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Item 7. Management’s Discussion and Analysis

2026-02-17 compared with 2025-02-18 · 483 added, 655 removed, 608 unchanged (65% of the section changed)

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

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:

Domestic Package and International Package, which are together referred to as our global small package operations.

Our remaining businesses are reported as Supply Chain Solutions.

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-

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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.

The following discussion should be read in conjunction with the consolidated financial statements and related notes

included in Item 8.

"Financial Statements and Supplementary Data" of this Annual Report on Form 10-K (this "Annual Report" or "this report").

This section of this Annual Report includes a discussion of 2025 and 2024 items and year-over-year comparisons between those years.

For a discussion of year-over-year comparisons between 2024 and 2023 that are not included in this Annual Report see Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission on February 18, 2025.

In 2025, we continued to execute our Customer First, People Led and Innovation Driven strategy, which focuses on growing in the parts of the market that value our end-to-end solutions, including healthcare, small-and medium-sized businesses ("SMBs") and International.

As part of this strategy, we drove a reduction in volume from our largest customer, with a targeted reduction of 50% by June 2026 from 2024 levels.

Partly as a result, we increased consolidated revenue per piece by 6.6%, and expanded SMB penetration to over 30% of total U.S.

In connection with this strategic execution of volume declines, we began our Network Reconfiguration and Efficiency Reimagined initiatives.

These initiatives are intended to enhance the efficiency of our network through automation and operational sort consolidation in our U.S.

Domestic network .

From these initiatives, we delivered on our planned year-over-year cost savings of approximately $3.5 billion in 2025.

See Supplemental Information - Items Affecting Comparability for additional discussion.

Also in 2025, we completed the acquisitions of Frigo-Trans and Biotech & Pharma Logistics ("Frigo-Trans"), and Andlauer Healthcare Group ("AHG").

In 2025, our global healthcare portfolio generated more than $11 billion in revenue, furthering our progress towards our goal to become the number one complex healthcare logistics provider in the world.

In September 2024, we completed the divestiture of our truckload brokerage services ("Coyote"), which contributed $1.6 billion of revenue in 2024 prior to its divestiture.

Effective January 1, 2025, we insourced our former SurePost product, and replaced it with Ground Saver, a domestic economy service meant to complement our array of products used by our customers.

This change provided us greater operational control and service quality with respect to this product.

However, this insourcing pressured our operating results, as pickup and delivery costs were higher than in 2024.

In December 2025, we entered into a new agreement with the United States Postal Service ("USPS") to assist with final-mile delivery for a portion of our Ground Saver and Mail Innovations volumes starting in 2026, which is expected to allow us to more cost efficiently serve our customers while maintaining our service levels.

In the International market, during 2025 we implemented weekend delivery within Europe.

Additionally, our new air hub in the Philippines is slated to open towards the end of 2026 and our expansion in Hong Kong is planned to open in 2028.

Both gateways are expected to give us broader access and faster time in transit on the trade lanes that are growing in Asia.

During 2025, we returned $6.4 billion in cash to shareholders by completing $1.0 billion of share repurchases and paying $5.4 billion in dividends.

Our 2025 financial results also reflect the impact of a complex macro environment, d riven by evolving trade policies, and the significant strategic actions we are taking including revenue quality initiatives.

Global trade policy changes during 2025, including pending and enacted tariffs and de minimis exclusions, resulted in shifting trade lane volumes, particularly reducing volumes on our China to U.S.

lane, pressuring our International Package segment margins during the year.

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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 $ %

Highlights of our consolidated results which are discussed in more detail below, include:

2025 2024 Change $

Revenue (in millions)

$ 88,661 $ 91,070 $ (2,409) (2.6) %

Operating Expenses

Operating Expenses (in millions)

80,794 82,602 (1,808) (2.2) %

Operating Profit

Operating Profit (in millions)

$ 7,867 $ 8,468 $ (601) (7.1) %

Operating Margin 8.9 % 9.3 %

Net Income (in millions)

$ 5,572 $ 5,782 $ (210) (3.6) %

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Average Revenue Per Piece $ 14.50 $ 13.60 $ 0.90 6.6 %

• 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.

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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

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2023 compared to 2022

Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on February 20, 2024.

• Average daily package volume in our global small package operations decreased in 2025, primarily due to the execution of planned volume declines from our largest customer and revenue quality actions we took related to certain e-commerce customers.

• Revenue declined in 2025, primarily driven by the impact of the Coyote divestiture, the volume declines described above, and decreases in our Mail Innovations volume.

These decreases were partially offset by growth in our International Package segment, driven by higher average daily volume and ongoing revenue‑quality initiatives, as well as increased air cargo revenue from the full onboarding in the fourth quarter of 2024 of volume under our USPS contract and continued contributions from our healthcare logistics businesses.

• Revenue per piece increased due to favorable trends in customer and product mix as well as revenue quality actions that we took.

• Operating expenses decreased in 2025, driven by decreases in purchased transportation expense, primarily attributable to the impact of the Coyote divestiture, the insourcing of our Ground Saver product and a gain from sale-leaseback transactions involving real estate properties within Supply Chain Solutions ("SCS").

These decreases were partially offset by increases in compensation and benefits and higher pick up and delivery costs associated with the insourcing of our Ground Saver product, incremental costs related to the grounding of our MD-11 fleet and costs related to implementing weekend delivery within Europe.

• Operating profit and operating margin decreased due to increased pickup and delivery expenses in the U.S.

Domestic Package segment and shifting international volume to less profitable trade lanes due to trade policy challenges, partially offset by the impact of our revenue quality efforts.

• We reported net income of $5.6 billion and diluted earnings per share of $6.56, which included $0.30 per diluted share attributable to the gain from sale-leaseback transactions involving real estate properties within SCS.

Non-GAAP adjusted diluted earnings per share in 2025 were $7.16 after adjusting for the after-tax impacts of:

◦ Transformation Strategy Costs of $452 million, or $0.53 per diluted share;

◦ Goodwill and Asset Impairment Charges of $156 million, or $0.18 per diluted share, which includes a charge of $137 million related to the retirement of our MD-11 aircraft fleet;

◦ a Net Loss on Divestiture of $15 million, or $0.02 per diluted share;

◦ the Reversal of an Income Tax Valuation Allowance of ($109) million, or ($0.13) per diluted share.

For additional operational results specific to U.S.

Domestic Package, International Package and SCS refer to the respective discussions below.

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Supplemental Information - Items Affecting Comparability

Our operating expenses are allocated between our operating segments using activity-based costing methods.

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

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

There were no significant changes to our allocation methodologies for 2025 relative to 2024.

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

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

Year Ended December 31,

Non-GAAP Adjustments 2025 2024

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Transformation 2.0

Spans and Layers — 86

Business Portfolio Review $ (18) $ 29

Financial Systems 55 54

Other Initiatives — 4

Transformation 2.0 Total 37 83

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Total Transformation Strategy Costs 593 322

Gain on Divestiture of Coyote (156) —

One-Time Payment for International Regulatory Matter 88 —

Goodwill and Asset Impairment Charges 182 108

One-Time Compensation Payment — 61

Net Loss (Gain) on Divestiture

One-Time Payment for International Regulatory Matter — 88

Expense for Regulatory Matter — 45

Multiemployer Pension Plan Withdrawal Expense

Total Adjustments to Non-GAAP Operating Expenses

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Total Non-GAAP Adjustments to Operating Expenses

Non-GAAP Adjustments

Other Income and (Expense):

Defined Benefit Pension and Postretirement Medical Plan Loss

Goodwill and Asset Impairment Charges 19 —

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

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Total Adjustments to Non-GAAP Income Before Income Taxes

$ 813 $ 1,097

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Non-GAAP Adjustments 2025 2024

Income Tax (Benefit) Expense:

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Transformation 2.0

Spans and Layers — 21

Business Portfolio Review $ (5) $ 7

Financial Systems 14 13

Other Initiatives — 1

Transformation 2.0 Total 9 20

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Total Transformation Strategy Costs 141 77

Gain on Divestiture of Coyote (4) —

One-Time Payment for International Regulatory Matter — —

Reversal of Income Tax Valuation Allowance

Goodwill and Asset Impairment Charges 45 27

One-Time Compensation Payment — 15

Expense for Regulatory Matter — —

Multiemployer Pension Plan Withdrawal Expense

Net Loss (Gain) on Divestiture 4 (4)

Defined Benefit Pension and Postretirement Medical Plan Loss

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.

Multiemployer Pension Plan Withdrawal Expense

Total Non-GAAP Adjustments to Income Tax (Benefit) Expense

Total Non-GAAP Adjustments to Net Income

The income tax effects of adjustments to income before income taxes are calculated by multiplying the statutory tax rates applicable in each tax jurisdiction, including the U.S.

federal jurisdiction and various U.S.

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jurisdictions, by the tax-deductible adjustments.

The blended average effective income tax rates for the years ended December 31, 2024 and 2023 were 24.1% and 22.5%, respectively.

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The blended average effective income tax rates for 2025 and 2024 were 23.4% and 24.1%, respectively.

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:

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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.

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

Our transformation strategy includes programs and initiatives within Transformation 2.0, Fit to Serve and Network Reconfiguration and Efficiency Reimagined .

Various circumstances precipitated these initiatives, including identification and prioritization of certain investments, 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 includes the following programs and initiatives:

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”).

Based on a number of factors, including evaluating the efficiencies previously achieved, and in connection with changes 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.

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

Transformation 2.0 was completed in 2025, and total related costs were $835 million.

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.

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RESULTS OF OPERATIONS

Fit to Serve:

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.

Package business.

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

In response to these factors, we undertook 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.

Fit to Serve was completed in 2025, and total related costs were $463 million.

We achieved savings of approximately $1.0 billion through this program.

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.

Our Network of the Future initiative is intended to enhance the efficiency of our network through automation and operational sort consolidation in our U.S.

Domestic network.

In connection with our strategic execution of planned volume declines from our largest customer, we began our Network Reconfiguration initiative, which is an expansion of Network of the Future and has led and will continue to lead to consolidations of our facilities and workforce as well as an end-to-end process redesign.

We launched our Efficiency Reimagined initiatives to undertake the end-to-end process redesign effort which will align our organizational processes to the network reconfiguration.

We reduced our operational workforce by approximately 48,000 positions, including 15,000 fewer seasonal positions, and closed daily operations at 93 leased and owned buildings, 85 of which have been permanently closed in 2025.

We have identified 24 buildings for closure in the first half of 2026 and we continue to review expected changes in volume in our integrated air and ground network to identify additional buildings for closure.

From this initiative, we delivered year-over-year cost savings of approximately $3.5 billion in 2025, calculated on the year-over-year change in volume from our largest customer, taking into account the impact of certain additional volume we have elected to serve.

As of December 31, 2025, we had incurred total program costs of $544 million, including $509 million in 2025.

In connection with the Network Reconfiguration and Efficiency Reimagined initiatives described above, we expect savings of approximately $3 billion in 2026.

We also expect to exclude from our non-GAAP adjusted expenses certain costs related to certain strategic initiatives, including separation programs, although we cannot reasonably estimate those expenses at this time.

These initiatives are expected to conclude by 2027.

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.

In addition, we have incurred and expect to continue to incur other costs and benefits associated with our Network Reconfiguration initiative and anticipated lower volumes, including early asset retirement, lease-related costs and gains from the sale of properties.

It is our intention to exit or abandon leases, sell property and transfer or dispose of equipment associated with closed facilities.

During 2025, we incurred $58 million in accelerated depreciation and asset retirement obligations related to these closed facilities and abandoned equipment and $72 million in gains on sale of these properties.

We expect the costs associated with these actions may increase should we determine to close additional buildings.

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.

Goodwill and Asset Impairment Charges

We exclude the impact of goodwill and certain asset impairment charges.

We do not consider these non-cash charges 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 Asset Impairment Charges, see note 4 and note 7 to the audited, consolidated financial statements.

Net Loss (Gain) on Divestiture

We exclude the impact of gains and losses related to the divestiture of businesses.

We do not consider these transactions to be a component of our ongoing operations, nor do we consider the impact of these transactions when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards.

For additional information, see note 8 to the audited, consolidated financial statements.

UNITED PARCEL SERVICE, INC.

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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.

Reversal of Income Tax Valuation Allowance

We previously recorded non-GAAP adjustments for transactions that resulted in capital loss deferred tax assets not expected to be realized.

As a result of property sales during 2025, we now expect all of these capital losses to be realized.

We supplement our presentation with non-GAAP adjusted financial measures that exclude the impact of the reversals of the valuation allowances against these deferred tax assets as we believe such treatment is consistent with how the valuation allowance was initially established.

One-Time Payment for International Regulatory Matter

We have excluded the impact in 2024 of a payment to settle a previously-disclosed international tax regulatory matter.

We do not believe this payment was a component of our ongoing operations and 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.

We have excluded the impact in 2024 of an expense to settle a previously disclosed regulatory matter.

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

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 (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.

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.

We supplement the presentation non-GAAP 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 plans 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 did not result in any mark-to-market adjustment in 2025, compared to a $665 million loss in 2024.

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 pension and postretirement medical plan loss (gain)

(in millions):

Discount rates $ — $ (127)

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Total mark-to-market loss

Curtailment and settlement loss

Total defined benefit pension and postretirement medical plan loss

Year Ended December 31,

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Weighted-average actuarial assumptions

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Discount rate at measurement date 5.79 % 5.85 %

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:

Pre-tax defined benefit plan gains and losses for 2024 consisted of the following:

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

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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):

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

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

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):

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Multiemployer Pension Plan Withdrawal Expense

We have excluded 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.

Non-GAAP Adjusted Cost per Piece

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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

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

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

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

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

There were no significant changes to our allocation methodologies for 2024 relative to 2023.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Domestic Package

Year Ended December 31, Change

2024 2023 $ %

Domestic Package Operations

2025 2024 $ Change

Average Daily Package Volume (in thousands):

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(505) (147) (358) 243.5 %

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

Goodwill and Asset Impairment Charges (173) (5) (168) N/M

Multiemployer Pension Plan Withdrawal Expense — (19) 19 (100.0) %

Non-GAAP Adjusted Operating Expenses

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2024 (9.0) % 7.1 % 0.5 % (1.4) %

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.

Comparative results were impacted by one less operating day in 2025 compared to 2024.

Rates and product mix include our air cargo product, which volume was fully onboarded under a contract with the USPS during the fourth quarter of 2024.

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

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

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.

Average daily volume decreased in 2025, driven by planned volume declines from our largest customer, decreases in volume as a result of revenue quality actions we took with respect to certain e-commerce volume and challenging market conditions.

By the end of 2026, we expect that our planned volume declines from our largest customer will reduce volume by approximately one million additional pieces per day.

Our continued strategic actions are expected to result in lower total average daily volume in 2026 as compared to 2025 as we transition to a more efficient network designed to support higher-quality revenue and margin expansion.

Residential ("business-to-consumer") and commercial ("business-to-business") volume decreased in 2025.

Business-to-consumer volume decreased 12.5%, as a result of the planned volume declines and revenue quality actions discussed above.

Business-to-business volume decreased 2.8%, primarily driven by demand softness within the retail and manufacturing sectors.

These overall declines were partially offset by continued growth from SMBs, including through the increased use of our Digital Access Program ("DAP").

Within our Air products, average daily volume decreased 11.7% in 2025, driven by the volume declines from our largest customer, partially offset by increased demand from customers in the healthcare and technology sectors.

Ground average daily volume decreased 8.1% in 2025 driven by business-to-consumer volume decreases of 11.9% which were primarily as a result of the revenue quality actions discussed above and the continued volume declines from our largest customer.

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.

Revenue per piece increased 7.1% in 2025, with growth in both Air and Ground products.

This increase reflects the full-year impact of an average 5.9% net increase in base and accessorial rates implemented in December 2024, as well as favorable trends in customer and product mix.

Changes in package characteristics and fuel surcharges also contributed to the increase.

In December 2025, we implemented a separate average 5.9% net increase in base and accessorial rates for both Air and Ground products, which we expect will contribute to revenue per piece growth in 2026.

Fuel Surcharges

We apply a fuel surcharge on our domestic air and ground services that adjusts weekly.

We apply a fuel surcharge on our domestic air and ground products that is adjusted weekly.

Our air fuel surcharge is based on the U.S.

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 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.

Fuel surcharge revenue increased $282 million in 2025, as a result of revenue quality actions discussed above which more than offset the impact of lower volume.

Operating Expenses

Operating expenses decreased in 2025 primarily due to a decline in volume described above.

The decreases were primarily related to the impact of lower headcount and a reduction of approximately 27 million labor hours resulting from the strategic execution of our Network Reconfiguration and Efficiency Reimagined initiatives.

Operating expenses were driven by:

• Compensation and benefits expense increased $539 million, primarily driven by costs associated from additional stops as a result of insourcing our Ground Saver product.

Increased seniority levels and contractual wage rate increases within our U.S.

unionized workforce, along with higher workers' compensation and auto liability costs, also contributed to the increase.

These increases were offset by the reduction of transportation expense related to the expiration of our USPS contract at the end of 2024.

• Air cargo expense increased $430 million as we fully onboarded volume under our USPS air cargo contract during the fourth quarter of 2024.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Operating Expenses

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.

• Other expense increased by $163 million primarily due to a $173 million charge related to the retirement of our MD-11 fleet and increases in commissions paid to our DAP platform partners.

These increases were partially offset by the impacts of our Network Reconfiguration and Efficiency Reimagined initiatives.

See Supplemental Information - Items Affecting Comparability for further detail on related cost savings and program costs.

Non-GAAP adjusted operating expenses exclude the impact of Transformation Strategy Costs of $505 million and $147 million in 2025 and 2024, respectively, as well as Goodwill and Asset Impairment Charges of $173 million and $5 million in 2025 and 2024, respectively.

The 2025 Goodwill and Asset Impairment Charges of $173 million represent the portion of the MD‑11 fleet charge attributable to the U.S.

Domestic Package segment.

2024 non-GAAP adjusted operating expenses also excluded Multiemployer Pension Plan Withdrawal Expense of $19 million.

Transformation Strategy Costs during both 2025 and 2024 related to our Transformation 2.0, Fit to Serve and Network Reconfiguration and Efficiency Reimagined initiatives.

Within these initiatives, we incurred primarily severance costs and fees paid to outside professional service providers.

See Supplemental Information - Items Affecting Comparability for additional discussion of Transformation Strategy Costs excluded from our non-GAAP financial measures.

Cost per piece and non-GAAP adjusted cost per piece increased 8.1% and 7.2% during 2025, respectively.

The increase in cost per piece was primarily driven by increased compensation and benefits costs from insourcing our Ground Saver product in addition to the impact of lower average daily volume.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $419 million, with operating margin decreasing 60 basis points to 6.6%.

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

Non-GAAP adjusted operating profit increased $88 million, with non-GAAP adjusted operating margin increasing 20 basis points to 7.7%.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

International Package

Year Ended December 31, Change

2024 2023 $ %

International Package Operations

2025 2024 $ Change

Average Daily Package Volume (in thousands):

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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 (53) (79) 26 (32.9) %

Goodwill and Asset Impairment Charges (9) (2) (7) 350.0 %

One-Time Payment for International Regulatory Matter — (88) 88 (100.0) %

Non-GAAP Adjusted Operating Expenses

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Comparative results were impacted by having one less operating day in 2025 compared to 2024.

Global trade policy changes in 2025, including de minimis exclusions, resulted in shifting trade lane volumes and reduced segment margin.

Results reflect complex macro environment pressures, which weakened small package U.S.

export and import performance.

Despite these challenges, we achieved revenue growth of 3.4%, driven, in part, by brokerage results.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

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.

Average daily volume increased in 2025, with increases in both domestic and export products, primarily in Europe, the Middle East, and Africa ("EMEA").

These increases were partially offset by China-to-U.S.

trade lane volume declines due to U.S.

trade policy changes that took effect in the second quarter of 2025.

Domestic average daily volume increased 1.4% in 2025 primarily driven by both business-to-consumer retail customers and business-to-business professional services customers in Canada.

Export average daily volume increased 3.5% in 2025 due to our agility to adjust to changing trade lanes, and led by strength in SMBs volumes between European countries.

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.

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.

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.

Revenue per piece increased 1.1% in 2025.

The increase was primarily driven by favorable currency movements, partially offset by lower demand-related surcharges and shifts in lane and product mix.

Segment revenues were negatively impacted by declines on the China-to-U.S.

trade lane as a result of the trade policy changes that took effect in the second quarter of 2025.

Domestic revenue per piece increased 5.8% in 2025 primarily driven by the impact of revenue quality efforts in EMEA.

Export revenue per piece declined 0.6% in 2025, primarily as a result of reduced demand-related surcharges in Asia, changes in geographic distribution and an unfavorable shift in product mix in EMEA, as customers increasingly selected economy products.

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 $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.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Operating Expenses

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 expenses increased in 2025.

Pickup and delivery expenses increased by $460 million mainly due to increased volumes, merit compensation increases and the impact of implementing weekend delivery within Europe.

Integrated air and ground network costs increased $327 million as we continued to align our global network with shifting volume patterns.

These cost increases were primarily due to unfavorable currency movements, increased aircraft maintenance expenses, and higher charter utilization associated with network disruptions and capacity constraints.

Non-GAAP adjusted operating expenses exclude $53 and $79 million in Transformation Strategy Costs in 2025 and 2024, respectively.

Goodwill and Asset Impairment Charges of $9 and $2 million were also excluded in 2025 and 2024, respectively.

The 2025 Goodwill and Asset Impairment Charges of $9 million consisted of the MD‑11 fleet charge attributable to the International Package segment.

2024 results also exclude $88 million in costs associated with a One-Time Payment for an International Regulatory Matter.

Transformation Strategy Costs during both 2025 and 2024 periods relate to our Transformation 2.0, Fit to Serve and Network Reconfiguration and Efficiency Reimagined initiatives.

Within these initiatives, we incurred primarily severance costs and fees paid to outside professional service providers.

See Supplemental Information - Items Affecting Comparability for additional discussion of Transformation Strategy Costs excluded from our non-GAAP financial measures.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $318 million, with operating margin decreasing 230 basis points to 15.5%.

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.

These actions have not had, and are not expected to have, a material impact on us.

Non-GAAP adjusted operating profit decreased $425 million and non-GAAP adjusted operating margin decreased 290 basis points to 15.8%.

Amid these challenges, our brokerage services contributed to our operating profit.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Supply Chain Solutions

Year Ended December 31, Change

2024 2023 $ %

Supply Chain Solutions Operations

2025 2024 $ Change

Revenue (in millions):

1 unchanged sentence

Logistics 5,855 6,437 (582) (9.0) %

Other 1,569 1,461 108 7.4 %

1,795 1,569 226 14.4 %

Total Revenue $ 10,566 $ 12,734 $ (2,168) (17.0) %

1 unchanged sentence

Operating Expenses $ 9,498 $ 11,802 $ (2,304) (19.5) %

Non-GAAP Adjustments to Operating Expenses

Transformation Strategy Costs

(35) (96) 61 (63.5) %

Gain on Divestiture of Coyote 156 — 156 N/A

Net (Loss) Gain on Divestiture

(19) 156 (175) N/A

Goodwill and Asset Impairment Charges — (101) 101 (100.0) %

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

Expense for Regulatory Matter — (45) 45 (100.0) %

Non-GAAP Adjusted Operating Expenses

$ 9,444 $ 11,716 $ (2,272) (19.4) %

Operating Profit (in millions) and Operating Margins:

Operating Profit (in millions) and Operating Margin:

Operating Profit $ 1,068 $ 932 $ 136 14.6 %

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Non-GAAP Adjusted Operating Margin

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

Currency Benefit / (Cost)—(in millions) 1 :

Operating Expenses (49)

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(1) 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 $ %

Non-GAAP adjustments to Operating Expenses

(in millions):

2025 2024 $ Change

Non-GAAP Adjustments to Operating Expenses (in millions):

Transformation Strategy Costs

1 unchanged sentence

Logistics 4 57 (53)

— 2 (2) (100.0) %

Total Transformation Strategy Costs 35 96 (61)

Gain on Divestiture of Coyote

Forwarding (156) — (156) N/A

Total Gain on Divestiture of Coyote

(156) — (156) N/A

Goodwill and Asset Impairment Charges

Net Loss (Gain) on Divestiture

Forwarding — (156) 156

Logistics 101 — 101 N/A

— 117 (117) (100.0) %

Total Loss (Gain) on Divestiture

Goodwill and Asset Impairment Charges

Logistics — 101 (101)

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

Total Non-GAAP Adjustments to Operating Expenses

$ 54 $ 86 $ (32)

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 SCS decreased in 2025 primarily due to a decline in our Forwarding and Logistics businesses, partially offset by revenue growth within certain of our other businesses.

Revenue in our Forwarding businesses decreased $1.8 billion.

The decline was primarily driven by the impact of the 2024 Coyote divestiture, which contributed $1.6 billion of revenue in 2024.

Revenue within our remaining Forwarding businesses declined $245 million, primarily from demand softness in air and ocean markets and from the effects of changing trade policies and tariff uncertainty, particularly on the China-to-U.S.

trade lane, which also negatively impacted both volume and rates.

Within our Logistics businesses, revenue decreased $582 million.

Revenue in our Mail Innovations business decreased $904 million, driven by volume declines resulting from our initiatives to improve revenue quality.

These declines were partially offset by $303 million of revenue growth in our healthcare logistics businesses, due to our 2025 acquisitions of Frigo-Trans and AHG in addition to year-over-year growth in our other healthcare businesses.

Revenue from our other businesses within SCS increased $226 million in 2025, primarily driven by volume growth in both Roadie and UPS Capital within our digital businesses.

Operating Expenses

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.”

Total operating expenses within SCS decreased in 2025 driven primarily by the impacts of the Coyote divestiture of $1.6 billion, gain on sale-leaseback transactions involving real estate properties of $330 million and volume declines and lower purchased transportation costs in our Mail Innovations business as a result of lower volumes.

Non-GAAP adjusted operating expenses exclude the impact of $35 and $96 million in Transformation Strategy Costs in 2025 and 2024, respectively.

2025 results also exclude a $19 million Net Loss on Divestiture of an SCS business.

2024 results exclude a $156 million Gain on Divestiture related to Coyote, $101 million in Goodwill and Asset Impairment Charges and a $45 million Expense for a Regulatory Matter.

Transformation Strategy Costs during both 2025 and 2024 related to our Transformation 2.0, Fit to Serve and Network Reconfiguration and Efficiency Reimagined initiatives.

Within these initiatives, we incurred primarily severance costs and fees paid to outside professional service providers.

See Supplemental Information - Items Affecting Comparability for additional discussion of Transformation Strategy Costs excluded from our non-GAAP adjusted financial measures.

Operating Profit and Margin

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%.

As a result of the factors described above, operating profit increased $136 million, with operating margin increasing 280 basis points to 10.1%.

On a non-GAAP adjusted basis, operating profit increased $104 million, with non-GAAP adjusted operating margin increasing 260 basis points to 10.6%.

UNITED PARCEL SERVICE, INC.

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Consolidated Operating Expenses

Year Ended December 31, Change

2024 2023 $ %

2025 2024 $ Change

Operating Expenses (in millions):

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(420) (213) (207) 97.2 %

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

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

Multiemployer Pension Plan Withdrawal Expense — (19) 19 (100.0) %

Non-GAAP Adjusted Compensation and Benefits 48,185 47,861 324 0.7 %

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(173) (109) (64) 58.7 %

Gain on Divestiture of Coyote 156 — 156 N/A

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

Net (Loss) Gain on Divestiture

(19) 156 (175) N/A

One-Time Payment for International Regulatory Matter — (88) 88 (100.0) %

Goodwill and Asset Impairment Charges (182) (108) (74) 68.5 %

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

Expense for Regulatory Matter — (45) 45 (100.0) %

Non-GAAP Adjusted Total Other Expenses

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(1) 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 $ %

2025 2024 $ Change

Non-GAAP Adjustments to Operating Expenses

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Total Transformation Strategy Costs 593 322 271 84.2 %

Gain on Divestiture of Coyote

Other expenses (156) — (156) N/A

Other expenses:

Net Loss (Gain) on Divestiture 19 (156) 175 N/A

One-Time Payment for International Regulatory Matter — 88 (88) (100.0) %

Other expenses 88 — 88 N/A

Goodwill and Asset Impairment Charges 182 108 74 68.5 %

Other expenses 108 236 (128) (54.2) %

One-Time Compensation Payment

Benefits — 61 (61) (100.0) %

Expense for Regulatory Matter — 45 (45) (100.0) %

Other expenses 45 — 45 N/A

Multiemployer Pension Plan Withdrawal Expense — 19 (19) (100.0) %

Total Non-GAAP Adjustments to Operating Expenses $ 794 $ 426 $ 368 86.4 %

Compensation and Benefits

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.

• 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.

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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.

Compensation and Benefits

Total compensation expense increased $182 million.

The principal factors contributing to the overall changes were:

• Direct labor cost increased $410 million.

Increased seniority and contractual wage rate growth for our U.S.

unionized workforce resulted in increased costs of $567 million.

Higher international labor costs due to merit increases and weekend operations within Europe as well as an increase in flight operations from air cargo volume contributed $224 million of the increase.

Additional stops due to the insourcing of Ground Saver were more than offset by the impact of volume declines, resulting in decreased cost of $349 million.

• Management compensation cost decreased $242 million, primarily due to lower overall headcount and a decrease in incentive compensation.

Benefits costs increased $330 million.

The principal factors contributing to the overall changes were:

• Separation cost increased $212 million from the continued execution of our transformation strategy.

• Health and welfare cost increased $143 million, driven by increased contributions to multiemployer plans as a result of contractual rate increases.

• Workers' compensation expense increased $127 million due to higher current year claims, an increase in the average cost per claim, and less favorable development in prior year claims, partially offset by a reduction in hours worked.

• Accruals for paid time off, payroll and other cost increased $72 million, due to contractual wage rate growth, partially offset by the impact of headcount reductions.

• Pension and other postretirement benefits cost decreased $242 million, driven by lower service cost resulting from higher discount rates and reduced multiemployer plan expense from lower participating headcount, partially offset by the impact of contractual rate increases.

On a non-GAAP adjusted basis Compensation and Benefits increased $324 million, primarily due to Transformation Strategy Costs.

Transformation Strategy Costs during both 2025 and 2024 relate to our Transformation 2.0, Fit to Serve and Network Reconfiguration and Efficiency Reimagined initiatives.

Within these initiatives, we incurred primarily other employee benefits expense and related payroll tax expense.

Compensation and benefits expenses under these initiatives were $420 million in 2025, an increase of $188 million.

2024 results exclude a $19 million Multiemployer Pension Plan Withdrawal Expense.

See Supplemental Information - Items Affecting Comparability for additional discussion of items excluded from our non-GAAP financial measures.

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.

Repairs and maintenance cost increased primarily due to the timing of required aircraft engine maintenance.

Ground equipment maintenance also increased as a result of higher network usage, partially offset by lower facility repair costs due to timing of maintenance.

Depreciation and Amortization

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.

Depreciation expense increased $85 million due to capital asset additions and building closures during 2025, the latter of which shortened useful life and accelerated depreciation.

Amortization expense increased $52 million primarily from capitalized software investments and additional intangible assets acquired as part of the acquisitions of Frigo-Trans and AHG in 2025, slightly offset by the impact of the Coyote divestiture in 2024.

Purchased Transportation

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.

The majority of our fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential.

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.

Other Occupancy

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.

Third-party transportation expense charged to us by air, ocean and ground carriers decreased by $3.0 billion.

The decrease was primarily driven by a decline in ground cost of $1.3 billion due to the Coyote divestiture in 2024 and an additional $1.3 billion due to the combined impacts of insourcing Ground Saver and lower overall volume.

Third-party fuel surcharges decreased $285 million primarily due to the impact of the Coyote divestiture.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Fuel expense decreased $50 million mainly attributable to lower prices for jet fuel, diesel and gasoline, partially offset by the impact of increases in flight activity.

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

The majority of our fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential.

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.

Other Occupancy

Other occupancy expense increased $152 million due to higher property rental expense from rising occupancy rates, additional leased operating facilities coming into service and an increase in electrical and power utilities.

Other occupancy related expenses, including weather-related costs, also contributed to the overall increase .

Other Expenses

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.

Other expenses increased $275 million, driven primarily by a $182 million charge related to the retirement of our MD‑11 fleet, $160 million of higher professional fees related to our transformation strategy initiatives, acquisitions, and litigation, $138 million of increased commissions associated with growth in DAP, and $117 million of higher auto liability insurance costs due to unfavorable prior‑year claim development and adverse claim trends.

Other increases reflected higher customer claims volume and increased credit losses related to changes in accounts receivable composition and specific customer matters.

These increases were partially offset by $333 million of higher gains, primarily from $434 million of gains on sale‑leaseback transactions and real estate sales in 2025, compared to net gains of $77 million in 2024, which included the Coyote divestiture and other asset disposals.

In addition, 2024 included a $94 million charge related to the One‑Time Payment for an International Regulatory Matter.

In 2025, non-GAAP adjusted other expenses exclude the impact of a $182 million charge related to the retirement of our MD-11 fleet, $173 million in Transformation Strategy Costs associated with outside professional service provider fees, and $19 million from the divestiture of a business within SCS.

In 2024, non-GAAP adjusted expenses exclude the impact of a $156 million gain from the Coyote divestiture, $108 million related to the impairment of trade names and software, $109 million in Transformation Strategy Costs associated with outside professional service provider fees, $133 million related to an Expense for Regulatory Matter and a One-Time Payment for an International Regulatory Matter.

We expect to incur additional other expenses under our Network Reconfiguration and Efficiency Reimagined initiatives during 2026.

See Supplemental Information - Items Affecting Comparability for additional discussion on the types, amounts and timing thereof.

UNITED PARCEL SERVICE, INC.

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Other Income and (Expense)

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 $ %

The following table sets forth investment income (expense) and other and interest expense for 2025 and 2024 (in millions):

2025 2024 $ Change

Investment Income (Expense) and Other

$ 314 $ (160) $ 474 N/A

Goodwill and Asset Impairment Charges

Defined Benefit Pension and Postretirement Medical Plan Loss

Non-GAAP Adjusted Investment Income (Expense) and Other

— 665 (665) (100.0) %

Non-GAAP Adjusted Investment Income and Other

$ 333 $ 505 $ (172) (34.1) %

Interest Expense $ (1,017) $ (866) $ (151) 17.4 %

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Non-GAAP Adjusted Interest Expense $ (1,017) $ (860) $ (157) 18.3 %

Total Other Income (Expense)

$ (703) $ (1,026) $ 323 (31.5) %

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

Total Non-GAAP Adjusted Other Income and (Expense)

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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.

Investment Income (Expense) and Other increased $474 million.

Remeasurements of our defined benefit plans did not result in a mark-to-market gain or loss in 2025, compared to a $665 million loss in 2024.

In 2025, Investment Income (Expense) and Other includes a $19 million impairment charge related to an equity method investment.

Excluding the impact of these remeasurements and the investment impairment, non-GAAP adjusted investment income and other decreased $172 million, driven by lower average invested balances, year-over-year changes in certain non-current investments and lower pension income.

The decline in pension income was driven by an increase in interest cost from overall plan growth and higher discount rates, slightly offset by higher expected returns on pension assets.

These factors were partially offset by a reduction in foreign currency exchange losses.

Interest Expense

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

Interest Expense increased due to higher average outstanding debt balances and lower capitalized interest.

UNITED PARCEL SERVICE, INC.

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Income Tax Expense

The following table sets forth income tax expense and our effective tax rate for the years ended December 31, 2024 and 2023 (in millions):

Year Ended December 31,

2024 2023 $ %

The following table sets forth our income tax expense and effective tax rate for 2025 and 2024 (in millions):

2025 2024 $ Change

Income Tax Expense:

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Income Tax Impact of:

Transformation Strategy Costs:

Transformation 2.0

Spans and Layers — 21 (21) (100.0) %

Business Portfolio Review (5) 7 (12) (171.4) %

Financial Systems 14 13 1 7.7 %

Other Initiatives — 1 (1) (100.0) %

Transformation 2.0 Total 9 20 (11) (55.0) %

Fit to Serve 10 49 (39) (79.6) %

Network Reconfiguration and Efficiency Reimagined 8 — 8 N/A

Network Reconfiguration and Efficiency Reimagined

122 8 114 N/M

Total Transformation Strategy Costs 141 77 64 83.1 %

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

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

Net Loss (Gain) on Divestiture 4 (4) 8 (200.0) %

Goodwill and Asset Impairment Charges 45 27 18 66.7 %

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

Expense for Regulatory Matter — — — N/A

Multiemployer Pension Plan Withdrawal Expense 5 — 5 N/A

Reversal of Income Tax Valuation Allowance

109 — 109 N/A

Multiemployer Pension Plan Withdrawal Expense — 5 (5) (100.0) %

Defined Benefit Pension and Postretirement Medical Plan Loss

— 159 (159) (100.0) %

Non-GAAP Adjusted Income Tax Expense

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23.7 % 22.5 %

In July 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law.

The income tax-related provisions of the OBBBA include revisions to international tax regimes, the repeal of mandatory capitalization of research and development expenditures, and the extension of bonus depreciation.

The OBBBA has multiple effective dates, with certain provisions effective in future years.

The impact of the OBBBA is not material to our 2025 overall effective tax rate and has been reflected in our audited, consolidated financial statements.

We continue to evaluate the expected impact in future years and expect a favorable impact to our effective tax rate and cash flows.

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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As of December 31, 2025, we had $5.9 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 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, pension contributions, planned acquisitions, transformation strategy costs, including voluntary separation programs, 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.

Cash Flows From Operating Activities

The following is a summary of the significant sources (uses) of cash from operating activities (in millions):

The following is a summary of significant sources (uses) of cash from operating activities (in millions):

Net income $ 5,572 $ 5,782

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Net cash from operating activities $ 8,450 $ 10,122

(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 $116 million in 2024, driven by the following:

• The reduction in net income.

• Increased 401(k) plan contributions.

(1) Represents depreciation and amortization, gains and losses on derivative transactions and foreign currency exchange, disposals of assets and businesses, deferred income taxes, allowances for expected credit losses, amortization of operating lease assets, 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 $1.7 billion, driven by the following:

• Unfavorable changes in working capital resulting from:

• A decrease in payables primarily due to lower U.S.

Domestic Package volume.

• Higher incentive compensation payments.

• Higher income tax payments due to a 2024 deferred payment resulting from Hurricane Helene relief, partially offset by changes in non-U.S.

income tax payables.

• A reduction in net income.

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.

• Cash proceeds of $730 million from our factored accounts receivable program, of which $243 million was collected from customers and remitted to third-party purchasers as of December 31, 2025;

this program was not in place in 2024.

For additional information on our factoring program, see note 2 to the audited, consolidated financial statements.

As of December 31, 2025 approximately $2.0 billion of our total worldwide holdings of cash, cash equivalents and marketable securities were held by foreign subsidiaries.

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Cash provided by operating activities in the U.S.

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.

continues to be our primary source of funds to finance our business operations, planned capital expenditures, pension contributions, 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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Cash Flows From Investing Activities

Our primary sources (uses) of cash from investing activities for the years ended December 31, 2024 and 2023 were as follows (in millions):

Our primary sources (uses) of cash from investing activities were as follows (in millions):

Net cash used in investing activities $ (4,735) $ (217)

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Other Investing Activities:

Proceeds from disposals of businesses, property, plant and equipment $ 1,115 $ 193

Proceeds from disposal of businesses, property, plant and equipment

$ 700 $ 1,115

Net (purchases) sales and maturities of marketable securities

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Other investing activities $ 15 $ (24)

(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.

(1) In addition to capital expenditures of $3.7 and $3.9 billion for 2025 and 2024, respectively, there were principal repayments of finance lease obligations of $133 and $136 million in these years, respectively.

These are included in cash flows from financing activities.

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

In 2025, capital expenditures were $3.7 billion, of which approximately $430 million was related to projects supporting our environmental sustainability goals.

Total capital expenditures decreased in 2025 compared to 2024 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.

• Decreased aircraft expenditures as a result of utilizing finance lease alternatives.

• Reduced spending on vehicles due lower volume and a focus on routine replacements for vehicles at the end of their useful lives.

These decreases were partially offset by increased spending on buildings, facilities and plant equipment and information technology, as we continued to execute on our Network of the Future and other operational efficiency initiatives.

Proceeds from the disposal of businesses, property, plant and equipment decreased.

In 2025, proceeds of $465 million were primarily from sale-leaseback transactions involving real estate properties within SCS and a data center, with the remainder from other real estate sales.

In 2024, net cash proceeds of $1.0 billion were in connection with the Coyote divestiture.

Changes in marketable securities were largely driven by the 2024 liquidation of our portfolio of $2.7 billion.

Cash paid for acquisitions in 2025 was primarily attributable to the acquisitions of Frigo-Trans, AHG and reacquired development area rights for The UPS Store.

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.

In 2025, non-cash investing activities included construction-in-progress of $107 million related to the capitalization of construction costs in connection with a build-to-suit financing obligation.

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

It also provides for maintenance of buildings, facilities and equipment.

Our 2026 investment program anticipates investments in technology initiatives and enhanced network capabilities.

We currently expect our capital expenditures will be approximately $3.0 billion for all of 2026, of which approximately 80% percent will be allocated to network enhancement projects and other technology initiatives.

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.

UNITED PARCEL SERVICE, INC.

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Cash Flows From Financing Activities

Our primary sources (uses) of cash for financing activities were as follows (amounts in millions, except per share data):

Our primary uses of cash for financing activities were as follows (amounts in millions, except per share data):

Net cash used in financing activities $ (4,141) $ (6,850)

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Total capitalization $ 40,382 $ 38,027

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.

We repurchased 8.6 and 3.9 million shares of class B common stock for $1.0 billion and $500 million under our share repurchase authorization in 2025 and 2024, respectively.

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

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.

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 due 2033;

• $1.1 billion 5.050% senior notes due 2053;

• $529 million floating rate senior notes due 2073.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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.

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 notes at maturity:

• $1.0 billion 2.500% senior notes;

• €700 million 0.375% senior notes;

• $500 million floating rate senior notes.

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

We paid quarterly cash dividend of $1.64 and $1.63 per share in 2025 and 2024, respectively.

We previously announced a first quarter 2026 dividend of $1.64 per share, which is payable on March 5, 2026 to shareowners of record on February 17, 2026.

During 2025 and 2024, dividends reported within shareowners' equity include $167 and $195 million, respectively, of non-cash dividends that were settled in shares of class A common stock.

Issuances of debt during 2025 consisted of fixed-rate and floating-rate senior notes of varying maturities totaling $4.2 billion.

Repayments of debt during 2025 consisted of $2.1 billion of senior notes and scheduled principal payments on our finance lease obligations.

Issuances of debt during 2024 consisted of fixed-rate and floating-rate senior notes of varying maturities totaling $2.8 billion.

Repayments of debt in 2024 consisted of $2.2 billion of short- and long-term commercial paper, $1.5 billion in fixed-rate senior notes and scheduled principal payments on our finance lease obligations.

The amount of commercial paper outstanding fluctuates based on daily liquidity needs.

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$ — $ 208 5.26 %

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.

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

Cash outflows for this purpose were $200 and $402 million for the years ended December 31, 2024 and 2023, respectively.

The decrease was due to changes in required repurchase amounts.

Except as disclosed in note 9 to the audited, consolidated financial statements, we do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.

Sources of Credit

See note 9 to the audited, consolidated financial statements for a discussion of our available credit and our debt covenants.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

We have $500 million of fixed-rate senior notes that mature in 2026.

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.

Cash flows from other financing activities decreased primarily due to lower tax withholdings on employee stock compensation as a result of previously disclosed changes to the payout structure of our management incentive award program.

Cash outflows for this purpose were approximately $14 and $200 million in 2025 and 2024, respectively.

Cash flows from other financing activities during 2025 also include $59 million of obligations related to factored receivables that were not remitted to third-party purchasers as of December 31, 2025, as well as fees associated with finance leases.

For additional information on our factoring program, see note 2 to the audited, consolidated financial statements.

During 2025, we entered into leases, which required parent company guarantees of approximately $1.8 billion.

For additional information on guarantees, see note 9 to the audited, consolidated financial statements.

Except as disclosed in note 9 to the audited, consolidated financial statements, we do not have other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.

Sources of Credit

See note 9 to the audited, consolidated financial statements for a discussion of our available credit and our debt covenants.

Contractual Commitments

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We expect to fund these obligations and other discretionary payments, including expected returns to shareowners, primarily through cash from operations.

We anticipate making discretionary contributions to our company-sponsored U.S.

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 minimum required cash contributions to our qualified U.S.

pension plans in 2025.

The amount of any minimum funding requirement, as applicable, for these plans could change significantly in future periods depending on many factors, including plan asset returns, discount rates, other actuarial assumptions, changes to pension plan funding regulations and the discretionary contributions that we make.

We anticipate making contributions to our company-sponsored U.S.

defined benefit pension and postretirement medical benefit plans of approximately $1.3 billion in 2026, which are included within Expected employer contributions to plan trusts in note 5 to the audited, consolidated financial statements.

Contributions are sufficient to cover Internal Revenue Service minimums and required funding in accordance with applicable law.

The amount of any applicable minimum funding requirement for these plans could change significantly in future periods depending on many factors, including plan asset returns, discount rates, other actuarial assumptions, changes to pension plan funding regulations and any discretionary contributions we make.

Actual contributions made in future years could materially differ and consequently required minimum contributions beyond 2026 cannot be reasonably estimated.

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As discussed in note 6 to the audited, consolidated financial statements, we are not currently subject to any surcharges or minimum contributions outside of our agreed-upon contractual rates with respect to the multiemployer pension and health and welfare plans in which we participate.

Contribution rates to these multiemployer pension and health and welfare plans are established through the collective bargaining process.

Contribution rates to these plans are established through the collective bargaining process.

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

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

Additionally, we have senior notes that mature in 2026.

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 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.

Future annual principal payments on our long-term debt are also set out in note 9 to the audited, consolidated financial statements.

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

Certain aircraft purchase commitments included in our Annual Report on Form 10-K for the year ended December 31, 2024 are now reflected as leases.

See note 10 to the audited, consolidated financial statements for more information.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following table summarizes the expected cash outflows to satisfy our total purchase commitments as of December 31, 2025 (in millions):

Commitment Type 2026 2027 2028 2029 2030 After 2030 (1)

Purchase Commitments $ 1,056 $ 1,076 $ 367 $ 31 $ 22 $ 439 $ 2,991

(1) Includes a financing arrangement to be paid over 16 years.

In addition to purchase commitments, we have other contractual obligations related to equipment rental, software licensing, service and commodity contracts.

Our finance lease obligations, including purchase options that are reasonably certain to be exercised, relate primarily to leases on aircraft and real estate.

These obligations, together with our obligations under operating leases are set out in note 11 to the audited, consolidated financial statements.

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 in 2025 and 2026.

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

Contingencies

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From time to time, we are involved in various judicial proceedings and other matters arising from the conduct of our business that result in exposure to various contingent liabilities.

The events that may impact our contingent liabilities are often unique and generally are not predictable.

Events that may result in contingent liabilities are often unique and generally are not predictable, including general commercial matters, governmental actions, employment-related claims, and other contractual disputes.

At the time a contingency is identified, we consider all relevant facts as part of our evaluation.

We apply judgment when establishing a range of reasonably possible losses arising from contingencies.

Our judgment is influenced by our understanding of currently available information and potential outcomes of these actions, including the advice from our internal counsel, external counsel and other senior management.

Our judgment is influenced by our understanding of currently available information and potential outcomes of these matters, including the advice from our internal counsel, external counsel and other senior management.

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

For such accruals, we record the amount we consider to be the best estimate within a range of potential losses;

For such matters, we record the amount we consider to be the best estimate within a range of potential losses;

however, when there appears to be a range of equally possible losses, our accrual is at the low end of this range.

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In addition, we have certain contingent liabilities that have not been recognized as of, or for the year ended, December 31, 2025, because a loss was not reasonably estimable.

Contingent obligations relating to income taxes and self-insurance are discussed below.

Contingent obligations relating to income taxes and self-insurance are discussed separately below.

Goodwill and Intangible Asset Impairments

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We assess goodwill for impairment at the reporting unit level.

To determine whether goodwill is impaired, we are required to assess the fair value of each reporting unit and compare it to its carrying value.

The determination of reporting units requires judgment, and if we changed the definition of our reporting units, it is possible that we would have reached different conclusions when performing our impairment tests.

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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• 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, 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.

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

During periods 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

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,

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

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.

and change over time based on the historical performance and changing business conditions and strategy for each 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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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.

As of our July 1, 2025 testing date, approximately $877 million and $738 million of our $4.8 billion consolidated goodwill balance was represented by our Global Freight Forwarding ("GFF") and Healthcare Logistics and Distribution ("HLD") reporting units, respectively.

Based on our annual impairment evaluation, both reporting units exhibited a limited excess of fair value above carrying value and reflect a greater risk of an impairment occurring in future periods.

This limited excess was primarily driven by then-current market conditions, volatility in global markets, early stages of our current healthcare growth strategy and ongoing integration of recent acquisitions.

Both our GFF and HLD reporting units are included in SCS.

In addition to forecasted and actual business performance, our valuation estimates are most sensitive to changes in discount rate.

For the GFF and HLD reporting units, if the discount rates 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 these reporting units continue to exceed their respective carrying values.

For each of our reporting units, we continue to monitor the impact of macroeconomic conditions and business performance on our estimates of fair value.

Subsequent to our annual testing date, the GFF reporting unit continued to face volatile market conditions and management updated its long-term projections for the mix and timing of revenue growth.

We concluded that the change in projections triggered the need for an interim quantitative test for goodwill impairment in the fourth quarter of 2025.

The interim impairment test methodology was consistent with our approach for annual impairment testing, using our current view of key inputs and assumptions.

The interim impairment test indicated that the GFF reporting unit continues to have a limited excess of fair value over carrying value consistent with the last annual test, and no impairment was recorded.

No other reporting units had indications that an impairment was more likely than not.

Actual reporting unit performance, revisions to our forecasts of future performance, market factors, changes in global trade policy, changes in estimates or assumptions in future impairment testing, or a combination thereof could result in a non-cash impairment charge in one or more of our reporting units during a future period.

In the course of our ongoing monitoring of reporting units, we also noted developments within our Mail Innovations reporting unit.

Beginning in the first quarter of 2025, Mail Innovations experienced cost increases in excess of our expectations due to increases in purchased transportation rates, resulting from the expiration of a contract with our primary vendor.

In December 2025, we entered into an agreement with the USPS to support final-mile delivery for Mail Innovations volumes starting in 2026.

This agreement is expected to reduce exposure to purchased transportation cost volatility and enhance the predictability of future operating results, mitigating the cost-related risk identified earlier in the year.

As of our July 1, 2025 testing date, approximately $295 million in goodwill was represented by our Mail Innovations reporting unit, which is included in SCS.

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.

Self-Insurance Accruals

We base self-insurance reserves on actuarial estimates, which are determined with the assistance of a third-party actuary through a complex process that includes the application of various actuarial methods and assumptions.

The process incorporates actual loss experience and judgments about expected future development based on historical experience, recent and projected trends in claim frequency and severity, changes in the level of risk retained under our programs and changes in claims handling practices, among other factors.

Workers' compensation, automobile liability and general liability insurance claims may take a number of years to resolve.

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

Several factors can affect the actual cost, or severity, of a claim, including:

• Risk retention limits;

• Length of time a claim remains open;

• Trends in healthcare and litigation costs;

• Results of any related litigation;

• Changes in legislation.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

Self-Insurance Accruals

We establish self‑insurance reserves based on actuarial estimates developed with the assistance of an independent actuary.

These estimates are derived through a complex process that applies various actuarial methods and assumptions, incorporating actual loss experience, and judgments regarding expected future developments based on historical experience.

Key considerations include trends in claim frequency and severity, changes in risk retention levels, and modifications to claims handling practices, among other factors.

Workers’ compensation, automobile liability, and general liability claims often take years to resolve.

As a result, actuarial estimates are necessary to project the ultimate cost of claim resolution.

Several factors may influence the actual cost, or severity, of a claim, including:

• Risk retention limits;

• Duration of the claim;

• Healthcare and litigation cost trends;

• Outcomes of related litigation;

• Legislative changes.

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 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.

Total reserves related to prior year claims increased by $11 million in 2025 and decreased by $144 million in 2024 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 decrease, respectively, of approximately $300 million in our reserves and expenses as of, and for the year ended, December 31, 2025.

We make certain estimates and judgments in determining income tax expense within our financial statements.

These estimates and judgments occur in the calculation of income by legal entity and jurisdiction, tax credits, benefits and deductions, and in the calculation of deferred tax assets and liabilities arising from timing differences in the recognition of revenue and expense for tax and financial statement purposes, as well as tax, interest and penalties related to uncertain tax positions.

Significant changes in these estimates may result in an increase or decrease to our tax expense in a subsequent period.

UNITED PARCEL SERVICE, INC.

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RESULTS OF OPERATIONS

We assess the likelihood that we will be able to recover our deferred tax assets.

If recovery is not likely, we increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.

We believe that we will ultimately recover a substantial majority of the deferred tax assets recorded in our consolidated balance sheets.

However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not likely.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

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

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

Once it is determined that the position meets the recognition threshold, the second step requires us to estimate and measure the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement.

The difference between the amount of recognizable tax benefit and the total amount of tax benefit from positions filed or to be filed with the tax authorities is recorded as a liability for uncertain tax benefits.

It is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various possible outcomes.

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.

Pension and Other Postretirement Medical Benefits

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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.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following sensitivity analysis shows the impact of a 25 basis point change in the assumed discount rate and return on assets for our pension and postretirement benefit plans, and the resulting increase (decrease) in our obligations and expense as of, and for the year ended, December 31, 2025 (in millions):

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Refer to note 5 to the audited, consolidated financial statements for information on our potential liability for coordinating benefits related to the Central States Pension Fund.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Depreciation, Residual Value and Impairment of Property, Plant and Equipment

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Details of long-lived asset impairments are included in note 4 to the audited, consolidated financial statements.

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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.

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 air volumes experienced during 2024, we temporarily idled 12 aircraft for an average of approximately six months.

As a result of the reduction in air volumes experienced during 2025, we temporarily idled eight aircraft for an average of approximately seven months.

As of December 31, 2025, 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 2026 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.

During the fourth quarter of 2025, we recognized a $182 million charge related to the retirement of our MD-11 fleet, primarily for aircraft and parts inventory.

These charges are primarily within our U.S.

Domestic Package segment and are recorded within Other expenses in our audited, statement of consolidated income.

Impairment charges were immaterial during 2024.

We will continue to monitor our long-lived asset groups for impairment.

We continued our Network Reconfiguration and Efficiency Reimagined initiatives during 2025, which have led and will continue to lead to a consolidation of our facilities and workforce as well as an end-to-end process redesign.

These actions have resulted in, and may continue to 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 have identified specific assets affected by our Network Reconfiguration and Efficiency Reimagined initiatives during the year, and we anticipate continued impacts in 2026.

These future impacts may also relate to specific assets that have not yet been identified.

In addition to our Network Reconfiguration and Efficiency Reimagined initiatives, 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.

Refer to note 4 for further considerations.

Refer to note 4 to the audited, consolidated financial statements 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

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

prices, correlations, time value, credit spreads and yield curve volatility factors.

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 operations.

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

If our estimates of activity changed, this could have a material impact on the reported value of these investments and on the return on assets that we report.

If our estimates of activity changed, this could have a material impact on the reported value of these

UNITED PARCEL SERVICE, INC.

AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

investments and on the return on assets that we report.

Refer to note 5 to the audited, consolidated financial statements for further information on our pension and postretirement plan assets.

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Estimating the fair value of assets acquired and liabilities assumed requires judgment, especially with respect to identified intangible assets as there may be limited or no observable transactions within the market, requiring us to develop internal models to estimate fair value.

For example, estimating the fair value of identified intangible assets may require us to develop valuation assumptions, including but not limited to, future expected cash flows from these assets, synergies and the cost of capital.

Certain inputs require us to determine assumptions that are reflective of a market participant view of fair value.

Changes in any of these assumptions may materially impact the amount we recognize for identifiable assets and liabilities, in addition to the residual amount allocated to goodwill.