What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-18 compared with 2024-02-20 · 658 added, 464 removed, 605 unchanged (65% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We continue to focus on executing our strategy of Customer First, People Led and Innovation Driven by making it quicker and easier for customers to do business with us.

We continue to enhance customer engagement through combining our network with digital capabilities and to invest in the most attractive parts of the market, including healthcare, Asia trade lanes and small- and medium-sized businesses ("SMBs").

In furtherance of our strategy, during 2023 we acquired MNX Global Logistics, a global time-critical and temperature-sensitive logistics provider, and Happy Returns, a technology-focused company that provides innovative end-to-end return services.

We opened our state-of-the-art UPS Velocity fulfillment center in the U.S.

and announced plans to build a new air hub in Hong Kong.

These initiatives, together with continued growth in our Digital Access Program and deployment of our Smart Package Smart Facility technology within U.S.

small package operations, are intended to allow us to reach new markets and customers, and better serve our current customer base.

During the year, macroeconomic headwinds, including inflationary pressures and changes in consumer behavior, together with volume diversion resulting from our labor negotiations with the International Brotherhood of Teamsters ("Teamsters"), contributed to volume declines in our U.S.

small package business.

Internationally, the challenging macroeconomic environment, coupled with geopolitical tensions, drove a decline in demand for our small package services in Europe and Asia.

Our freight forwarding businesses, including truckload brokerage, were negatively impacted by soft demand and market overcapacity.

We expect global economic conditions to improve gradually during 2024, and therefore expect volume and revenue growth to increase in the second half of the year.

In the third quarter of 2023, our Teamsters employees ratified a new national master agreement.

Under the agreement, wage and benefit rates, combined with all other contract provisions, will increase union cost at a 3.3% compounded annual growth rate over the five-year term of the contract, with the majority of the increase in the first and fifth years.

We experienced higher year-over-year labor costs in the second half of the year as a result of these contractual increases, which we expect to persist through the first half of 2024.

Faced with a challenging external environment, we remain focused on our strategy.

We are taking action intended to right-size our business for the future and focus on key enablers of growth.

These moves include exploring strategic alternatives for our truckload brokerage business and reducing headcount through our "fit to serve" initiative to create a more efficient operating model and enhance responsiveness to changing market dynamics.

We are executing our Customer First, People Led and Innovation Driven strategy to grow in the most attractive parts of the market including healthcare, small and medium-sized businesses (“SMBs”) and International.

During 2024, we took several steps in furtherance of our strategy.

We continued to focus on providing excellent service to our customers, delivering industry-leading on-time performance during 2024.

Our Digital Access Program grew year over year, contributing to our consolidated volume growth and continued expansion within the United States ("U.S.") SMB market.

Also in 2024, we executed on our Network of the Future initiatives, which are intended to enhance the efficiency of our network through automation and operational sort consolidation.

For example, we are moving from a scanning to a sensing network through our Smart Package Smart Facility RFID initiative, which is helping us reduce manual scans and enhance package visibility for our customers.

Additionally, we completed the onboarding of air cargo volumes from the United States Postal Service ("USPS").

Under our agreement with the USPS, UPS is the primary air cargo provider for the USPS within the United States.

Within our international and healthcare operations, we expect to grow both organically and inorganically, having previously announced that we entered into agreements to acquire Estafeta, a leading domestic small package provider in Mexico, and Frigo-Trans, an industry-leading, complex healthcare logistics provider based in Germany.

The acquisitions of Frigo-Trans and related entities were completed during January 2025, and the acquisition of Estafeta is expected to close in the first half of 2025, subject to customary regulatory reviews and approvals.

In September 2024, we finalized the previously announced divestiture of our truckload brokerage business ("Coyote").

Effective January 1, 2025, we insourced the delivery of all SurePost volume, which we expect to result in additional deliveries within our network.

We made this change in order to have greater operational control and maintain the service quality of this product.

Also in January 2025, we implemented a 9.9% average rate increase on this product.

In the first quarter of 2025, as previously disclosed, we entered into an agreement in principle with our largest customer to significantly reduce the volume we deliver for them.

We expect volume from this customer to decline to approximately 50% of year-end 2024 levels by mid-2026.

We are making a deliberate shift in our business to increase our focus on growing higher yielding volume.

We expect that these actions will result in a reduction in revenue within our U.S.

Domestic Package segment, as described below, during 2025 relative to 2024.

In conjunction therewith, as disclosed on January 30, 2025, we are beginning a network reconfiguration within the U.S.

which is expected to lead to consolidations of our facilities and workforce as well as an end-to-end process redesign through 2027.

This network reconfiguration, which is an expansion of our Network of the Future program, is expected to result in exit activities that could result in the closure of up to 10% of our buildings in 2025, a reduction in the size of our vehicle and aircraft fleets, and a decrease in the size of our workforce, which we expect will lead to additional expense.

We are not yet able to determine the specific assets or extent of our workforce that will be impacted by this network reconfiguration, the timing of those changes or any associated charges and expenses and therefore are not currently able to provide an estimate of the total cost or the cost by period.

We expect that impacted assets will remain in use during some or all of the periods of our network reconfiguration.

We expect to partially offset the anticipated costs associated with this network reconfiguration through our Efficiency Reimagined initiatives.

Efficiency Reimagined initiatives are an end-to-end process redesign being undertaken to align our organizational processes to the network reconfiguration.

These initiatives are expected to yield approximately $1.0 billion in annualized savings, which we expect to begin realizing during 2025.

We incurred related costs of $35 million for the three months ended December 31, 2024.

We expect to incur related costs of approximately $300 to $400 million during 2025 and incremental costs in 2026 and 2027 to complete Efficiency Reimagined , primarily relating to outside professional service fees and severance costs.

We have two reportable segments:

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Our remaining businesses are reported as Supply Chain Solutions.

As of the fourth quarter of 2024 based on a change in our management reporting structure, U.S.

Air Cargo is presented within our U.S.

Domestic Package segment and prior periods have been recast.

This recast did not have any impact on previously reported consolidated results.

We experienced volume and revenue growth in our global small package operations during the year, primarily the result of a strong second half of 2024.

Within our U.S.

Domestic Package operations, we captured growth through additional e-

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Highlights of our results for the years ended December 31, 2023 and 2022, which are discussed in more detail in the sections that follow, include:

commerce customers and SMBs that leveraged our Digital Access Program.

In our International Package operations, we experienced average daily volume growth in our export products, which drove a year-over-year revenue increase.

In Supply Chain Solutions, revenue decreased for the year, driven by the impact of the divestiture of Coyote, partially offset by revenue growth in our other Supply Chain Solutions businesses.

This growth was primarily due to the impact of the acquisition of MNX Global Logistics in the fourth quarter of 2023 and revenue growth in our freight forwarding business driven by continued strong market demand out of Asia.

During the year, we continued to execute on various initiatives under our previously announced transformation strategy programs, Transformation 2.0 and Fit to Serve, which are contributing to fundamental changes to our back-office technologies and organizational structure.

We realized benefits from our Fit to Serve initiative during the year, which helped offset declines in operating profit.

For additional information on these programs and the benefits, see “Supplemental Information - Items Affecting Comparability".

During 2024, we also returned cash to shareholders in the form of dividends of $6.52 per share, for a total of $5.4 billion, and $500 million of share repurchases.

For the year, capital expenditures were $3.9 billion.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Highlights of our results for the years ended December 31, 2024 and 2023, which are discussed in more detail in the sections that follow, include (dollars in millions, except per share and per piece amounts):

Year Ended December 31, Change

2024 2023 $ %

Revenue (in millions) $ 90,958 $ 100,338 $ (9,380) (9.3) %

Operating Expenses (in millions) 81,817 87,244 (5,427) (6.2) %

Operating Profit (in millions) $ 9,141 $ 13,094 $ (3,953) (30.2) %

$ 91,070 $ 90,958 $ 112 0.1 %

Operating Expenses

82,602 81,817 785 1.0 %

Operating Profit

$ 8,468 $ 9,141 $ (673) (7.4) %

Operating Margin 9.3 % 10.0 %

Net Income (in millions) $ 6,708 $ 11,548 $ (4,840) (41.9) %

$ 5,782 $ 6,708 $ (926) (13.8) %

Basic Earnings Per Share $ 6.76 $ 7.81 $ (1.05) (13.4) %

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Average Revenue Per Piece $ 13.60 $ 13.62 $ (0.02) (0.1) %

• Revenue and average daily package volume in our global small package operations decreased for the year, with declines in both commercial and residential shipments across all of our products.

These declines were primarily the result of the macroeconomic conditions and union labor-related uncertainties described above, as well as reductions in fuel and demand-related surcharges.

• Operating expenses decreased for the year, driven by a reduction in purchased transportation in Supply Chain Solutions and reductions in fuel expense in our small package operations, as well as the impact of our ongoing productivity initiatives and reductions in operating costs;

these reductions were partially offset by U.S.

Domestic Package segment wage rate increases in the second half of 2023 due to the new Teamsters contract.

• Operating profit and operating margin decreased, as revenue declines were greater than operating expense reductions.

• We reported net income of $6.7 billion and diluted earnings per share of $7.80.

Adjusted diluted earnings per share were $8.78 after adjusting for the after-tax impacts of:

• Average daily package volume in our global small package operations increased for the year primarily in our U.S.

Domestic Package segment due to growth in our SurePost product, with those increases partially offset by the impact of planned volume reductions from our largest customer under the terms of our contract with them.

Within our International package segment, challenging macroeconomic conditions led to a slight volume decline.

• Revenue was relatively flat for the year.

Within our U.S.

Domestic Package segment, revenue growth was attributable to air cargo and overall volume growth, but was largely offset by unfavorable shifts in product mix and declines in fuel surcharge revenue.

In our International Package segment, revenue benefited from growth in our export products and increases in revenue per piece for our domestic products.

Revenue in our Supply Chain Solutions businesses declined primarily as a result of the September 2024 divestiture of Coyote, with the decline partially offset by growth in Logistics and our other businesses.

• Operating expenses increased for the year, primarily due to increased compensation expense in our U.S.

Domestic Package segment as a result of higher wage rates paid to our Teamster employees.

These increases were partially offset by decreases in the costs of operating our integrated air and ground network, benefits from our Fit to Serve initiative, as well as a gain related to the divestiture of Coyote.

• Operating profit and operating margin decreased for the year as revenue increases only partly offset the operating expense increases.

• Net income was $5.8 billion and diluted earnings per share were $6.75 for the year.

Non-GAAP adjusted diluted earnings per share were $7.72 for the year after adjusting for the after-tax impacts of:

◦ a gain on the divestiture of Coyote of $152 million or $0.18 per diluted share;

◦ a payment, including interest, to settle a one-time international regulatory matter of $94 million, or $0.11 per diluted share;

◦ non-cash asset impairment charges of $81 million, or $0.09 per diluted share;

◦ total transformation strategy costs of $245 million, or $0.29 per diluted share;

◦ a charge related to a regulatory matter unrelated to our ongoing operations of $45 million, or $0.05 per diluted share;

◦ an expense to withdraw from a multiemployer pension plan of $14 million, or $0.02 per diluted share;

◦ defined benefit pension and postretirement medical benefit plan mark-to-market loss outside of a 10% corridor of $506 million, or $0.59 per diluted share.

◦ Transformation Strategy Costs of $333 million, or $0.39 per diluted share;

◦ goodwill and asset impairment charges of $193 million, or $0.22 per diluted share;

◦ a one-time compensation payment of $46 million, or $0.05 per diluted share.

Domestic Package segment, revenue declines for the year were driven by lower volume, a shift in product mix, and lower fuel and demand-related surcharges.

These were somewhat offset by revenue per piece growth due to increases in base rates and changes in customer mix.

Expenses decreased for the year, primarily due to declines in fuel prices and reductions in purchased transportation.

Higher direct union labor costs were offset by a reduction in hours and lower management compensation expense.

In our International Package segment, revenue declines for the year were driven by lower volume and declines in fuel and demand-related surcharges.

These were partially offset by the impact of base rate increases.

Expenses decreased year over year, driven by lower fuel and third-party transportation expense as a result of volume declines and lower fuel prices.

In Supply Chain Solutions, revenue decreases for the year were driven by volume and market rate declines in Forwarding.

Expenses decreased for the year, primarily due to a reduction in purchased transportation in Forwarding.

For additional operational results for the quarter and year-to-date periods specific to our segments:

Domestic Package, International Package and Supply Chain Solutions refer to the respective segment discussions below.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

2023 compared to 2022

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Supplemental Information - Items Affecting Comparability

We supplement the reporting of our financial information determined under generally accepted accounting principles in the United States ("GAAP") with certain non-GAAP financial measures.

Adjusted financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP.

Our adjusted financial measures do not represent a comprehensive basis of accounting and therefore may not be comparable to similarly titled measures reported by other companies.

Adjusted amounts reflect the following (in millions):

We supplement the reporting of our financial information determined under generally accepted accounting principles ("GAAP") with certain non-GAAP adjusted financial measures.

Non-GAAP adjusted financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP.

Our non-GAAP adjusted financial measures do not represent a comprehensive basis of accounting and therefore may not be comparable to similarly titled measures reported by other companies.

Non-GAAP adjusted amounts reflect the following (in millions):

Year Ended December 31,

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Operating Expenses:

One-Time Compensation Payment

Transformation Strategy Costs:

Transformation 1.0 $ — $ 13

Transformation 2.0

Spans and Layers — 86

Business Portfolio Review 29 84

Financial Systems 54 36

Other Initiatives — 4

Transformation 2.0 Total 83 210

Fit to Serve 204 212

Network Reconfiguration and Efficiency Reimagined

Total Transformation Strategy Costs 322 435

Gain on Divestiture of Coyote (156) —

One-Time Payment for International Regulatory Matter 88 —

Goodwill and Asset Impairment Charges 108 236

Incentive Compensation Program Design Changes — 505

Long-Lived Asset Estimated Residual Value Changes — 76

Total Adjustments to Operating Expenses $ 732 $ 759

One-Time Compensation Payment — 61

Expense for Regulatory Matter 45 —

Multiemployer Pension Plan Withdrawal Expense

Total Adjustments to Non-GAAP Operating Expenses

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Other Income and (Expense):

Defined Benefit Pension and Postretirement Medical Plan (Gains) and Losses $ 359 $ (1,061)

Total Adjustments to Other Income and (Expense) $ 359 $ (1,061)

Total Adjustments to Income Before Income Taxes $ 1,091 $ (302)

Defined Benefit Pension and Postretirement Medical Plan Loss

Interest Expense Associated with One-Time Payment for International Regulatory Matter 6 —

Total Adjustments to Non-GAAP Other Income and (Expense) $ 671 $ 359

Total Adjustments to Non-GAAP Income Before Income Taxes $ 1,097 $ 1,091

Income Tax (Benefit) Expense:

One-Time Compensation Payment $ (15) $ —

Transformation Strategy Costs:

Transformation 1.0 $ — $ 3

Transformation 2.0

Spans and Layers — 21

Business Portfolio Review 7 15

Financial Systems 13 10

Other Initiatives — 1

Transformation 2.0 Total 20 47

Fit to Serve 49 52

Network Reconfiguration and Efficiency Reimagined

Total Transformation Strategy Costs 77 102

Gain on Divestiture of Coyote (4) —

One-Time Payment for International Regulatory Matter — —

Goodwill and Asset Impairment Charges 27 43

Incentive Compensation Program Design Changes — (121)

Long-Lived Asset Estimated Residual Value Changes — (18)

Defined Benefit Pension and Postretirement Medical Plan (Gains) and Losses (85) 255

Total Adjustments to Income Tax Expense $ (245) $ 80

Total Adjustments to Net Income $ 846 $ (222)

These items have been excluded from the following discussions of "adjusted" results.

One-Time Compensation Payment — 15

Expense for Regulatory Matter — —

Multiemployer Pension Plan Withdrawal Expense

Defined Benefit Pension and Postretirement Medical Plan Loss 159 85

Total Adjustments to Non-GAAP Income Tax Expense $ 264 $ 245

Total Adjustments to Non-GAAP Net Income $ 833 $ 846

The income tax impacts of these items are calculated by multiplying the statutory tax rates applicable in each tax jurisdiction, including the U.S.

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RESULTS OF OPERATIONS

One-Time Compensation Payment

During 2023, we made a one-time payment to certain U.S.-based, non-union part-time supervisors following the ratification of our labor agreement with the Teamsters.

We do not expect this or similar payments to recur.

We supplement the presentation of our operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of this payment.

We believe excluding the impact of this one-time payment better enables users of our financial statements to view and evaluate underlying business performance from the same perspective as management.

Transformation Charges, and Goodwill and Asset Impairment Charges

We supplement the presentation of our operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of charges related to transformation activities, and goodwill and asset impairment charges.

We believe excluding the impact of these charges better enables users of our financial statements to view and evaluate underlying business performance from the perspective of management.

We do not consider these costs when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards.

For more information regarding transformation activities, see note 18 to the audited, consolidated financial statements.

For more information regarding goodwill and asset impairment charges, see note 1 and note 7.

Incentive Compensation Program Design Changes

During 2022, we completed certain structural changes to the design of our incentive compensation programs that resulted in a one-time, non-cash charge in connection with the accelerated vesting of certain equity incentive awards that we do not expect to repeat.

We believe excluding the impacts of such changes allows users of our financial statements to identify underlying growth trends in compensation and benefits expense.

For more information regarding incentive compensation program design changes, see note 13 to the audited, consolidated financial statements.

Long-lived Asset Estimated Residual Value Changes

During 2022, we determined to retire six of our existing MD-11 aircraft from operational use in 2023.

In connection therewith, we reduced the estimated residual value of our MD-11 fleet, incurring a one-time, non-cash charge on our fully-depreciated aircraft.

This charge was allocated between our U.S.

Domestic Package and International Package segments.

We supplement the presentation of our operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of this charge.

We believe excluding the impact of this charge better enables users of our financial statements to understand the ongoing cost associated with our long-lived assets.

For more information regarding residual values, see note 4 to the audited, consolidated financial statements.

Foreign Currency Exchange Rate Changes and Hedging Activities

We supplement the reporting of revenue, revenue per piece and operating profit with adjusted measures that exclude the period over period impact of foreign currency exchange rate changes and hedging activities.

We believe currency-neutral revenue, revenue per piece and operating profit information allows users of our financial statements to understand growth trends in our products and results.

We evaluate the performance of International Package and Supply Chain Solutions on this currency-neutral basis.

Currency-neutral revenue, revenue per piece and operating profit are calculated by dividing current period reported U.S.

Dollar revenue, revenue per piece and operating profit by the current period average exchange rates to derive current period local currency revenue, revenue per piece and operating profit.

The derived amounts are then multiplied by the average foreign currency exchange rates used to translate the comparable results for each month in the prior year period (including the period over period impact of foreign currency hedging activities).

The difference between the current period reported U.S.

Dollar revenue, revenue per piece and operating profit and the derived current period U.S.

Dollar revenue, revenue per piece and operating profit is the period-over-period impact of currency fluctuations.

We supplement the presentation of operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of the following items:

Transformation Strategy Costs

We exclude the impact of charges related to activities within our transformation strategy.

Our transformation activities have spanned several years to fundamentally change the spans and layers of our organization structure, processes, technologies and the composition of our business portfolio.

While earlier stages of these transformation activities were complete in 2023 (Transformation 1.0), certain systems implementations and portfolio review activities (Transformation 2.0) are ongoing and expected to continue through 2025.

We previously announced initiatives under Fit to Serve to right-size our business which resulted in a workforce reduction of approximately 14,000 positions, primarily within management, throughout 2024 and contributed to a more efficient operating model and enhanced responsiveness to changing market dynamics.

Various circumstances precipitated these initiatives, including identification and prioritization of investments as a result of executive leadership changes, developments and changes in competitive landscapes, inflationary pressures, consumer behaviors, and other factors including post-COVID normalization and volume diversions attributed to our 2023 labor negotiations.

Our transformation strategy has included the following programs and initiatives:

Transformation 1.0:

In the first quarter of 2018, we announced and began implementation of a multi-year, enterprise-wide program contemplating a reduction in non-operations management personnel, investments impacting global direct and indirect operating costs, and changes in processes and technology, which were undertaken and completed as multiple discrete initiatives (such projects, collectively, “Transformation 1.0”).

In 2018, we announced that we expected to achieve approximately $1.0 billion in savings, which would benefit earnings, from Transformation 1.0.

On a cumulative basis and net of amounts reinvested into the business, we had substantially achieved the expected benefits associated with Transformation 1.0 as of the second quarter of 2020.

Transformation 1.0 was completed in 2023.

Transformation 2.0:

Based on a number of factors including evaluating efficiencies gained as a part of Transformation 1.0, and in connection with changes in our executive leadership in 2020, we identified and reprioritized certain then-current and future investments, including additional investments in our workforce, portfolio of businesses and technology (such projects, collectively, “Transformation 2.0”).

Specifically, we identified opportunities to reduce spans and layers of management, began a review of our business portfolio and identified opportunities to invest in certain technologies, including financial reporting and certain schedule, time and pay systems, to reduce global indirect operating costs, provide better visibility, and reduce reliance on legacy systems and coding languages.

Our organizational structure review indicated an opportunity to realize initial savings of approximately $400 million with potential opportunities to save up to an additional $240 million through the reduction of spans and layers of management with an anticipation that these savings would be recurring.

The business portfolio review was expanded in 2022.

As a result, we determined to exit certain businesses that were not aligned with our corporate strategy and determined to make new investments into certain businesses, including healthcare-focused businesses, better aligned to our strategic targets.

In connection therewith, we incurred costs primarily consisting of outside professional fees related to these reviews and other costs associated with these transactions.

Lastly, our review of our systems and technologies identified certain areas of our business that were reliant on outdated technologies.

Our reviews determined that continued use of these legacy technologies would likely increase maintenance costs and that investments into new technologies would enhance our ability to leverage our data and allow us to establish a more flexible system architecture.

As of December 31, 2023, we substantially completed our initiatives to reduce spans and layers of management and achieved savings in line with our anticipated benefits.

Our ongoing efforts under Transformation 2.0 include initiatives related to our financial systems and our business portfolio review.

As of December 31, 2024, we have incurred $798 million of costs as part of Transformation 2.0.

Transformation 2.0 initiatives are expected to conclude during 2025 with anticipated remaining costs of approximately $90 million primarily related to completion of our technology initiatives.

Costs associated with Transformation 2.0 have primarily consisted of compensation and benefit costs related to reductions in our workforce and fees paid to third-party consultants.

Additional detail relating to the projects, initiatives and timing of costs as a part of Transformation 2.0 are contained in the table above.

Investments in technology are expected to provide enhanced quality of reporting for both internal and external purposes in part through simplification and standardization of data to better enable migration into cloud-based tools and automation of manual activities, including transitioning general ledger, consolidation, and planning tools along with U.S.

payroll from older programs and software supporting our freight forwarding business.

These efforts to enhance our technology are expected to reduce the need for future investments;

we expect to begin to realize benefits therefrom in 2025.

Investments in our business portfolio review are expected to lead to better alignment of our businesses in support of our corporate strategy.

We are realigning businesses within Supply Chain Solutions to better execute our strategy;

the operational performance of these businesses is included in our GAAP and non-GAAP adjusted results.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Fit to Serve:

In 2023, a number of factors, including macroeconomic headwinds and volume diversion resulting from our labor negotiations with the International Brotherhood of Teamsters, contributed to volume declines in our U.S.

Domestic Package business.

In addition, our International Package and Supply Chain Solutions businesses were also negatively impacted by a number of challenging macroeconomic conditions during 2023.

In response to these factors, we began to undertake our Fit to Serve initiative with the intent to right-size our business to create a more efficient operating model that was more responsive to market dynamics through a workforce reduction of approximately 14,000 positions, primarily within management, throughout 2024.

We have incurred total costs of $416 million under Fit to Serve, which primarily consist of benefit costs related to reductions in our workforce.

We expect to complete this initiative during 2025 with expected remaining costs of approximately $45 million.

We achieved savings of approximately $1.0 billion in 2024 through reductions in our compensation and benefit expense.

Network Reconfiguration and Efficiency Reimagined :

On January 30, 2025, in connection with our agreement in principle with our largest customer, we announced a network reconfiguration which is expected to lead to consolidations of our facilities and workforce as well as end-to-end process redesign from 2025 through 2027.

Our network reconfiguration is expected to result in exit activities that could result in the closure of up to 10% of our buildings in 2025, a reduction in the size of our vehicle and aircraft fleets, and a decrease in the size of our workforce.

The costs directly associated with these exit activities are in addition to operational costs that we may incur.

We are not yet able to determine the specific assets or extent of our workforce that will be impacted by our network redesign, the timing of those future changes or the associated charges we will incur and therefore are not currently able to provide an estimate of the total cost or the cost by period.

We expect that impacted assets will remain in use during some or all of the periods of our network reconfiguration.

We expect to partially offset costs to complete our network reconfiguration through end-to-end process redesign carried out during our network reconfiguration through our Efficiency Reimagined initiatives.

These initiatives are being undertaken to align our organizational processes to the operational changes expected to occur in our network reconfiguration and drive organizational efficiency.

These initiatives are expected to yield approximately $1.0 billion in annualized savings beginning in 2025.

We incurred related costs of $35 million in the year ended December 31, 2024.

We expect to incur related costs of approximately $300 to $400 million during 2025, and incremental costs in 2026 and 2027, to complete the program which will primarily consist of outside professional services and severance costs.

Upon the completion of our network reconfiguration and Efficiency Reimagined initiatives, we expect to realize further benefits in subsequent periods from lower expense, including depreciation, compensation and benefits, as well as lower capital requirements.

We do not consider the related costs to be ordinary because each program involves separate and distinct activities that may span multiple periods and are not expected to drive incremental revenue, and because the scope of the programs exceeds that of routine, ongoing efforts to enhance profitability.

These initiatives are in addition to ordinary, ongoing efforts to enhance our business performance.

For more information regarding transformation strategy activities, see note 18 to the audited, consolidated financial statements.

Gain on Divestiture of Coyote

In the third quarter of 2024, we completed the previously announced divestiture of Coyote.

In connection therewith, we recorded a pre-tax gain of $156 million ($152 million after tax) during the year ended December 31, 2024.

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

For more information regarding the gain on divestiture of Coyote, see note 8 to the audited, consolidated financial statements.

One-Time Payment for International Regulatory Matter

In the second quarter of 2024, we made a payment of $94 million of previously restricted cash to settle a previously-disclosed challenge by Italian tax authorities to the deductibility of Value Added Tax payments by UPS to certain third-party service providers.

We supplement the presentation of operating profit, operating margin, interest expense, total other income and (expense), income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of this payment.

We do not believe this is a component of our ongoing operations and we do not expect this or similar payments to recur.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Goodwill and Asset Impairment Charges

We exclude the impact of goodwill and asset impairment charges which we do not consider when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards.

For more information regarding goodwill and current year asset impairment charges, see note 7 to the audited, consolidated financial statements.

One-Time Compensation Payment

We exclude the impact of a one-time payment made to certain U.S.-based, non-union part-time supervisors following the ratification of our labor agreement with the Teamsters in 2023.

We do not expect this or similar payments to recur.

Expense for Regulatory Matter

We exclude the impact of a charge to settle a regulatory matter that we consider to be unrelated to our ongoing operations and that we do not expect to recur.

For more information regarding this regulatory matter, see note 10 to the audited, consolidated financial statements.

Multiemployer Pension Plan Withdrawal Expense

We exclude the impact of a charge related to the withdrawal from a multiemployer pension plan within the United States.

We do not consider this expense to be related to our ongoing operations.

For more information regarding our multiemployer pension plans, see note 6 to the audited, consolidated financial statements.

Defined Benefit Pension and Postretirement Medical Plan Gains and Losses

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

We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor (defined as 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation), as well as gains and losses resulting from plan curtailments and settlements, for our defined benefit pension and postretirement medical plans immediately as part of Investment income and other in the statements of consolidated income.

We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor (defined as 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation), as well as gains and losses resulting from plan curtailments and settlements, for our defined benefit pension and postretirement medical plans immediately as part of Investment income (expense) and other in the statements of consolidated income.

We supplement the presentation of our income before income taxes, net income and earnings per share with adjusted measures that exclude the impact of these gains and losses and the related income tax effects.

We believe excluding these defined benefit pension and postretirement medical plan gains and losses provides important supplemental information by removing the volatility associated with plan amendments and short-term changes in market interest rates, equity values and similar factors.

The remeasurement of our defined benefit pension and postretirement medical plans' assets and liabilities resulted in a loss of $0.4 billion and a gain of $1.1 billion for the years ended December 31, 2023 and 2022, respectively.

The table below shows the amounts associated with each component of the loss and gain, as well as the weighted-average actuarial assumptions used to determine our net periodic benefit cost, for each year:

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The remeasurement of our defined benefit pension and postretirement medical plans' assets and liabilities resulted in losses of $0.7 and $0.4 billion for the years ended December 31, 2024 and 2023, respectively.

The table below shows the amounts associated with each component of the loss, as well as the weighted-average actuarial assumptions used to determine our net periodic benefit cost, for each year:

Year Ended December 31,

Components of defined benefit plan gain (loss) (in millions):

Components of defined benefit pension and postretirement medical plan loss (gain)

(in millions):

Discount rates $ (127) $ 384

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Demographic and other assumption changes 120 4

Total mark-to-market gain (loss) (351) 1,027

Curtailment and settlement gain (loss)

Total defined benefit plan gain (loss) $ (359) $ 1,061

Total mark-to-market loss

Curtailment and settlement loss

Total defined benefit pension and postretirement medical plan loss

Year Ended December 31,

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Discount rate at measurement date 5.85 % 5.40 %

The pre-tax defined benefit plan gains and losses for the years ended December 31, 2023 and 2022 consisted of the following:

Pre-tax defined benefit plan gains and losses for the years ended December 31, 2024 and 2023 consisted of the following:

2024 - $0.7 billion pre-tax defined benefit plan loss:

• Discount Rates ($127 million pre-tax gain):

The weighted-average discount rate for our pension and postretirement medical plans increased from 5.40% as of December 31, 2023 to 5.85% as of December 31, 2024, primarily due to an increase in treasury yields on AA-rated corporate bonds.

• Return on Assets ($672 million pre-tax loss):

The actual rate of return on plan assets in our U.S.

pension plans was lower than our expected rate of return, primarily due to weaker than expected bond market performance.

• Demographic and Other Assumption Changes ($120 million pre-tax loss):

This loss was due to differences between actual and estimated participant data and demographic factors, including healthcare cost trends, compensation rate increases and rates of termination, retirement and mortality.

2023 - $0.4 billion pre-tax defined benefit plan loss:

• Discount Rates ($384 million pre-tax loss):

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• Return on Assets ($37 million pre-tax gain):

The actual rate of return on plan assets in certain of our international pension plans was higher than our expected rate of return, primarily due to strong global equity market performance.

The actual rate of return on plan assets in certain of our pension plans was higher than our expected rate of return, primarily due to strong global equity market performance.

• Demographic and Other Assumption Changes ($4 million pre-tax loss):

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RESULTS OF OPERATIONS

2022 - $1.1 billion pre-tax defined benefit plan gain:

• Discount Rates ($5.2 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 in 2022.

• Return on Assets ($4.1 billion pre-tax loss):

The actual rate of return on plan assets was lower than our expected rate of return, primarily due to weaker global equity and U.S.

bond market performance.

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

Non-GAAP Adjusted Cost per Piece

We evaluate the efficiency of our operations using various metrics, including non-GAAP adjusted cost per piece.

Non-GAAP adjusted cost per piece is calculated as non-GAAP adjusted operating expenses in a period divided by total volume for that period.

Because non-GAAP adjusted operating expenses exclude costs or charges that we do not consider a part of underlying business performance when monitoring and evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards, we believe this is the appropriate metric on which to base reviews and evaluations of the efficiency of our operational performance.

Expense Allocations

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Ground 45,347 44,971 376 0.8 %

Cargo and Other

569 247 322 130.4 %

Total Revenue $ 60,376 $ 60,205 $ 171 0.3 %

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Operating Expenses $ 56,031 $ 55,049 $ 982 1.8 %

One-Time Compensation Payment (61) — (61) N/A

Non-GAAP adjustments to operating expenses

Transformation Strategy Costs

Incentive Compensation Program Design Changes — (431) 431 (100.0) %

Long-Lived Asset Estimated Residual Value Changes — (25) 25 (100.0) %

Adjusted Operating Expenses $ 54,555 $ 56,635 $ (2,080) (3.7) %

(147) (266) 119 (44.7) %

Goodwill and Asset Impairment Charges (5) — (5) N/A

One-Time Compensation Payment — (61) 61 (100.0) %

Multiemployer Pension Plan Withdrawal Expense (19) — (19) N/A

Non-GAAP Adjusted Operating Expenses

$ 55,860 $ 54,722 $ 1,138 2.1 %

Operating Profit (in millions) and Operating Margin:

Operating Profit $ 4,345 $ 5,156 $ (811) (15.7) %

Adjusted Operating Profit $ 5,403 $ 7,574 $ (2,171) (28.7) %

Non-GAAP Adjusted Operating Profit

$ 4,516 $ 5,483 $ (967) (17.6) %

Operating Margin 7.2 % 8.6 %

Adjusted Operating Margin 9.0 % 11.8 %

Non-GAAP Adjusted Operating Margin

The change in revenue was due to the following factors:

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2023 0.3 % 0.5 % (0.5) % 0.3 %

Revenue was also negatively impacted by having one less operating day in 2023 compared to 2022.

Comparative results were impacted by having one less operating day in 2024 compared to 2023.

The growth in rates / product mix shown above includes the growth we experienced in our air cargo product during 2024 as we onboarded more air cargo under our contract with the USPS.

Air cargo is measured by weight, not on a per piece basis, and therefore does not impact the volume and revenue per piece discussions below.

We expect continued growth in this product during 2025.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Average daily volume decreased, with reductions in both residential and commercial volume.

Challenging external conditions, including inflationary pressures and changes in consumer spending behavior contributed to overall volume declines.

Also contributing to the decline was diverted volume associated with our labor negotiations with the Teamsters.

Following ratification of the Teamsters contract in the third quarter of 2023, we regained approximately 60% of diverted U.S.

volume and gained volume from new customers.

We anticipate overall year-over-year volume growth rates will be flat in the first half of 2024, with moderate growth expected in the second half of the year dependent upon improving macroeconomic conditions.

Business-to-consumer volume declined 9.3% during the year, driven by changes in consumer spending behavior, as well as the impact of our labor negotiations with the Teamsters.

Business-to-consumer volume declines from SMBs were less than those from our large customers, which was partially due to continued growth in our Digital Access Program.

Volume from our largest customer declined for the year as planned under our contract terms.

Business-to-business volume declined 7.2%, primarily as a result of declines from large customers in industry sectors that are sensitive to the macroeconomic factors discussed above.

Uncertainty around our Teamsters contract also negatively impacted volume, primarily during the first nine months of the year.

Average daily returns volume increased slightly during the year, benefiting from our acquisition of Happy Returns during the fourth quarter.

Within our Air products, average daily volume decreases were driven by continued execution under the contract terms with our largest customer as planned, as well as by other customers making cost trade-offs and utilizing the enhanced speed in our ground network.

We expect moderate volume decreases in 2024 as we continue to execute contract terms with our largest customer.

Ground residential and Ground commercial average daily volume decreases of 7.1% and 6.7%, respectively, were primarily attributable to volume declines from a number of large customers due to the factors discussed above.

We expect volume growth in 2024 to be aligned with overall market growth.

Rates and Product Mix

In December 2022, we implemented an average 6.9% net increase in base and accessorial rates for our Air and Ground products.

Revenue per piece in Air and Ground products increased for the full year, driven by base rate increases and other pricing actions, and favorable changes in customer mix.

A shift in product mix, declines in fuel and demand-related surcharges, and a reduction in average billable weight per piece slightly offset these increases.

We anticipate moderate revenue per piece growth in 2024 as we continue to execute on pricing initiatives within our strategy.

We returned to annual average daily volume growth in 2024 for the first time in three years, driven primarily by increases in our SurePost product.

The increase occurred across multiple industries including retail, professional services and healthcare, and was led by our addition of e-commerce customers and more SMBs leveraging our Digital Access Program.

This growth more than offset the volume decline from our largest customer as we continued to reduce their volume with us as planned.

As previously disclosed, we expect average daily volume to decline by approximately 8.5% in 2025 as we execute on our plans to accelerate the volume reductions from our largest customer.

We expect these volume decreases will be more pronounced during the second half of 2025 as planned volume reductions increase.

Business-to-consumer volume increased 3.0% during the year, due primarily to volume from the additional e-commerce customers noted above, and continued growth in online consumer spending.

Business-to-business volume decreased 2.6%, primarily due to challenging macroeconomic factors and a slowdown in manufacturing activity which were partially offset by returns volume increases as a result of growth in e-commerce activity.

Within our Air products, average daily volume decreased 9.1% during the year, driven by continued reductions in air volume from our largest customer as planned, as well as by other customers that made cost trade-offs and utilized the enhanced speed in our ground network.

While air volume is expected to decline in 2025 due to our largest customer, these declines are expected to be partially offset by growth from SMB and Enterprise accounts.

Ground commercial average daily volume decreased 2.4%, primarily driven by declines across certain large customers and SMBs, partially offset by continued growth within our Digital Access Program.

Ground residential average daily volume increased 6.1%, primarily due to an increase in SurePost volume from e-commerce customers.

We expect our ground volumes will decrease in 2025 due to the planned volume reductions from our largest customer.

We expect that continued growth in SMBs will partially offset these anticipated declines.

We expect that our recent pricing actions on our SurePost product may result in SurePost volume declines.

The insourcing of our SurePost product does not affect our measurement of average daily volume.

Revenue Per Piece

Revenue per piece declined 0.5% for the year due primarily to the decrease in fuel surcharges discussed below.

The negative impact of changes in product mix, including an increase in lighter weight, shorter zone shipments, were partially offset by the positive impact of pricing actions to address revenue quality, including demand related surcharges, which led to sequential improvement in the revenue per piece growth rate during the second half of the year.

In December 2023, we implemented an average 5.9% net increase in base and accessorial rates for both our Air and Ground products.

Revenue per piece from our Air products increased due to changes in customer mix while revenue per piece from our Ground products declined due to changes in both customer and product mix.

We expect revenue per piece to increase during 2025 as we focus on growing higher yielding volume from customers that value our end-to-end integrated network and the impact of an average 5.9% net increase in base and accessorial rates implemented in December 2024.

Fuel Surcharges

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Department of Energy's ("DOE") Gulf Coast spot price for a gallon of kerosene-type fuel, and our ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel price.

In 2023, fuel surcharge revenue decreased $1.0 billion, driven by reductions in price per gallon and the impact of lower volumes.

Based on current commodity market forecasts, we anticipate a further decline in fuel prices will be offset in part by higher surcharge modifiers.

In 2024, fuel surcharge revenue decreased $270 million, driven by reductions in the price per gallon, partially offset by increases in volume and the impact of our pricing initiatives.

Based on the anticipated declines in volume, we expect fuel surcharge revenue to decrease in 2025.

UNITED PARCEL SERVICE, INC.

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Operating Expenses

Operating expenses and adjusted operating expenses decreased year over year.

The costs of operating our integrated air and ground network decreased $1.5 billion, our pickup and delivery costs decreased $641 million and our package sorting costs decreased $216 million.

In addition to the impact of one less operating day in 2023, the overall decrease in operating expenses was primarily due to:

• Lower compensation expense due to a reduction in direct labor hours resulting from volume declines, as well as the impact of incentive compensation program design changes implemented in the fourth quarter of 2022 and reductions in management headcount.

These decreases were partially offset by the impact of the first-year contractual rate increase under our Teamsters contract that became effective August 1.

• A reduction in purchased transportation costs, resulting from lower volumes and a reduction in ground volume handled by third-party carriers, as well as the impact of continued strategic initiatives.

• Lower fuel expense driven by lower volumes and decreases in the price of jet fuel, diesel and gasoline.

These decreases were slightly offset by an increase of $259 million in other operating costs.

Notwithstanding the factors discussed above, total cost per piece increased 5.2% for the year and adjusted cost per piece increased 5.7%, driven by overall reductions in volume while maintaining industry leading service levels.

We anticipate that the cost per piece growth rate will remain elevated in the first half of 2024 due to Teamsters contractual wage-rate impacts.

Operating expenses and non-GAAP adjusted operating expenses increased year over year.

Pickup and delivery costs increased $1.1 billion and package sortation costs increased $291 million, slightly offset by a $173 million decrease in the costs of operating our integrated air and ground network, a decrease in other operating costs of $53 million and the impact from one less operating day in 2024 compared to 2023.

The cost increases were primarily due to an increase of $1.4 billion in compensation and benefits expense which was driven by the impact of wage and benefit rate increases for our union workforce under our contract with the International Brotherhood of Teamsters ("IBT"), which became effective August 1, 2023.

Third-party delivery costs for our SurePost product increased $213 million due to higher SurePost volume.

The cost decreases were primarily due to a reduction in fuel expense, driven by decreases in the cost of jet and ground fuel, a decrease in worker's compensation expense and the impact of reductions in our workforce under our Fit to Serve initiative.

As of the fourth quarter of 2024, U.S.

air cargo operating expense is presented within our U.S.

Domestic Package segment and prior periods have been recast.

Our non-GAAP adjusted operating expenses in this segment exclude the impact of total transformation strategy costs of $147 million, a pre-tax charge to withdraw from a multiemployer pension plan of $19 million and asset impairment charges of $5 million.

Total transformation strategy costs within the segment during 2024 were related to our Fit to Serve, Transformation 2.0 and Efficiency Reimagined programs.

Within these programs, we incurred compensation and benefits costs related to workforce reductions as we right-size our business.

Additionally, within Transformation 2.0 and Efficiency Reimagined , we incurred costs related to outside professional service providers.

For additional information on these enterprise programs, our expected benefits and the related costs, see “Supplemental Information - Items Affecting Comparability”.

Cost per piece increased 0.6% for the year and non-GAAP adjusted cost per piece increased 0.8%, as expense increases, driven by an increase in compensation and benefits expense, outpaced growth in average daily volume.

Cost per piece is expected to increase during 2025 as we expect to incur costs to further our strategic initiatives and we expect average daily volume to decrease as discussed above.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $1.9 billion, with operating margin decreasing 240 basis points to 8.5%.

Adjusted operating profit decreased $2.2 billion, with adjusted operating margin decreasing 280 basis points to 9.0%.

As a result of the factors described above, operating profit decreased $811 million, with operating margin decreasing 140 basis points to 7.2%.

Non-GAAP adjusted operating profit decreased $967 million, with non-GAAP adjusted operating margin decreasing 160 basis points to 7.5%.

UNITED PARCEL SERVICE, INC.

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Operating Expenses $ 14,769 $ 14,600 $ 169 1.2 %

Incentive Compensation Program Design Changes — (30) 30 (100.0) %

Long-Lived Asset Estimated Residual Value Changes — (51) 51 (100.0) %

Non-GAAP adjustments to operating expenses

One-Time Payment for Int'l Regulatory Matter (88) — (88) N/A

Asset Impairment Charges (2) — (2) N/A

Transformation Strategy Costs (79) (51) (28) 54.9 %

Adjusted Operating Expenses $ 14,549 $ 15,279 $ (730) (4.8) %

Non-GAAP Adjusted Operating Expenses

$ 14,600 $ 14,549 $ 51 0.4 %

Operating Profit (in millions) and Operating Margin:

Operating Profit $ 3,191 $ 3,231 $ (40) (1.2) %

Adjusted Operating Profit $ 3,282 $ 4,419 $ (1,137) (25.7) %

Non-GAAP Adjusted Operating Profit

$ 3,360 $ 3,282 $ 78 2.4 %

Operating Margin 17.8 % 18.1 %

Adjusted Operating Margin 18.4 % 22.4 %

Non-GAAP Adjusted Operating Margin

18.7 % 18.4 %

Currency Translation Benefit / (Cost)—(in millions)*:

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2023 (0.6) % 1.9 % — % (0.6) % 0.7 %

Comparative results were impacted by having one less operating day in 2024 compared to 2023.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Average daily volume decreased for both domestic and export products.

Business-to-consumer volume decreased 10.0%, as geopolitical tensions and global macroeconomic headwinds, including persistent inflation and high interest rates, negatively impacted consumer demand.

These factors, coupled with higher U.S.

inventory levels, also negatively impacted business-to-business volume, driving a decrease of 5.8%.

Volume from both large customers and SMBs declined, driven by declines in the retail, technology and manufacturing sectors.

We expect year-over-year volume growth to be relatively flat in the first half of 2024 and to improve in the second half of the year, dependent on an improvement in global macroeconomic conditions.

Export volume decreased for the year, driven by declines on intra-Europe and Asia trade lanes that were slightly offset by volume growth in the Americas.

Volume on intra-Europe and Asia trade lanes was negatively impacted by overall economic conditions, with Asia to U.S.

volumes also impacted by higher inventory levels in the United States.

Growth in the Americas was driven by transborder volume to and from the United States.

Our premium products experienced a volume decline of 10.6%, primarily from our Transborder and Worldwide Express Saver products.

These declines resulted from shifts in customer product preferences, macroeconomic conditions and lower import demand from U.S.

Volume in our non-premium products decreased 1.9%, driven by declines in our Transborder Standard product in Europe and our Worldwide Expedited product.

These declines were the result of macroeconomic conditions described above.

Domestic volume declines were largest in Europe and Canada, resulting from an overall reduction in customer demand for all of the reasons discussed above.

Rates and Product Mix

In December 2022, we implemented an average 6.9% net increase in base and accessorial rates for international shipments originating in the United States.

Average daily volume was relatively flat during 2024 as decreases in our domestic products were largely offset by growth in our export products.

We expect our expanded weekend deliveries and anticipated improvements in macroeconomic conditions to contribute to volume growth in 2025, subject to uncertainty around the impact of global trade policies.

Domestic volume declines were largest in Europe, partially offset by growth in the Americas.

Volume declines in Europe were primarily driven by challenging economic conditions which began to moderate during the year.

Volume growth in the Americas was largely driven by the Canadian retail sector during the fourth quarter as a result of temporary supply chain disruptions, which ended in December 2024.

Export volume increased for the year, driven by continued growth on Americas and Asia to U.S.

trade lanes and U.S.

to Americas trade lanes.

Improvements in the Americas to U.S.

trade lanes were driven by growth in the retail sector, while the Asia to U.S.

trade lanes growth was driven by increased SMB volume in retail, high tech and manufacturing sectors.

By export product, growth in our non-premium products more than offset a slight decline in our premium offerings.

Volume in our non-premium export products increased 3.2%, driven by growth in our Transborder Standard products from customers in the retail sector in Canada, as well as European healthcare and diversified vehicles and parts customers.

Non-premium product growth was also driven by an increase in our Worldwide Expedited products, primarily due to increases in the retail sector within Asia.

Our premium export products experienced a volume decline of 1.3%, primarily driven by reductions in our Worldwide Express and Transborder Express products, as customers shifted toward economy products.

Volume growth in our Worldwide Express Saver product largely offset these declines, driven by growth across multiple sectors within Asia and Europe.

Revenue Per Piece

Total revenue per piece increased 1.5% during 2024, primarily due to base rate increases.

Currency had a negative impact of 70 basis points on revenue per piece due to strengthening of the U.S.

Rate changes for shipments originating outside the U.S.

are made throughout the year and vary by geographic market.

Total revenue per piece decreased 1.0%, primarily due to declines in fuel and demand-related surcharges, as well as unfavorable currency movements during the first half of the year.

Base rate increases and favorable shifts in customer and product mix largely offset these declines.

Excluding the impact of currency, revenue per piece decreased 0.3%.

We expect overall revenue per piece to decline in 2024 driven by a continued shift to non-premium products as the challenging economic outlook persists.

Export revenue per piece decreased 4.2%, driven by declines in our Worldwide products.

These declines were slightly offset by base rate increases.

Excluding the impact of currency, export revenue per piece decreased 3.7%.

We expect overall revenue per piece to slightly increase in 2025 driven by favorable trends in product mix and the impact of increases in base and accessorial rates implemented in December 2024.

Domestic revenue per piece increased 4.1%, primarily due to base rate increases and favorable shifts in customer mix.

These were slightly offset by unfavorable currency movements in the first half of the year.

Excluding the impact of currency, domestic revenue per piece increased 5.2%.

Currency had a negative impact of 140 basis points on domestic revenue per piece.

Export revenue per piece decreased 0.6%, driven by lower fuel surcharge rates and unfavorable product mix shifts.

These decreases were mostly offset by base rate increases and adjustments to demand-related surcharges introduced during the second half of the year.

Demand-related surcharges are expected to decline in 2025, subject to market conditions.

Currency had a negative impact of 50 basis points on export revenue per piece.

Fuel Surcharges

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are indexed to fuel prices in the region or country where the shipment originates.

Total international fuel surcharge revenue decreased by $532 million, driven primarily by a decrease in the fuel price per gallon and the impact of volume declines.

Based on current commodity pricing forecasts, we anticipate a decline in fuel prices to impact fuel surcharge revenue negatively in the first half of 2024.

Total international fuel surcharge revenue decreased by $10 million, driven primarily by a decrease in the fuel price per gallon, which was mostly offset by increased export volumes.

We anticipate an increase in fuel surcharge revenue in the first half of 2025, driven by an expectation of increased volume partially offset by lower anticipated fuel prices.

UNITED PARCEL SERVICE, INC.

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Operating Expenses

Operating expenses, and adjusted operating expenses, decreased year over year.

This was primarily due to a reduction of $730 million in the cost of operating our integrated international air and ground network, driven by lower fuel prices and reductions in air charters and aircraft block hours as a result of lower volumes.

We expect fuel prices to further decrease in the first half of 2024.

Operating expenses, and non-GAAP adjusted operating expenses, increased year over year.

Pickup and delivery costs increased $187 million driven by increased total delivery stops and costs of purchased transportation.

Package sortation costs increased $54 million, as a result of higher year-over-year export volumes, and expanded weekend operations, included in this activity are compensation and benefit costs.

Additionally, we incurred an $88 million expense during 2024 related to the settlement of a previously disclosed one-time international regulatory matter.

These increases were partially offset by reductions in air network costs of $126 million, driven by lower average fuel prices and reductions in air charters and aircraft block hours in response to lower volumes in the first half of the year.

We expect overall operating expenses to increase in 2025 primarily as a result of expected volume increases.

Non-GAAP adjusted operating expenses in 2024 exclude the impact of the $88 million regulatory expense noted above, $2 million in asset impairment charges and $79 million in transformation strategy expenses.

Transformation strategy activities within our International Package segment during 2024 primarily consisted of compensation and benefits expenses related to workforce reductions under our Fit to Serve program.

For additional information on these programs and the related costs, see “Supplemental Information - Items Affecting Comparability.”

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $1.1 billion, with operating margin decreasing 390 basis points to 18.1%.

Adjusted operating profit decreased $1.1 billion and adjusted operating margin decreased 400 basis points to 18.4%.

Uncertainty around increased geopolitical tensions continued to impact volumes in our International Package segment in 2023.

Substantially all of our operations in Russia and Belarus were suspended in 2022 and we subsequently commenced liquidation of our Small Package and Forwarding and Logistics subsidiaries in these countries.

We expect to complete this process during 2024.

As a result of the factors described above, operating profit decreased $40 million, with operating margin decreasing 30 basis points to 17.8%.

Non-GAAP adjusted operating profit increased $78 million and non-GAAP adjusted operating margin increased 30 basis points to 18.7%.

During 2024, we completed the previously disclosed liquidation of our Small Package subsidiaries in Russia and Belarus.

The process of liquidating our Forwarding and Logistics subsidiaries in Russia are on-going and we expect to finalize the liquidation in 2025.

Substantially all of our operations in Ukraine remain indefinitely suspended.

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Transformation Strategy Costs

Goodwill and Asset Impairment Charges (236) — (236) N/A

Incentive Compensation Program Design Changes — (44) 44 (100.0) %

Adjusted Operating Expenses $ 11,981 $ 14,571 $ (2,590) (17.8) %

(96) (118) 22 (18.6) %

Gain on Divestiture of Coyote 156 — 156 N/A

Goodwill and Asset Impairment Charges (101) (236) 135 (57.2) %

Expense for Regulatory Matter (45) — (45) N/A

Non-GAAP Adjusted Operating Expenses

$ 11,716 $ 11,814 $ (98) (0.8) %

Operating Profit (in millions) and Operating Margins:

Operating Profit $ 932 $ 754 $ 178 23.6 %

Adjusted Operating Profit 1,188 1,860 (672) (36.1) %

Non-GAAP Adjusted Operating Profit

1,018 1,108 (90) (8.1) %

Operating Margin 7.3 % 5.8 %

Adjusted Operating Margin 9.0 % 11.3 %

Non-GAAP Adjusted Operating Margin

Currency Translation Benefit / (Cost)—(in millions)*:

Revenue $ (9)

Operating Expenses 86

Operating Profit 18

* Amount represents the change compared to the prior year.

* Amount represents the change in currency translation compared to the prior year.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Year Ended December 31, Change

2024 2023 $ %

Adjustments to Operating Expenses (in millions):

Non-GAAP adjustments to Operating Expenses

(in millions):

Transformation Strategy Costs

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Logistics 57 48 9 18.8 %

Other 2 4 (2) (50.0) %

— 2 (2) (100.0) %

Total Transformation Strategy Costs 96 118 (22) (18.6) %

Goodwill and Asset Impairment Charges

Gain on Divestiture of Coyote

Forwarding (156) — (156) N/A

117 — $ 117 N/A

Total Goodwill and Asset Impairment Charges

Total Gain on Divestiture of Coyote

(156) — (156) N/A

Incentive Compensation Program Design Changes

Goodwill and Asset Impairment Charges

Forwarding — 119 (119) (100.0) %

Logistics — 22 (22) (100.0) %

Total Incentive Compensation Program Design Changes $ — $ 44 $ (44) (100.0) %

Total Adjustments to Operating Expenses $ 354 $ 89 $ 265 297.8 %

Logistics 101 — 101 N/A

— 117 (117) (100.0) %

Total Goodwill and Asset Impairment Charges

101 236 (135) (57.2) %

Expense for Regulatory Matter

Total Expense for Regulatory Matter

Total non-GAAP Adjustments to Operating

$ 86 $ 354 $ (268) (75.7) %

Total revenue within Supply Chain Solutions decreased, primarily driven by the September 2024 divestiture of Coyote.

These reductions were partially offset by growth in Logistics and certain of our other businesses.

Within our Logistics businesses revenue increased $510 million.

The acquisition of MNX Global Logistics in the fourth quarter of 2023 contributed $303 million of the increase, including revenue related to healthcare customers.

Revenue in mail services increased $206 million driven by new customer volume and rate increases in the second half of the year.

We expect continued growth within our Logistics businesses in 2025, driven by expected growth from our healthcare customers.

Within our Forwarding businesses, revenue decreased $806 million.

Revenue from Coyote decreased $976 million due to lower volumes, continued softness in market rates, and the completion of the divestiture.

International airfreight revenue increased $52 million, primarily due to increases in market rates.

Volume also grew during the year, particularly on the Asia export lanes, driven by growth from e-commerce customers.

We expect revenue growth to continue during 2025, driven by improving customer mix.

Ocean freight forwarding revenue also increased, driven by an increase in market rates resulting from improved market dynamics as the year progressed, which more than offset lower volumes during the year.

We expect revenue growth to continue into 2025 driven by these higher rates.

Revenue from our other businesses within Supply Chain Solutions increased.

In our digital businesses, revenue increased $163 million, driven by volume growth at Roadie and the full-year impact of Happy Returns, which was acquired in the fourth quarter of 2023.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Total revenue within Supply Chain Solutions decreased for the year, primarily due to lower revenue and volumes across our forwarding businesses.

The declines in forwarding and certain of our other businesses more than offset the impact of revenue growth in logistics and our digital businesses.

Forwarding revenue was impacted by the following:

• International airfreight revenue decreased approximately $1.2 billion.

Market rates declined during the year as customer demand remained weak and capacity continued to outpace demand.

As a result, Asia export lanes experienced significant pressure during the first half of the year.

Year-over-year revenue declines began to moderate in the fourth quarter and we experienced volume growth on Asia export lanes.

We expect limited improvements in 2024, primarily from the continued volume growth in Asia.

• Revenue in our truckload brokerage business decreased $1.3 billion due to declines in volume and market rates.

We focused on revenue quality initiatives for this business during the year and, as a result, were able to grow volume from SMBs.

We intend to explore strategic alternatives for this business in 2024.

• The remaining reduction in revenue was attributable to declines in ocean freight forwarding, driven by lower market rates.

While volume in this business also declined for the year, we experienced year-over-year growth during the second half of the year.

We anticipate ocean freight forwarding revenue will remain challenged in 2024 as market overcapacity continues to adversely impact rates.

Within our Logistics businesses, healthcare logistics revenue increased $439 million, primarily due to the acquisition of Bomi Group in the fourth quarter of 2022.

Additionally, we experienced growth within our other healthcare operations.

Revenue in mail services increased $130 million as a result of volume growth, rate increases and a favorable shift in product characteristics.

The impact of acquiring MNX Global Logistics during the fourth quarter of 2023 was largely offset by declines in our distribution and post sales operations.

We expect growth within our Logistics businesses to continue into 2024.

Within our other Supply Chain Solutions businesses, we experienced higher revenue from our digital businesses, including the acquisition of Happy Returns during the fourth quarter of 2023.

We anticipate continued growth in these businesses during 2024 as we continue to execute on our strategy.

Growth in our digital businesses was more than offset by a reduction of $386 million in transition services provided to the acquirer of UPS Freight.

We expect to complete the work associated with these transition services arrangements during the first half of 2024.

Revenue was also negatively impacted by $155 million due to lower volumes from our service contracts with the U.S.

Postal Service.

Operating Expenses

Total operating expenses and total adjusted operating expenses for Supply Chain Solutions decreased for the year.

Forwarding operating expenses decreased $2.7 billion, including charges of $119 million related to impairments of goodwill and an indefinite-lived trade name.

On an adjusted basis, operating expenses decreased $2.8 billion, driven by a reduction in purchased transportation expense as a result of lower market rates and volume declines.

Overall, we expect market conditions will improve during 2024, leading to increases in our purchased transportation costs, particularly for airfreight.

Logistics operating expenses increased $532 million primarily due to the acquisitions of Bomi Group and MNX Global Logistics.

Within our other Supply Chain Solutions businesses, operating expense increases in our digital businesses, including Happy Returns, were more than offset by reductions in other businesses.

In total, operating expenses decreased $176 million, including goodwill impairment charges of $117 million.

On an adjusted basis, operating expenses decreased $295 million driven by a reduction of $363 million in costs incurred to procure transportation for, and provide transition services to, the acquirer of UPS Freight.

We expect these costs to be further reduced, although not significantly, as we complete the obligations under these agreements during the first half of 2024.

Transportation costs related to our contracts with the U.S.

Postal Service also decreased for the year as a result of lower volumes.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Total operating expenses and non-GAAP adjusted operating expenses within Supply Chain Solutions decreased.

Forwarding operating expenses decreased $1.1 billion, and on a non-GAAP adjusted basis, operating expenses decreased $786 million, primarily driven by decreases of $949 million in Coyote due to lower activity levels during 2024 and the September 2024 divestiture.

These decreases were partially offset by a $163 million increase in expenses in our freight forwarding business, driven by market rates for third-party transportation during the second half of 2024.

We expect Forwarding operating expenses will decrease in the first half of 2025 driven by the impact of the Coyote divestiture, partially offset by continued growth in our freight forwarding businesses.

Non-GAAP adjusted operating expense in our Forwarding business excludes $39 million in expense in 2024 related to projects undertaken as part of our transformation strategy, and a gain of $156 million related to the divestiture of Coyote recognized during the third quarter.

For the year ended December 31, 2023, non-GAAP adjusted operating expenses in this business excluded the impact of transformation strategy costs and goodwill and intangible impairments as shown in the table above.

Logistics operating expenses increased $657 million, and on a non-GAAP adjusted basis increased $543 million.

Increases in Logistics operating expense were driven primarily by the impact of the acquisition of MNX Global Logistics, which contributed $288 million of the increase, and by a $188 million increase in operating expenses in mail services, driven by volume growth and rate increases in the second half of 2024.

We expect rate increases in 2025 to drive higher operating expenses in our mail services business.

Non-GAAP adjusted operating expenses within Logistics exclude the impact of $57 million primarily related to projects undertaken as part of our transformation strategy and $101 million in asset impairment charges consisting of a $41 million write down in the value of certain trade names acquired as part of the Bomi Group acquisition in the first quarter of 2024, and $60 million in impairments of IT systems and fixed assets.

During 2023, we recognized $48 million in transformation strategy costs.

Expenses in our other Supply Chain Solutions businesses increased $71 million, and on a non-GAAP adjusted basis, increased $145 million.

Within our digital businesses, operating costs increased $181 million, driven by volume growth and the impact of acquiring Happy Returns in the fourth quarter of 2023.

In 2024, non-GAAP adjusted operating expense for these businesses excluded the impact of $45 million related to a regulatory matter which is further discussed in note 10.

For the year ended December 31, 2023, non-GAAP adjusted operating expense excluded the impact of goodwill impairment charges of $117 million.

As discussed above, our non-GAAP adjusted operating expenses exclude the impact of various transformation strategy costs.

Within Supply Chain Solutions, these total costs were $96 million in 2024 and $118 million in 2023.

Transformation strategy costs reflected within Supply Chain Solutions during these periods are related to our Transformation 2.0 and Fit to Serve programs.

Within Transformation 2.0, we incurred impairment costs resulting from our business portfolio review and costs related to financial system investments in Forwarding.

Within Fit to Serve, we incurred severance costs.

For additional information on these programs and the related costs, see “Supplemental Information - Items Affecting Comparability.”

Operating Profit and Margin

As a result of the factors described above, total operating profit decreased $937 million, with operating margin decreasing 450 basis points to 6.3%.

On an adjusted basis, operating profit decreased $672 million and operating margin decreased 230 basis points to 9.0%.

As a result of the factors described above, total operating profit increased $178 million, with operating margin increasing 150 basis points to 7.3%.

On a non-GAAP adjusted basis, operating profit decreased $90 million, with non-GAAP adjusted operating margin decreasing 60 basis points to 8.0%.

UNITED PARCEL SERVICE, INC.

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(213) (337) 124 (36.8) %

Multiemployer Pension Plan Withdrawal Expense (19) — (19) N/A

One-Time Compensation Payment — (61) 61 (100.0) %

(61) — (61) N/A

Incentive Compensation Program Design Changes — (505) 505 (100.0) %

Adjusted Compensation and benefits 46,690 47,169 (479) (1.0) %

Non-GAAP Adjusted Compensation and Benefits 47,861 46,694 1,167 2.5 %

Repairs and maintenance 2,940 2,828 112 4.0 %

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(109) (98) (11) 11.2 %

Long-Lived Asset Estimated Residual Value Changes — (76) 76 (100.0) %

Goodwill and Asset Impairment Charges (236) — (236) N/A

Adjusted Total Other expenses $ 34,395 $ 39,316 $ (4,921) (12.5) %

Gain on Divestiture of Coyote 156 — 156 N/A

One-Time Payment for International Regulatory Matter (88) — (88) N/A

Goodwill and Asset Impairment Charges (108) (236) 128 (54.2) %

Expense for Regulatory Matter (45) — (45) N/A

Non-GAAP Adjusted Total Other Expenses

$ 34,315 $ 34,391 $ (76) (0.2) %

Total Operating Expenses $ 82,602 $ 81,817 $ 785 1.0 %

Adjusted Total Operating Expenses $ 81,085 $ 86,485 $ (5,400) (6.2) %

Non-GAAP Adjusted Total Operating Expenses

$ 82,176 $ 81,085 $ 1,091 1.3 %

Currency (Benefit) / Cost - (in millions)* (152)

* Amount represents the change in currency translation compared to the prior year.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Year Ended December 31, Change

2024 2023 $ %

Adjustments to Operating Expenses (in millions):

Non-GAAP Adjustments to Operating Expenses

(in millions):

Transformation Strategy Costs

Compensation $ 21 $ 19 $ 2 10.5 %

Benefits 318 10 308 N/M

Benefits 192 318 (126) (39.6) %

Other expenses 109 98 11 11.2 %

Total Transformation Strategy Costs 322 435 (113) (26.0) %

Incentive Compensation Program Design Changes

Compensation — 505 (505) (100.0) %

One-Time Compensation Payment

Long-Lived Asset Estimated Residual Value Changes

Depreciation and amortization — 76 (76) (100.0) %

Gain on Divestiture of Coyote

Other expenses (156) — (156) N/A

One-Time Payment for International Regulatory Matter

Other expenses 88 — 88 N/A

Goodwill and Asset Impairment Charges

Other expenses 108 236 (128) (54.2) %

One-Time Compensation Payment

Benefits — 61 (61) (100.0) %

Expense for Regulatory Matter

Other expenses 45 — 45 N/A

Total Adjustments to Operating Expenses $ 732 $ 759 $ (27) (3.6) %

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Multiemployer Pension Plan Withdrawal Expense

Total Non-GAAP Adjustments to Operating Expenses $ 426 $ 732 $ (306) (41.8) %

Compensation and Benefits

Total compensation and benefits and adjusted total compensation and benefits decreased in 2023 compared to 2022.

Compensation costs decreased $1.2 billion.

On an adjusted basis, compensation costs decreased $676 million.

The principal factors impacting the change were:

• Management compensation decreased $1.2 billion, including the effect of a 2022 one-time charge related to incentive compensation program design changes.

Adjusted management compensation decreased $639 million, driven by lower incentive compensation accruals and lower overall headcount.

• The acquisition of Bomi Group in the fourth quarter of 2022 and the acquisitions of MNX Global Logistics and Happy Returns in the fourth quarter of 2023 resulted in additional compensation cost of $116 million within Supply Chain Solutions.

• Reductions in U.S.

direct labor hours due to volume declines and lower administrative headcount resulted in a reduction in compensation cost of $1.2 billion that was offset by an increase of $1.3 billion due to contractual wage rate increases for our Teamsters workforce.

We expect wage rate growth on a year-over-year basis to continue through the first half of 2024 as a result of the new Teamsters contract.

Benefits costs increased $566 million and increased $197 million on an adjusted basis, primarily due to:

• Other benefits costs increased $348 million, driven by employee separation costs of $303 million as we reduced headcount to create a more efficient operating model and enhance responsiveness to changing market dynamics.

In addition, we made a one-time payment of $52 million to certain U.S.-based, non-union part-time supervisors following the ratification of our labor agreement with the Teamsters.

On an adjusted basis, other benefits costs decreased $6 million.

Total compensation and benefits, and total non-GAAP adjusted compensation and benefits, increased.

Compensation costs, and non-GAAP adjusted compensation costs, both increased $1.1 billion.

The principal factors contributing to the overall increase were:

• Direct labor costs increased $1.2 billion.

Contractual wage rate increases for our U.S.

union workforce resulted in an increase in costs of $793 million.

Increased seniority within our union workforce contributed $300 million of the increase.

We expect wage rate growth to moderate during 2025 in accordance with the terms of our IBT contract.

Additionally, labor costs in our air operations increased by $128 million associated with increases in our U.S.

air cargo volume.

• Management compensation costs decreased $127 million due to lower overall headcount, partially offset by higher incentive compensation expense.

Benefits costs decreased $77 million, and on a non-GAAP adjusted basis increased $91 million.

The principal factors contributing to the overall changes were:

• Workers' compensation expense decreased $228 million due to favorable developments in prior year claims.

• Accruals for paid time off, payroll taxes and other costs increased $158 million, primarily due to contractual wage rate growth in the first half of the year.

• Health and welfare costs increased $149 million, driven by increased contributions to multiemployer plans as a result of contractually-mandated rate increases.

Costs related to Company-sponsored health and welfare plans increased $51 million due to claims experience and medical cost inflation, partially offset by lower overall headcount.

• Accruals for paid time off, payroll taxes and other costs increased $250 million, including payroll taxes associated with the one-time payment discussed above.

On an adjusted basis, these accruals increased $240 million, primarily due to contractual wage growth.

• Workers' compensation expense increased $61 million due to adverse claims trends, partially offset by the impact from a reduction in hours worked.

Partially offsetting these increases, pension and other postretirement benefits expense decreased $392 million, primarily impacted by:

• A reduction of $887 million in the cost of Company-sponsored defined benefit plans, driven by a reduction in service cost due to higher discount rates and the cessation of accruals for future service in the UPS Retirement Plan.

• An expense increase of $445 million for the UPS 401(k) Savings Plan, primarily due to the impact of replacement contributions for the UPS Retirement Plan.

Repairs and Maintenance

The decrease in repairs and maintenance expense was primarily due to a reduction in aircraft engine maintenance as the declines in volume we experienced in 2023 resulted in the temporary idling of certain aircraft to better match capacity with demand.

Based on current volume projections, we anticipate that certain aircraft may be temporarily idled for periods during 2024, resulting in a further reduction in maintenance expense.

The reduction in aircraft engine maintenance was partially offset by increases in the cost of materials and supplies and an increase in routine repairs to buildings and facilities.

We expect these trends to continue in 2024 due to ongoing facility maintenance programs.

• Pension and other postretirement benefits costs increased $19 million, driven by a 2024 expense related to a withdrawal from a multiemployer pension plan in the United States.

On a non-GAAP adjusted basis, pension and other postretirement benefits costs remained relatively flat.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

• Other employee benefits expense decreased $174 million due to higher separation costs incurred in 2023.

On a non-GAAP adjusted basis, other employee benefits expense remained relatively flat.

Non-GAAP adjusted operating expenses exclude the impact of costs incurred under certain of our transformation strategy programs, Fit to Serve and Transformation 2.0, as well as expense related to a withdrawal from a multiemployer pension plan, and primarily impacted other employee benefits expense and related payroll tax expense as discussed above.

Compensation and benefit expenses for these items for 2024 were $232 million.

These costs decreased by $105 million as compared to 2023.

During 2023, non-GAAP adjusted operating expenses excluded costs incurred under certain of our transformation strategy programs, and a one-time compensation payment.

See Supplemental Information - Items Affecting Comparability for additional discussion.

Repairs and Maintenance

Repairs and maintenance expense increased, primarily attributable to a $59 million increase in routine repairs to buildings and facilities.

Expense also increased for aircraft maintenance, due to the timing of required engine maintenance, and for ground equipment maintenance as a result of increased driving miles.

Depreciation and Amortization

We incurred higher depreciation expense during 2023, primarily as a result of new facilities coming into service.

We incurred higher amortization expense on capitalized software investments in support of our strategic initiatives, as well as on intangible assets due to the addition of assets arising from the acquisitions of Bomi Group in the fourth quarter of 2022 and MNX Global Logistics and Happy Returns in the fourth quarter of 2023.

We expect to incur higher depreciation and amortization expense in 2024 as a result of our recent acquisitions and our continuing investments in network enhancement projects and other technology initiatives.

Depreciation expense increased $243 million as a result of facility automation and expansion projects aligned with our strategic objectives.

Amortization expense for capitalized software investments increased as a result of further technology investments, and we recorded additional amortization expense for intangible assets arising from the acquisitions of MNX Global Logistics and Happy Returns in 2023.

Purchased Transportation

The decrease in purchased transportation expense charged to us by third-party air, ocean and ground carriers was primarily attributable to:

• Supply Chain Solutions expense decreased $2.8 billion resulting from volume declines and a reduction in market rates paid for services in our forwarding businesses.

These impacts were slightly offset by expense increases in our logistics operations due to business growth, third-party rate increases in our mail services business and the impact of acquisitions.

Domestic Package expense decreased $783 million, driven by reduced utilization of third-party ground carriers as a result of volume declines and network optimization initiatives.

• International Package expense decreased $382 million, primarily due to a reduction in air charters and ground transportation expense as a result of volume declines.

These decreases were partially offset by unfavorable currency movements during the year.

The decrease in fuel expense was driven by lower prices for jet fuel, diesel and gasoline and the impact of lower volumes.

Third-party transportation expense charged to us by air, ocean and ground carriers decreased by $51 million.

The decreases were primarily driven a decrease of $788 million from the disposition of Coyote in September 2024, which also experienced volume declines and lower market rates prior to divestiture.

This decrease was partly offset by the impact of an increase in delivery costs related to volume growth in our SurePost product ($213 million), the acquisition of MNX Global Logistics ($174 million), volume growth in our mail services business ($146 million) and increases in our healthcare subsidiaries ($106 million) attributable to both volume and rates.

The remaining movement within purchased transportation related to increases in expense attributable to market rates in our freight forwarding business ($99 million).

The decrease in fuel expense was mainly attributable to lower prices for jet fuel, diesel and gasoline, which more than offset expense increases driven by volume growth.

Market prices and the manner in which we purchase fuel influence our costs.

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While many of the indices are correlated, each index may respond differently to changes in underlying prices, which in turn can drive variability in our costs.

Based on current commodity market forecasts, we anticipate a decline in fuel prices in the first half of 2024.

Other Occupancy

The increase in other occupancy expense was primarily the result of leased operating facilities coming into service, increases in rental rates due to market demand and inflationary pressures, and higher utility costs.

We expect market factors may continue to increase rent and utility costs in 2024.

Other occupancy expense increased, primarily due to increases in property rents.

A reduction in certain rebates and increases to temporary structural costs also contributed to the increase.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Other Expenses

Other expenses increased $176 million for the year, driven by goodwill impairment charges of $125 million in certain Supply Chain Solutions reporting units and a $111 million indefinite-lived trade name impairment charge in our truckload brokerage business.

On an adjusted basis, other expenses decreased $25 million.

This was primarily attributable to the following:

• Reductions in vehicle lease expense of $144 million due to volume declines.

• Gains on the sale of surplus real estate of $98 million.

• A reduction of $74 million in costs incurred under the transition service agreements with the acquirer of UPS Freight as we reach the termination of these agreements in the first half of 2024.

These reductions were largely offset by:

• Purchases of supplies for our Smart Package Smart Facility initiative, which increased costs $109 million.

• An increase of $85 million in commissions paid for certain online shipments.

• An increase of $78 million in hosted software application fees and other technology costs in support of ongoing investments in our digital transformation.

Other expenses decreased $209 million, and on a non-GAAP adjusted basis other expenses decreased $67 million.

The principal factors contributing to the decreases were:

• Vehicle lease expense decreased $124 million due to the impact of network optimization efforts and volume declines in the first quarter.

• A reduction in outsourcing and consulting fees of $112 million, driven by a decrease in project-based engagements.

• Other gains and losses decreased $260 million.

During 2024, a $77 million net gain was driven by a $156 million gain from the divestiture of Coyote offset by expense from disposal of other assets during the year.

During 2023, a $183 million net expense was primarily driven by asset impairment charges.

• Credit losses increased $106 million as a result of changes in the composition of our accounts receivable and specific customer matters.

• Commissions paid increased $114 million primarily due to growth in our Digital Access Program.

Other expense changes included higher costs for software and an increase related to airline operations, primarily due to increased flight activity in the fourth quarter.

These were offset by lower marketing and advertising costs.

Non-GAAP adjusted operating expenses exclude the impact of:

• Transformation strategy costs of $109 million, an increase of $11 million when compared to 2023.

• Goodwill and asset impairment charges of $108 million, a decrease of $128 million when compared to 2023.

In 2024 we recorded $60 million of asset impairment charges related to healthcare operations IT systems and fixed assets.

We also incurred a $41 million pre-tax charge to write down the value of certain trade names acquired as part of our acquisition of Bomi Group as we consolidated our brands and a $7 million pre-tax impairment charge related to software licenses.

In 2023, we recorded $125 million of impairment charges primarily relating to our Roadie and Delivery Solutions reporting units, as well as a $111 million impairment related to a tradename.

• We made a $45 million payment related to a regulatory matter and $94 million payment, including interest, to settle a previously-disclosed international regulatory matter, both in the first half of 2024.

We recorded a pre-tax gain of $156 million in connection with the divestiture of Coyote.

We did not have any similar charges in 2023.

We expect to incur additional other expenses under our Fit to Serve and Transformation 2.0 programs during 2025 as we complete these programs.

We expect to incur additional costs under our Network Reconfiguration and Efficiency Reimagined initiatives during 2025.

See "Supplemental Information - Items Affecting Comparability" for additional discussion.

UNITED PARCEL SERVICE, INC.

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Other Income and (Expense)

The following table sets forth investment income and other and interest expense for the years ended December 31, 2023 and 2022 (in millions):

The following table sets forth investment income (expense) and other and interest expense for the years ended December 31, 2024 and 2023 (in millions):

Year Ended December 31, Change

2024 2023 $ %

Investment Income and Other

$ 217 $ 2,435 $ (2,218) (91.1) %

Defined Benefit Pension and Postretirement Medical Plan (Gains) and Losses 359 (1,061) 1,420 N/A

Adjusted Investment Income and Other

Investment Income (Expense) and Other

$ (160) $ 219 $ (379) N/A

Defined Benefit Pension and Postretirement Medical Plan Loss 665 359 306 85.2 %

Non-GAAP Adjusted Investment Income (Expense) and Other

$ 505 $ 578 $ (73) (12.6) %

Interest Expense $ (866) $ (787) $ (79) 10.0 %

Total Other Income and (Expense) $ (568) $ 1,731 $ (2,299) N/A

Adjusted Other Income and (Expense) $ (209) $ 670 $ (879) N/A

Investment Income and Other

Investment income and other decreased $2.2 billion.

Remeasurements of our defined benefit plans resulted in a $359 million mark-to-market loss in 2023 compared to a $1.1 billion gain in 2022.

Excluding the impact of these remeasurements, adjusted investment income and other decreased $798 million, driven by a reduction in other pension income.

Expected returns on pension assets decreased, primarily due to a lower asset base resulting from negative returns in 2022, while pension interest cost increased as a result of higher discount rates and ongoing plan growth.

The reduction in other pension income was partially offset by higher yields on invested balances.

Interest Expense Associated with One-Time Payment for International Regulatory Matter

Non-GAAP Adjusted Interest Expense

$ (860) $ (787) $ (73) 9.3 %

Total Other Income and (Expense) $ (1,026) $ (568) $ (458) 80.6 %

Total Non-GAAP Adjusted Other Income and (Expense)

$ (355) $ (209) $ (146) 69.9 %

Investment Income (Expense) and Other

Investment income (expense) and other decreased $379 million.

Remeasurements of our defined benefit plans resulted in a $665 million mark-to-market loss in 2024 compared to a $359 million loss in 2023.

Excluding the impact of these remeasurements, non-GAAP adjusted investment income (expense) and other decreased $73 million, driven by lower average invested balances and year-over-year changes in certain non-current investments, partially offset by a reduction in foreign currency losses.

Interest Expense

Interest expense increased due to higher effective interest rates on floating rate debt.

The impact of higher average outstanding debt balances was largely offset by additional capitalization of interest.

Interest expense increased primarily due to higher interest rates on new debt issuances in 2024.

UNITED PARCEL SERVICE, INC.

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Income Tax Impact of:

One-Time Compensation Payment 15 — 15 N/A

Transformation Strategy Costs:

Goodwill and Asset Impairment Charges 43 — 43 N/A

Incentive Compensation Program Design Changes — 121 (121) (100.0) %

Long-Lived Asset Estimated Residual Value Changes — 18 (18) (100.0) %

Defined Benefit Pension and Postretirement Medical Plan (Gains) and Losses 85 (255) 340 N/A

Adjusted Income Tax Expense $ 2,110 $ 3,197 $ (1,087) (34.0) %

Transformation 1.0 — 3 (3) (100.0) %

Transformation 2.0

Spans and Layers — 21 (21) (100.0) %

Business Portfolio Review 7 15 (8) (53.3) %

Financial Systems 13 10 3 30.0 %

Other Initiatives — 1 (1) (100.0) %

Transformation 2.0 Total 20 47 (27) (57.4) %

Fit to Serve 49 52 (3) (5.8) %

Network Reconfiguration and Efficiency Reimagined 8 — 8 N/A

Total Transformation Strategy Costs 77 102 (25) (24.5) %

Gain on Divestiture of Coyote (4) — (4) N/A

One-Time Payment for International Regulatory Matter — — — N/A

Goodwill and Asset Impairment Charges 27 43 (16) (37.2) %

One-Time Compensation Payment — 15 (15) (100.0) %

Expense for Regulatory Matter — — — N/A

Multiemployer Pension Plan Withdrawal Expense 5 — 5 N/A

Defined Benefit Pension and Postretirement Medical Plan Loss 159 85 74 87.1 %

Non-GAAP Adjusted Income Tax Expense

$ 1,924 $ 2,110 $ (186) (8.8) %

Effective Tax Rate 22.3 % 21.8 %

Adjusted Effective Tax Rate 21.8 % 22.0 %

Non-GAAP Adjusted Effective Tax Rate

22.5 % 21.8 %

For additional information on income tax expense and our effective tax rate, see note 15 to the audited, consolidated financial statements.

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We deploy a disciplined and balanced approach to capital allocation, including returns to shareowners through dividends and share repurchases.

As of December 31, 2023, we had $6.1 billion in cash, cash equivalents, restricted cash and marketable securities.

We believe that these positions, expected cash from operations, access to commercial paper programs and capital markets and other available liquidity options will be adequate to fund our material short- and long-term cash requirements, including our business operations, planned capital expenditures, anticipated pension contributions, potential acquisitions, debt obligations and planned shareowner returns.

As of December 31, 2024, we had $6.3 billion in cash, cash equivalents, and marketable securities.

We believe that these positions, expected cash from operations, access to commercial paper programs and capital markets and other available liquidity options will be adequate to fund our material short- and long-term cash requirements, including our business operations, planned capital expenditures, anticipated pension contributions, planned and potential acquisitions, debt obligations and planned shareowner returns.

We regularly evaluate opportunities to optimize our capital structure, including through issuances of debt to refinance existing debt and to fund operations.

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Pension and postretirement medical benefit plan contributions (Company-sponsored plans)

(1,524) (1,393)

Hedge margin receivables and payables (90) (444)

4 unchanged sentences

(1) Represents depreciation and amortization, gains and losses on derivative transactions and foreign currency exchange, deferred income taxes, allowances for expected credit losses, pension and postretirement medical benefit plan (income) expense, stock compensation expense, changes in casualty self-insurance reserves, goodwill and other asset impairment charges and other non-cash items.

Net cash from operating activities decreased $3.9 billion in 2023, primarily due to the reduction in net income.

It was also impacted by:

• A decrease in our hedge margin collateral position due to changes in the fair value of derivative contracts used in our foreign currency hedging program.

• A payment of $323 million in 2023 for employer payroll taxes that were deferred under the Coronavirus Aid, Recovery and Economic Security Act in 2020, compared to a payment of $234 million in 2022.

• A decrease in income taxes payable, primarily due to changes in our uncertain tax positions.

These factors were partially offset by:

• A decrease in contributions to our company-sponsored, defined benefit pension and postretirement medical plans.

We made discretionary contributions to our qualified U.S.

pension plans of $1.2 billion in 2023 compared to $1.9 billion in 2022.

• Working capital benefited primarily from the timing of group welfare plan contributions and other compensation-related items.

Cash payments for income taxes were $2.0 and $2.6 billion for the years ended December 31, 2023 and 2022, respectively, with the decrease corresponding to the reduction in net income.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Net cash from operating activities decreased $116 million in 2024, driven by the following:

• The reduction in net income.

• Increased 401(k) plan contributions.

The decreases were partially offset by:

• An increase in our U.S income tax position as a result of the tax deferral related to Hurricane Helene.

• A payment in 2023 for deferred employer payroll taxes that did not repeat.

• A favorable reduction in hedge margin collateral outflows, driven by changes in the fair value of derivative contracts used in our currency hedging programs and an increase in the threshold at which we exchange collateral with counterparties.

Cash payments for income taxes were $1.3 and $2.0 billion for the years ended December 31, 2024 and 2023, respectively, with the decrease corresponding to the tax deferral related to Hurricane Helene and the reduction in net income.

As of December 31, 2024 approximately $2.5 billion of our total worldwide holdings of cash, cash equivalents and marketable securities were held by foreign subsidiaries.

The amount of cash, cash equivalents and marketable securities held by our U.S.

and foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts and disbursements in the normal course of business.

and foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts, strategic operating needs and disbursements in the normal course of business.

Cash provided by operating activities in the U.S.

continues to be our primary source of funds to finance domestic operating needs, capital expenditures, share repurchases, pension contributions and dividend payments to shareowners.

continues to be our primary source of funds to finance our business operations, planned capital expenditures, pension contributions, potential and planned acquisitions, transformation strategy costs, debt obligations and planned shareowner returns.

All cash, cash equivalents and marketable securities held by foreign subsidiaries are generally available for distribution to the U.S.

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When amounts earned by foreign subsidiaries are expected to be indefinitely reinvested, no accrual for taxes is provided.

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

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Other investing activities $ (24) $ (19)

(1) In addition to capital expenditures of $5.2 and $4.8 billion for the years ended December 31, 2023 and 2022, respectively, there were principal repayments of finance lease obligations of $126 and $149 million, respectively.

(1) In addition to capital expenditures of $3.9 and $5.2 billion for the years ended December 31, 2024 and 2023, respectively, there were principal repayments of finance lease obligations of $136 and $126 million in these years, respectively.

These are included in cash flows from financing activities.

We have commitments for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement and enhancement of existing capacity and targeted growth.

Future capital spending will depend on a variety of factors, including economic and industry conditions.

Our current investment program anticipates investments in technology initiatives and enhanced network capabilities, including over $1.0 billion of projects to support our environmental sustainability goals in 2024.

In 2024, capital expenditures were $3.9 billion and approximately $1.3 billion was spent related to projects which support our environmental sustainability goals.

Total capital expenditures decreased in 2024 compared to 2023 as a result of:

• Reduced spending on buildings, facilities and plant equipment, as we continued our Network of the Future initiative.

• Vehicle expenditure decreases, driven by sufficient vehicle counts from the prior year.

• Decreased technology expenditures driven by the renewal of software licenses in 2023 that did not repeat.

• Partially offset by increased aircraft expenditures driven by higher payments on open aircraft orders and the timing of final deliveries of aircraft.

In 2024, in connection with the divestiture of Coyote, we received net cash proceeds of $1.002 billion.

We received cash proceeds of $2.7 billion from the sale of marketable securities during 2024 due to the liquidation of our portfolio to provide additional resources for short-term and strategic operating needs.

Cash paid for acquisitions in 2024 primarily related to reacquired development area rights for The UPS Store.

In 2023 we acquired MNX Global Logistics and Happy Returns, and reacquired development areas for The UPS Store.

Cash used in other investing activities supported non-current investments and purchase contract deposits.

We have commitments for pending acquisitions and for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement and enhancement of existing capacity and targeted growth.

We regularly evaluate opportunities for cost effective financing of assets in order to reduce our capital spending.

Future capital spending will depend on a variety of factors, including economic and industry conditions, and financing alternatives.

Our 2025 investment program anticipates investments in technology initiatives and enhanced network capabilities, including approximately $0.5 billion of projects to support our environmental sustainability goals.

It also provides for maintenance of buildings, facilities and equipment and replacement of certain aircraft within our fleet.

We currently expect our capital expenditures will be approximately $3.5 billion in 2025, of which approximately 80 percent will be allocated to network enhancement projects and other technology initiatives.

Total capital expenditures increased in 2023 compared to 2022 as a result of:

• Spending on buildings, facilities and plant equipment increased due to network enhancements, capacity expansion projects and facility maintenance.

• Vehicles expenditures increased, driven by the timing and availability of vehicle replacements and continuing investments in our network.

• Information technology expenditures increased as a result of continuing investments in our digital capabilities and network automation.

• Aircraft expenditures decreased as a result of lower payments on open aircraft orders and final delivery of aircraft.

Proceeds from the disposal of businesses, property, plant and equipment were higher in 2023 relative to 2022, primarily due to the sale of surplus real estate during 2023.

Net purchases of marketable securities increased in 2023 due to a shift to longer duration investments.

During the first quarter of 2024, we anticipate liquidating our portfolio of marketable securities to provide additional resources for our short-term and strategic operating needs.

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Cash paid for acquisitions in 2023 was primarily attributable to the acquisitions of MNX Global Logistics and Happy Returns, and the purchase of development areas for The UPS Store.

In 2022, we acquired Bomi Group and Delivery Solutions, as well as the purchase of development areas for The UPS Store.

Cash used in other investing activities decreased, primarily due to our 2022 investment of $252 million in the parent company of CommerceHub, Inc.

and changes in other non-current investments.

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RESULTS OF OPERATIONS

Cash Flows From Financing Activities

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Total capitalization $ 38,027 $ 39,578

We repurchased 12.8 and 19.0 million shares of class B common stock for $2.3 and $3.5 billion under our stock repurchase program for the years ended December 31, 2023 and 2022, respectively.

We do not anticipate repurchasing any shares in 2024.

We repurchased 3.9 and 12.8 million shares of class B common stock for $500 million and $2.3 billion under our stock repurchase program for the years ended December 31, 2024 and 2023, respectively.

On February 3, 2025, we entered into an accelerated share repurchase agreement for $1.0 billion worth of shares.

This agreement is expected to settle in the first quarter of 2025.

We do not anticipate further share repurchases in 2025.

For additional information on our share repurchase activities, see note 12 to the audited, consolidated financial statements.

For the years ended December 31, 2023 and 2022, dividends reported within shareowners' equity include $239 and $249 million, respectively, of non-cash dividends that were settled in shares of class A common stock.

The declaration of dividends is subject to the discretion of the Board and will depend on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors.

We paid quarterly cash dividends of $1.63 and $1.62 per share in 2024 and 2023, respectively.

In the first quarter of 2024, we declared a quarterly cash dividend of $1.63 per share.

On February 5, 2025, our Board declared a dividend of $1.64 per share, which is payable on March 6, 2025 to shareowners of record on February 18, 2025.

For the years ended December 31, 2024 and 2023, dividends reported within shareowners' equity include $195 and $239 million, respectively, of non-cash dividends that were settled in shares of class A common stock.

Issuances of debt in 2024 consisted of borrowings of fixed- and floating-rate senior notes.

The principal balances of the senior notes are as follows:

• $900 million 5.150% senior notes due 2034;

• $1.1 billion 5.500% senior notes due 2054;

• $600 million 5.600% senior notes due 2064;

• $213 million floating rate senior notes due 2074.

Issuances of debt in 2023 consisted of borrowings under our commercial paper program and fixed- and floating-rate senior notes.

The principal balances of the senior notes are as follows:

• $900 million 4.875% senior notes;

• $1.1 billion 5.050% senior notes;

• $529 million floating rate senior notes.

There were no issuances of debt in 2022.

Repayments of debt in 2023 included $23 million of debt assumed in the Bomi Group acquisition, scheduled principal payments on our finance lease obligations and reductions in our commercial paper balances.

We also repaid the following senior notes at maturity:

• $1.0 billion 2.500% senior notes;

• €700 million 0.375% senior notes;

• $500 million floating rate senior notes.

• $900 million 4.875% senior notes due 2033;

• $1.1 billion 5.050% senior notes due 2053;

• $529 million floating rate senior notes due 2073.

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Repayments of debt in 2022 included scheduled principal payments on our finance lease obligations and repayment of senior notes at maturity as follows:

Repayments of debt in 2024 included $2.2 billion of short- and long-term commercial paper and scheduled principal payments on our finance lease obligations.

We also repaid the following notes at maturity:

• C$750 million 2.125% senior notes;

• $500 million 2.800% senior notes;

• $400 million 2.200% senior notes.

We also repaid the following notes at maturity:

• $1.0 billion 2.500% senior notes;

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Average interest rate

USD $ 2,172 $ 417 5.45 %

As of December 31, 2023, we had no outstanding balances under our European commercial paper program.

We had no outstanding balances under our U.S.

or European commercial paper programs as of December 31, 2022.

We have $1.5 billion of fixed- and floating-rate senior notes that mature in 2024.

2024 $ — $ 208 5.26 %

2023 $ 2,172 $ 417 5.45 %

As of December 31, 2024, we had no outstanding balances under our U.S.

or European commercial paper program.

We had no outstanding balances under our European commercial paper programs as of December 31, 2023.

We have $1.7 billion of USD and EUR fixed-rate senior notes that mature in 2025.

We intend to repay or refinance these amounts when due.

We consider the overall fixed and floating interest rate mix of our portfolio and the related overall cost of borrowing when planning for future issuances and non-scheduled repayments of debt.

The cash received from common stock issuances in both 2023 and 2022 resulted from activity within the UPS 401(k) Savings Plan and our employee stock purchase plan.

Other financing activities included cash used to repurchase shares to satisfy tax withholding obligations on vested employee stock awards.

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defined benefit pension and postretirement medical benefit plans of approximately $1.3 billion in 2025, which are included within Expected employer contributions to plan trusts shown in note 5 to the audited, consolidated financial statements.

There are currently no anticipated required minimum cash contributions to our qualified U.S.

There are currently no anticipated minimum required cash contributions to our qualified U.S.

pension plans in 2025.

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We have outstanding letters of credit and surety bonds that are discussed in note 9 to the audited, consolidated financial statements.

Additionally, we have $1.5 billion of fixed- and floating-rate senior notes that mature in 2024.

Additionally, we have $1.7 billion of fixed-rate USD and EUR senior notes that mature in 2025.

We intend to repay or refinance these amounts when due.

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

Annual principal payments on our long-term debt, and purchase commitments for certain capital expenditures are also set out in note 9 to the audited, consolidated financial statements.

Included within these purchase commitments are firm commitments to purchase 21 new Boeing 767-300 aircraft to be delivered between 2024 and 2026 and two used Boeing 747-8F aircraft to be delivered in 2024.

Additionally, we anticipate purchasing approximately 3,000 alternative fuel vehicles in 2024.

Annual principal payments on our long-term debt, and purchase commitments for certain capital expenditures and pending acquisitions are also set out in note 9 to the audited, consolidated financial statements.

Included within these purchase commitments are firm commitments to purchase 25 new Boeing 767-300 aircraft expected to be delivered between 2025 and 2027.

We are evaluating available financing alternatives with respect to the acquisition of these aircraft.

In addition to purchase commitments, we have other contractual agreements including equipment rentals, software licensing and commodity contracts.

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Under provisions of the Tax Cuts and Jobs Act, we elected to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries over eight years.

The remaining balance will be paid between 2024 and 2026.

The remaining balance will be paid in 2025 and 2026.

Additionally, we have uncertain tax positions that are further discussed in note 15 to the audited, consolidated financial statements.

As discussed in note 1 to the audited, consolidated financial statements, as of December 31, 2023, we had a restricted cash balance related to certain tax and regulatory matters in Italy.

We anticipate this balance will increase by approximately $61 million in 2024.

Contingencies

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Critical Accounting Estimates

The amounts of assets, liabilities, revenue and expenses reported in our financial statements are affected by estimates and judgments that are necessary to comply with GAAP.

We base our estimates and judgments on prior experience, current trends, various other assumptions and third-party input that we consider reasonable to our circumstances.

The amounts of assets, liabilities, revenue and expenses reported in our financial statements are affected by estimates and judgments that are necessary to comply with GAAP, including fair value measurements.

We develop our estimates and judgments based on prior experience, current trends, and various other assumptions.

For estimates that involve fair value measurements, we consider the fair value hierarchy under ASC Topic 820.

We also engage outside specialists as necessary to assist us in development our estimates.

Actual results could differ materially from our estimates, which would affect the related amounts reported in our consolidated financial statements.

While estimates and judgments are applied in arriving at many reported amounts, we believe that the following critical accounting estimates involve a higher degree of judgment and complexity.

While estimates and judgments are applied in arriving at many reported amounts, we believe that the following areas involve a higher degree of judgment and complexity and represent critical accounting estimates.

Contingencies

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Changes in our management structure or business acquisitions may result in changes to our reporting units.

Based on our review of managerial realignments, which occurred as of October 1, 2024, we determined that our MNX Global Logistics and Marken businesses are now within a single operating segment and based on criteria in ASC Topic 350 also represent a single reporting unit.

We performed impairment analyses as of October 1, 2024, reflective of our reporting unit structures before and after the reporting unit change, and did not identify impairment of goodwill in connection therewith.

We initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

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This assessment uses a combination of income and market approaches to develop an estimate of reporting unit fair value.

These approaches consider both entity-specific and observable market information under the fair value hierarchy in ASC Topic 820 and changes in, or additions to, available information may affect the assumptions we use in estimating fair value.

The income and market approaches consider both entity-specific and observable market information under the fair value hierarchy in ASC Topic 820 and changes in, or additions to, available information may affect the assumptions we use in estimating fair value.

• The income approach uses a discounted cash flow (“DCF”) model, which requires us to make a number of significant assumptions to produce an estimate of future cash flows.

These assumptions include projections of future revenue, costs, capital expenditures, working capital and the cost of capital.

These assumptions include projections of future revenue, costs, capital expenditures, working capital, long-term growth rates and the cost of capital.

During periods of time in which macroeconomic conditions are uncertain or volatile, these assumptions are subject to a greater degree of uncertainty.

We are also required to make assumptions relating to our overall business and operating strategy, and the regulatory and market environment.

Changes in any of our assumptions could significantly impact the fair value of one or more of our reporting units.

The projections that we use in our DCF model are updated annually, or more often if necessary, and will change over time based on the historical performance and changing business conditions for each of our reporting units.

Changes in any of our assumptions could significantly impact the fair value of one

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or more of our reporting units.

• The market approach uses observable market data of comparable public companies to estimate fair value utilizing financial metrics (such as enterprise value to net sales).

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In 2024, we performed our annual goodwill impairment testing using both qualitative and quantitative methods.

In developing our valuation assumptions underlying the quantitative annual impairment testing, 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 testing using these assumptions indicated that the carrying values of our Roadie and Delivery Solutions reporting units exceeded their estimated fair values.

As a result, during the third quarter of 2023 we recorded and disclosed goodwill impairment charges of $56 million related to Roadie and $61 million related to Delivery Solutions.

As of our July 1 testing date, we concluded the fair value of each reporting unit exceeded its carrying value;

however, three reporting units (Roadie, Global Freight Forwarding, and Global Logistics and Distribution) exhibited limited excess of fair value and thus reflect a greater risk of impairment occurring in future periods.

Approximately $1.1 billion of our consolidated goodwill balance of $4.3 billion is represented by these three reporting units.

In addition to forecasted and actual business performance, our valuation estimates are most sensitive to changes in cost of capital.

For the reporting units we have identified as having limited cushion above, if the cost of capital were increased by 100 basis points or our projected cash flows were reduced by 10 percent, it is reasonably possible that these reporting units would be impaired.

We believe the fair values of our Roadie, Global Freight Forwarding, and Global Logistics and Distribution reporting units continue to exceed their respective carrying values.

However, if the businesses do not meet forecasts or cost of capital requirements increase, we may incur future impairment charges.

We continue to monitor all of our reporting units between annual testing dates.

We did not record any goodwill impairments during 2024.

During 2023, we recorded goodwill impairment charges of $56 million related to Roadie and $61 million related to Delivery Solutions.

The Delivery Solutions impairment represented all of the goodwill associated with this reporting unit.

These charges are included within Other expenses in the statement of consolidated income.

We did not incur any goodwill impairment charges in 2022 or 2021.

We test the indefinite-lived Coyote trade name associated with our truckload brokerage business for impairment in accordance with GAAP using the relief from royalty method.

This valuation approach requires that we make a number of assumptions to estimate fair value, including projections of future revenues, market royalty rates, tax rates, discount rates and other relevant variables.

The projections we use in the model are updated annually, or more often if necessary, and will change over time based on historical performance and changing business conditions.

Our annual testing 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 annual 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.

Based on the results of this testing, we concluded that the carrying value of the Coyote trade name exceeded its estimated fair value and recorded an impairment charge of $111 million.

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

Our trade name valuation estimate remains sensitive to further changes in assumptions, including business performance, royalty rates and the cost of capital.

A decrease of 10 percent in forecasted cash flows, a decrease of 40 basis points in our selected royalty rate or an increase of 100 basis points in the cost of capital would each result in an incremental impairment charge of $10 million.

We continue to monitor the impact of business performance, our determination of strategic alternatives and external factors on the valuation assumptions for this trade name.

In connection with matters resulting in the Coyote trade name impairment, we also tested the goodwill associated with this reporting unit for impairment as of December 31, 2023 using the updated forecasts of future cash flows described above.

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.

The goodwill associated with this reporting unit as of December 31, 2023 was $482 million.

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 have a limited excess of fair value as of the most recent valuation.

If the cost of capital were increased by 100 basis points or our projected cash flows were reduced by 10 percent, it is reasonably possible that these reporting units would be impaired.

We continue to monitor all of our reporting units between annual testing dates.

We did not incur any goodwill impairment charges in 2022.

Our finite-lived intangible assets are amortized over their estimated useful lives.

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In addition, a reduction in expected useful life, or a decision to sell or abandon an intangible asset before the end of its useful life, may increase amortization expense, which could have a material impact on our results of operations.

As a result of our strategic actions under our Efficiency Reimagined initiatives, we are reviewing our software application infrastructure and expect that as result of this review, it is reasonably possible that revisions to the useful lives of certain finite-lived intangible assets will occur in future periods.

See note 7 to the audited, consolidated financial statements for a discussion of finite-lived intangible asset impairments.

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Self-Insurance Accruals

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• Length of time a claim remains open;

• Trends in healthcare costs;

• Trends in healthcare and litigation costs;

• Results of any related litigation;

• Changes in legislation.

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

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(1) Included within Other Non-Current Liabilities in our consolidated balance sheets.

Our total reserves related to prior year claims increased by $39 million in 2023 and decreased by $5 million in 2022 as a result of changes in estimated claim costs.

Our total reserves related to prior year claims decreased by $144 million in 2024 and increased by $39 million in 2023 as a result of changes in estimated claim costs.

A five percent deterioration or improvement in both the assumed claim severity and claim frequency rates used to estimate our self-insurance reserves would result in an increase or a decrease, respectively, of approximately $300 million in our reserves and expenses as of, and for the year ended, December 31, 2024.

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• Changes in coordinating benefits with plans not sponsored by UPS.

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 plans' projected benefit obligations) immediately within income upon remeasurement of a plan.

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) immediately within income upon remeasurement of a plan.

Other components of pension expense (referred to as "net periodic benefit cost"), primarily service and interest costs and the expected return on plan assets, are reported on a quarterly basis.

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Our accounting policy for property, plant and equipment is set out in note 1 to the audited, consolidated financial statements.

We monitor our long-lived assets for indicators of impairment which may include, but are not limited to, a significant change in the extent to which an asset is utilized and operating or cash flow losses associated with the use of the asset.

If circumstances are present that indicate the carrying value of our long-lived assets may not be recoverable, we perform impairment testing at the asset group level.

We monitor our long-lived asset groups for indicators of impairment which may include, but are not limited to, a significant change in the extent to which an asset is utilized and operating or cash flow losses associated with the asset group.

If circumstances are present that indicate the carrying value of our long-lived asset groups may not be recoverable, we perform impairment testing at the asset group level.

Asset groups represent the lowest level at which independent cash flows can be identified.

Determining asset groups requires judgment and changes in the way asset groups are defined could have a material impact on the results of impairment testing.

We evaluate long-lived assets within our global small package operations at a network level given the cash flows associated with individual assets therein are not independent.

We perform recoverability testing by comparing the undiscounted cash flows of the asset group to its carrying value.

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Details of long-lived asset impairments are included in note 4 to the audited, consolidated financial statements.

In estimating the useful lives and expected residual values of aircraft, we consider actual experience with the same or similar aircraft types, multi-year volume projections for our air products and the types of aircraft required to efficiently operate our network.

Adverse changes in volume could result in our current aircraft capacity exceeding projected demand, which may result in temporary idling of aircraft to better match capacity with demand.

In estimating the useful lives and expected residual values of aircraft, which we evaluate at the network level, we consider actual experience with the same or similar aircraft types, multi-year volume projections for our air products and the types of aircraft required to efficiently operate our network.

We routinely monitor the utilization of our assets and volume levels.

These temporary fluctuations in volume have in the past and are expected to continue to result in the temporary idling of aircraft to better match our capacity with demand.

Temporarily idled assets are classified as held-and-used, and we continue to record depreciation expense for these assets.

As a result of the reduction in volumes experienced during 2023, we temporarily idled nine aircraft for an average of approximately five months.

As a result of the reduction in air volumes experienced during 2024, we temporarily idled 12 aircraft for an average of approximately six months.

As of December 31, 2024 all of these aircraft had re-entered operational service.

Based on current volume projections, we anticipate that certain aircraft may be temporarily idled during part of 2024.

Over a longer period, continued adverse changes in volume forecasts could lead to an excess of aircraft, resulting in an impairment charge or reduction in expected useful life that may result in increased depreciation expense.

Revisions to estimates of useful lives and residual values could also be caused by changes to our maintenance programs, governmental regulations, operational intentions, or market prices for new and used aircraft of the same or similar types.

Based on current volume projections, we anticipate that certain aircraft may be temporarily idled during part of 2025 as part of our normal operations and will return to service.

During the first quarter of 2025 and in anticipation of volume decreases with our largest customer, we began a reconfiguration of our U.S.

network which is expected to lead to an excess of aircraft, vehicles and buildings.

It is reasonably possible that these actions may result in reductions to the expected useful lives of certain assets, including early retirement, and related increases in depreciation expense during future periods.

In addition, revisions to the salvage values of aircraft and other assets have in the past and may in the future result in impairment charges or increased depreciation expense.

We have not yet identified the specific assets that will be impacted by our network reconfiguration.

In addition to our network reconfiguration, revisions to estimates of useful lives and residual values could also be caused by changes to our maintenance programs, governmental regulations, operational intentions, or market prices.

We periodically evaluate our estimates and assumptions, and adjust them, as necessary, on a prospective basis through depreciation expense.

In 2022, we reduced the estimated residual value of our MD-11 aircraft and associated engines to zero based on updated operational plans for these aircraft and our expectations for their eventual disposal.

In connection with this change in estimate, in 2022 we recorded a one-time depreciation charge to adjust the residual value of our fully-depreciated MD-11 aircraft.

Refer to note 4 to the audited, consolidated financial statements for information on the impact to our results of operations.

Refer to note 4 for further considerations.

Fair Value Measurements

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If listed market prices or other relevant factors are not available, inputs are developed from unobservable data reflecting our own assumptions and include situations where there is little or no market activity for the asset or liability (Level 3).

Certain financial instruments, including over-the-counter derivative instruments, are valued using pricing models that consider, among other factors, contractual and market prices, correlations, time value, credit spreads and yield curve volatility factors.

Changes in the fixed income, foreign currency exchange and commodity markets will impact our estimates of fair value in the future, potentially affecting our results of

Certain financial instruments, including over-the-counter derivative instruments, are valued using pricing models that consider, among other factors, contractual and market

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prices, correlations, time value, credit spreads and yield curve volatility factors.

Changes in the fixed income, foreign currency exchange and commodity markets will impact our estimates of fair value in the future, potentially affecting our results of operations.

Further information on our accounting policies relating to fair value measurements can be found in note 1 to the audited, consolidated financial statements.

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Refer to notes 3, 9 and 17 to the audited, consolidated financial statements for further information on these instruments.

A quantitative sensitivity analysis of our exposure to changes in commodity prices, foreign currency exchange rates and interest rates is presented in the Quantitative and Qualitative Disclosures about Market Risk section of this report.

A quantitative sensitivity analysis of our exposure to changes in foreign currency exchange rates and interest rates is presented in the Quantitative and Qualitative Disclosures about Market Risk section of this report.

Our pension and postretirement plan assets include investments in hedge funds, as well as private debt, private equity and real estate funds, which are primarily measured using net asset value ("NAV") as a practical expedient for fair value, as appropriate.

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Refer to note 5 to the audited, consolidated financial statements for further information on our pension and postretirement plan assets.

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

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

These assets are subject to fair value adjustments in certain circumstances, such as when there is evidence of an impairment or when an asset or disposal group is classified as held for sale.

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We reevaluate uncertain tax positions quarterly based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity.

Such a change in recognition or measurement could result in the recognition of a tax benefit or additional tax expense.

Such a change in

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recognition or measurement could result in the recognition of a tax benefit or additional tax expense.

In 2023, we recognized a net tax benefit of $102 million following resolution of certain global tax audits.

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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 7. Management’s Discussion and Analysis