 260 million, respectively, under these agreements.

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, 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.

Alternatively, we could be required to provide additional collateral or terminate transactions with certain counterparties in the event of a downgrade of our credit rating.

The amount of collateral required would be determined by the net fair value of the associated derivatives with each counterparty.

We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default.

As of December 31, 2021, there were no instruments in a net liability position that were not covered by the zero threshold bilateral collateral provisions.

This collateral is included in Cash and cash equivalents in the consolidated balance sheets and is unrestricted.

As of December 31, 2022 and 2021, no collateral was required to be posted with our counterparties.

Types of Hedges

Commodity Risk Management

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.

Currently, the fuel surcharges that we apply in our domestic and international package businesses 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.

2 unchanged sentences

Our most significant foreign currency exposures relate to the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar.

We hedge portions of our forecasted revenue denominated in foreign currencies with forward contracts.

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.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

We generally designate and account for these contracts as cash flow hedges of anticipated foreign currency denominated revenue.

We also hedge portions of our anticipated cash settlements of principal and interest on certain foreign currency denominated debt.

We generally 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 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 .

Interest Rate Risk Management

1 unchanged sentence

We use a combination of derivative instruments as part of our program to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing.

Interest rate swaps allow us to maintain a target range of floating-rate debt within our capital structure.

The notional amount, interest payment date and maturity date of the swaps match the terms of the associated debt being hedged.

We have designated and account for the majority of our interest rate swaps that convert fixed-rate interest payments into floating-rate interest payments as fair value hedges of the associated debt instruments.

Therefore, the gains and losses resulting from fair value adjustments to the interest rate swaps and fair value adjustments to the associated debt instruments are recorded to interest expense in the period in which the gains and losses occur.

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 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.

These agreements effectively lock a portion of our interest rate exposure between the time the agreement is entered into and the date when the debt offering is completed, thereby mitigating the impact of interest rate changes on future interest expense.

These derivatives are settled commensurate with the issuance of the debt, and any gain or loss upon settlement is amortized as an adjustment to the effective interest yield on the debt.

We may 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.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Outstanding Positions

9 unchanged sentences

As of December 31, 2022 and 2021, we had no outstanding commodity hedge positions.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

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

2 unchanged sentences

However, we have not elected to offset the fair value positions of our derivative contracts recorded in the consolidated balance sheets.

The columns labeled Net Amounts if Right of Offset had been Applied indicate the potential net fair value positions by type of contract and location in the consolidated balance sheets had we elected to apply the right of offset as of December 31, 2021 and December 31, 2020 (in millions):

Fair Value Hierarchy Level Gross Amounts Presented in Consolidated Balance Sheets Net Amounts if Right of Offset had been Applied

Asset Derivatives Balance Sheet Location 2021 2020 2021 2020

Asset Derivatives Balance Sheet

Location 2022 2021 2022 2021

Derivatives designated as hedges:

2 unchanged sentences

Foreign currency exchange contracts Other non-current assets Level 2 250 123 226 90

Interest rate contracts Other non-current assets Level 2 — 29 — 26

Derivatives not designated as hedges:

2 unchanged sentences

Fair Value Hierarchy Level Gross Amounts Presented in Consolidated Balance Sheets Net Amounts if Right of Offset had been Applied

Liability Derivatives Balance Sheet Location 2021 2020 2021 2020

Liability Derivatives Balance Sheet

Location 2022 2021 2022 2021

Derivatives designated as hedges:

2 unchanged sentences

Interest rate contracts Other non-current liabilities Level 2 5 10 5 10

Derivatives not designated as hedges:

Foreign currency exchange contracts Other current liabilities Level 2 — 2 — 2

Interest rate contracts Other current liabilities Level 2 — 1 — 1

Total Liability Derivatives $ 32 $ 62 $ 5 $ 11

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.

As of December 31, 2021 and 2020 we did no t have any derivatives that were classified as Level 1 (valued using quoted prices in active markets for identical assets) or Level 3 (valued using significant unobservable inputs).

UNITED PARCEL SERVICE, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, foreign currency exchange rates and investment forward prices;

therefore, these derivatives are classified as Level 2.

Balance Sheet Location of Hedged Item in Fair Value Hedges

2 unchanged sentences

Long-Term Debt and Finance Leases $ 280 $ 5 $ 1,290 $ 16

The cumulative amount of fair value hedging losses remaining for any hedged assets and liabilities for which hedge accounting has been discontinued as of December 31, 2021 is $ 5 million.

These amounts will be recognized over the next 8 years.

Income Statement and AOCI Recognition

Income Statement and AOCI Recognition of Designated Hedges

The following table indicates the amount of gains and (losses) that have been recognized in the statements of consolidated income for fair value and cash flow hedges, as well as the associated gain or (loss) for the underlying hedged item for fair value hedges for the years ended December 31, 2022 and 2021 (in millions):

12 unchanged sentences

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 $ 6 $ 2

11 unchanged sentences

Total $ 199 $ 225

Additionally, we maintain interest rate swaps, foreign currency exchange forwards and investment market price forward contracts that are not designated as hedges.

The interest rate swap contracts are intended to provide an economic hedge of portions of our outstanding debt.

The foreign currency exchange forward contracts are intended to provide an economic offset to foreign currency remeasurement and settlement risk for certain assets and liabilities in our consolidated balance sheets.

The investment market price forward contracts are intended to provide an economic offset to fair value fluctuations of certain investments in marketable securities.

We also periodically terminate interest rate swaps and foreign currency exchange forward contracts by entering into offsetting swap and foreign currency positions with different counterparties.

As part of this process, we de-designate our original swap and foreign currency exchange contracts.

These transactions provide an economic offset that effectively eliminates the effects of changes in market valuation.

The following is a summary of the amounts recorded in the statements of consolidated income related to fair value changes and settlements of these interest rate swaps, foreign currency forward and investment market price forward contracts not designated as hedges for the years ended December 31, 2021 and 2020 (in millions):

Income Statement Recognition of Non-Designated Derivative Instruments

Derivative instruments that are not designated as hedges are recorded at fair value with unrealized gains and losses reported in earnings each period.

Cash flows from the settlement of derivative instruments appear in the statement of consolidated cash flows within the same categories as the cash flows of the hedged item.

We may periodically terminate interest rate swaps and foreign currency exchange forward contracts or enter into offsetting swap and foreign currency positions with different counterparties.

As part of this process, we de-designate our original hedge relationship.

Amounts recorded in the statements of consolidated income related to fair value changes and settlements of interest rate swaps, foreign currency forward and investment market price forward contracts not designated as hedges for the years ended December 31, 2022 and 2021 (in millions) were as follows:

Derivative Instruments Not Designated in

2 unchanged sentences

in Income Amount of Gain (Loss) Recognized in Income

Interest rate contracts Interest expense $ — $ ( 9 )

Foreign currency exchange contracts Investment income and other $ ( 69 ) $ ( 28 )

4 unchanged sentences

TRANSFORMATION STRATEGY COSTS

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.

Our strategy includes a multi-year, enterprise-wide transformation of our organization.

The program includes initiatives, 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, 2022, 2021 and 2020 (in millions):

6 unchanged sentences

The income tax effects of transformation strategy costs are calculated by multiplying the amount of the adjustments by the statutory tax rates applicable in each tax jurisdiction.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUBSEQUENT EVENTS

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