What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-20 compared with 2023-02-21 · 531 added, 418 removed, 1972 unchanged (32% of the section changed)

48 unchanged sentences

Valuation of U.S.

hedge fund, risk parity, private debt, private equity and real estate investments — Refer to Note 5, Company-Sponsored Employee Benefit Plans (Fair Value Measurements), to the financial statements

hedge fund, private debt, private equity and real estate investments — Refer to Note 5, Company-Sponsored Employee Benefit Plans (Fair Value Measurements), to the financial statements

Critical Audit Matter Description

1 unchanged sentence

pension and postretirement medical benefit plans (the "U.S.

Plans") held hedge fund, risk parity, private debt, private equity and real estate investments valued at $9.6 billion as of December 31, 2022.

Plans") held hedge fund, private debt, private equity and real estate investments valued at $9.9 billion as of December 31, 2023.

The Company determines the reported values of the U.S.

Plans’ investments in hedge, risk parity, private debt, private equity and real estate funds primarily based on the estimated net asset value ("NAV") of the fund.

In order to estimate NAV, the Company evaluates audited and unaudited financial reports from fund managers, and makes adjustments, as appropriate, for investment activity between the date of the financial reports and December 31st.

Plans’ investments in hedge, private debt, private equity and real estate funds primarily based on the estimated net asset value ("NAV") of the fund.

These investments are not actively traded, and their values can only be estimated using these subjective assumptions.

Auditing the estimated NAV of these hedge fund, risk parity, private debt, private equity and real estate investments requires a high degree of auditor judgment and subjectivity to evaluate the completeness, reliability and relevance of the inputs used by management.

Auditing the estimated NAV of these hedge fund, private debt, private equity and real estate investments requires a high degree of auditor judgment and subjectivity to evaluate the completeness, reliability and relevance of the inputs used by management.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the inputs used by management to estimate the NAV of the U.S.

Plans’ hedge fund, risk parity, private debt, private equity and real estate investments included the following, among others:

Plans’ hedge fund, private debt, private equity and real estate investments included the following, among others:

• We tested the effectiveness of controls, including those related to the reliability of values reported by fund managers, the relevance of asset class benchmark returns, and the completeness and accuracy of unobservable inputs related to the underlying assets of the funds.

• For certain investments, we confirmed directly with the respective fund manager its preliminary estimate of the fund’s NAV as of December 31, 2023.

• For certain investments, we inquired of management to understand year-over-year changes in the fund manager’s estimate of NAV and compared the fund’s return on investment to other available qualitative and quantitative information relevant to the fund.

• We evaluated the Company’s historical ability to accurately estimate NAV for these funds by comparing each fund’s recorded valuation as of its prior fiscal year end to the NAV per the audited fund financial statements (which are received in arrears of the Company’s reporting timetable).

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Deferred compensation obligations 9 13

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

( 13 ) ( 16 )

Treasury stock ( 0.2 in 2023 and 2022)

Total Equity for Controlling Interests 17,306 19,786

21 unchanged sentences

Other Income and (Expense):

Investment income (expense) and other 2,435 4,479 ( 5,139 )

Investment income and other

217 2,435 4,479

Interest expense ( 785 ) ( 704 ) ( 694 )

45 unchanged sentences

Sales and maturities of marketable securities 2,701 255 366

Net change in finance receivables 24 34 44

Acquisitions, net of cash acquired ( 1,329 ) ( 755 ) ( 602 )

11 unchanged sentences

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash

33 ( 100 ) ( 21 )

Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Cash ( 2,396 ) ( 4,653 ) 4,345

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

In 2023, we reclassified certain operating expenses to better align with the manner in which we manage our operations.

Substantially all of these costs were previously classified within operating expenses as Other expenses and have now been classified within operating expenses as Repairs and maintenance in the statements of consolidated income.

The remaining line items within operating expenses impacted by this reclassification were inconsequential.

As a result, the statements of consolidated income give effect to this reclassification as follows:

• Other expenses decreased by $ 381 , $ 356 and $ 301 million for 2023, 2022 and 2021, respectively.

• Repairs and maintenance increased by $ 363 , $ 369 and $ 326 million for 2023, 2022 and 2021, respectively.

The reclassification had no impact on our reported revenue, operating profit, net income, or any internal performance measure on which management is compensated.

Use of Estimates

1 unchanged sentence

Estimates have been prepared on the basis of the most current and best information, and actual results could differ materially from those estimates.

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

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

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

Revenue Recognition

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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

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

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

As of December 31, 2023, we had $ 37 million of restricted cash related to certain tax and regulatory matters and acquisitions.

We had no restricted cash as of December 31, 2022.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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

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

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

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

Such amortization and accretion is included in Investment income 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

Impairment of available-for-sale securities results in a charge to income when a market decline below cost is other-than-temporary, which includes consideration of whether we have both the intent and ability to hold such 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.

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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.

Gains and losses from equity method investments are reported in Investment income 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.

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

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

Jet fuel, diesel and unleaded gasoline inventories are valued at the lower of average cost or net realizable value.

Total inventories were $ 889 and $ 717 million as of December 31, 2022 and 2021, respectively, and are included in Other current assets in the consolidated balance sheets.

Total inventories were $ 935 and $ 889 million as of December 31, 2023 and 2022, respectively, and are included in Other current assets in our consolidated balance sheets.

Property, Plant and Equipment

Property, plant and equipment are carried at cost.

Property, plant and equipment are carried at cost less accumulated depreciation.

We evaluate the useful lives of our property, plant and equipment based on our usage, maintenance and replacement policies, and taking into account physical and economic factors that may affect the useful lives of the assets.

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Capitalized interest was $ 118 and $ 60 million for the years ended December 31, 2023 and 2022, respectively.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

UNITED PARCEL SERVICE, INC.

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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.

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Goodwill and Intangible Assets

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

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

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

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

1 unchanged sentence

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

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

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

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

Our estimates are developed using assumptions that we believe are consistent with how a market participant would value our reporting units.

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

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

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

When performing impairment tests of indefinite-lived intangible assets, we use a combination of income- and market-based approaches to estimate fair value.

If the carrying value of the indefinite-lived 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 their estimated useful lives, which range from 1 to 21 years.

Capitalized software is generally amortized over 7 years.

Finite-lived intangible assets are assessed for impairment as part of asset groups whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assets Held for Sale

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

UNITED PARCEL SERVICE, INC.

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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.

Gains are not recognized until the date of sale.

We cease depreciation and amortization of a long-lived asset, or assets within a disposal group, upon their designation as held for sale and subsequently assess fair value less any costs to sell at each reporting period until the asset or disposal group is no longer classified as held for sale.

We cease depreciation and amortization of a long-lived asset, or assets within a disposal group, upon their designation as held for sale and subsequently assess fair value less any costs to sell at each reporting date until the asset or disposal group is no longer classified as held for sale.

Supplier Finance Programs

As part of our working capital management, certain financial institutions offer a Supply Chain Finance ("SCF") program to certain of our suppliers.

We agree to commercial terms with our suppliers, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program.

Suppliers issue invoices to us based on the agreed-upon contractual terms.

If they participate in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, to sell to the financial institutions.

Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms.

No guarantees are provided by us under the SCF program.

We have no economic interest in a supplier’s decision to participate, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program.

Amounts due to our suppliers that participate in the SCF program are included in Accounts payable in our consolidated balance sheets.

As of December 31, 2023 and 2022, suppliers sold $ 504 and $ 806 million, respectively, of our outstanding payment obligations to participating institutions.

A rollforward of obligations confirmed and paid during the year is presented below (in millions):

Confirmed obligations outstanding at the beginning of the year $ 806

Invoices confirmed during the year 2,428

Confirmed invoices paid during the year ( 2,730 )

Confirmed obligations outstanding at the end of the year $ 504

Self-Insurance Accruals

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

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

In the fourth quarter of 2023, we transferred a portion of our workers' compensation liability related to policy years 2001 through 2006 and policy year 2017 to a third-party insurer.

We paid $ 151 million to transfer a portfolio of claims for which we carried reserves of $ 153 million, recognizing a pre-tax gain of $ 2 million that was recorded in Other expenses in the statement of consolidated income for the year ended December 31, 2023.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 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.

5 unchanged sentences

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.

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

7 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9 unchanged sentences

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

Pre-tax foreign currency transaction gains (losses) from remeasurement, net of hedging, included in Investment income (expense) and other were $ 72 , $( 36 ) and $ 9 million in 2022, 2021 and 2020, respectively.

Pre-tax foreign currency transaction gains (losses) from remeasurement, net of hedging, included in Investment income and other were $( 53 ), $ 72 and $( 36 ) million in 2023, 2022 and 2021, respectively.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation

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.

Share-based awards 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.

As of December 31, 2023, we have no outstanding share-based awards cliff vesting after one year.

See note 13 for further discussion of our share-based awards.

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.

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

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments

We recognize all derivative instruments as assets or liabilities in the consolidated balance sheets at fair value.

We recognize all derivative instruments as assets or liabilities in our consolidated balance sheets at fair value.

The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.

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

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Adoption of New Accounting Standards

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.

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 and can generally be applied through December 31, 2024.

As of December 31, 2023, we have transitioned our affected debt instruments and contracts to an alternative reference rate, the Secured Overnight Financing Rate ("SOFR"), which was adopted in accordance with recommendations of the Alternative Reference Rates Committee.

We did not elect to apply the practical expedients provided under Topic 848 to these transitions, but we will continue to assess transactions for any potential impact during 2024.

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

This ASU did not affect the recognition, measurement or financial statement presentation of obligations covered by supplier finance programs.

We adopted the requirements of this ASU as of January 1, 2023.

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.

The guidance was effective upon issuance and at present can generally be applied through December 31, 2024.

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, cash flows, or internal controls.

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, cash flows or internal controls.

Accounting Standards Issued But Not Yet Effective

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.

In November 2023, the FASB issued an ASU on segment reporting, which will require new disclosures including relating to significant segment expenses and additional qualitative information including how segment measures are used by management.

The standard becomes effective for us beginning with our 2024 annual reporting for both annual and interim periods.

We are evaluating the impact of this ASU on our disclosures.

We will be required to define significant segment expense categories and we anticipate providing additional qualitative information in accordance with this ASU.

We do not expect this ASU to have a significant impact on our consolidated financial position, results of operations or cash flows.

In December 2023, the FASB issued an ASU to enhance tax-related disclosures.

This update will require more standardized categories for tax rate reconciliation and additional detail for significant tax items.

It will also require a breakdown of income taxes paid by jurisdiction exceeding 5% of total taxes and remove certain disclosure requirements for unremitted foreign earnings and uncertain tax positions.

The standard becomes effective for us in the first quarter of 2025.

We are evaluating its impact on our financial statements, disclosures and internal controls but do not expect this ASU to have a significant 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, 2023, are not expected to have a material impact on our consolidated financial position, results of operations, cash flows or internal controls.

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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 expected credit losses decreased by $ 20 million during 2023 as lower volumes decreased our total accounts receivable balance.

Our allowance for credit losses as of December 31, 2023 and 2022 was $ 126 and $ 146 million, respectively.

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Current trading marketable securities:

Corporate debt securities $ — $ — $ — $ —

Equity securities $ 4 $ — $ — $ 4

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Current trading marketable securities:

Corporate debt securities $ — $ — $ — $ —

Equity securities $ 2 $ — $ — $ 2

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Total current marketable securities $ 2,007 $ — $ ( 14 ) $ 1,993

Total current marketable securities that were pledged as collateral for our self-insurance requirements had an estimated fair value of $ 333 and $ 336 million as of December 31, 2022 and 2021, respectively.

Total current marketable securities that were pledged as collateral for our self-insurance requirements had estimated fair values of $ 343 and $ 333 million as of December 31, 2023 and 2022, respectively.

The gross realized gains on sales of available-for-sale marketable securities totaled $ 1 , $ 0 and $ 7 million in 2023, 2022 and 2021, respectively.

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Less Than 12 Months 12 Months or More Total

Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses

Fair Value Unrealized Losses

government and agency debt securities $ 508 $ ( 1 ) $ 191 $ ( 3 ) $ 699 $ ( 4 )

Mortgage and asset-backed debt securities 7 — — — 7 —

Corporate debt securities 751 ( 2 ) 475 ( 2 ) 1,226 ( 4 )

state and local municipal debt securities — — 4 — 4 —

Total marketable securities $ 1,259 $ ( 3 ) $ 666 $ ( 5 ) $ 1,925 $ ( 8 )

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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.

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

Cash paid for these investments, excluding investments obtained through business acquisitions, 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, 2023 and 2022, equity securities accounted for under the equity method had a carrying value of $ 295 and $ 256 million, respectively.

In 2023, we obtained an equity method investment as part of our acquisition of MNX Global Logistics.

See note 8 for further discussion of business acquisitions.

Cash paid for this investment is included in Acquisitions, net of cash acquired in our statement of consolidated cash flows.

In 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.

• Other equity securities :

4 unchanged sentences

The investment had a fair market value of $ 19 and $ 18 million as of December 31, 2023 and 2022, respectively.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

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

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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, 2023 and 2022, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in millions):

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Property, plant and equipment purchased on account was $ 309 and $ 176 million as of December 31, 2023 and 2022, respectively.

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.

There were no material impairment charges to property, plant or equipment during the years ended December 31, 2023 or 2022.

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

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, for the year ended December 31, 2022.

The change in estimate for the remainder of our MD-11 fleet is being accounted for over the remaining useful lives.

UNITED PARCEL SERVICE, INC.

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Benefits payable under this plan are subject to maximum compensation limits and the annual benefit limits for a tax-qualified defined benefit plan as prescribed by the Internal Revenue Service (“IRS”).

The plan ceased accruals of additional benefits for future service and compensation for non-union participants effective January 1, 2023.

• The UPS Pension Plan is noncontributory and includes certain eligible employees of participating domestic subsidiaries and members of collective bargaining units that elect to participate in the plan.

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

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 plan ceased accruals of additional benefits for future service and compensation for non-union participants effective January 1, 2023.

In the third quarter of 2023, our Teamsters employees ratified a new five-year national master agreement that contained wage and benefit rate increases for Teamsters employees in the UPS Pension Plan and UPS/IBT Full-Time Employee Pension Plan.

The impacts of these increases were recognized as part of the year end measurement of these plans.

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.

1 unchanged sentence

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.

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

International Pension Benefits

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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.

These gains were included in Investment income and other in our statement of consolidated income for the year ended December 31, 2022.

UNITED PARCEL SERVICE, INC.

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We also sponsor postretirement medical plans in the U.S.

that provide healthcare benefits to our non-union retirees, as well as select union retirees who meet certain eligibility requirements and who are not otherwise covered by multiemployer plans.

that provide healthcare benefits to certain non-union retirees, as well as select union retirees who meet certain eligibility requirements and who are not otherwise covered by multiemployer plans.

Generally, this includes employees with at least 10 years of service who have reached age 55 and employees who are eligible for postretirement medical benefits from a company-sponsored plan pursuant to collective bargaining agreements.

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We sponsor a defined contribution plan for employees not covered under collective bargaining agreements, and several smaller defined contribution plans for certain employees covered under collective bargaining agreements.

We match, in shares of UPS common stock or cash, a portion of the participating employees’ contributions.

We match, in cash, a portion of the participating employees’ contributions.

Matching contributions charged to expense were $ 161 , $ 153 and $ 153 million for 2023, 2022 and 2021, respectively.

In addition to current benefits under the UPS 401(k) Savings Plan, non-union employees hired after July 1, 2016, receive a retirement contribution.

UPS contributes 3 % to 8 % of eligible pay to the UPS 401(k) Savings Plan based on years of vesting service and business unit.

Beginning in 2023, non-union employees, including those previously accruing benefits in the UPS Retirement Plan, receive a retirement contribution of 5 % to 8 % ( 3 % to 8 % prior to 2023 for employees hired after July 1, 2016) of eligible compensation to the UPS 401(k) Savings Plan based on years of vesting service.

Retirement contributions charged to expense were $ 380 , $ 83 and $ 107 million for 2023, 2022 and 2021, respectively.

In addition, the UPS 401(k) Savings Plan provides for transition contributions to certain participants hired prior to 2008.

The amount charged to expense for transition contributions in 2023 was $ 128 million.

There were no transition contributions in previous years.

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 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 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.

The amendment also provides for transition contributions for certain participants.

There was no impact to the statements of consolidated income for 2022, 2021 and 2020 as a result of this change.

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

Amounts charged to expense were $ 132 , $ 119 and $ 112 million for 2023, 2022 and 2021, respectively.

We also sponsor certain international defined contribution plans, which are not individually material.

Net Periodic Benefit Cost

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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.

capital market assumptions and investment objectives for pension assets, the weighted-average long-term expected rate of return on assets increased from 5.90 % during 2022 to 7.07 % in 2023.

UNITED PARCEL SERVICE, INC.

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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.

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

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.

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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.

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

We recorded a gain of $ 3.1 billion in accumulated other comprehensive income within the equity section of our consolidated balance sheet and a mark-to-market gain of $ 3.3 billion within Investment income and other in our statement of consolidated income during the first quarter of 2021.

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

As of December 31, 2023, 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.

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

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

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

Other Actuarial Assumptions

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Net unrecognized cost $ ( 2,592 ) $ ( 486 ) $ 96 $ 150 $ 64 $ 77

(1) Accumulated Other Comprehensive Income

(1) Accumulated Other Comprehensive Income (Loss)

The accumulated benefit obligation for our pension plans as of December 31, 2023 and 2022 was $ 49.2 and $ 44.8 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.

The accumulated benefit obligation for our postretirement medical benefit plans as of both December 31, 2023 and 2022 was $ 2.0 billion.

Benefit payments under the pension plans include $ 35 and $ 31 million paid from employer assets for the years ended December 31, 2023 and 2022, respectively.

Benefit payments (net of participant contributions) under the postretirement medical benefit plans include $ 51 and $ 174 million paid from employer assets for the years ended December 31, 2023 and 2022, respectively.

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

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Plan amendments (1)

699 145 — — — —

Actuarial (gain)/loss 2,266 ( 19,842 ) 53 ( 452 ) 99 ( 575 )

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Fair value of plan assets at end of year $ 43,491 $ 42,058 $ 98 $ 215 $ 1,893 $ 1,643

2022 - $ 20.9 billion pre-tax actuarial gain related to benefit obligation:

• Discount Rates ( $ 21.1 billion pre-tax gain):

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.

(1) Plan amendments in 2023 and 2022 were related to collective bargaining agreements with the Teamsters and the Independent Pilots Association, respectively.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• 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.

2023 - $ 2.4 billion pre-tax actuarial loss related to benefit obligations:

• Discount Rates ($ 2.3 billion pre-tax loss):

The weighted-average discount rate for our pension and postretirement medical plans decreased from 5.77 % as of December 31, 2022 to 5.40 % as of December 31, 2023, primarily due to a decrease in credit spreads on AA-rated corporate bonds.

• Demographic and Assumption Changes ($ 0.1 billion pre-tax loss):

2022 - $ 20.9 billion pre-tax actuarial gain related to benefit obligations:

• Discount Rates ($ 21.1 billion pre-tax gain):

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

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

Pension and Postretirement Plan Assets

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Fair Value Measurements

Plan assets valued utilizing Level 1 inputs include equity investments, corporate debt instruments and U.S.

government securities.

Plan assets valued utilizing Level 1 inputs include equity investments, corporate debt instruments, U.S.

government securities, derivatives and other instruments.

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

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

and certain investments that are pooled with other investments in a commingled fund.

certain investments that are pooled with other investments in a commingled fund;

and derivatives and other instruments primarily valued using pricing models that rely on market observable inputs such as yield curves, foreign currency exchange rates and investment forward price.

We value our investments in commingled funds by taking the percentage ownership of the underlying assets, each of which has a readily determinable fair value.

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

These investments are not classified in Levels 1, 2, or 3 of the fair value hierarchy but instead included within the subtotals by asset category.

Such investments include hedge funds, risk parity funds, real estate investments, private debt and private equity funds.

Investments in hedge funds and risk parity funds are valued using the reported NAV as of December 31st.

Real estate investments, private debt and private equity funds are valued at NAV per the most recent partnership audited financial reports, and adjusted, as appropriate, for investment activity between the date of the financial reports and December 31st.

Such investments include hedge funds, real estate investments, private debt and private equity funds.

Investments in hedge funds are valued using the reported NAV as of December 31.

Due to the inherent limitations in obtaining a readily determinable fair value measurement for alternative investments, the fair values reported may differ from the values that would have been used had readily available market information for the alternative investments existed.

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No unfunded commitments existed with respect to hedge funds as of December 31, 2023.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Risk Parity Funds:

Plan assets are invested in risk parity strategies in order to provide diversification and balance risk/return objectives.

These strategies reflect a multi-asset class balanced risk approach generally consisting of equity, interest rates, credit and commodities.

These funds allow for monthly redemptions with only a brief notification period.

No unfunded commitments existed with respect to risk parity funds as of December 31, 2022.

• Real Estate, Private Debt and Private Equity Funds :

Plan assets are invested in limited partnership interests in various private equity, private debt and real estate funds.

Limited provision exists for the redemption of these interests by the limited partners that invest in these funds until the end of the term of the partnerships, typically ranging between 10 and 15 years from the date of inception.

Limited provisions exist for the redemption of these interests by the limited partners that invest in these funds until the end of the term of the partnerships, typically ranging between 10 and 15 years from the date of inception.

An active secondary market exists for similar partnership interests, although no particular value (discount or premium) can be guaranteed.

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The fair values of U.S.

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

and international pension and postretirement benefit plan assets by asset category as of December 31, 2023 and 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.

The tables have been updated from prior year presentation to show derivative assets and liabilities separately from other asset categories, primarily U.S.

Government Securities, by type of underlying risk.

December 31, 2023 Total

Level 1 Level 2 Level 3 Percentage of Plan Assets Percentage Target

Asset Category (U.S.

Cash and Cash Equivalents

$ 1,018 $ 894 $ 124 $ — 2.3 % 1 - 7 %

Equity Securities:

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169 — 169 — 0.4 0 - 5

Total Other Investments 12,722 421 2,440 —

Derivatives and Other Instruments:

Equity Risk ( 136 ) 29 ( 165 ) — ( 0.3 )

Interest Rate Risk ( 5,877 ) ( 20 ) ( 5,857 ) — ( 13.5 )

Other Risk (3)

25 ( 1 ) 26 — 0.1

Total Derivatives and Other Instruments ( 5,988 ) 8 ( 5,996 ) —

Plan Assets $ 43,589 $ 22,070 $ 11,658 $ — 100.0 %

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Cash and Cash Equivalents

$ 71 $ 77 $ ( 6 ) $ — 3.8 % 1 - 10

Equity Securities:

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Real Estate (1)

Other 264 — 190 52 16.1 1 - 30

66 — 18 25 3.5 1 - 10

255 — 183 55 13.4 10 - 35

Total International Plan Assets $ 1,893 $ 409 $ 1,364 $ 80 100.0 %

Total Plan Assets $ 45,482 $ 22,479 $ 13,022 $ 80

(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.

(1) Includes certain investments that are measured at NAV per share (or its equivalent).

(2) Represents mortgage and asset-backed securities.

(3) Includes credit risk, foreign currency exchange risk and commodity risk.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair values of U.S.

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:

December 31, 2022 Total

Level 1 Level 2 Level 3 Percentage of

Plan Assets Target

Plan Assets Percentage Target

Asset Category (U.S.

Cash and Cash Equivalents

$ 1,235 $ 870 $ 365 $ — 2.9 % 1 - 7 %

Equity Securities:

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170 — 170 — 0.4 0 - 5

Risk Parity Funds 295 — — — 0.5 1 - 10

Total Other Investments 12,790 267 2,952 —

Derivative and Other Instruments:

Equity Risk Contracts ( 87 ) ( 6 ) ( 81 ) — ( 0.2 )

Interest Rate Risk Contracts ( 7,280 ) ( 4 ) ( 7,276 ) — ( 17.2 )

Other Risk (3)

25 ( 1 ) 26 — —

Total Derivative and Other Instruments ( 7,342 ) ( 11 ) ( 7,331 ) —

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

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Cash and Cash Equivalents

$ 147 $ 70 $ 77 $ — 8.9 % 1 - 10

Equity Securities:

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Real Estate (1)

Other 321 — 247 50 15.2 1 - 20

95 — 48 25 5.8 1 - 10

264 — 190 52 16.1 1 - 30

Total International Plan Assets $ 1,643 $ 263 $ 1,259 $ 77 100.0 %

Total Plan Assets $ 43,916 $ 23,246 $ 10,978 $ 77

(2) Level 2 U.S.

Government Securities includes repurchase and reverse repurchase agreements.

(1) Includes certain investments that are measured at NAV per share (or its equivalent).

(2) Represents mortgage and asset-backed securities.

(3) Includes credit risk, foreign currency exchange risk and commodity risk.

UNITED PARCEL SERVICE, INC.

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2029 - 2033 15,637 760 473

Our current funding policy guideline for U.S.

Our funding policy guideline for U.S.

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

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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.

The discussion that follows sets forth the impact on our results of operations and cash flows for the years ended December 31, 2023, 2022 and 2021 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.

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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.

The number of employees covered by multiemployer pension plans in 2023 decreased relative to 2022 as we reduced union headcount due to the reduction in volume.

The number of covered employees in 2022 was relatively flat compared to 2021.

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

There have been no other significant changes that affect the comparability of 2023, 2022 and 2021 contributions.

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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.

These agreements were scheduled to expire on July 31, 2023.

In September 2023, a new national master agreement with the Teamsters was ratified.

This agreement contains wage and health and welfare benefit rate increases for our covered part-time and full-time Teamster employees.

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").

We have approximately 3,300 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association.

This collective bargaining agreement becomes amendable September 1, 2025.

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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.

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In addition, minimum contributions outside of the agreed-upon contractual rates are not required.

For the plans detailed in the following table, the expiration date of the associated collective bargaining agreements is July 31, 2023, with the exception of the IAM National Pension Fund / National Pension Plan, which has a July 31, 2024 expiration date.

For the plans detailed in the following table, the expiration date of the associated collective bargaining agreements is July 31, 2028, with the exception of the IAM National Pension Fund / National Pension Plan, which has a July 31, 2024 associated expiration date.

For all plans detailed in the following table, we provided more than 5 % of the total plan contributions from all employers for 2023, 2022 and 2021, as disclosed in the annual filing with the Department of Labor for each respective plan.

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

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

UNITED PARCEL SERVICE, INC.

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Zone Status FIP / RP Status

Pending / Implemented (in millions)

UPS Contributions and Accruals Surcharge Imposed

Pending / Implemented UPS Contributions and Accruals

(in millions)

Surcharge Imposed

Pension Fund 2023 2022 2023 2022 2021

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175 & 505 Pension Trust Fund 55-6021850-001 Red Red Yes Implemented 21 21 18 No

Hagerstown Motor Carriers and Teamsters Pension Fund 52-6045424-001 Red Red Yes Implemented 13 12 11 No

Hagerstown Motor Carriers and Teamsters Pension Fund 52-6045424-001 Green Red No NA 13 13 12 No

National Pension Fund / National Pension Plan 51-6031295-002 Red Red Yes Implemented 50 48 48 No

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710 Pension Fund 36-2377656-001 Green Green No NA 196 191 180 No

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

Local 705, International Brotherhood of Teamsters Pension Plan 36-6492502-001 Green Green No NA 138 136 131 No

Local 804 I.B.T.

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New York State Teamsters Conference Pension and Retirement Fund 16-6063585-074 Red Red Yes Implemented 139 149 147 No

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

Teamster Pension Fund of Philadelphia and Vicinity 23-1511735-001 Green Green No NA 98 100 94 No

Teamsters Joint Council No.

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

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

Multiemployer Retirement Plan 13-1426500-419 Green Green No NA 122 124 116 No

Western Conference of Teamsters Pension Plan 91-6145047-001 Green Green No NA 1,254 1,310 1,260 No

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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, 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.

As of December 31, 2023 and 2022, we had $ 813 and $ 821 million, respectively, recognized in Other Non-Current Liabilities and $ 9 and $ 8 million, respectively, recorded in Other current liabilities in our consolidated balance sheets, representing the remaining balance of the NETTI Fund withdrawal liability.

This liability is payable in equal monthly installments over a remaining term of approximately 39 years.

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The following table sets forth our calendar year plan contributions and accruals.

Certain plans have been aggregated in the All Other Multiemployer Health and Welfare Plans line, as the contributions to each of these individual plans are not material.

(in millions)

Certain plans have been aggregated in the All Other Multiemployer Health and Welfare Plans line, as the contributions to each of these plans are not individually material.

UPS Contributions and Accruals

(in millions)

Health and Welfare Fund 2023 2022 2021

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Teamsters Benefit Trust 57 58 60

Teamsters Local 175 & 505 Health and Welfare Fund 20 20 17

Teamsters Local 191 Health Fund 29 17 17

Teamsters Local 251 Health & Insurance Plan 22 26 26

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Acquired — 4 723 727

Impairments — — ( 125 ) ( 125 )

Currency / Other — 7 40 47

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2023 Goodwill Activity

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.

Goodwill acquired during 2023 was primarily associated with our acquisitions of MNX Global Logistics and Happy Returns, which are both reported within Supply Chain Solutions.

It also reflects the 2023 completion of purchase accounting allocations from our 2022 acquisition of Bomi Group and other immaterial transactions completed during 2023.

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.

As described in more detail below, during 2023 we recorded non-cash goodwill impairment charges of $ 125 million, comprised of:

$ 56 million related to our Roadie reporting unit, $ 61 million related to our Delivery Solutions reporting unit, which represented all of the goodwill associated with that reporting unit, and an immaterial charge resulting from the closure of a trade management services business within Supply Chain Solutions.

The remaining changes were due to the impact of changes in the value of the U.S.

Dollar on the translation of non-U.S.

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2022 Goodwill Activity

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.

Goodwill acquired during 2022 was primarily associated with our acquisitions of Delivery Solutions and Bomi Group.

Goodwill associated with Delivery Solutions was reported in Supply Chain Solutions as of December 31, 2022.

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

The remaining changes were due to the impact of changes in the value of the U.S.

Dollar on the translation of non-U.S.

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Goodwill Impairment

We 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.

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

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

In developing our valuation assumptions underlying the annual impairment test in 2023, we determined that the cost of capital for our Roadie and Delivery Solutions reporting units had increased, driven by increases in the risk-free interest rate and volatility of the stock prices of market comparables.

The results of our annual test using these assumptions indicated that the carrying values of our Roadie and Delivery Solutions reporting units exceeded their estimated fair values and as a result, we recorded the impairment charges described above.

In addition to our annual impairment test, we are also required to conduct interim impairment tests when changes in circumstances indicate an impairment may have occurred between annual tests.

In connection with matters resulting in the Coyote trade name impairment discussed below, we performed an interim test of the goodwill associated with our Coyote reporting unit as of December 31, 2023.

While this interim test did not indicate an impairment, we continue to monitor this reporting unit and may be required to perform additional interim tests in future periods as facts and circumstances evolve.

Within our consolidated goodwill balance of $ 4.9 billion as of December 31, 2023, approximately $ 0.9 billion was represented by certain reporting units within Supply Chain Solutions, including Coyote and Roadie, that had a limited excess of fair value as of the most recent valuation.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Cumulatively, we have recorded $ 1.2 billion of goodwill impairment charges in Supply Chain Solutions, while our International and U.S.

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

Intangible Assets

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A trade name and licenses with carrying values of $ 89 and $ 4 million, respectively, as of December 31, 2023 are deemed to be indefinite-lived intangible assets, and therefore are not amortized.

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

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.

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

Impairment tests for these intangible assets are only performed when a triggering event occurs that may indicate that the carrying value of the intangible may not be recoverable.

These assets are reported within Supply Chain Solutions.

Impairment tests for indefinite-lived intangible assets are performed annually, or more frequently if required.

Our annual test as of July 1 indicated that the fair value of the Coyote trade name was in excess of its carrying value, although the excess was less than 10 percent.

Since the July 1 testing date, our truckload brokerage business continued to be negatively impacted by market conditions, which resulted in revenue declines.

In response, during the fourth quarter of 2023, we began to evaluate strategic alternatives for this business.

As a result, we tested the Coyote trade name for impairment as of December 31, 2023, using forecasts that reflected updated market conditions and our evaluation of strategic alternatives related to this business.

We concluded that the carrying value of the trade name exceeded its estimated fair value and recorded an impairment charge of $ 111 million within Other expenses in our statement of consolidated income.

The revised carrying value of this trade name as of December 31, 2023 was $ 89 million.

The trade name continues to be indefinite-lived.

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

Impairment tests for these assets are performed when a triggering event occurs that may indicate that the carrying value of the intangible asset may not be recoverable.

Additionally, a decision to sell or abandon an intangible asset before the end of its useful life may result in an impairment charge.

Impairments of finite-lived intangible assets were $ 8 , $ 17 and $ 19 million in 2023, 2022, and 2021, respectively.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization of intangible assets was $ 597 , $ 525 and $ 475 million in each of 2023, 2022 and 2021, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

In November 2023, we acquired Happy Returns, a technology-focused company that provides innovative end-to-end returns services, and MNX Global Logistics, a global time-critical and temperature-sensitive logistics provider.

These businesses are reported within Supply Chain Solutions.

The impact of these acquisitions to our consolidated revenue and net income in 2023 was not material.

During 2023, we also acquired franchise development areas for The UPS Store, which are recorded as intangible assets within Supply Chain Solutions.

Other acquisitions completed within International Package and Supply Chain Solutions during the period were immaterial.

The aggregate purchase price for acquisitions in 2023 was approximately $ 1.3 billion, net of cash acquired.

Acquisitions were funded using cash from operations.

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

Certain areas, including the fair value of equity method investments included within Other Non-Current Asset s and our estimates of tax positions, are preliminary as of December 31, 2023.

The preliminary 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 dates (in millions):

Cash and cash equivalents $ 18

Accounts receivable 62

Other current assets 11

Property, Plant and Equipment

Operating Lease Right-Of-Use Assets 17

Intangible Assets (1)

Other Non-Current Assets

Accounts Payable and other current liabilities ( 65 )

Non-Current Operating Leases ( 11 )

Deferred Income Tax Liabilities ( 46 )

Total purchase price $ 1,347

(1) Includes $ 64 million for acquisitions of development areas for The UPS Store.

Goodwill recognized upon acquisition of approximately $ 742 million is attributable to expected synergies from future growth.

We assigned $ 738 million of goodwill to Supply Chain Solutions and $ 4 million to our International Package segment.

A portion of the goodwill acquired is expected to be deductible for income tax purposes.

Intangible assets acquired of approximately $ 550 million consist of $ 249 million of customer relationships (amortized over a weighted average of 15 years), $ 64 million of franchise rights (amortized over 20 years), $ 165 million of developed technology and software (amortized over a weighted average of 11 years), $ 45 million of trade names (amortized over a weighted average of 9 years) and $ 27 million of other intangible assets (amortized over a weighted average of 3 years).

The carrying value of accounts receivable approximates fair value.

Acquisition-related costs in 2023 were approximately $ 12 million.

These were expensed as incurred and included in Other expenses within our statement of consolidated income.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

We also 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.

The aggregate purchase price for 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):

The following table summarizes the final purchase price allocation (in millions):

Cash and cash equivalents $ 29

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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.

(1) Includes $ 113 million for acquisitions of development areas for The UPS Store.

Goodwill recognized of approximately $ 581 million, including immaterial measurement period adjustments, was attributable to expected synergies from future growth, including synergies in our International Package segment.

We allocated $ 105 and $ 476 million of goodwill to reporting units within International Package and Supply Chain Solutions, respectively.

Deductible goodwill for income tax purposes was not material.

Intangible assets acquired of approximately $ 381 million consisted of $ 177 million of customer relationships (amortized over a weighted average of 15 years), $ 113 million of franchise rights (amortized over 20 years), $ 70 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 $ 7 million in other intangibles (amortized over a weighted average of 5 years).

The carrying value of accounts receivable approximated 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.

The acquisition was funded using cash from operations.

We report Roadie within Supply Chain Solutions.

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

UNITED PARCEL SERVICE, INC.

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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.

In 2021, we acquired Roadie, a technology platform that provides local same-day delivery with operations throughout the United States.

The acquisition was funded using cash from operations.

We report Roadie within Supply Chain Solutions.

The following table summarizes the final purchase price allocation (in millions):

Cash and cash equivalents $ 12

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Intangible Assets

Deferred tax liability ( 47 )

Deferred Income Tax Liabilities

Total purchase price $ 586

Goodwill recognized of approximately $ 375 million was 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 in our U.S.

Domestic Package segment.

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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 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).

None of the goodwill is deductible for income tax purposes.

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.

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

UNITED PARCEL SERVICE, INC.

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Amount Maturity 2023 2022

Commercial paper $ 2,195 2024 $ 2,172 $ —

Fixed-rate senior notes:

2.500 % senior notes

$ — 2022 $ — $ 1,010

2.800 % senior notes

500 2024 499 499

2.200 % senior notes

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Floating-rate senior notes 1,562 2049-2073 1,545 1,027

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

7.620 % debentures

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0.375 % senior notes

746 2023 745 791

1.625 % senior notes

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

As of December 31, 2022 we had no outstanding balances under these commercial paper programs.

As of December 31, 2023, we had $ 2.2 billion outstanding under our U.S.

commercial paper program with an average interest rate of 5.45 %.

The entire balance was classified as a current liability in our consolidated balance sheet as of December 31, 2023.

There was no commercial paper outstanding as of December 31, 2022.

The amount of commercial paper outstanding under these programs in 2024 is expected to fluctuate.

Debt Classification

As of December 31, 2023, we continued to classify our 2.200 % senior notes with a principal balance of $ 400 million that mature in September 2024 as long-term debt in our consolidated balance sheet based on our intent and ability to refinance the debt.

Debt Repayments

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.

On April 1, 2023, our 2.500 % senior notes with a principal balance of $ 1.0 billion and our floating-rate senior notes with a principal balance of $ 500 million matured and were repaid in full.

On November 15, 2023, our 0.375 % Euro senior notes with a principal balance of € 700 million ($ 749 million) matured and were repaid in full.

Additionally, during 2023, we repaid $ 23 million of debt assumed in the Bomi Group acquisition.

Debt Issuances

On February 23, 2023, we issued two series of notes in the principal amounts of $ 900 million and $ 1.1 billion.

These notes bear interest at 4.875 % and 5.050 %, respectively, and mature on March 3, 2033, and March 3, 2053, respectively.

Interest on the notes is payable semi-annually, beginning September 2023.

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

On March 7, 2023, we issued floating rate senior notes with a principal balance of $ 529 million.

These notes bear interest at a rate equal to the compounded Secured Overnight Financing Rate ("SOFR") less 0.350 % per year and mature on March 15, 2073.

Interest on the notes is payable quarterly, beginning June 2023.

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

Fixed-Rate Senior Notes

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

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

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

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1,000 2022 — % 1.75 %

2.450 % senior notes

1,000 2022 1.75 % 0.76 %

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

There were no outstanding interest rate swaps as of December 31, 2023.

Reference Rate Reform

Our floating-rate senior notes that mature between 2049 and 2067 initially bore interest at rates that referenced the London Interbank Offer Rate ("LIBOR") for U.S.

As part of a broader program of reference rate reform, U.S.

Dollar LIBOR rates ceased to be published after June 2023.

Beginning July 1, 2023, we transitioned these notes to an alternative reference rate, SOFR, which was adopted in accordance with recommendations of the Alternative Reference Rates Committee .

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Floating-Rate Senior Notes

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

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

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

We have floating-rate senior notes in the principal 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 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.

We had floating-rate senior notes in the principal amounts of $ 500 and $ 400 million that matured in 2023 and 2022, and bore interest at three-month LIBOR plus spreads of 45 and 38 basis points, respectively.

The average interest rate on these notes for 2023 and 2022 was 5.32 % and 1.93 %, respectively.

Our outstanding floating-rate senior notes with principal amounts totaling $ 1.6 billion bear interest at either thirty-day, ninety-day or compounded SOFR, less a spread ranging from 4 to 35 basis points.

These notes have maturities ranging from 2049 through 2073.

Interest is payable monthly for notes maturing through 2053 and quarterly for notes maturing from 2064 through 2073.

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

Dollar LIBOR rates in June 2023.

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

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

The average interest rate on the remaining floating-rate senior notes for 2022 and 2021 was 1.44 % and 0.00 %, respectively.

The average interest rate on the outstanding floating-rate senior notes for 2023 and 2022 was 4.75 % and 1.44 %, respectively.

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

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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.620 % Debentures

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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.

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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.

• Notes with a 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.

• Notes with a principal amount of € 500 million accrue interest at a fixed rate of 1.50 % and are due in November 2032.

Interest is payable annually.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Canadian Dollar Senior Notes

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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

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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:

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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 %.

The variable cash flows on this obligation were swapped to a fixed rate of 5.11 % until July 2023, when the interest rate swap was terminated.

The average interest rate for 2023 was 4.42 %.

• 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 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.

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

The average interest rates for 2023 and 2022 were 3.26 % and 1.03 %, respectively.

Contractual Commitments

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(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.

Purchase commitments represent contractual agreements for capital expenditures that are legally binding, including contracts for aircraft, vehicles and facility construction projects.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sources of Credit

2 unchanged sentences

We also issue surety bonds as an alternative to letters of credit in certain instances and, as of December 31, 2023, we had $ 1.6 billion of surety bonds written.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revolving Credit Facilities

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Fair Value of Debt

Based on the borrowing rates currently available to us for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $ 18.2 billion and $ 25.1 billion as of December 31, 2022 and 2021, respectively.

Based on the borrowing rates currently available to us for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $ 22.1 and $ 18.2 billion as of December 31, 2023 and 2022, respectively.

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

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

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.

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 pending matters, including (except as may be otherwise noted herein) the matters described below, and we intend to vigorously defend each matter.

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

The actual costs of resolving legal proceedings may be substantially higher or lower than the amounts accrued on those claims.

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We are a defendant in a number of lawsuits filed in state and federal courts containing various class action allegations under state wage-and-hour laws.

At this time, we do not believe that any loss associated with any such matter will have a material impact on our operations or financial condition.

One of these matters, Hughes v.

UPS Supply Chain Solutions, Inc.

and United Parcel Service, Inc.

had previously been certified as a class action in Kentucky state court.

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' 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.

We do not believe that any loss associated with any such matter will have a material impact on our operations or financial condition.

In July 2023, Baker v.

United Parcel Service, Inc.

(DE) and United Parcel Service, Inc.

(OH) was certified as a class action in federal court in the Eastern District of Washington.

The plaintiff in this matter alleges that UPS violated the Uniformed Services Employment and Reemployment Rights Act.

We are vigorously defending ourselves in this matter and believe that we have a number of meritorious defenses, and there are unresolved questions of law and fact that could be important to the ultimate resolution of this matter.

Accordingly, we are not able to estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity.

Other Matters

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

These include disputes with government authorities in various jurisdictions over the imposition of duties, fines, taxes and assessments from time to time.

We are vigorously defending ourselves and believe that we have a number of meritorious defenses in these disputes.

There are also unresolved questions of law that could be important to the ultimate resolution of these disputes.

Accordingly, we are not able to estimate a possible loss or range of loss that may result from these disputes or to determine whether such loss, if any, would have a material impact on our financial condition, results of operations or liquidity.

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.

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We appealed the decision.

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

In December 2022, a trial court ruled against us.

We have filed an appeal before the Spanish Supreme Court.

We are vigorously defending ourselves and believe that we have a number of meritorious defenses.

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

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

We are vigorously defending ourselves and believe that we have a number of meritorious legal defenses.

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

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

We do not believe that the eventual resolution of these other matters (either individually or in the aggregate), including any reasonably possible losses in excess of current accruals, will have a material impact on our operations or financial condition.

We do not believe that the eventual resolution of any other matters (either individually or in the aggregate), including any reasonably possible losses in excess of current accruals, will have a material impact on our operations or financial condition.

UNITED PARCEL SERVICE, INC.

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Total lease costs (1)

$ 2,442 $ 2,631 $ 2,596

(1) This table excludes sublease income for all periods presented as it was not material.

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

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

There were no material impairments recognized for the years ended December 31, 2023, 2022 or 2021.

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Long-term lease obligations $ 368 $ 3,756

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

As of December 31, 2023, we had additional leases which have not commenced of $ 835 million.

These leases will commence between 2024 and 2025 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.

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Balance at end of year $ 8 $ 17 $ 16

(1) Includes a 1 % excise tax applicable to share repurchases.

(2) The dividend per share amount is the same for both class A and class B common stock.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 (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.

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.

We repurchased 12.8 , 19.0 and 2.6 million shares of class B common stock for $ 2.3 , $ 3.5 and $ 0.5 billion during the years ended December 31, 2023, 2022 and 2021, respectively.

These repurchases were completed as follows:

• In August 2021, the Board of Directors authorized the company to repurchase up to $ 5.0 billion of class A and class B common stock (the "2021 Authorization").

The share repurchases discussed above for the years ended December 31, 2022 and 2021, were completed under this authorization.

For the year ended December 31, 2023, we repurchased 0.5 million shares of class B common stock for $ 82 million under this authorization.

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

For the year ended December 31, 2023, we repurchased 12.3 million shares for $ 2.2 billion under the 2023 Authorization.

As of December 31, 2023, we had $ 2.8 billion available under this repurchase authorization.

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

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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):

The activity in accumulated other comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021 is as follows (in millions):

2023 2022 2021

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

2 ( 5 ) ( 4 )

Balance at end of year $ ( 2 ) $ ( 11 ) $ ( 1 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the years ended December 31, 2022, 2021 and 2020 is as follows (in millions):

Amount Reclassified from AOCI Affected Line Item in the Income Statement

Detail of the gains (losses) reclassified from accumulated other comprehensive income (loss) to the statements of consolidated income for the years ended December 31, 2023, 2022 and 2021 is as follows (in millions):

Amount Reclassified from AOCI

Affected Line Item in the Income Statement

2023 2022 2021

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Unrealized Gain (Loss) on Marketable Securities:

Realized gain (loss) on sale of securities ( 3 ) 5 5 Investment income (expense) and other

Realized gain (loss) on sale of securities $ ( 3 ) $ ( 3 ) $ 5 Investment income and other

Income tax (expense) benefit 1 1 — Income tax expense

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Foreign currency exchange contracts 213 304 83 Revenue

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

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

Income tax (expense) benefit ( 48 ) ( 70 ) ( 17 ) Income tax expense

1 unchanged sentence

Unrecognized Pension and Postretirement Benefit Costs:

Prior service costs ( 94 ) ( 148 ) ( 227 ) Investment income (expense) and other

Prior service costs $ ( 109 ) $ ( 94 ) $ ( 148 ) Investment income and other

Prior service credit for divested business — — 69 Other expenses

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

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

Remeasurement of benefit obligation ( 351 ) 1,027 3,272 Investment income and other

Curtailments and settlements of benefit obligations ( 8 ) 34 — Investment income and other

Income tax (expense) benefit 111 ( 230 ) ( 749 ) Income tax expense

1 unchanged sentence

Total amount reclassified for the year $ ( 213 ) $ 927 $ 2,438 Net income

Deferred Compensation Obligations and Treasury Stock

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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Compensation Obligations and Treasury Stock

The shares held in this trust are classified as treasury stock, and the liability to participating employees is classified as a deferred compensation obligation within Shareowners’ Equity in our 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.

Activity in the deferred compensation program for the years ended December 31, 2023, 2022 and 2021 was as follows (in millions):

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STOCK-BASED COMPENSATION

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

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

In 2021, our shareholders approved our 2021 Omnibus Incentive Compensation Plan (the "Plan") under which we are authorized to issue non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units ("RSUs"), and restricted performance shares and performance units ("RPUs", collectively with RSUs, "Restricted Units") underlying 25 million shares.

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

We had 14 million shares available to be issued under the UPS Incentive Compensation Plan as of December 31, 2022.

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.

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.

We had 10 million shares available to be issued under the Plan as of December 31, 2023.

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

We also grant Restricted Units to our Board of Directors (the "Board") as a component of their annual compensation and, from time to time, to individual employees as a retention mechanism.

Beginning in 2023, awards earned under the UPS Management Incentive Award Program (the "MIP") are fully electable, at the option of the recipient, in the form of cash or unrestricted shares of class A common stock.

The total expense recognized in our statements of consolidated income under all stock compensation programs during 2023, 2022 and 2021 was $ 0.2 , $ 1.6 and $ 0.9 billion, respectively.

The associated income tax benefit recognized in our statements of consolidated income during 2023, 2022 and 2021 was $ 42 , $ 451 and $ 301 million, respectively.

The cash income tax benefit received from the exercise of stock options and conversion of Restricted Units to class A shares during 2023, 2022 and 2021 was $ 201 , $ 352 and $ 278 million, respectively.

Management Incentive Award Program ("MIP")

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 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).

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

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

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

Conversion to class A shares 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.

Management Incentive Award Program

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

Executive officer eligibility is determined annually by the Compensation and Human Capital Committee of the Board (the "Compensation Committee").

Prior to 2023, MIP awards were generally paid in one-half to two-thirds RPUs, depending upon the recipient's level of seniority.

The remainder 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 shares of class A common stock after required tax withholdings.

MIP RPUs granted between 2019 and prior to 2022, vested over one year following the grant date conditioned upon continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurred).

The grant value was 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 occurred).

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

As of December 31, 2023, all outstanding MIP RPUs had fully vested.

During 2022, the Compensation Committee amended and restated the terms and conditions governing 2022 MIP RPUs to provide that such awards would fully vest 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.

In 2022, this award was classified as a compensation obligation and recorded in Accrued wages and withholdings in our consolidated balance sheet.

In 2023, the Compensation Committee approved the 2022 MIP awards and the compensation obligation was relieved.

The RPUs granted were recorded as additional paid-in capital on the measurement date.

Dividends earned on Restricted Units are reinvested in additional Restricted Units at each dividend payable date until conversion to class A shares occurs.

UNITED PARCEL SERVICE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table shows the change in non-vested Restricted Units under our equity compensation programs other than the LTIP (defined below) in 2023:

Restricted Units

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Non-vested as of December 31, 2023 58 $ 176.68

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 three months .

The fair value of these Restricted Units 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, other than awards granted under the LTIP, which are discussed below, granted during 2023, 2022 and 2021 was $ 185.66 , $ 223.72 and $ 165.27 , respectively.

The total fair value of these RPUs vested was $ 1.1 , $ 0.9 and $ 0.7 billion in 2023, 2022 and 2021, respectively.

During 2023, all outstanding MIP Restricted Units fully vested.

As of December 31, 2023, there was $ 7 million of total unrecognized compensation cost related to non-vested Restricted Units, other than awards granted under the LTIP, which are discussed below.

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

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

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

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

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

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

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

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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.

For the 2020 LTIP award, the performance period was divided into two measurement periods.

The first measurement period evaluated the achievement of the performance targets for 2020.

The second measurement period evaluated the achievement of the performance targets for 2021 and 2022.

We determine the grant date fair value of these 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.

The weighted-average assumptions used in our Monte Carlo models for each award year were as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table shows LTIP RPU activity during the year ended December 31, 2023:

(in thousands) Weighted-Average

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Non-vested as of December 31, 2023 1,268 $ 210.04

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 2022, 2021 and 2020 was $ 227.00 , $ 168.10 and $ 92.76 , respectively.

The total fair value of RPUs vested was $ 239 , $ 160 and $ 112 million in 2022, 2021 and 2020, respectively.

As of December 31, 2022, there was $ 139 million of total unrecognized compensation cost related to non-vested RPUs.

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

The weighted-average grant date fair value of LTIP RPUs granted during 2023, 2022 and 2021 was $ 198.78 , $ 227.00 and $ 168.10 , respectively.

The total fair value of LTIP RPUs vested during 2023, 2022 and 2021was $ 111 , $ 239 and $ 160 million, respectively.

As of December 31, 2023, there was $ 150 million of total unrecognized compensation cost related to non-vested LTIP RPUs.

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

Non-qualified Stock Options

We maintain stock option plans under which options are granted to purchase shares of UPS class A common stock.

Stock options granted in connection with the UPS Incentive Compensation Plan must have an exercise price at least equal to the NYSE closing price of UPS class B common stock on the date the option is granted.

Stock options may be granted under the Plan, and must have an exercise price at least equal to the NYSE closing price of UPS class B common stock on the date the option is granted.

We grant non-qualified stock options to a limited group of eligible senior management employees annually, in which the value granted is determined as a percentage of salary.

Stock option awards vest over a five-year period with approximately 20 % of the award vesting at each anniversary of the grant date (except in the case of death, disability or retirement, in which case immediate vesting occurs).

The option grants expire 10 years after the date of the grant.

Option holders may exercise their options via the payment of cash or class A common stock and new class A shares are issued upon exercise.

The following is an analysis of options to purchase shares of class A common stock issued and outstanding:

Stock option grants vest over a five-year period with approximately 20 % of the award vesting at each anniversary of the grant date (except in the case of death, disability or retirement, in which case immediate vesting occurs).

Option grants expire 10 years after the date of the grant.

Option holders may exercise their options via the payment of cash or class A common stock;

new class A shares are issued upon exercise.

The following table provides an analysis of activity during 2023 relating to options to purchase shares of class A common stock:

(in thousands) Weighted-Average

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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 expected dividend yield is based on 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.

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As of December 31, 2023, there was $ 4 million of total unrecognized compensation cost related to non-vested options.

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

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

Discounted Employee Stock Purchase Plan

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Employees purchased 0.7 , 0.6 and 0.6 million shares at average prices of $ 162.34 , $ 180.80 and $ 172.07 per share, during 2023, 2022 and 2021, respectively.

This plan is not considered to be compensatory, and therefore no compensation cost is measured for the employees’ purchase rights.

This plan is not considered to be compensatory, and therefore no compensation cost is incurred for the employees’ purchase rights.

UNITED PARCEL SERVICE, INC.

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Regional operations managers are responsible for both domestic and export products within their geographic area.

Supply Chain Solutions comprises the results of non-reportable operating segments that do not meet the quantitative and qualitative criteria of a reportable segment as defined under ASC Topic 280 – Segment Reporting.

Supply Chain Solutions comprises the results of non-reportable operating segments that do not meet the quantitative and qualitative criteria of a reportable segment as defined under ASC Topic 280.

Domestic Package

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International Package operations include delivery to more than 200 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, the Indian sub-continent, the Middle East, Africa, Canada and Latin America.

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

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 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 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.

Supply Chain Solutions includes our Forwarding, Logistics, digital and other businesses.

Our Forwarding and Logistics businesses provide services in more than 200 countries and territories worldwide and include international air and ocean freight forwarding, truckload brokerage, customs brokerage, mail services, healthcare logistics, distribution and post-sales services.

Our digital businesses leverage technology to enable a range of on-demand services such as same-day delivery, end-to-end return services and integrated supply chain and high-value shipment insurance 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.

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

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

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Long-lived assets include property, plant and equipment, pension and postretirement benefit assets, long-term investments, goodwill and intangible assets.

No countries outside of the United States provided 10% or more of consolidated revenue for the years ended December 31, 2022, 2021 or 2020.

No countries outside of the United States accounted for 10% or more of consolidated revenue for the years ended December 31, 2023, 2022 or 2021.

For the years ended December 31, 2023, 2022 and 2021, Amazon.com, Inc.

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Domestic Package.

Amazon accounted for approximately 15.5 %, 15.5 % and 18.1 % of accounts receivable, net, included within the consolidated balance sheets as of December 31, 2022, 2021 and 2020, respectively.

Amazon accounted for approximately 15.8 %, 15.5 % and 15.5 % of Accounts receivable, net , included within our consolidated balance sheets as of December 31, 2023, 2022 and 2021, respectively.

UNITED PARCEL SERVICE, INC.

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state and local income taxes (net of federal benefit)

2.0 2.2 ( 2.6 )

tax rate differential ( 0.6 ) 0.1 —

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Effective income tax rate 21.8 % 22.1 % 22.3 %

(1) The 2020 state tax impact to the effective tax rate is negative due to the favorable proportion of state tax credits in comparison to pretax income.

Our effective tax rate is affected by recurring factors, such as statutory tax rates in the jurisdictions in which we operate and the relative amounts of taxable income we earn in those jurisdictions.

It is also affected by discrete items that may occur in any given year, but may not be consistent from year to year.

Our effective tax rate was 22.1 % in 2022, compared with 22.3 % in 2021 and 27.2 % in 2020, primarily due to the effects of the aforementioned recurring factors and the following discrete tax items.

Our effective tax rate was 21.8 % in 2023, compared with 22.1 % and 22.3 % in 2022 and 2021, respectively, primarily due to the effects of the aforementioned recurring factors and the following discrete tax items.

UNITED PARCEL SERVICE, INC.

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2023 Discrete Items

We recorded pre-tax Transformation strategy costs of $ 435 million.

As a result, we recorded an additional income tax benefit of $ 102 million.

This income tax benefit was generated at a higher average tax rate than the 2023 U.S.

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

state and local and foreign taxes.

We recognized an income tax benefit of $ 85 million related to pre-tax defined benefit pension and postretirement medical benefit plan losses of $ 359 million.

This income tax benefit was generated at a higher average tax rate than the 2023 U.S.

federal statutory tax rate because it included the effect of U.S.

state and local and foreign taxes.

We recorded goodwill and indefinite-lived intangible asset impairment charges of $ 236 million.

As a result, we recorded an additional income tax benefit of $ 43 million.

This income tax benefit was generated at a lower average tax rate than the 2023 U.S.

federal statutory tax rate due to certain impairment charges not being deductible for tax purposes.

We recorded a pre-tax expense of $ 61 million in connection with a one-time compensation payment made during the year.

As a result, we recorded an additional income tax benefit of $ 15 million.

This income tax benefit was generated at a higher average tax rate than the 2023 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 did not impact our effective tax rate for the year ended December 31, 2023.

2022 Discrete Items

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.

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state and local and foreign taxes.

We recorded pre-tax transformation strategy costs of $ 178 million during the year ended December 31, 2022.

We recorded pre-tax Transformation strategy costs of $ 178 million.

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

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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.

We recorded pre-tax expenses of $ 505 million in connection with incentive compensation program design changes.

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

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state and local and foreign taxes.

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.

We recorded pre-tax expenses of $ 76 million as a result of a reduction in estimated residual value for certain aircraft.

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

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state and local and foreign taxes.

We recorded pre-tax transformation strategy costs of $ 380 million during the year ended December 31, 2021.

We recorded pre-tax Transformation strategy costs of $ 380 million.

As a result, we recorded an additional income tax benefit of $ 95 million.

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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.

We recorded a pre-tax gain of $ 46 million related to the divestiture of UPS Freight.

As a result, we recorded an additional income tax expense of $ 11 million.

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The recognition of excess tax benefits and deficiencies related to share-based compensation in income tax expense resulted in a net tax benefit of $ 105 million and reduced our effective tax rate by 0.6 % during the year ended December 31, 2021.

2020 Discrete Items

In the fourth quarter of 2020, we recognized an income tax benefit of $ 1.6 billion related to pre-tax 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.

federal statutory tax rate because it included the effect of U.S.

state and local and foreign taxes.

We recorded pre-tax transformation strategy costs of $ 348 million during the year ended December 31, 2020.

As a result, we recorded an additional income tax benefit of $ 83 million.

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

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

state and local and foreign taxes.

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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

In 2022, this incentive was renegotiated and extended through December 31, 2026.

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

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Net deferred tax asset (liability) $ ( 3,646 ) $ ( 4,163 )

Amounts recognized in the consolidated balance sheets:

Amounts recognized in our consolidated balance sheets:

Deferred tax assets $ 126 $ 139

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Net deferred tax asset (liability) $ ( 3,646 ) $ ( 4,163 )

The valuation allowance changed by $ 1 , $ 34 and $ 34 million during the years ended December 31, 2022, 2021 and 2020, respectively.

The valuation allowance decreased by $ 4 million and increased by $ 1 and $ 34 million during the years ended December 31, 2023, 2022 and 2021, respectively.

We have a U.S.

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.

federal capital loss carryforward of $ 200 million as of December 31, 2023, less than $ 1 million of which expires on December 31, 2025, $ 150 million of which expires on December 31, 2026 and the remainder of which expires on December 31, 2027.

UNITED PARCEL SERVICE, INC.

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state and local credit carryforwards $ 48 $ 46

state and local operating loss carryforwards and credits can be carried forward for periods ranging from one year to indefinitely.

state and local operating loss carryforwards and credits can be carried forward for periods ranging from three years to indefinitely.

We also have non-U.S.

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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 is reflected in current and non-current liabilities on the consolidated balance sheets based on the timing of payment.

The remaining liability of $ 105 million is reflected in current and non-current liabilities in our consolidated balance sheets based on the timing of payment.

This balance will be paid between 2024 and 2026.

Additionally, the Organization for Economic Co-operation and Development ("OECD") has introduced a framework to implement a global minimum corporate tax of 15%, referred to as Pillar Two or the minimum tax directive.

Many aspects of the minimum tax directive will be effective beginning in 2024, with certain remaining impacts to be effective beginning in 2025.

While it is uncertain whether the U.S.

will enact legislation to adopt the minimum tax directive, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation, to implement the minimum tax directive.

While we do not currently expect the minimum tax directive to have a material impact on our effective tax rate, our analysis is ongoing as the OECD continues to release additional guidance and countries implement legislation.

To the extent additional changes take place in the countries in which we operate, it is possible that these legislative changes and efforts may increase uncertainty and have an adverse impact on our effective tax rates or operations.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Balance as of January 1, 2021

$ 333 $ 61 $ 4

Additions for tax positions of the current year 85 — —

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Balance as of December 31, 2023

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$ 492 $ 108 $ 4

The total amount of gross uncertain tax positions as of December 31, 2023, 2022, and 2021 that, if recognized, would affect the effective tax rate was $ 492 , $ 533 , and $ 479 million, respectively.

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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 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.

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

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

UNITED PARCEL SERVICE, INC.

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Effect of Dilutive Securities:

Restricted performance units 3 3 4

Restricted performance units and contingent shares (1)

Stock options — 1 1

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Diluted Earnings Per Share $ 7.80 $ 13.20 $ 14.68

(1) Contingent shares relate to MIP awards that may be settled in cash or Class A common stock at the employees' election - see note 13.

Diluted earnings per share for the years ended December 31, 2023, 2022 and 2021 exclude the effect of 0.3 , 0.1 and 0.1 million shares, respectively, of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive.

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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.

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, 2023 and 2022, we held cash collateral of $ 103 and $ 534 million, respectively, under these agreements.

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.

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

As of December 31, 2023 we were required to post $ 13 million with our counterparties.

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

Types of Hedges

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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 may 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.

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Interest Rate Risk Management

Our indebtedness under our various financing arrangements creates interest rate risk.

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.

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.

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.

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

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

We designate 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.

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.

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Outstanding Positions

The notional amounts of our outstanding derivative positions as of December 31, 2022 and 2021 were as follows (in millions):

As of December 31, 2023 and 2022, the notional amounts of our outstanding derivative positions were as follows (in millions):

Currency hedges:

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Interest rate hedges:

Fixed to Floating Interest Rate Swaps USD — 1,000

Floating to Fixed Interest Rate Swaps USD — 28

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Balance Sheet Recognition

The following table indicates the location in the consolidated balance sheets where our derivative assets and liabilities have been recognized, the fair value hierarchy level applicable to each derivative type and the related fair values of those derivatives.

The following table indicates the location in our consolidated balance sheets where our derivative assets and liabilities have been recognized, the fair value hierarchy level applicable to each derivative type and the related fair values of those derivatives.

We have master netting arrangements with substantially all of our counterparties giving us the right of offset for our derivative positions.

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, 2022 and 2021 (in millions):

However, we have not elected to offset the fair value positions of our derivative contracts recorded in our 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 our consolidated balance sheets had we elected to apply the right of offset as of December 31, 2023 and 2022 (in millions):

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

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Foreign currency exchange contracts Other current assets Level 2 $ 95 $ 174 $ 73 $ 171

Interest rate contracts Other current assets Level 2 — 11 — 11

Foreign currency exchange contracts Other non-current assets Level 2 63 250 19 226

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

Derivatives not designated as hedges:

Foreign currency exchange contracts Other current liabilities Level 2 1 — 1 —

Total Liability Derivatives $ 92 $ 32 $ 26 $ 5

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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;

Our foreign currency exchange rate and interest rate 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

The following table indicates the amounts that were recorded in the consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of December 31, 2022 and 2021 (in millions):

Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included Carrying Amount of Hedged Liabilities Cumulative Amount of Fair Value Hedge Adjustments Carrying Amount of Hedged Liabilities Cumulative Amount of Fair Value Hedge Adjustments

The following table indicates the amounts that were recorded in our consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of December 31, 2023 and 2022 (in millions):

Line Item in our Consolidated Balance Sheets in Which the Hedged Item is Included

Carrying Amount of Hedged Liabilities Cumulative Amount of Fair Value Hedge Adjustments Carrying Amount of Hedged Liabilities Cumulative Amount of Fair Value Hedge Adjustments

Long-Term Debt and Finance Leases $ 280 $ 4 $ 280 $ 5

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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:

Amounts recorded in the statements of consolidated income related to fair value changes and settlements of interest rate swaps and foreign currency forward contracts not designated as hedges for the years ended December 31, 2023 and 2022 (in millions) were as follows:

Derivative Instruments Not Designated in

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TRANSFORMATION STRATEGY 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):

We are undertaking an enterprise-wide transformation of our organization that includes initiatives, as well as changes in processes and technology, that impact global direct and indirect operating costs.

During the fourth quarter of 2023, we implemented our "fit to serve" initiative, which is intended to right-size our business for the future through a workforce reduction of approximately 12,000 positions and create a more efficient operating model to enhance responsiveness to changing market dynamics.

As of December 31, 2023, we recorded an accrual for separation costs, primarily related to U.S.

separations, of $ 205 million in our consolidated balance sheet, all of which we expect to pay in 2024.

We expect to incur additional expense for U.S.

and international separations during 2024.

The table below presents Transformation strategy costs for the years ended December 31, 2023, 2022 and 2021 (in millions):

2023 2022 2021

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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