UNITED PARCEL SERVICE INC 10-K

Item 8. Financial Statements and Supplementary Data Table of Contents Report of Independent Registered Public Accounting Firm (PCAOB ID N o. 34 ) 58 Consolidated Balance Sheets 61 Statements of Consolidated Income 62 Statements of Consolidated Comprehensive Income (Loss) 62 Statements of Consolidated Cash Flows 63 Notes to Consolidated Financial Statements 64 Note 1—Summary of Accounting Policies 64 Note 2—Revenue Recognition 72 Note 3—Marketable Securities and Non-Current Investments 74 Note 4—Property, Plant and Equipment 76 Note 5—Company-Sponsored Employee Benefit Plans 77 Note 6—Multiemployer Employee Benefit Plans 87 Note 7—Goodwill and Intangible Assets 91 Note 8—Acquisitions and Dispositions 93 Note 9—Debt and Financing Arrangements 95 Note 10—Legal Proceedings and Contingencies 99 Note 11—Leases 101 Note 12—Shareowners’ Equity 103 Note 13—Stock-Based Compensation 107 Note 14—Segment and Geographic Information 110 Note 15—Income Taxes 113 Note 16—Earnings Per Share 118 Note 17—Derivative Instruments and Risk Management 119 Note 18—Transformation Strategy Costs 123 57 Report of Independent Registered Public Accounting Firm To the Shareowners and Board of Directors of United Parcel Service, Inc. Atlanta, Georgia Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of United Parcel Service, Inc. and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Goodwill – Global Freight Forwarding and Healthcare Logistics Distribution Reporting Units — Refer to Notes 1 and 7 to the consolidated financial statements Critical Audit Matter Description The Company tests goodwill for impairment annually as of July 1, or more frequently if circumstances require, by determining if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For certain reporting units, the Company uses a combination of income and market approaches to develop an estimate of reporting unit fair value. The income approach uses a discounted cash flow model, which requires the Company 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 discount rate. 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). As of 58 the annual test date, the Company had recorded balances of goodwill of $877 million related to Global Freight Forwarding ("GFF") and $738 million related to Healthcare Logistics Distribution ("HLD") reporting units. The Company did not record any goodwill impairments during 2025. We identified the valuation of the GFF and HLD reporting units as a critical audit matter because of the significant judgments required to estimate the fair value of the reporting units. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecasts of future revenue and costs and the selection of the discount rate. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasts of future revenue and costs, and the selection of the discount rate, used by management to estimate the fair value of the GFF and HLD reporting units included the following, among others: • We tested the design and operating effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the GFF and HLD reporting units, such as controls related to management’s forecasts of revenue and costs and selection of the discount rate. • We performed a sensitivity analysis of the forecasts of revenue and costs, including their impact on future cash flows, and the selected discount rate. • We evaluated management's ability to accurately forecast by comparing actual results to management's historical forecasts. • We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in relevant industry reports. • With the assistance of our fair value specialists, we evaluated the reasonableness of the selected discount rate, by: – Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation. – Developing a range of independent estimates and comparing those to the discount rate selected by management. – Evaluating the forecasts to understand and sensitize management's assumptions regarding the risk inherent in the forecasts. Revenue — Refer to Notes 1 and 2 to the consolidated financial statements Critical Audit Matter Description Approximately 88 percent of the Company’s revenues are from its global small package operations that provide time-definite delivery services for express letters, documents, small packages and palletized freight via air and ground services. The Company’s global small package revenues are comprised of a significant volume of low-dollar transactions sourced from systems that were primarily developed by the Company. The processing of transactions, including the recording of them, is highly automated and based on contractual terms with the Company’s customers. Auditing global small package revenue required a significant extent of effort and the involvement of professionals with expertise in information technology ("IT") necessary for us to identify, test, and evaluate the Company’s systems, software applications, and automated controls. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s systems to process global small package revenue transactions included the following, among others: • With the assistance of our IT specialists, we: 59 – Identified the significant systems used to process global small package revenue transactions and tested the effectiveness of the general IT controls over each of these systems, including testing of user access controls, change management controls, and IT operations controls. – Tested the effectiveness of system interface controls and automated controls within the global small package revenue stream, as well as the controls designed to ensure the accuracy and completeness of revenue. • We tested the effectiveness of controls over the relevant global small package revenue business processes, including those in place to reconcile the various systems to the Company’s general ledger. • We performed analytical procedures to evaluate the Company’s recorded revenue and evaluate trends. • For a sample of customers, we read the Company’s contract with the customer and evaluated the Company’s pattern of revenue recognition for the customer. In addition, we evaluated the accuracy of the Company’s recorded global small package revenue for a sample of customer invoices. /s/ Deloitte & Touche LLP Atlanta, Georgia February 17, 2026 We have served as the Company's auditor since 1969. 60 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions) December 31, 2025 2024 ASSETS Current Assets: Cash and cash equivalents $ 5,887 $ 6,112 Accounts receivable, net 11,209 10,871 Other current assets 1,949 2,327 Total Current Assets 19,045 19,310 Property, Plant and Equipment, Net 37,731 37,179 Operating Lease Right-Of-Use Assets 4,263 4,149 Goodwill 5,837 4,300 Intangible Assets, Net 4,021 3,064 Deferred Income Tax Assets 140 112 Other Non-Current Assets 2,053 1,956 Total Assets $ 73,090 $ 70,070 LIABILITIES AND SHAREOWNERS’ EQUITY Current Liabilities: Current maturities of long-term debt and finance leases $ 608 $ 1,838 Current maturities of operating leases 763 733 Accounts payable 6,633 6,302 Accrued wages and withholdings 3,715 3,655 Self-insurance reserves 1,137 1,086 Accrued group welfare and retirement plan contributions 1,389 1,390 Other current liabilities 1,375 1,437 Total Current Liabilities 15,620 16,441 Long-Term Debt and Finance Leases 23,519 19,446 Non-Current Operating Leases 3,700 3,635 Pension and Postretirement Benefit Obligations 6,567 6,859 Deferred Income Tax Liabilities 3,690 3,595 Other Non-Current Liabilities 3,739 3,351 Shareowners’ Equity: Class A common stock ( 106 and 121 shares issued in 2025 and 2024, respectively) 1 2 Class B common stock ( 743 and 733 shares issued in 2025 and 2024, respectively) 8 7 Additional paid-in capital 275 136 Retained earnings 20,151 20,882 Accumulated other comprehensive loss ( 4,208 ) ( 4,309 ) Deferred compensation obligations 5 7 Less: Treasury stock ( 0.1 shares in 2025 and 2024) ( 5 ) ( 7 ) Total Equity for Controlling Interests 16,227 16,718 Noncontrolling Interests 28 25 Total Shareowners’ Equity 16,255 16,743 Total Liabilities and Shareowners’ Equity $ 73,090 $ 70,070 See notes to audited, consolidated financial statements. 61 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) 2025 2024 2023 Revenue $ 88,661 $ 91,070 $ 90,958 Operating Expenses: Compensation and benefits 48,605 48,093 47,092 Repairs and maintenance 3,107 2,940 2,828 Depreciation and amortization 3,746 3,609 3,366 Purchased transportation 10,588 13,589 13,640 Fuel 4,316 4,366 4,775 Other occupancy 2,269 2,117 2,019 Other expenses 8,163 7,888 8,097 Total Operating Expenses 80,794 82,602 81,817 Operating Profit 7,867 8,468 9,141 Other Income and (Expense): Investment income (expense) and other 314 ( 160 ) 219 Interest expense ( 1,017 ) ( 866 ) ( 787 ) Total Other Income and (Expense) ( 703 ) ( 1,026 ) ( 568 ) Income Before Income Taxes 7,164 7,442 8,573 Income Tax Expense 1,592 1,660 1,865 Net Income $ 5,572 $ 5,782 $ 6,708 Basic Earnings Per Share $ 6.56 $ 6.76 $ 7.81 Diluted Earnings Per Share $ 6.56 $ 6.75 $ 7.80 STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (In millions) 2025 2024 2023 Net Income $ 5,572 $ 5,782 $ 6,708 Change in foreign currency translation adjustment, net of tax 528 ( 338 ) 198 Change in unrealized gain on marketable securities, net of tax 1 1 9 Change in unrealized (loss) gain on cash flow hedges, net of tax ( 344 ) 167 ( 243 ) Change in unrecognized pension and postretirement benefit costs, net of tax ( 84 ) ( 381 ) ( 2,173 ) Comprehensive Income $ 5,673 $ 5,231 $ 4,499 See notes to audited, consolidated financial statements. 62 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (In millions) 2025 2024 2023 Cash Flows From Operating Activities: Net income $ 5,572 $ 5,782 $ 6,708 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 3,746 3,609 3,366 Pension and postretirement benefit (income) expense 1,009 1,698 1,330 Pension and postretirement benefit contributions ( 1,361 ) ( 1,524 ) ( 1,393 ) Self-insurance reserves 236 44 57 Deferred tax (benefit) expense ( 8 ) ( 15 ) 199 Stock compensation expense 73 24 220 Other (gains) losses 113 262 265 Changes in assets and liabilities, net of effects of business acquisitions: Accounts receivable ( 382 ) ( 566 ) 1,256 Other assets 65 70 87 Accounts payable ( 190 ) 262 ( 1,377 ) Accrued wages and withholdings 27 501 ( 296 ) Other liabilities ( 517 ) ( 11 ) ( 42 ) Other operating activities 67 ( 14 ) ( 142 ) Net cash from operating activities 8,450 10,122 10,238 Cash Flows From Investing Activities: Capital expenditures ( 3,685 ) ( 3,909 ) ( 5,158 ) Proceeds from disposal of businesses, property, plant and equipment 700 1,115 193 Purchases of marketable securities ( 90 ) ( 76 ) ( 3,521 ) Sales and maturities of marketable securities 293 2,748 2,701 Acquisitions, net of cash acquired ( 1,968 ) ( 71 ) ( 1,329 ) Other investing activities 15 ( 24 ) ( 19 ) Net cash used in investing activities ( 4,735 ) ( 217 ) ( 7,133 ) Cash Flows From Financing Activities: Net change in short-term debt — ( 1,272 ) 1,272 Proceeds from long-term borrowings 4,153 2,785 3,429 Repayments of long-term borrowings ( 2,069 ) ( 2,487 ) ( 2,429 ) Purchases of common stock ( 1,000 ) ( 500 ) ( 2,250 ) Issuances of common stock 159 232 248 Dividends ( 5,398 ) ( 5,399 ) ( 5,372 ) Other financing activities 14 ( 209 ) ( 432 ) Net cash used in financing activities ( 4,141 ) ( 6,850 ) ( 5,534 ) Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash 201 ( 149 ) 33 Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Cash ( 225 ) 2,906 ( 2,396 ) Cash, Cash Equivalents and Restricted Cash: Beginning of period 6,112 3,206 5,602 End of period $ 5,887 $ 6,112 $ 3,206 See notes to audited, consolidated financial statements. 63 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF ACCOUNTING POLICIES Basis of Financial Statements and Business Activities United Parcel Service, Inc., and all of its consolidated subsidiaries ("UPS"), is a global package delivery and logistics provider. We manage our business and report operations through two reportable segments, U.S. 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 ("SCS"). We provide transportation services, primarily domestic and international letter, package and air cargo delivery. Through our SCS subsidiaries, we are also a global provider of transportation, logistics and related services. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). All intercompany balances and transactions have been eliminated. The "Company," "we," "us" and "our" refer to UPS. Unless the context indicates otherwise, whenever we refer in this report to a particular year, we mean our calendar year ended or ending December 31. Use of Estimates The preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingencies. Estimates have been prepared on the basis of the most current and best information, and actual results could differ materially from those estimates. Revenue Recognition We account for a contract when both parties have approved the contract and are committed to perform their obligations, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the basis of revenue recognition. The vast majority of our contracts with customers are for transportation services that include only one performance obligation; the transportation services themselves. If a contract contains more than one performance obligation, we allocate the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the services underlying each performance obligation. In certain business units, such as Logistics, we sell customized, customer-specific solutions in which we integrate a complex set of tasks and components into a single capability that is accounted for as one performance obligation. Satisfaction of Performance Obligations We generally recognize revenue over time as we perform services in the contract because our customers receive the benefit of our services as goods are transported from one location to another. Further, if we were unable to complete delivery to the final location, those services would not need to be re-performed. We recognize revenue based on the extent of progress towards completion of our services. We use the cost-to-cost measure of progress for our package delivery contracts because it best depicts the benefit received by the customer, which occurs as we incur costs on our contracts. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the service. Revenues, including ancillary or accessorial fees and reductions for estimated customer incentives, are recorded proportionally as costs are incurred. Costs to fulfill include labor and other direct costs and an allocation of indirect costs. Customs brokerage revenue is recognized upon completing documents necessary for customs entry purposes. For our freight forwarding contracts, an output method of progress based on time-in-transit is utilized as the timing of costs incurred does not best depict the benefit to the customer. In our Logistics business we have a right to consideration from 64 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS customers in an amount that corresponds directly with the value to the customers of our performance completed to date; therefore we recognize revenue in the amount to which we have a right to invoice the customer. Variable Consideration Our contracts commonly contain customer incentives, guaranteed service refunds or other provisions that can either increase or decrease the rates paid for services. These variable amounts are generally dependent upon achievement of certain incentive tiers or performance metrics. We record revenue, which may be reduced by incentives or other contract provisions, to the extent it is probable that a significant reversal of cumulative amounts recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of revenue are based on an assessment of anticipated customer spending and all information (historical, current and forecasted) that is reasonably available to us. Contract Modifications Contracts are often modified to account for changes in the rates we charge our customers or to add additional, distinct services. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Contract modifications that add distinct goods or services are treated as separate contracts. Contract modifications that do not add distinct goods or services typically change the price of existing services. These contract modifications are accounted for prospectively as the remaining performance obligations are distinct. Payment Terms Under the typical payment terms of our customer contracts, customers pay at periodic intervals, which are generally seven days within our U.S. Domestic Package business, for shipments included on invoices received. Invoices are generated each week on the week-ending day. It is not customary business practice to extend payment terms past 90 days and, as such, we do not have a practice of including a significant financing component within our contracts with customers. Principal vs. Agent Considerations In our transportation businesses, we may utilize independent contractors and third-party carriers to perform transportation services. We have determined that all our major businesses act as principal rather than agent within their revenue arrangements. Consequently, revenue and the associated purchased transportation costs are reported on a gross basis within our statements of consolidated income. Accounts Receivable, Net Accounts receivable, net, include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. Losses on accounts receivable are recognized when reasonable and supportable forecasts affect the expected collectability. This requires us to make our best estimate of the current expected losses inherent in our accounts receivable at each balance sheet date. These estimates require consideration of historical loss experience, adjusted for current conditions, forward-looking indicators, trends in customer payment frequency, and judgments about the probable effects of relevant observable data, including present and future economic conditions and the financial health of specific customers and market sectors. Our risk management process includes standards and policies for reviewing major account exposures and concentrations of risk. Contract Assets and Liabilities Contract assets include billed and unbilled amounts resulting from in-transit shipments, as we have an unconditional right to payment only when services have been completed (i.e., shipments have been delivered). Amounts do not exceed their net realizable value. Contract assets are generally classified as current and the full balance is converted each quarter based on the short-term nature of the transactions. Contract liabilities consist of advance payments and billings in excess of revenue as well as deferred revenue. Advance payments and billings in excess of revenue represent payments received from our customers that will be earned over the contract term. Deferred revenue represents the amount due from customers related to in-transit shipments that has not yet been recognized as revenue based on our selected measure of progress. We classify advance payments and billings in excess of revenue as either current or long-term, depending on the period over which the amount will be earned. We classify deferred revenue as current based on the short-term nature of the transactions. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In order to determine revenue recognized in the 65 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that deferred revenue balance. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid investments that are readily convertible into cash. We consider securities with maturities of three months or less and insignificant credit risk, when purchased, to be cash equivalents. The carrying amount of these securities approximates fair value because of the short-term maturity of these instruments. As of December 31, 2025 and 2024, we did no t have any restricted cash. Supplemental Cash Flow Information The following table presents supplemental cash flow information (in millions): 2025 2024 2023 Cash paid during the year for: Interest (net of amount capitalized) (1) $ 990 $ 854 $ 762 Income taxes (net of refunds) 1,912 1,347 1,976 Operating cash flows from operating leases 954 877 835 Financing cash flows from finance leases 133 136 126 Noncash transactions: Accrued capital expenditures $ 524 $ 227 $ 309 Property, plant and equipment recognized during the construction period of build-to-suit financing arrangement 107 — — Right-of-use assets obtained in exchange for operating lease obligations 808 740 1,278 Right-of-use assets obtained in exchange for finance lease obligations (2) 731 120 209 (1) Includes $ 18 , $ 20 and $ 17 million of cash paid for interest on finance leases in 2025, 2024 and 2023, respectively. (2) Includes $ 551 million related to new aircraft leases that commenced in 2025, which were accounted for as finance leases. Marketable Securities and Non-Current Investments Debt securities are classified as either trading or available-for-sale securities and are carried at fair value. Unrealized gains and losses on trading securities are reported as Investment income (expense) and other in our statements of consolidated income. Unrealized gains and losses on available-for-sale securities are reported within other comprehensive income, a separate component of shareowners’ equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included in Investment income (expense) and other , together with interest and dividends. The cost of securities sold is based on the specific identification method; realized gains and losses resulting from such sales are included in Investment income (expense) and other . We periodically review our available-for-sale investments for indications of other-than-temporary impairment considering many factors, including the extent and duration to which a security’s fair value has been less than its cost, overall economic and market conditions and the financial condition and specific prospects for the issuer. Impairment of available-for-sale securities results in a charge to income when a market decline below cost is other-than-temporary, which includes consideration of whether we have both the intent and ability to hold such securities for the time necessary to recover the cost basis. If a decline in fair value is determined to be the result of a credit loss, then the decrease is recognized in income through an allowance for credit losses. Investments in equity securities through which we exercise significant influence but do not have control over the investee are accounted for under the equity method. We record the investment at cost and subsequently increase or decrease the carrying amount of the investment by our proportionate share of the net earnings or losses and other comprehensive income of the investee. Gains and losses from equity method investments are reported in Investment income (expense) and other in our statements of consolidated income. We record dividends or other equity distributions as reductions of the carrying value of the investment. Equity method investments are included within Other Non-Current Assets in our consolidated balance sheets. 66 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Inventories Fuel and other materials and supplies are recognized as inventory when purchased, and then charged to expense when used in our operations. Jet fuel, diesel and unleaded gasoline inventories are valued at the lower of average cost or net realizable value. Total inventories were $ 739 and $ 826 million as of December 31, 2025 and 2024, respectively, and are included in Other current assets in our consolidated balance sheets. Property, Plant and Equipment Property, plant and equipment are carried at cost less accumulated depreciation. We evaluate the useful lives of our property, plant and equipment based on our usage, maintenance and replacement policies, and take into account physical and economic factors that may affect the useful lives of the assets. Depreciation and amortization are provided by the straight-line method over the estimated useful lives of the assets, which are as follows: • Aircraft: 7 to 40 years, based on aircraft type and original aircraft manufacture date • Buildings: 10 to 40 years • Leasehold Improvements: lesser of asset useful life or lease term • Plant Equipment: 3 to 20 years • Technology Equipment: 3 to 10 years • Vehicles: 5 to 15 years Routine maintenance and repairs are generally charged to expense as incurred. For substantially all of our aircraft, the costs of major airframe and engine overhauls, as well as routine maintenance and repairs, are charged to expense as incurred. Interest incurred during the construction of property, plant and equipment is capitalized until the underlying assets are placed in service, at which time amortization of the capitalized interest begins, straight-line, over the estimated useful lives of the related assets. Capitalized interest was $ 116 and $ 121 million in 2025 and 2024, respectively. We monitor our property, plant and equipment for any indicators that the carrying value of our asset groups may not be recoverable, at which time we review the asset group for impairment based on undiscounted future cash flows. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash flows or external appraisals, as appropriate. We test long-lived assets for impairment at the asset group level, which is the lowest level at which independent cash flows can be identified. We evaluate long-lived assets within our global small package operations at a network level given the cash flows associated with individual assets therein are not independent. Refer to note 4 for a discussion of impairments of property, plant and equipment. In 2025, we entered into an agreement with our largest customer that provides for a significant reduction in their volume. In connection therewith, we are reconfiguring our U.S. network which have and will continue to lead to a consolidation of our facilities and workforce as well as end-to-end process redesign. Revisions to our estimates of the useful life and salvage values of certain long-lived assets are likely to continue to result in accelerated depreciation expense and charges related to early retirements. Refer to note 4 for additional information. Leases We recognize a right-of-use ("ROU") asset and lease obligation for all leases greater than twelve months, including reasonably certain renewal or purchase options. Some of our leases contain both lease and non-lease components. In 2025, we defined a new lease asset class, data centers, and elected to account for the lease and non-lease components separately. For all other lease arrangements, we account for lease and non-lease components as a single lease component. Lease costs for short-term leases are recognized on a straight-line basis over the lease term. Certain of our leases contain future payments that are dependent on an index or rate, such as the consumer price index. We initially measure the lease obligation and ROU asset using the index or rate at the commencement date. In subsequent periods, lease payments dependent on an index or rate are not remeasured. Rather, changes to payments due to a change in an index or rate are recognized in our statements of consolidated income in the period of the change. 67 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS When available, we use the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of our leases. For these leases, we use an estimate of our incremental borrowing rate to discount lease payments based on information available at lease commencement. The incremental borrowing rate is derived using multiple inputs including our credit rating, the impact of full collateralization, lease term and denominated currency. Goodwill and Intangible Assets Costs of purchased businesses in excess of net identifiable assets acquired (goodwill) and indefinite-lived intangible assets are tested for impairment at least annually, or more frequently, if circumstances indicate a potential impairment is present. We complete our annual goodwill impairment evaluation as of July 1 on a reporting unit basis. In assessing goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We consider several factors, including macroeconomic conditions, industry and market conditions, overall financial performance of the reporting unit, changes in management, strategy or customers and relevant reporting unit-specific events such as a change in the carrying amount of net assets, a more likely than not expectation of selling or disposing of all, or a portion of, a reporting unit, and the testing for recoverability of a significant asset group within a reporting unit. If this qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit. If the qualitative assessment is not conclusive, or if we elect to bypass the qualitative test, we quantitatively assess the fair value of a reporting unit to test goodwill for impairment. We assess the fair value of a reporting unit using a combination of a market and income approach. Under the market approach, we use observable market data for comparable publicly-traded companies that correspond to the reporting unit to derive a market-based multiple. Under the income approach, the fair value of the reporting unit is estimated based on discounted cash flow modeling. Assumptions used in the discounted cash flow model include future revenue, costs, capital expenditures, working capital, long-term growth rates and the discount rate. Our estimates are developed using assumptions that we believe are consistent with how a market participant would value our reporting units. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we record the excess amount as goodwill impairment, not to exceed the total amount of goodwill allocated to the reporting unit. Finite-lived intangible assets, including trademarks, licenses, patents, customer lists, non-compete agreements and franchise rights are amortized on a straight-line basis over their estimated useful lives, which range from 2 to 21 years. Capitalized software is generally amortized over 7 years. Finite-lived intangible assets are assessed for impairment as part of asset groups whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Assets Held for Sale We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell and recognize any loss in the period in which the held for sale criteria are met. Gains are not recognized until the date of sale. We cease depreciation and amortization of a long-lived asset, or assets within a disposal group, upon their designation as held for sale and subsequently assess fair value less any costs to sell at each reporting date until the asset or disposal group is no longer classified as held for sale. See note 4 for additional information. Supplier Finance Programs As part of our working capital management, certain financial institutions offer a Supply Chain Finance ("SCF") program to certain of our suppliers. We agree to commercial terms with our suppliers, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program. Suppliers issue invoices to us based on the agreed-upon contractual terms. If they participate in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, to sell to the financial institutions. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms. No guarantees are provided by us under the SCF program. We have no economic interest in a supplier’s decision to participate, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program. Amounts due to our suppliers that participate in the SCF program are included in Accounts payable in our consolidated balance sheets. We have been informed by the participating financial institutions that as of December 31, 2025 and 2024, suppliers sold $ 435 and $ 515 million, respectively, of our outstanding payment obligations to participating institutions. 68 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A rollforward of obligations confirmed and paid during the year is presented below (dollars in millions): 2025 2024 Confirmed obligations outstanding at the beginning of the year $ 515 $ 504 Invoices confirmed during the year 1,460 1,722 Confirmed invoices paid during the year ( 1,540 ) ( 1,711 ) Confirmed obligations outstanding at the end of the year $ 435 $ 515 Self-Insurance Accruals We self-insure costs associated with workers' compensation claims, automobile liability, health and welfare and general business liabilities, up to certain limits. Self-insurance reserves are established for estimates of the losses we will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported. The expected ultimate cost for claims incurred is estimated based upon historical loss experience and judgments about the present and expected levels of cost per claim. Trends in actual experience are a significant factor in the determination of our reserves. In 2025 and 2024, we transferred a portion of our workers' compensation liability related to policy years 1984 through 2000 and policy years 2018 and 2019 to a third-party insurer. We paid $ 152 and $ 114 million in 2025 and 2024, respectively, to transfer a portfolio of claims for which we carried reserves of $ 152 and $ 114 million in 2025 and 2024, respectively. We also sponsor a number of health and welfare insurance plans for our employees. Liabilities and expenses related to these plans are based on estimates of the number of employees and eligible dependents covered under the plans, global health events, anticipated medical usage by participants and overall trends in medical costs and inflation. Pension and Postretirement Benefits We incur certain employment-related expenses associated with company-sponsored defined benefit pension and postretirement medical benefits. These expenses are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation, compensation increase rates, mortality rates and coordination of benefits with plans not sponsored by UPS. Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim measurement of any of our plans. We recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of a corridor (defined as 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation) in Investment income (expense) and other, in our statements of consolidated income, upon remeasurement of a plan. The remaining components of pension expense, primarily service and interest costs and the expected return on plan assets, are recorded ratably on a quarterly basis. We recognize expense for required contributions to defined contribution plans quarterly, and we recognize a liability for any contributions due and unpaid within Accrued group welfare and retirement plan contributions within our consolidated balance sheets. We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees covered under collective bargaining agreements. Our contributions to these plans are determined in accordance with the respective collective bargaining agreements. We recognize expense for the contractually required contribution for each period, and we recognize a liability for any contributions due and unpaid within Accrued group welfare and retirement plan contributions . Income Taxes Income taxes are accounted for on an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. In estimating future tax consequences, we generally consider all expected future events other than proposed changes in the tax law or rates. Valuation allowances are provided if it is more likely than not that a deferred tax asset will not be realized. 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 69 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 on a quarterly basis. This evaluation is 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 an additional charge to the tax provision. Foreign Currency Translation and Remeasurement We translate the results of operations of our foreign subsidiaries using average exchange rates for each period, whereas balance sheet accounts are translated using exchange rates at the end of each period. Balance sheet currency translation adjustments are recorded in other comprehensive income. Pre-tax foreign currency transaction gains (losses) from remeasurement, net of hedging, included in Investment income (expense) and other were $( 22 ), $( 38 ) and $( 53 ) million in 2025, 2024 and 2023, respectively. Stock-Based Compensation Share-based awards are measured based on their fair values and expensed over the period during which an employee is required to provide service in exchange for the award (the vesting period), less estimated forfeitures. We have issued employee share-based awards under various incentive compensation plans that contain vesting conditions, including service conditions, where the awards cliff vest after one or three years or vest ratably over periods up to five years (the "nominal vesting period") or at the date the employee retires (as defined by the plan), if earlier. See note 13 for further discussion of our share-based awards. Compensation cost is generally recognized immediately for certain awards granted to retirement-eligible employees, or over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting period. For awards with a performance-based condition, expense is recognized based on probability of performance achievement and for awards with a market condition, expense includes the fair value at grant date. We estimate forfeiture rates based on historical rates of forfeitures for awards with similar characteristics, historical and projected rates of employee turnover and the nature and terms of the vesting conditions of the awards. We reevaluate our forfeiture rates on an annual basis. Fair Value Measurements Our financial assets and liabilities measured at fair value on a recurring basis have been categorized based upon a fair value hierarchy. Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Level 2 inputs are based on other observable market data, such as quoted prices for similar assets and liabilities, and inputs other than quoted prices that are observable, such as interest rates and yield curves. Level 3 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. Certain investments described further in note 5, that do not have a readily determinable fair value, are measured at net asset value ("NAV") using NAV as a practical expedient or an equivalent developed consistent with the measurement principles in Accounting Standards Codification Topic 820. Plan assets that are measured using NAV as a practical expedient are excluded from the fair value hierarchy. Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis, including property, plant and equipment, goodwill and intangible assets. These assets are subject to fair value adjustments in certain circumstances, such as when there is an impairment. For business acquisitions, we allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and identified intangible assets based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Following the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Derivative Instruments We recognize all derivative instruments as assets or liabilities in our consolidated balance sheets at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the derivative as a cash flow hedge, a fair value hedge or a hedge of a net investment in a foreign operation based upon the exposure being hedged. 70 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • A cash flow hedge refers to hedging the exposure to variability in expected future cash flows that is attributable to a particular risk. For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of other comprehensive income, and reclassified into earnings in the period during which the hedged transaction affects earnings. • A fair value hedge refers to hedging the exposure to changes in the fair value of an existing asset or liability that is attributable to a particular risk. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument is recognized in earnings during the current period, together with the gain or loss on the hedged item. • A net investment hedge refers to the use of cross currency swaps, forward contracts or foreign-currency-denominated debt to hedge portions of net investments in foreign operations. For instruments that meet the hedge accounting requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in the foreign currency translation adjustment within other comprehensive income, and are recorded in the income statement when the hedged item affects earnings. Adoption of New Accounting Standards In December 2023, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosure, to enhance tax-related disclosures. The ASU became effective for us in 2025 and, beginning with this annual reporting period, requires more standardized categories in the tax rate reconciliation and additional detail for significant tax items. It also requires a breakdown of income taxes paid by jurisdiction exceeding 5% of total taxes and removes certain disclosure requirements for unremitted foreign earnings and uncertain tax positions. We adopted this ASU prospectively. The adoption did not have a material impact on our consolidated financial position, results of operations, cash flows, or internal controls. See note 15 for additional information. Other accounting pronouncements adopted during the periods covered by the consolidated financial statements did not have a material impact on our consolidated financial position, results of operations, cash flows or internal controls. Accounting Standards Issued But Not Yet Effective In November 2024, the FASB issued an ASU on expense disaggregation disclosures, which will require tabular disclosure in the notes to financial statements for specific expense categories. The standard becomes effective for us beginning with our 2027 annual report and for interim and annual periods thereafter. This ASU provides for additional expense disclosures. We are evaluating its impact on our financial statements, disclosures and internal controls but do not expect this ASU to have a significant impact on our consolidated financial position, results of operations, cash flows or internal controls. In July 2025, the FASB issued an ASU on measurement of credit losses for accounts receivable and contract assets, which introduces a practical expedient for estimating expected credit losses on eligible current assets. The practical expedient permits entities to assume credit loss conditions existing at the balance sheet date will continue. Adoption of the practical expedient is optional and, if adopted, would become effective for us beginning in the first quarter of 2026. We are evaluating the impact of adoption, but do not expect this ASU to have a significant impact on our consolidated financial position, results of operations, cash flows or internal controls. In September 2025, the FASB issued an ASU on targeted improvements to the accounting for internal‑use software, which modernizes accounting guidance for costs incurred in developing internal-use software. This ASU removes references to development stages, and instead requires capitalization to begin based on a "probable-to-complete" threshold. This ASU becomes effective for us beginning with our 2028 annual report and for interim and annual periods thereafter, and early adoption is permitted. We are evaluating the impact of adoption, but do not expect this ASU to have a significant impact on our consolidated financial position, results of operations, cash flows or internal controls. In December 2025, the FASB issued an ASU on accounting for government grants. The ASU defines the scope of government grants and permits recognition only when it is probable that the entity will comply with the grant’s conditions and the grant will be received. It also provides guidance on presentation approaches for both asset‑related and income‑related grants and expands related disclosure requirements. This ASU becomes effective for us beginning in the first quarter of 2029 and for annual periods thereafter, and early adoption is permitted. We are evaluating the impact of adoption, but do not expect this ASU to have a significant impact on our consolidated financial position, results of operations, cash flows or internal controls. Other accounting pronouncements issued, but not effective until after December 31, 2025, are not expected to have a material impact on our consolidated financial position, results of operations, cash flows or internal controls. 71 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REVENUE RECOGNITION Revenue Recognition Substantially all of our revenues are from contracts associated with the pickup, transportation and delivery of packages and freight ("transportation services"). These services may be carried out by or arranged by us and generally occur over a short period of time. Additionally, we provide value-added logistics services to customers through our global network of company-owned and leased distribution centers and field stocking locations. Disaggregation of Revenue 2025 2024 2023 Revenue: Next Day Air $ 9,652 $ 9,703 $ 9,894 Deferred 4,446 4,757 5,093 Ground 44,183 45,347 44,971 Cargo & Other 1,238 569 247 U.S. Domestic Package $ 59,519 $ 60,376 $ 60,205 Domestic $ 3,401 $ 3,186 $ 3,144 Export 14,479 14,142 14,003 Cargo & Other 696 632 684 International Package $ 18,576 $ 17,960 $ 17,831 Forwarding $ 2,916 $ 4,728 $ 5,534 Logistics 5,855 6,437 5,927 Other 1,795 1,569 1,461 SCS $ 10,566 $ 12,734 $ 12,922 Consolidated revenue $ 88,661 $ 91,070 $ 90,958 As of the fourth quarter of 2024, based on a change in our management reporting structure, U.S. Air Cargo revenue is presented within our U.S. Domestic Package segment and prior periods have been recast. Refer to note 14 for further information. Accounts Receivable, Net In 2025, we entered into accounts receivable factoring programs with third parties, in which we may sell certain customer receivables to third parties on a revolving periodic basis. Any such transactions are accounted for as sales and accordingly, receivables sold are removed from Accounts receivable, net in our consolidated balance sheets and the proceeds are reflected in Cash Flows from Operating Activities in our statements of consolidated cash flows. Our continuing involvement in these receivables is primarily limited to servicing and under limited circumstances, recourse. Total accounts which may be outstanding under these programs are $ 860 million. In 2025, we sold $ 734 million of accounts receivable for net cash proceeds of $ 730 million. In connection with these programs, we recognized a liability, measured at fair value, related to our estimated recourse obligations recorded within Other current liabilities in our consolidated balance sheet. We also recorded an immaterial loss associated with the transactions within Other Income (Expense) in our statements of consolidated income. As of December 31, 2025, $ 491 million accounts receivable was outstanding under our factoring programs. We continue to service the receivables and remit any collections to third-party purchasers. As of December 31, 2025, cash collections of $ 59 million were not yet remitted to third-party purchasers. These obligations are included within Other current 72 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS liabilities in our consolidated balance sheet, with changes in such obligations reflected within Cash Flows from Financing Activities in our statement of consolidated cash flows. Our allowance for expected credit losses increased by $ 44 million during 2025 as a result of changes in the composition of invoice aging and certain customers' behaviors. Our allowance for credit losses as of December 31, 2025 and 2024 was $ 180 and $ 136 million, respectively. Amounts for credit losses charged to expense before recoveries during 2025, 2024 and 2023 were $ 371 , $ 311 , and $ 205 million, respectively. Contract Assets and Liabilities Contract assets were $ 275 and $ 307 million as of December 31, 2025 and 2024, respectively, and were recorded within Other current assets in our consolidated balance sheets. Contract liabilities recorded within Other Non-Current Liabilities were $ 49 and $ 27 million as of December 31, 2025 and 2024, respectively. Short-term contract liabilities were immaterial as of December 31, 2025 and 2024. 73 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. MARKETABLE SECURITIES AND NON-CURRENT INVESTMENTS The following is a summary of marketable securities classified as trading and available-for-sale as of December 31, 2025 and 2024 (in millions): Cost Unrealized Losses Estimated Fair Value 2025 Current trading marketable securities: Equity securities $ 3 $ — $ 3 Current available-for-sale marketable securities: U.S. government and agency debt securities — — — Corporate debt securities — — — Total available-for-sale marketable securities — — — Total current marketable securities $ 3 $ — $ 3 Cost Unrealized Losses Estimated Fair Value 2024 Current trading marketable securities: Equity securities $ 3 $ — $ 3 Current available-for-sale marketable securities: U.S. government and agency debt securities 165 ( 1 ) 164 Corporate debt securities 39 — 39 Total available-for-sale marketable securities 204 ( 1 ) 203 Total current marketable securities $ 207 $ ( 1 ) $ 206 Total current marketable securities pledged as collateral for our self-insurance requirements had estimated fair values of $ 177 million as of December 31, 2024. No marketable securities were pledged as collateral for our self-insurance requirements as of December 31, 2025. Non-Current Investments We hold non-current investments that are reported within Other Non-Current Assets in our consolidated balance sheets. Cash paid for these investments, excluding investments obtained through business acquisitions, is included in Other investing activities in our statements of consolidated cash flows. • Equity method investments : As of December 31, 2025 and 2024, equity securities accounted for under the equity method had carrying values of $ 254 and $ 304 million, respectively. • Other equity securities : Certain securities that do not have readily determinable fair values are reported in accordance with the measurement alternative in Accounting Standards Codification Topic 321 Investments – Equity Securities. As of December 31, 2025 and 2024, we had equity securities of $ 46 and $ 42 million, respectively, accounted for under this measurement alternative. • Other investments : We hold an investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan with a fair market value of $ 21 and $ 19 million as of December 31, 2025 and 2024, respectively. 74 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value Measurements Marketable securities valued utilizing Level 1 inputs include certificates of deposits and most U.S. government debt securities, as these securities all have quoted prices in active markets. Marketable securities valued utilizing Level 2 inputs include equity securities and corporate bonds. These securities are valued using market corroborated pricing, matrix pricing or other models that utilize observable inputs such as yield curves. There were no Level 3 investments during 2025 or 2024. The following table presents information about our investments measured at fair value on a recurring basis as of December 31, 2025 and 2024, and indicates the fair value hierarchy of the valuation techniques utilized (in millions): Level 1 Level 2 Level 3 Total 2025 Marketable Securities: U.S. government and agency debt securities $ — $ — $ — $ — Corporate debt securities — — — — Equity securities — 3 — 3 Total marketable securities — 3 — 3 Other non-current investments — 21 — 21 Total $ — $ 24 $ — $ 24 Level 1 Level 2 Level 3 Total 2024 Marketable Securities: U.S. government and agency debt securities $ 164 $ — $ — $ 164 Corporate debt securities 25 14 — 39 Equity securities — 3 — 3 Total marketable securities 189 17 — 206 Other non-current investments — 19 — 19 Total $ 189 $ 36 $ — $ 225 There were no transfers of investments into or out of Level 3 during 2025 or 2024. 75 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, including owned assets and assets subject to finance leases, consisted of the following as of December 31, 2025 and 2024 (in millions): 2025 2024 Aircraft (1) $ 24,149 $ 23,768 Plant equipment 19,817 18,495 Vehicles 11,787 11,912 Buildings 6,906 6,714 Building and leasehold improvements 5,686 5,601 Technology equipment 2,635 2,735 Land 2,046 2,104 Construction-in-progress 2,136 1,967 75,162 73,296 Less: Accumulated depreciation and amortization (1) ( 37,431 ) ( 36,117 ) Property, Plant and Equipment, Net $ 37,731 $ 37,179 (1) Includes MD-11 airframe and engines that were fully depreciated as of December 31, 2025. Depreciation and amortization expense for property, plant and equipment during 2025, 2024 and 2023 was $ 3.0 , $ 3.0 and $ 2.8 billion, respectively. Network Reconfiguration and Efficiency Reimagined As part of our Network Reconfiguration and Efficiency Reimagined initiatives, we incurred $ 58 million of accelerated depreciation and asset retirement obligations related to the 93 closed facilities and abandoned equipment. In connection with these initiatives, we recorded $ 72 million in gains on sale of those properties during 2025, which were primarily within our U.S. Domestic Package segment and are included within Other expenses in our statement of consolidated income. We have also determined that $ 54 million of certain long-lived assets within our U.S. Domestic Package segment meet the criteria to be classified as held for sale and have presented the carrying value of these assets within Other Non-Current Liabilities in our consolidated balance sheets as of December 31, 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, and it is reasonably possible that our plans will also result in further revisions to our estimates of the useful lives and salvage values of certain of our long-lived assets. Any further revisions to these plans could further accelerate depreciation expense and lead to the recognition of additional charges related to early retirements in future periods. For additional information, see note 18. Impairments During the fourth quarter of 2025, we recognized $ 182 million charge related to the retirement of our MD-11 fleet, of which $ 119 million was impairment of property, plant and equipment. These charges are primarily within our U.S. Domestic Package segment and are recorded within Other expenses in our statement of consolidated income. There were no material impairment charges to property, plant and equipment during 2024 or 2023. We will continue to monitor our long-lived asset groups for impairment. Sale-Leaseback Transactions In 2025, we entered into sale-leaseback transactions, involving a data center and real estate properties that qualified as sales. Accordingly, we derecognized the carrying amounts of the properties and recognized the related operating lease right-of-use assets and lease liabilities at lease commencement. Cash proceeds of approximately $ 465 million were received and gains on sale of $ 362 million were recognized within Other (gains) losses in our statement of consolidated cash flows and within Other expenses in our statement of consolidated income. 76 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS We sponsor various retirement, postretirement and pension plans, including defined benefit and defined contribution plans, which cover our employees worldwide. U.S. Pension Benefits In the U.S. we maintain the following single-employer defined benefit pension plans: • The UPS Retirement Plan is noncontributory and includes substantially all eligible employees of participating domestic subsidiaries hired prior to July 1, 2016 who are not members of a collective bargaining unit, as well as certain employees covered by a collective bargaining agreement. This plan generally provides for retirement benefits based on average compensation earned by employees prior to retirement. Benefits payable under this plan are subject to maximum compensation limits and the annual benefit limits for a tax-qualified defined benefit plan as prescribed by the Internal Revenue Service ("IRS"). The plan ceased accruals of additional benefits for future service and compensation for non-union participants effective January 1, 2023. • The UPS Pension Plan is noncontributory and includes certain eligible employees of participating domestic subsidiaries and members of collective bargaining units that elect to participate in the plan. This plan generally provides for retirement benefits based on service credits earned by employees prior to retirement. • The UPS/IBT Full-Time Employee Pension Plan is noncontributory and includes employees that were previously members of the Central States Pension Fund ("CSPF"), a multiemployer pension plan, in addition to other eligible employees who are covered under certain collective bargaining agreements. This plan generally provides for retirement benefits based on service credits earned by employees prior to retirement. • The UPS Excess Coordinating Benefit Plan is a non-qualified plan that provides benefits to certain participants in the UPS Retirement Plan, hired prior to July 1, 2016, for amounts that exceed the benefit limits described above. The plan ceased accruals of additional benefits for future service and compensation for non-union participants effective January 1, 2023. In connection with our Network Reconfiguration and Efficiency Reimagined initiatives, we continue to review expected changes in volume in our integrated air and ground network to identify additional buildings for closure, which we expect would result in further reductions in our operational workforce. In the third quarter of 2025, we offered a voluntary separation program to full-time drivers in the United States and expect to continue to incur costs associated with contractual termination benefits. See note 18 for additional information. Refer to note 6 for the status of our collective bargaining agreements. International Pension Benefits We also sponsor various defined benefit plans covering certain of our international employees. The majority of our international obligations are for defined benefit plans in Canada and the United Kingdom. In addition, many of our international employees are covered by government-sponsored retirement and pension plans. We are not directly responsible for providing benefits to participants of government-sponsored plans. U.S. Postretirement Medical Benefits We also sponsor postretirement medical plans in the U.S. that provide healthcare benefits to certain non-union retirees, as well as select union retirees who meet certain eligibility requirements and who are not otherwise covered by multiemployer plans. Generally, this includes employees with at least 10 years of service who have reached age 55 and employees who are eligible for postretirement medical benefits from a company-sponsored plan pursuant to collective bargaining agreements. We have the right to modify or terminate certain of these plans. These benefits have been provided to certain retirees on a noncontributory basis; however, in many cases, retirees are required to contribute all or a portion of the total cost of the coverage. 77 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Defined Contribution Plans We sponsor a defined contribution plan for employees not covered under collective bargaining agreements, and several defined contribution plans for certain employees covered under collective bargaining agreements. We match, in cash, a portion of the participating employees’ contributions. Matching contributions charged to expense were $ 137 , $ 161 and $ 161 million for 2025, 2024 and 2023, respectively. Beginning in 2023, non-union employees, including those previously accruing benefits in the UPS Retirement Plan, receive an annual retirement contribution of 5 % to 8 % ( 3 % to 8 % prior to 2023 for employees hired after July 1, 2016) of eligible compensation to the UPS 401(k) Savings Plan based on years of vesting service. Effective January 1, 2025, the UPS retirement contribution for certain non-union employees with an employment commencement date on or after January 1, 2025 is 3 % of eligible compensation, regardless of years of service. Retirement contributions charged to expense were $ 342 , $ 359 and $ 380 million for 2025, 2024 and 2023, respectively. In addition, the UPS 401(k) Savings Plan provides for transition contributions to certain participants hired prior to 2008. The amounts charged to expense for transition contributions were $ 99 , $ 108 and $ 128 million for 2025, 2024 and 2023, respectively. Contributions under this plan are subject to maximum compensation and contribution limits for a tax-qualified defined contribution plan as prescribed by the IRS. The UPS Restoration Savings Plan is a non-qualified plan that provides benefits to certain participants in the UPS 401(k) Savings Plan for amounts that exceed these benefit limits. Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements. Amounts charged to expense were $ 143 , $ 135 and $ 132 million for 2025, 2024 and 2023, respectively. We also sponsor certain international defined contribution plans, which are not individually material. Net Periodic Benefit Cost Information about net periodic benefit cost for the company-sponsored pension and postretirement defined benefit plans is as follows (in millions): U.S. Pension Benefits U.S. Postretirement Medical Benefits International Pension Benefits 2025 2024 2023 2025 2024 2023 2025 2024 2023 Net Periodic Benefit Cost: Service cost $ 1,124 $ 1,240 $ 1,172 $ 17 $ 20 $ 20 $ 37 $ 42 $ 43 Interest cost 2,718 2,574 2,508 109 109 116 65 66 66 Expected return on plan assets ( 3,130 ) ( 3,085 ) ( 2,967 ) ( 7 ) ( 4 ) ( 12 ) ( 82 ) ( 83 ) ( 84 ) Amortization of prior service cost 156 152 106 1 1 2 1 1 1 Actuarial (gain) loss — 673 393 — — — — ( 8 ) ( 42 ) Curtailment and settlement (gain) loss — — — — — — — — 8 Net periodic benefit cost $ 868 $ 1,554 $ 1,212 $ 120 $ 126 $ 126 $ 21 $ 18 $ ( 8 ) Actuarial Assumptions The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost: U.S. Pension Benefits U.S. Postretirement Medical Benefits International Pension Benefits 2025 2024 2023 2025 2024 2023 2025 2024 2023 Service cost discount rate 5.88 % 5.42 % 5.79 % 6.18 % 5.80 % 6.06 % 4.82 % 4.59 % 5.09 % Interest cost discount rate 5.88 % 5.42 % 5.79 % 6.18 % 5.80 % 6.06 % 4.69 % 4.56 % 5.02 % Rate of compensation increase 3.25 % 3.25 % 3.25 % N/A N/A N/A 3.04 % 3.19 % 3.20 % Expected return on plan assets 7.65 % 7.17 % 7.07 % 6.92 % 6.36 % 6.62 % 4.63 % 4.54 % 5.13 % Cash balance interest credit rate 4.30 % 3.83 % 4.21 % N/A N/A N/A 3.09 % 3.31 % 3.69 % 78 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A discount rate is used to determine the present value of our future benefit obligations. To determine the discount rate for our U.S. pension and postretirement benefit plans, we use a bond matching approach to select specific bonds that would satisfy our projected benefit payments. We believe the bond matching approach reflects the process we would employ to settle our pension and postretirement benefit obligations. For our international plans, the discount rate is determined by matching the expected cash flows of the plan, where available, or of a sample plan of similar duration, to a yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date. These assumptions are updated each measurement date, which is typically annually. The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our plans: U.S. Pension Benefits U.S. Postretirement Medical Benefits International Pension Benefits 2025 2024 2025 2024 2025 2024 Discount rate 5.84 % 5.88 % 5.69 % 6.18 % 4.64 % 4.45 % Rate of compensation increase 3.25 % 3.25 % N/A N/A 2.76 % 3.04 % Cash balance interest credit rate 4.84 % 4.30 % N/A N/A 3.13 % 3.09 % As of December 31, 2025, the impact of each basis point change in the discount rate on the projected benefit obligation of our pension and postretirement medical benefit plans was as follows (in millions): Increase (Decrease) in the Projected Benefit Obligation Pension Benefits Postretirement Medical Benefits One basis point increase in discount rate $ ( 58 ) $ ( 1 ) One basis point decrease in discount rate $ 61 $ 1 The Society of Actuaries ("SOA") published mortality tables and improvement scales are used in developing the estimate of mortality for our U.S. plans. In October 2025, the SOA elected to not release a new mortality improvement scale. Based on our perspective of future longevity, we elected to maintain the MP 2021 mortality scale assumption for purposes of measuring pension and other postretirement benefit obligations. Assumptions for the expected return on plan assets are used to determine a component of net periodic benefit cost for the year. The assumption for our U.S. plans is developed using a long-term projection of returns for each asset class. Our asset allocation targets are reviewed annually and, if necessary, updated taking into consideration plan changes, funded status and actual performance. The expected return for each asset class is a function of passive, long-term capital market assumptions and excess returns generated from active management. The capital market assumptions used are provided by independent investment advisors, while excess return assumptions are supported by historical performance, fund mandates and investment expectations. As a result of our long-term U.S. capital market assumptions and investment objectives for pension assets, the weighted-average long-term expected rate of return on assets increased from 7.17 % during 2024 to 7.65 % in 2025. For plans outside the U.S., consideration is given to local market expectations of long-term returns. Strategic asset allocations are determined by plan, based on the nature of liabilities and considering the demographic composition of the plan participants. Actuarial Assumptions - Central States Pension Fund UPS was a contributing employer to the CSPF until 2007, at which time UPS withdrew from the CSPF. Under a collective bargaining agreement with the International Brotherhood of Teamsters ("IBT"), UPS agreed to provide coordinating benefits in the UPS/IBT Full-Time Employee Pension Plan ("UPS/IBT Plan") for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 ("the UPS Transfer Group") in the event that benefits are reduced by the CSPF consistent with the terms of our withdrawal agreement with the CSPF. Under this agreement, benefits to the UPS Transfer Group cannot be reduced without our consent and can only be reduced in accordance with law. In the event CSPF were to become insolvent, CSPF benefits would be reduced to the legally permitted Pension Benefit Guaranty Corporation ("PBGC") limits, triggering the coordinating benefits provision in the collective bargaining agreement. 79 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We account for the potential obligation to pay coordinating benefits under ASC Topic 715, which requires us to provide a best estimate of various actuarial assumptions in measuring our pension benefit obligation at the December 31 measurement date. As of December 31, 2025, our best estimate of coordinating benefits that may be required to be paid by the UPS/IBT Plan was immaterial. The value of our estimate for future coordinating benefits will continue to be influenced by a number of factors, including interpretations of the law, future legislative actions, actuarial assumptions and the ability of the CSPF to sustain its long-term commitments. Actual events may result in a change in our best estimate of the projected benefit obligation. We will continue to assess the impact of these uncertainties in accordance with ASC Topic 715. Other Actuarial Assumptions Healthcare cost trends are used to project future postretirement medical benefits payable from our plans. For purposes of measuring our U.S. plan obligations as of December 31, 2025, a 8.00 % annual rate of increase in postretirement medical benefit costs was assumed; the rate was assumed to decrease gradually to 4.50 % by 2040 and to remain at that level thereafter. Funded Status The following table discloses the funded status of our plans and the amounts recognized in our consolidated balance sheets as of December 31 (in millions): U.S. Pension Benefits U.S. Postretirement Medical Benefits International Pension Benefits 2025 2024 2025 2024 2025 2024 Funded Status: Fair value of plan assets $ 43,689 $ 41,499 $ 72 $ 119 $ 1,873 $ 1,778 Benefit obligation ( 48,472 ) ( 46,559 ) ( 1,822 ) ( 1,850 ) ( 1,609 ) ( 1,500 ) Funded status recognized as of December 31 $ ( 4,783 ) $ ( 5,060 ) $ ( 1,750 ) $ ( 1,731 ) $ 264 $ 278 Funded Status Recognized in our Balance Sheets: Other non-current assets $ — $ — $ — $ — $ 484 $ 480 Other current liabilities ( 28 ) ( 27 ) ( 148 ) ( 100 ) ( 10 ) ( 7 ) Pension and postretirement benefit obligations ( 4,755 ) ( 5,033 ) ( 1,602 ) ( 1,631 ) ( 210 ) ( 195 ) Net liability as of December 31 $ ( 4,783 ) $ ( 5,060 ) $ ( 1,750 ) $ ( 1,731 ) $ 264 $ 278 Amounts Recognized in AOCI (1) : Unrecognized net prior service cost $ ( 1,211 ) $ ( 1,251 ) $ — $ ( 1 ) $ ( 4 ) $ ( 5 ) Unrecognized net actuarial gain (loss) ( 2,740 ) ( 2,686 ) 48 131 91 107 Gross unrecognized cost as of December 31 ( 3,951 ) ( 3,937 ) 48 130 87 102 Deferred tax asset at December 31 958 956 ( 12 ) ( 32 ) ( 27 ) ( 32 ) Net unrecognized cost as of December 31 $ ( 2,993 ) $ ( 2,981 ) $ 36 $ 98 $ 60 $ 70 (1) Accumulated Other Comprehensive Income (Loss) The accumulated benefit obligation for our pension plans as of December 31, 2025 and 2024 was $ 50.0 and $ 48.0 billion, respectively. The accumulated benefit obligation for our postretirement medical benefit plans as of December 31, 2025 and 2024 was $ 1.8 and $ 1.9 billion, respectively. Benefit payments under the pension plans include $ 39 and $ 37 million paid from employer assets for 2025 and 2024, respectively. Benefit payments (net of participant contributions) under the postretirement medical benefit plans include $ 179 and $ 264 million paid from employer assets for 2025 and 2024, respectively. Such benefit payments from employer assets are also categorized as employer contributions. 80 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2025 and 2024, the projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets for pension plans with benefit obligations in excess of plan assets were as follows (in millions): Projected Benefit Obligation Exceeds the Fair Value of Plan Assets Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets 2025 2024 2025 2024 U.S. Pension Benefits: Projected benefit obligation $ 48,472 $ 46,559 $ 48,472 $ 46,559 Accumulated benefit obligation 48,445 46,526 48,445 46,526 Fair value of plan assets 43,689 41,499 43,689 41,499 International Pension Benefits: Projected benefit obligation $ 379 $ 337 $ 318 $ 281 Accumulated benefit obligation 345 301 296 255 Fair value of plan assets 159 135 105 88 The accumulated postretirement benefit obligation presented in the funded status table exceeds plan assets for all U.S. postretirement medical benefit plans. Benefit Obligations and Fair Value of Plan Assets The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets as of the respective measurement dates in each year (in millions): U.S. Pension Benefits U.S. Postretirement Medical Benefits International Pension Benefits 2025 2024 2025 2024 2025 2024 Benefit Obligations: Projected benefit obligation at beginning of year $ 46,559 $ 47,712 $ 1,850 $ 1,974 $ 1,500 $ 1,601 Service cost 1,124 1,240 17 20 37 42 Interest cost 2,718 2,574 109 109 65 66 Gross benefits paid ( 2,678 ) ( 2,604 ) ( 241 ) ( 284 ) ( 64 ) ( 55 ) Plan participants’ contributions — — — 39 4 4 Plan amendments (1) 116 76 — — — — Actuarial (gain)/loss 633 ( 2,438 ) 87 ( 7 ) ( 42 ) ( 58 ) Foreign currency exchange rate changes — — — — 108 ( 99 ) Curtailments and settlements — — — — ( 2 ) ( 4 ) Other — ( 1 ) — ( 1 ) 3 3 Projected benefit obligation at end of year $ 48,472 $ 46,559 $ 1,822 $ 1,850 $ 1,609 $ 1,500 (1) Plan amendments in 2025 were related to the collective bargaining agreement with the Independent Pilots Association. Plan amendments in 2024 were related to collective bargaining agreements with the Teamsters. 81 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets as of the respective measurement dates in each year (in millions): U.S. Pension Benefits U.S. Postretirement Medical Benefits International Pension Benefits 2025 2024 2025 2024 2025 2024 Fair Value of Plan Assets: Fair value of plan assets at beginning of year $ 41,499 $ 43,491 $ 119 $ 98 $ 1,778 $ 1,893 Actual return (loss) on plan assets 3,708 ( 615 ) 10 ( 2 ) 25 41 Employer contributions 1,159 1,228 183 269 19 27 Plan participants’ contributions — — — 39 4 4 Gross benefits paid ( 2,678 ) ( 2,604 ) ( 241 ) ( 284 ) ( 64 ) ( 55 ) Foreign currency exchange rate changes — — — — 114 ( 118 ) Curtailments and settlements — — — — ( 2 ) ( 4 ) Other 1 ( 1 ) 1 ( 1 ) ( 1 ) ( 10 ) Fair value of plan assets at end of year $ 43,689 $ 41,499 $ 72 $ 119 $ 1,873 $ 1,778 2025 - $ 0.7 billion pre-tax actuarial loss related to benefit obligations: • Discount Rates ($ 0.3 billion pre-tax loss): The weighted-average discount rate for our pension and postretirement medical plans decreased from 5.85 % as of December 31, 2024 to 5.79 % as of December 31, 2025, primarily due to a decrease in treasury yields on AA-rated corporate bonds. • Demographic and Assumption Changes ($ 0.4 billion pre-tax loss): This represents the difference between actual and estimated participant data and demographic factors, including healthcare cost trends, compensation changes, rates of termination, retirement, mortality, adjustments for separation programs and other changes. 2024 - $ 2.5 billion pre-tax actuarial gain related to benefit obligations: • Discount Rates ($ 2.8 billion pre-tax gain): The weighted-average discount rate for our pension and postretirement medical plans increased from 5.40 % as of December 31, 2023 to 5.85 % as of December 31, 2024, primarily due to an increase in treasury yields on AA-rated corporate bonds. • Demographic and Assumption Changes ($ 0.3 billion pre-tax loss): This represents the difference between actual and estimated participant data and demographic factors, including healthcare cost trends, compensation changes, rates of termination, retirement, mortality and other changes. Pension and Postretirement Plan Assets Pension assets are invested in accordance with applicable laws and regulations, as well as investment guidelines established by plan trustees. The strategic asset mixes are specifically tailored for each plan given distinct factors, including liability and liquidity needs. Equities, alternative investments, and other higher-yielding assets are utilized to generate returns and promote growth. Derivatives, repurchase/reverse repurchase agreements and fixed income securities are utilized as tools for duration management, mitigating interest rate risk, and minimizing funded status volatility. The primary long-term investment objectives for pension assets are to provide for a reasonable amount of long-term capital growth to meet future obligations while minimizing risk exposures and reducing funded status volatility. To meet these objectives, investment managers are engaged to actively manage assets within the guidelines and strategies set forth by our investment committee. Active managers are monitored regularly and their performance is compared to applicable benchmarks. Fair Value Measurements Plan assets valued utilizing Level 1 inputs include equity investments, corporate debt instruments, U.S. government securities, derivatives and other instruments. Fair values were determined by closing prices for those securities traded on national stock exchanges, while securities traded in the over-the-counter market and listed securities for which no sale was reported on the valuation date are valued at the mean between the last reported bid and ask prices. 82 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 2 assets include fixed income securities that are valued based on yields currently available on comparable securities of other issues with similar credit ratings; mortgage-backed securities that are valued based on cash flow and yield models using acceptable modeling and pricing conventions; hedge funds, equity securities and certain investments that are pooled with other investments in a commingled fund; and derivatives and other instruments primarily valued using pricing models that rely on market observable inputs such as yield curves, foreign currency exchange rates and investment forward price. We value our investments in commingled funds by taking the percentage ownership of the underlying assets, each of which has a readily determinable fair value. Fair value estimates for certain investments are based on unobservable inputs that are not corroborated by observable market data and are thus classified as Level 3. Investments that do not have a readily determinable fair value, and which provide a NAV or its equivalent developed consistent with ASC measurement principles, are valued using NAV as a practical expedient. These investments are not classified in Levels 1, 2, or 3 of the fair value hierarchy but instead included within the subtotals by asset category. Such investments include hedge funds, real estate investments, private debt and private equity funds. Investments in hedge funds are valued using the reported NAV as of December 31. Real estate investments, private debt and private equity funds are valued at NAV per the most recent partnership audited financial reports, and adjusted, as appropriate, for investment activity between the date of the financial reports and December 31. Due to the inherent limitations in obtaining a readily determinable fair value measurement for alternative investments, the fair values reported may differ from the values that would have been used had readily available market information for the alternative investments existed. These investments are described further below: • Hedge Funds : Plan assets are invested in hedge funds that pursue multiple strategies to diversify risk and reduce volatility. Most of these hedge funds allow redemptions either quarterly or semi-annually after a two- to three-month notice period, while others allow for redemption after only a brief notification period with no restriction on redemption frequency. No unfunded commitments existed with respect to hedge funds as of December 31, 2025. • Real Estate, Private Debt and Private Equity Funds : Plan assets are invested in limited partnership interests in various private equity, private debt and real estate funds. Limited provisions exist for the redemption of these interests by the limited partners that invest in these funds until the end of the term of the partnerships, typically ranging between 10 and 15 years from the date of inception. An active secondary market exists for similar partnership interests, although no particular value (discount or premium) can be guaranteed. As of December 31, 2025, unfunded commitments to such limited partnerships totaling approximately $ 2.5 billion are expected to be contributed over the remaining investment period. The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2025 and 2024 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations. The asset categories within equity securities, fixed income securities, and alternative and other investments in the table below have been collapsed from prior year presentation to align with the nature, characteristics, and type of underlying risk of those assets. There were no transfers between asset categories. 83 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 Total Assets (1) Level 1 Level 2 Level 3 Percentage of Plan Assets % Target Allocation Asset Category (U.S. Plans): Cash and cash equivalents (3) $ 3,649 $ 3,427 $ 222 $ — 8.3 % 1 - 7 % Equity securities 6,842 3,834 3,008 — 15.6 % 15 - 45 % Fixed income securities 21,080 13,218 7,805 57 48.2 % 30 - 73 % Alternative and other investments (1) : Hedge funds 3,728 — 2,097 — 8.5 % 3 - 13 % Real estate 2,067 — — — 4.7 % 3 - 15 % Private equity, private debt, and other investments 6,378 — 117 — 14.6 % 5 - 29 % Total Alternative and other investments 12,173 — 2,214 — Derivatives and other instruments, net: Equity risk ( 43 ) ( 17 ) ( 26 ) — ( 0.1 ) % Interest rate risk ( 9 ) ( 169 ) 160 — — % Other risk (2) 69 — 69 — 0.2 % Total Derivatives and other instruments 17 ( 186 ) 203 — Total U.S. plan assets $ 43,761 $ 20,293 $ 13,452 $ 57 100.0 % Asset Category (International Plans): Cash and cash equivalents $ 131 $ 131 $ — $ — 7.0 % 1 - 10 % Equity securities 179 28 151 — 9.5 % 1 - 10 % Fixed income securities 1,259 254 1,005 — 67.2 % 50 - 75 % Alternative and other investments (1) : Real estate 67 — 19 24 3.6 % 1 - 10 % Private equity, private debt, and other investments 237 — 211 16 12.7 % 10 - 35 % Total International plan assets $ 1,873 $ 413 $ 1,386 $ 40 100.0 % Total plan assets $ 45,634 $ 20,706 $ 14,838 $ 97 (1) Includes certain investments that are measured at NAV per share (or its equivalent). (2) Includes credit risk, foreign currency exchange risk and commodity risk. (3) Includes $ 1.6 billion of cash held as collateral for market exposures, which is not subject to the target allocations. 84 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2024 Total Assets (1) Level 1 Level 2 Level 3 Percentage of Plan Assets % Target Allocation Asset Category (U.S. Plans): Cash and cash equivalents (3) $ 5,716 $ 5,450 $ 266 $ — 13.7 % 1 - 7 % Equity securities 6,979 3,270 3,709 — 16.8 % 15 - 45 % Fixed income securities 19,643 13,375 6,247 21 47.2 % 30 - 73 % Alternative and other investments (1) : Hedge funds 2,034 — 538 — 4.9 % 3 - 13 % Real estate 2,674 301 77 — 6.4 % 3 - 15 % Private equity, private debt, and other investments 6,508 — 195 — 15.6 % 5 - 29 % Total Alternative and other investments 11,216 301 810 — Derivative and other instruments, net: Equity risk contracts ( 392 ) ( 99 ) ( 294 ) — ( 0.9 ) % Interest rate risk contracts ( 1,619 ) ( 442 ) ( 1,177 ) — ( 3.9 ) % Other risk (2) 75 2 73 — 0.2 % Total Derivative and other instruments ( 1,936 ) ( 539 ) ( 1,398 ) — Total U.S. plan assets $ 41,618 $ 21,857 $ 9,634 $ 21 100.0 % Asset Category (International Plans): Cash and cash equivalents $ 127 $ 127 $ — $ — 7.1 % 1 - 10 % Equity securities 165 23 142 — 9.3 % 1 - 10 % Fixed income securities 1,202 243 959 — 67.6 % 50 - 75 % Alternative and other investments (1) : Real estate 62 — 17 23 3.5 % 1 - 10 % Private equity, private debt, and other investments 222 — 189 18 12.5 % 10 - 35 % Total International plan assets $ 1,778 $ 393 $ 1,307 $ 41 100.0 % Total plan assets $ 43,396 $ 22,250 $ 10,941 $ 62 (1) Includes certain investments that are measured at NAV per share (or its equivalent). (2) Includes credit risk, foreign currency exchange risk and commodity risk. (3) $ 2.7 billion of cash held as collateral for market exposures, which is not subject to the target allocations. 85 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the changes in the Level 3 instruments measured on a recurring basis for 2025 and 2024 (in millions): Fixed Income Securities Alternative and Other Investments Total Balance as of January 1, 2024 $ — $ 80 $ 80 Actual Return on Assets: Assets held at end of year ( 1 ) 1 — Assets sold during the year 4 ( 12 ) ( 8 ) Purchases 38 — 38 Sales ( 10 ) ( 28 ) ( 38 ) Transfers Into (Out of) Level 3 ( 10 ) — ( 10 ) Balance as of December 31, 2024 $ 21 $ 41 $ 62 Actual Return on Assets: Assets held at end of year — 2 2 Assets sold during the year 2 — 2 Purchases 55 5 60 Sales ( 6 ) ( 8 ) ( 14 ) Transfers Into (Out of) Level 3 ( 15 ) — ( 15 ) Balance as of December 31, 2025 $ 57 $ 40 $ 97 There were no shares of UPS class A or class B common stock directly held in plan assets as of December 31, 2025 or 2024. Expected Cash Flows Information about expected cash flows for our pension and postretirement medical benefit plans is as follows (in millions): U.S. Pension Benefits U.S. Postretirement Medical Benefits International Pension Benefits Expected Employer Contributions: 2026 to plan trust $ 1,080 $ 5 $ 8 2026 to plan participants 29 183 10 Expected Benefit Payments: 2026 $ 2,636 $ 196 $ 63 2027 2,762 187 70 2028 2,871 177 77 2029 2,976 167 82 2030 3,081 158 89 2031-2035 16,847 693 524 Our funding policy guideline for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations. International plans will be funded in accordance with local regulations. Additional discretionary contributions may be made when deemed appropriate to meet the long-term obligations of the plans. Expected benefit payments for pensions will be paid primarily from plan trusts. Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets. 86 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. MULTIEMPLOYER EMPLOYEE BENEFIT PLANS We contribute to a number of multiemployer pension plans under the terms of collective bargaining agreements that cover our union-represented employees. These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility and participation requirements, vesting periods and benefit formulas. The risks of participating in multiemployer plans are different from single-employer plans in the following respects: • Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. • If we negotiate to cease participating in a multiemployer pension plan, we may be required to pay that plan an amount based on our allocable share of its underfunded status, referred to as a "withdrawal liability". However, cessation of participation in a multiemployer plan and subsequent payment of any withdrawal liability is subject to the collective bargaining process. • If any of the multiemployer pension plans in which we participate enter critical status, and our contributions are not sufficient to satisfy any rehabilitation plan funding schedule, we could be required under the Pension Protection Act of 2006 to make additional surcharge contributions to the multiemployer pension plan in the amount of five to ten percent of the existing contributions required by our labor agreement. Such surcharges would cease upon the ratification of a new collective bargaining agreement and could not reoccur unless a plan re-entered critical status at a later date. The discussion that follows sets forth the impact on our results of operations and cash flows for 2025, 2024 and 2023 from our participation in multiemployer pension plans. As part of the overall collective bargaining process for wage and benefit levels, we have agreed to contribute certain amounts to these plans during the contract period. The plans set benefit levels and are responsible for benefit delivery to participants. Future contributions to the plans are determined only through collective bargaining, and we have no additional legal or constructive obligation to increase contributions beyond the agreed-upon amounts (except potential surcharges under the Pension Protection Act of 2006 described above). The number of employees covered by multiemployer pension plans in 2025 was lower compared to 2024 and 2023. In each year, contribution rates increased in accordance with the terms of our collective bargaining agreements. There have been no other significant changes that affect the comparability of 2025, 2024 and 2023 contributions. We recognize expense for the contractually-required contributions for each period, and we recognize a liability for any contributions due and unpaid at the end of a reporting period. Status of Collective Bargaining Agreements We have approximately 295,000 employees in the U.S. employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters which runs through July 31, 2028. We have approximately 10,000 employees in Canada employed under a collective bargaining agreement with the Teamsters ("Teamsters Canada"). On August 29, 2025, UPS employees represented by Teamsters Canada ratified a new collective bargaining agreement. Terms of the agreement became effective August 1, 2025 and run through July 31, 2030. The economic provisions in the agreement included wage, healthcare and pension enhancements. We have approximately 3,400 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association ("IPA"). This collective bargaining agreement became amendable on September 1, 2025. We are currently in negotiations with the IPA. We have approximately 2,000 airline mechanics who are covered by a collective bargaining agreement with Teamsters Local 2727 which becomes amendable November 1, 2026. In addition, approximately 3,000 of our auto and maintenance mechanics who are not employed under agreements with the Teamsters are employed under a collective bargaining agreement with the International Association of Machinists and Aerospace Workers ("IAM"). This collective bargaining agreement will expire on July 31, 2029. Multiemployer Pension Plans The following table outlines our participation in multiemployer pension plans as of December 31, 2025, 2024 and 2023, and sets forth our calendar year contributions and accruals for each plan. 87 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The EIN/Pension Plan Number column provides the Employer Identification Number ("EIN") and the three-digit plan number. The most recent Pension Protection Act zone status available in 2025 and 2024 relates to each plan's two most recent fiscal year ends. The zone status is based on information that we received from the plans’ administrators and is certified by each plan’s actuary. Plans certified in the red zone are generally less than 65 % funded; plans certified in the orange zone are both less than 80 % funded and have an accumulated funding deficiency, or are expected to have a deficiency in any of the next six plan years; plans certified in the yellow zone are less than 80 % funded; and plans certified in the green zone are at least 80 % funded. The FIP / RP Status Pending / Implemented column indicates whether a financial improvement plan ("FIP") for yellow/orange zone plans, or a rehabilitation plan ("RP") for red zone plans, is either pending or has been implemented. As of December 31, 2025, all plans that have either a FIP or RP requirement have had the respective plan implemented. Our collectively-bargained contributions satisfy the requirements of all implemented FIPs and RPs and do not currently require the payment of any surcharges. In addition, minimum contributions outside of the agreed-upon contractual rates are not required. For the plans detailed in the following table, the expiration date of the associated collective bargaining agreements is July 31, 2028, with the exception of the IAM National Pension Fund / National Pension Plan, which has a July 31, 2029 associated expiration date. For all plans detailed in the following table, we provided more than 5 % of the total plan contributions from all employers for 2025, 2024 and 2023, as disclosed in the annual filing with the Department of Labor for each respective plan. 88 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Certain plans have been aggregated in the All Other Multiemployer Pension Plans line in the following table, as contributions to each of these plans are not individually material. EIN / Pension Plan Number Pension Protection Act Zone Status FIP / RP Status Pending / Implemented UPS Contributions and Accruals (in millions) Surcharge Imposed Pension Fund 2025 2024 2025 2024 2023 Alaska Teamster-Employer Pension Plan 92-6003463-024 Red Red Yes Implemented $ 11 $ 11 $ 10 No Central Pennsylvania Teamsters Defined Benefit Plan 23-6262789-001 Green Green No NA 85 85 82 No Eastern Shore Teamsters Pension Fund 52-0904953-001 Green Green No NA 9 10 10 No Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund 55-6021850-001 Red Red Yes Implemented 21 21 21 No Hagerstown Motor Carriers and Teamsters Pension Fund 52-6045424-001 Green Green No NA 13 13 13 No I.A.M. National Pension Fund / National Pension Plan 51-6031295-002 Red Red Yes Implemented 53 53 50 No International Brotherhood of Teamsters Union Local No. 710 Pension Fund 36-2377656-001 Green Green No NA 184 194 196 No Local 705, International Brotherhood of Teamsters Pension Plan 36-6492502-001 Green Green No NA 135 142 138 No Local 804 I.B.T. & Local 447 I.A.M.—UPS Multiemployer Retirement Plan 51-6117726-001 Green Green No NA 135 139 143 No Milwaukee Drivers Pension Trust Fund 39-6045229-001 Green Green No NA 59 62 62 No New England Teamsters & Trucking Industry Pension Fund 04-6372430-001 Red Red Yes Implemented 218 224 234 No New York State Teamsters Conference Pension and Retirement Fund 16-6063585-074 Red Red Yes Implemented 129 136 139 No Teamster Pension Fund of Philadelphia and Vicinity 23-1511735-001 Green Green No NA 95 98 98 No Teamsters Joint Council No. 83 of Virginia Pension Fund 54-6097996-001 Green Green No NA 92 98 98 No Teamsters Local 639—Employers Pension Trust 53-0237142-001 Green Green No NA 80 83 84 No Teamsters Negotiated Pension Plan 43-6196083-001 Green Green No NA 44 47 49 No Truck Drivers and Helpers Local Union No. 355 Retirement Pension Plan 52-6043608-001 Green Green No NA 27 28 28 No United Parcel Service, Inc.—Local 177, I.B.T. Multiemployer Retirement Plan 13-1426500-419 Green Green No NA 110 111 122 No Western Conference of Teamsters Pension Plan 91-6145047-001 Green Green No NA 1,233 1,255 1,254 No Western Pennsylvania Teamsters and Employers Pension Fund 25-6029946-001 Red Red Yes Implemented 42 45 46 No All Other Multiemployer Pension Plans 64 92 76 Total Contributions $ 2,839 $ 2,947 $ 2,953 Agreement with the New England Teamsters and Trucking Industry Pension Fund In 2012, we reached an agreement with the New England Teamsters and Trucking Industry Pension Fund ("NETTI Fund"), a multiemployer pension plan in which UPS is a participant, to restructure the pension liabilities for approximately 10,200 UPS employees represented by the Teamsters. As of December 31, 2025 and 2024 we had $ 795 and $ 804 million, respectively, recognized in Other Non-Current Liabilities and $ 9 million as of December 31, 2025 and 2024 recorded in Other current liabilities in our consolidated balance sheets, representing the remaining balance of the NETTI Fund withdrawal liability. This liability is payable in equal monthly installments over a remaining term of approximately 37 years. Based on the borrowing rates currently available to us for long-term financing of a similar maturity, the fair value of the NETTI Fund withdrawal liability as of December 31, 2025 and 2024 was $ 662 and $ 651 million, respectively. We utilized Level 2 inputs in the fair value hierarchy to determine the fair value of this liability. 89 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Multiemployer Health and Welfare Plans We also contribute to a number of multiemployer health and welfare plans covering both active and retired employees. Healthcare benefits are provided to participants who meet certain eligibility requirements as covered under the applicable collective bargaining unit. The following table sets forth our calendar year plan contributions and accruals. Certain plans have been aggregated in the All Other Multiemployer Health and Welfare Plans line, as the contributions to each of these plans are not individually material. UPS Contributions and Accruals (in millions) Health and Welfare Fund 2025 2024 2023 Bay Area Delivery Drivers $ 47 $ 41 $ 40 Central Pennsylvania Teamsters Health & Pension Fund 51 48 46 Central States, South East & South West Areas Health and Welfare Fund 3,883 3,849 3,712 Delta Health Systems—East Bay Drayage Drivers 41 37 39 Joint Council #83 Health & Welfare Fund 61 63 63 Local 401 Teamsters Health & Welfare Fund 24 24 23 Local 804 Welfare Trust Fund 135 131 131 Milwaukee Drivers Pension Trust Fund—Milwaukee Drivers Health and Welfare Trust Fund 62 64 64 New York State Teamsters Health & Hospital Fund 88 89 87 Northern California General Teamsters (DELTA) 209 202 206 Northern New England Benefit Trust 82 82 83 Oregon / Teamster Employers Trust 68 68 69 Teamsters 170 Health & Welfare Fund 22 22 21 Teamsters Benefit Trust 54 59 57 Teamsters Local 175 & 505 Health and Welfare Fund 20 20 20 Teamsters Local 191 Health Fund 31 30 29 Teamsters Local 251 Health & Insurance Plan 22 22 22 Teamsters Local 638 Health Fund 74 74 73 Teamsters Local 639—Employers Health & Pension Trust Funds 36 35 36 Teamsters Local 671 Health Services & Insurance Plan 24 24 24 Teamsters Union 25 Health Services & Insurance Plan 75 73 73 Teamsters Western Region & Local 177 Health Care Plan 1,127 1,109 1,076 Truck Drivers and Helpers Local 355 Baltimore Area Health & Welfare Fund 20 21 23 Utah-Idaho Teamsters Security Fund 54 53 54 Washington Teamsters Welfare Trust 82 83 88 All Other Multiemployer Health and Welfare Plans 111 108 109 Total Contributions $ 6,503 $ 6,431 $ 6,268 90 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. GOODWILL AND INTANGIBLE ASSETS The following table indicates the allocation of goodwill (in millions): U.S. Domestic Package International Package Supply Chain Solutions Consolidated Balance as of January 1, 2024 $ 847 $ 503 $ 3,522 $ 4,872 Acquired — — 4 4 Divestiture — — ( 495 ) ( 495 ) Currency / Other — ( 16 ) ( 65 ) ( 81 ) Balance as of December 31, 2024 $ 847 $ 487 $ 2,966 $ 4,300 Acquired — 79 1,265 1,344 Currency / Other — 30 163 193 Balance as of December 31, 2025 $ 847 $ 596 $ 4,394 $ 5,837 2025 Goodwill Activity Goodwill acquired during 2025 was associated with our acquisitions of Frigo-Trans and Biotech & Pharma Logistics ("Frigo-Trans") and Andlauer Healthcare Group, Inc ("AHG"), which are both reported within SCS. In 2025, the increase in goodwill balance is primarily due to the acquisitions of the above mentioned businesses as discussed in note 8. The remaining changes were due to the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances. 2024 Goodwill Activity Goodwill acquired during 2024 was associated with our acquisition of certain locations of The UPS Store. It also reflects the 2024 completion of purchase accounting allocations from our 2023 acquisitions of MNX Global Logistics and Happy Returns, which are both reported within SCS. In 2024, the decrease in goodwill balance is primarily due to the divestiture of our truckload brokerage business ("Coyote") within SCS as discussed in note 8. The remaining changes were due to the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances. Goodwill Impairment We conducted our most recent annual goodwill impairment testing as of July 1, 2025 using both qualitative and quantitative methods. As of our July 1, 2025 testing date, approximately $ 877 million and $ 738 million of our $ 4.8 billion consolidated goodwill balance is 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 current market conditions, volatility in global markets, early stages of our current healthcare growth strategy and ongoing integration of recent acquisitions. Both GFF and HLD reporting units are included in SCS. 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. 91 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 United States Postal Service ("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 is represented by our Mail Innovations reporting unit included in SCS. Intangible Assets The following is a summary of intangible assets as of December 31, 2025 and 2024 (in millions): Gross Carrying Amount Accumulated Amortization Net Carrying Value Weighted-Average Amortization Period (in years) December 31, 2025 Capitalized software $ 6,810 $ ( 4,593 ) $ 2,217 6.9 Customer relationships 1,438 ( 293 ) 1,145 14.3 Trademarks, patents and other 368 ( 154 ) 214 7.6 Franchise rights 382 ( 68 ) 314 20.0 Trade name 116 ( 39 ) 77 9.5 Licenses 88 ( 39 ) 49 3.4 Amortizable intangible assets $ 9,202 $ ( 5,186 ) $ 4,016 8.6 Indefinite-lived intangible assets 5 — 5 Total Intangible Assets $ 9,207 $ ( 5,186 ) $ 4,021 December 31, 2024 Capitalized software $ 6,088 $ ( 4,159 ) $ 1,929 Customer relationships 677 ( 206 ) 471 Trademarks, patents and other 369 ( 103 ) 266 Franchise rights 348 ( 55 ) 293 Trade name 109 ( 26 ) 83 Licenses 30 ( 12 ) 18 Amortizable intangible assets $ 7,621 $ ( 4,561 ) $ 3,060 Indefinite-lived intangible assets 4 — 4 Total Intangible Assets $ 7,625 $ ( 4,561 ) $ 3,064 As of December 31, 2025 and 2024, we do not have material indefinite-lived intangible assets and we did not record any impairments related to indefinite-lived intangibles during those periods. All of our other recorded intangible assets are deemed to be finite-lived and are amortized over their estimated useful lives. Impairment tests for these assets are performed when a triggering event occurs that may indicate that the carrying value of the intangible asset may not be recoverable. Additionally, a decision to sell or abandon an intangible asset before the end of its useful life may result in an impairment charge. Impairments of finite-lived intangible assets were $ 39 , $ 71 and $ 8 million in 2025, 2024, and 2023, respectively, and were recorded within Other expenses in our statements of consolidated income. In 2025, these charges primarily consisted of software impairment charges related to a business within SCS. In 2024, these charges represented trade name and capitalized software license impairments. Amortization of intangible assets was $ 700 , $ 648 and $ 597 million in each of 2025, 2024 and 2023, respectively. Expected amortization of finite-lived intangible assets recorded as of December 31, 2025 for the next five years is as follows (in millions): 2026—$ 783 ; 2027—$ 688 ; 2028—$ 577 ; 2029—$ 461 ; 2030—$ 355 . 92 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. ACQUISITIONS & DISPOSITIONS In the first quarter of 2025, we acquired Frigo-Trans, an industry-leading, complex healthcare logistics provider based in Germany. In the fourth quarter of 2025, we acquired AHG, a leading North American supply chain management company offering customized third-party logistics and specialized cold chain transportation solutions for the healthcare sector. Both acquisitions are expected to increase our complex cold-chain logistics capabilities internationally. During 2025, we also reacquired development area rights for The UPS Store. The aggregate purchase price for all acquisitions in 2025 was approximately $ 2.0 billion, net of cash acquired, which is recorded within SCS. Acquisitions were funded using cash from operations. The impact of these acquisitions to our consolidated revenue and net income in 2025 was not material. The estimated fair values of assets acquired and liabilities assumed, for AHG, are subject to change based on completion of our purchase accounting. Certain areas, including the fair value of intangibles, property, plant and equipment, equity method investments included within Other Non-Current Assets, and our estimates of tax positions, are preliminary as of December 31, 2025. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (in millions): 2025 Cash and cash equivalents $ 68 Accounts receivable, net 102 Other current assets 24 Property, plant and equipment, net 144 Operating lease right-of-use assets 109 Goodwill 1,344 Intangible assets, net 1 763 Other non-current assets 14 Accounts payable and other current liabilities ( 91 ) Current maturities of long-term debt ( 64 ) Current maturities of operating leases ( 27 ) Non-current operating leases ( 69 ) Deferred income tax liabilities ( 197 ) Long-term finance lease obligations ( 11 ) Other non-current liabilities ( 88 ) Total purchase price $ 2,021 (1) Includes $ 40 million for acquisitions of reacquired development area rights for The UPS Store. Goodwill recognized during 2025 is attributable to expected synergies from future growth. We assigned approximately $ 1.3 billion of goodwill to SCS and approximately $ 80 million to our International Package segment, the Americas reporting unit. This goodwill acquired is not expected to be deductible for income tax purposes. Intangible assets acquired during 2025 of approximately $ 763 million are primarily comprised of $ 690 million of customer relationships (amortized over a weighted average of 15 years). Other intangible assets acquired include franchise rights, licenses, capitalized software and trade names. The carrying value of accounts receivable approximates fair value. Acquisition-related costs in 2025 were approximately $ 21 million. These were expensed and included in Other expenses in our statement of consolidated income. In the second quarter of 2025, we completed the divestiture of a business within SCS. In connection with this divestiture, we recorded a pre-tax net loss of approximately $ 19 million ($ 15 million after tax). The loss is recognized within Other expenses in our statement of consolidated income. 93 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 2024, the aggregate purchase price for acquisitions was $ 71 million, net of cash acquired, which primarily related to the acquisition of franchise development areas for The UPS Store, which are recorded as intangible assets within SCS. In 2024, we completed the divestiture of Coyote, for cash proceeds, net of cash divested and direct transaction expenses, of $ 1.0 billion. These proceeds are recognized within Proceeds from disposal of businesses, property, plant and equipment in our statement of consolidated cash flows. In connection with the completion of this divestiture, we recorded a pre-tax gain of $ 156 million ($ 152 million after tax) in 2024. The gain was recognized within Other expenses in our statement of consolidated income. We reported Coyote within our Forwarding businesses in SCS. Net assets divested of $ 860 million were mostly comprised of cash of $ 20 million, accounts receivable of $ 405 million, other current assets of $ 34 million, operating lease right-of-use assets of $ 69 million, goodwill of $ 495 million, intangible assets of $ 195 million and other non-current assets of $ 18 million. These assets were offset by accounts payable of $ 216 million, other current liabilities of $ 54 million, non-current operating leases of $ 68 million, and other non-current liabilities of $ 38 million. 94 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. DEBT AND FINANCING ARRANGEMENTS The carrying value of our outstanding debt obligations, as of December 31, 2025 and 2024 consists of the following (in millions): Principal Carrying Value Amount Maturity 2025 2024 Fixed-Rate senior notes: 3.900 % senior notes $ — 2025 $ — $ 1,000 2.400 % senior notes 500 2026 500 499 3.050 % senior notes 1,000 2027 998 997 3.400 % senior notes 750 2029 748 748 2.500 % senior notes 400 2029 399 398 4.450 % senior notes 750 2030 747 746 4.650 % senior notes 500 2030 498 — 4.875 % senior notes 900 2033 896 895 5.150 % senior notes 900 2034 894 894 5.250 % senior notes 1,250 2035 1,240 — 6.200 % senior notes 1,500 2038 1,487 1,486 5.200 % senior notes 500 2040 495 495 4.875 % senior notes 500 2040 492 492 3.625 % senior notes 375 2042 369 369 3.400 % senior notes 500 2046 493 492 3.750 % senior notes 1,150 2047 1,138 1,138 4.250 % senior notes 750 2049 744 743 3.400 % senior notes 700 2049 689 689 5.300 % senior notes 1,250 2050 1,232 1,232 5.050 % senior notes 1,100 2053 1,083 1,083 5.500 % senior notes 1,100 2054 1,087 1,087 5.950 % senior notes 1,250 2055 1,232 — 5.600 % senior notes 600 2064 590 590 6.050 % senior notes 1,000 2065 985 — Floating-rate senior notes: Floating-rate senior notes 1,884 2049-2075 1,863 1,755 Debentures: 7.620 % debentures 276 2030 279 279 Pound Sterling notes: 5.500 % notes 90 2031 89 83 5.125 % notes 614 2050 585 544 Euro Senior Notes: 1.625 % notes — 2025 — 731 1.000 % notes 588 2028 587 521 1.500 % notes 588 2032 586 521 Finance lease obligations (see note 11) 781 2026-2118 781 455 Facility notes, bonds & other 321 2026-2045 321 322 Total debt $ 24,367 $ 24,127 $ 21,284 Less: current maturities of long-term debt and finance leases ( 608 ) ( 1,838 ) Long-term debt and finance leases $ 23,519 $ 19,446 95 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Commercial Paper We are authorized to borrow up to $ 10.0 billion under a U.S. commercial paper program and € 5.0 billion (in a variety of currencies) under a European commercial paper program. There was no commercial paper outstanding as of December 31, 2025 or 2024. The amount of commercial paper outstanding under these programs in 2026 is expected to fluctuate. Debt Classification We have classified certain floating-rate senior notes that are redeemable at the option of the note holder as long-term debt in our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised. Debt Repayments On April 1, 2025, our 3.900 % Senior notes with a principal balance of $ 1.0 billion matured and were repaid in full. On November 15, 2025, our 1.625 % Euro senior notes with a principal balance of € 700 million ($ 811 million) matured and were repaid in full. Debt Issuances In 2025, we issued four series of notes in the principal amounts of $ 500 million, $ 1.3 billion, $ 1.3 billion and $ 1.0 billion. These notes bear interest at 4.650 %, 5.250 %, 5.950 % and 6.050 %, respectively. Also in 2025, we issued floating rate senior notes with a principal balance of $ 171 million that matures on June 1, 2075. Fixed-Rate Senior Notes Our fixed-rate notes pay interest semi-annually and allow for redemption by us at any time by paying the greater of the principal amount or a "make-whole" amount, plus accrued interest. Floating-Rate Senior Notes Our outstanding floating-rate senior notes with principal amounts totaling $ 1.9 billion bear interest at either thirty-day, ninety-day or compounded Secured Overnight Financing Rate ("SOFR"), less a spread ranging from 4 to 35 basis points. These notes have maturities ranging from 2049 through 2075. Interest is payable monthly for notes maturing through 2053 and quarterly for notes maturing from 2064 through 2075. The average interest rate on the outstanding floating-rate senior notes for 2025 and 2024 was 4.13 % and 4.77 %, respectively. These notes are callable at various times after 30 years at a stated percentage of par value, and redeemable at the option of the note holders at various times after one year at a stated percentage of par value. We have classified these floating-rate senior notes as long-term liabilities in our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised. 7.620 % Debentures The $ 276 million debentures have a maturity of April 1, 2030. These debentures are redeemable in whole or in part at any time at our option. The redemption price is equal to the greater of the principal amount plus accrued interest, or the present value of remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark treasury yield plus five basis points, plus accrued interest. Interest is payable semi-annually in April and October, and the debentures are not subject to sinking fund requirements. Pound Sterling Notes The Pound Sterling notes consist of two separate tranches, as follows: • Notes with a principal amount of £ 66 million accrue interest at a fixed rate of 5.50 % and are due in February 2031. Interest is payable semi-annually and these notes are not callable. • Notes with a principal amount of £ 455 million accrue interest at a fixed rate of 5.125 % and are due in February 2050. Interest is payable semi-annually. These notes are callable at our option at a redemption price equal to the greater of the principal amount plus accrued interest, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark U.K. government bond yield plus 15 basis points, plus accrued interest. 96 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Euro Senior Notes The Euro notes consist of two separate issuances, as follows: • Notes with a principal amount of € 500 million accrue interest at a fixed rate of 1.00 % and are due in November 2028. Interest is payable annually. These notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable German government bond yield plus 15 basis points, plus accrued interest. • Notes with a principal amount of € 500 million accrue interest at a fixed rate of 1.50 % and are due in November 2032. Interest is payable annually. The notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable government bond yield plus 20 basis points, plus accrued interest. Finance Lease Obligations We have certain property, plant and equipment subject to finance leases. For additional information on finance lease obligations, see note 11. Facility Notes and Bonds We have entered into agreements with certain municipalities or related entities to finance the construction of, or improvements to, facilities that support our operations in the United States. These facilities are located around airport properties in Louisville, Kentucky; Dallas, Texas; and Philadelphia, Pennsylvania. Under these arrangements, we enter into a lease or loan agreement that covers the debt service obligations on the bonds issued by these entities, as follows: • Bonds with a principal balance of $ 149 million issued by the Louisville Regional Airport Authority associated with our Worldport facility in Louisville, Kentucky. The bonds are due in January 2029 and bear interest at a variable rate that is payable monthly. The average interest rates for 2025 and 2024 were 2.70 % and 3.28 %, respectively. • Bonds with a principal balance of $ 42 million issued by the Louisville Regional Airport Authority associated with our airfreight facility in Louisville, Kentucky. The bonds are due in November 2036 and bear interest at a variable rate that is payable monthly. The average interest rates for 2025 and 2024 were 2.70 % and 3.21 %, respectively. • Bonds with a principal balance of $ 29 million issued by the Dallas/Fort Worth International Airport Facility Improvement Corporation associated with our Dallas, Texas airport facilities. The bonds are due in May 2032 and bear interest at a variable rate that is payable quarterly. The average interest rates for 2025 and 2024 were 2.65 % and 3.26 %, respectively. • Bonds with a principal balance of $ 100 million issued by the Delaware County, Pennsylvania Industrial Development Authority associated with our Philadelphia, Pennsylvania airport facilities. These bonds are due in September 2045 and bear interest at a variable rate that is payable monthly. The average interest rates for 2025 and 2024 were 2.62 % and 3.18 %, respectively. Contractual Commitments The following table sets forth the aggregate annual principal payments on our long-term debt (in millions): Year Debt Principal (1) 2026 $ 500 2027 1,000 2028 588 2029 1,299 2030 1,526 After 2030 18,672 Total $ 23,585 (1) The above table excludes finance leases of $ 781 million and other debt of $ 1 million. 97 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Arrangements During 2025, we entered into new aircraft leases. The structure of this arrangement required a parent company guarantee of approximately $ 1.8 billion. For additional information, see note 11. During 2025, we entered into a real estate transaction for the development of a facility and recognized a financing obligation included in Other Non-Current Liabilities in our consolidated balance sheets of $ 132 million. The financing obligation will increase as construction progresses. Sources of Credit Letters of Credit As of December 31, 2025, we had outstanding letters of credit totaling approximately $ 1.8 billion issued in connection with our self-insurance reserves and other routine business requirements. We also issue surety bonds as an alternative to letters of credit in certain instances and, as of December 31, 2025, we had $ 1.8 billion of surety bonds written. Revolving Credit Facilities We maintain two credit agreements with a consortium of banks. The first of these agreements provides revolving credit facilities of $ 1.0 billion and expires on November 23, 2026. Amounts outstanding under this agreement bear interest at a periodic fixed rate equal to the term SOFR rate, plus 0.10 % per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of December 31, 2025 was 0.70 %. Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (2) the Federal Funds effective rate plus 0.50 %; or (3) the Adjusted Term SOFR Rate for a one month interest period plus 1.00 %, may be used at our discretion. The second agreement provides revolving credit facilities of $ 2.0 billion and expires on November 25, 2029. Amounts outstanding under this facility bear interest at a periodic fixed rate equal to the term SOFR rate plus 0.10 % per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of December 31, 2025 was 0.70 %. Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (2) the Federal Funds effective rate plus 0.50 %; and (3) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00 %, plus an applicable margin, may be used at our discretion. If the credit ratings established by Standard & Poor's and Moody’s differ, the higher rating will be used, except in cases where the lower rating is two or more levels lower. In these circumstances, the rating one step below the higher rating will be used. We are also able to request advances under these facilities based on competitive bids for the applicable interest rate. There were no amounts outstanding under our revolving credit facilities as of December 31, 2025. Debt Covenants Our existing debt instruments and credit facilities subject us to certain financial covenants. These covenants limit the amount of secured indebtedness that we may incur, and limit the amount of attributable debt in sale-leaseback transactions. As of December 31, 2025, and for all prior periods presented, we have satisfied these financial covenants. Fair Value of Debt Based on the borrowing rates currently available to us for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities and excluding leases, was approximately $ 22.8 and $ 19.8 billion as of December 31, 2025 and 2024. As of December 31, 2024, the fair value of long-term and short-term debt, inclusive of finance leases, was $20.3 billion. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of all of our debt instruments. 98 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. LEGAL PROCEEDINGS AND CONTINGENCIES We are involved in a number of judicial proceedings and other matters arising from the conduct of our business. Although there can be no assurances as to the ultimate outcome, we have generally denied, or believe we have meritorious defenses and will deny, liability in pending matters, including (except as may be otherwise noted herein) the matters described below, and we intend to vigorously defend each matter. We accrue amounts associated with judicial proceedings and other contingencies when and to the extent a loss becomes probable and can be reasonably estimated. The actual costs of resolving legal proceedings may be substantially higher or lower than the amounts accrued on those claims. For matters as to which we are not able to estimate a possible loss or range of losses, we are not able to determine whether any such loss will have a material impact on our operations or financial condition. For these matters, we have described the reasons that we are unable to estimate a possible loss or range of losses. Judicial Proceedings We are a defendant in a number of lawsuits filed in state and federal courts containing various class action allegations under state wage-and-hour laws. We do not believe that any loss associated with any such matter will have a material impact on our financial condition, results of operations or liquidity. In July 2023, Baker v. United Parcel Service, Inc. (DE) and United Parcel Service, Inc. (OH) was certified as a class action in federal court in the Eastern District of Washington. The plaintiff in this matter alleges that UPS violated the Uniformed Services Employment and Reemployment Rights Act. We are vigorously defending ourselves in this matter and believe that we have a number of meritorious defenses, and there are unresolved questions of law and fact that could be important to the ultimate resolution of this matter. Accordingly, we are not able to estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity. In December 2025, Malone et al. v. United Parcel Service Inc. (OH) was certified as a class action in federal court in the Eastern District of Pennsylvania. The plaintiffs filed this action alleging entitlement to overtime under the Pennsylvania Minimum Wage Act, seeking allegedly unpaid wages. We are vigorously defending ourselves in this matter. We believe that we have meritorious defenses, and there are unresolved questions of law and fact that could be important to the ultimate resolution of this matter. Accordingly, we are not able to estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity. Other Matters In August 2016, Spain’s National Markets and Competition Commission ("CNMC") announced an investigation into 10 companies in the commercial delivery and parcel industry, including UPS, related to alleged nonaggression agreements to allocate customers. In May 2017, we received a Statement of Objections issued by the CNMC. In July 2017, we received a Proposed Decision from the CNMC. In March 2018, the CNMC adopted a final decision, finding an infringement and imposing an immaterial fine on UPS. We appealed the decision. In December 2022, a trial court ruled against us. We have filed an appeal before the Spanish Supreme Court. We are vigorously defending ourselves and believe that we have a number of meritorious defenses. There are also unresolved questions of law that could be important to the ultimate resolution of this matter. We do not believe that any loss from this matter would have a material impact on our financial condition, results of operations or liquidity. We are a party to various other matters that arose in the normal course of business. These include disputes with government authorities in various jurisdictions over the imposition of duties, fines, taxes and assessments from time to time. We are vigorously defending ourselves and believe that we have a number of meritorious defenses in these disputes. There are also unresolved questions of law that could be important to the ultimate resolution of these disputes. Accordingly, we are not able to estimate a possible loss or range of losses that may result from these disputes or to determine whether such losses, if any, would have a material impact on our financial condition, results of operations or liquidity. 99 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On November 4, 2025, one of our MD-11 cargo aircraft was involved in an accident at Louisville Muhammad Ali International Airport. At this time, we do not believe the financial impact will be material to our financial condition, results of operations or liquidity. We do not believe that the eventual resolution of any other matters (either individually or in the aggregate), including any reasonably possible losses in excess of current accruals, will have a material impact on our operations or financial condition. 100 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. LEASES We have finance and operating leases for real estate (primarily package centers, airport facilities and warehouses), aircraft and engines, information technology equipment, vehicles and various other equipment used in operating our business. Certain leases for real estate and aircraft contain options to purchase, extend or terminate the lease. Aircraft In addition to the aircraft that we own, we charter aircraft to handle package and cargo volume on certain international trade lanes and domestic routes. Due to the nature of these agreements, primarily being that either party can cancel the agreement with short notice, we have classified these as short-term leases. A majority of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline. We also have long-term finance leases for aircraft that we operate. Transportation equipment and other equipment We enter into both long-term and short-term leases for transportation equipment to supplement our capacity or meet contractual demands. Some of these assets are leased on a month-to-month basis and the leases can be terminated without penalty. We also enter into equipment leases to increase capacity during periods of high demand. These leases are treated as short-term as the cumulative right of use is less than 12 months over the term of the contract. Some of our transportation and technology equipment leases require us to make additional lease payments based on the underlying usage of the assets. Due to the variable nature of these costs, these are expensed as incurred and are not included in the right-of-use lease asset and associated lease obligation. Sale-leaseback transactions In 2025, we entered into sale-leaseback transactions involving a data center and real estate properties. The real estate transactions were entered into under triple-net operating lease agreements with initial terms ranging from 15 to 20 years, which may be renewed. The leases include increases to base rent at rates ranging from 2.5 % to 3.0 % over the remaining terms of the leases. The components of lease expense for 2025, 2024 and 2023 were as follows (in millions): 2025 2024 2023 Operating lease costs $ 950 $ 912 $ 860 Finance lease costs: Amortization of assets $ 139 $ 145 $ 119 Interest on lease liabilities 27 23 18 Total finance lease costs 166 168 137 Variable lease costs 382 311 279 Short-term lease costs 1,091 1,079 1,166 Total lease costs (1) $ 2,589 $ 2,470 $ 2,442 (1) This table excludes sublease income for all periods presented as it was not material. We also monitor all lease categories for any indicators that the carrying value of the assets may not be recoverable. We recognized certain immaterial impairments during 2025, 2024 and 2023. 101 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Supplemental information related to leases and location within our consolidated balance sheets as of December 31, 2025 and 2024 are as follows (in millions, except lease term and discount rate): 2025 2024 Operating Leases: Operating lease right-of-use assets $ 4,263 $ 4,149 Current maturities of operating leases $ 763 $ 733 Non-current operating leases 3,700 3,635 Total operating lease obligations $ 4,463 $ 4,368 Finance Leases: Property, plant and equipment, net $ 1,146 $ 657 Current maturities of long-term debt, commercial paper and finance leases $ 107 $ 104 Long-term debt and finance leases 674 351 Total finance lease obligations $ 781 $ 455 Weighted average remaining lease term (in years): Operating leases 10.6 10.4 Finance leases 22.3 11.1 Weighted average discount rate: Operating leases 3.66 % 3.50 % Finance leases 4.49 % 3.84 % Future payments for lease obligations as of December 31, 2025 are as follows (in millions): Finance Leases Operating Leases 2026 $ 137 $ 907 2027 94 822 2028 87 641 2029 79 496 2030 72 390 Thereafter 585 2,151 Total lease payments 1,054 5,407 Less: Imputed interest ( 273 ) ( 944 ) Total lease obligations 781 4,463 Less: Current obligations ( 107 ) ( 763 ) Long-term lease obligations $ 674 $ 3,700 As of December 31, 2025, we had $ 2.6 billion of additional leases which had not commenced and are expected to commence between 2026 and 2027. These leases are primarily related to aircraft and will commence when the related aircraft is delivered. Other leases will commence when we are granted access to property, such as when leasehold improvements are completed or a certificate of occupancy is obtained. 102 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. SHAREOWNERS' EQUITY Capital Stock, Additional Paid-In Capital, Retained Earnings and Noncontrolling Interests We are authorized to issue two classes of common stock, which are distinguished from each other primarily by their respective voting rights. Class A shares of UPS are entitled to 10 votes per share, whereas class B shares are entitled to one vote per share. Class A shares are primarily held by UPS employees and retirees, as well as trusts and descendants of the Company's founders, and these shares are fully convertible into class B shares at any time. Class B shares are publicly traded on the New York Stock Exchange ("NYSE") under the symbol "UPS". Class A and B shares both have a $ 0.01 par value, and as of December 31, 2025, there were 4.6 billion class A shares and 5.6 billion class B shares authorized to be issued. Additionally, there are 200 million preferred shares authorized to be issued, with a par value of $ 0.01 per share. As of December 31, 2025, no preferred shares had been issued. The following is a rollforward of our shares of class A and class B common stock for 2025, 2024 and 2023 (in millions): 2025 2024 2023 Class A Common Stock: Balance at beginning of year 121 127 134 Stock award plans — 2 5 Common stock issuances 3 3 2 Conversions of class A to class B common stock ( 18 ) ( 11 ) ( 14 ) Class A shares issued at end of year 106 121 127 Class B Common Stock: Balance at beginning of year 733 726 725 Common stock purchases ( 8 ) ( 4 ) ( 13 ) Conversions of class A to class B common stock 18 11 14 Class B shares issued at end of year 743 733 726 We repurchased 8.6 , 3.9 and 12.8 million shares of class B common stock for $ 1.0 billion, $ 500 million and $ 2.3 billion during 2025, 2024 and 2023, respectively. These repurchases were completed as follows: • In August 2021, the Board of Directors authorized the Company to repurchase up to $ 5.0 billion of class A and class B common stock (the "2021 Authorization"). For 2023, we repurchased 0.5 million shares of class B common stock for $ 82 million under this authorization. • In January 2023, the Board of Directors terminated the 2021 Authorization and approved a new share repurchase authorization for $ 5.0 billion of class A and class B common stock (the "2023 Authorization"). The share repurchases for 2025 and 2024 were completed under the 2023 Authorization. For 2023, we repurchased 12.3 million shares for $ 2.2 billion under the 2023 Authorization. As of December 31, 2025, we had $ 1.3 billion available under this repurchase authorization. Future share repurchases may be in the form of accelerated share repurchase programs, open market purchases or other methods we deem appropriate. The timing of share repurchases will depend upon market conditions. Unless terminated earlier by the Board of Directors, this program will expire when we have purchased all shares authorized for repurchase under the program. Movements in additional paid-in capital in respect of stock award plans comprise accruals for unvested awards, offset by adjustments for awards that vest during the period. 103 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a rollforward of our common stock, additional paid-in capital, retained earnings and noncontrolling interests accounts for 2025, 2024 and 2023 (in millions, except per share amounts): 2025 2024 2023 Class A Common Stock: Balance at beginning of year $ 2 $ 2 $ 2 Stock award plans — — — Common stock issuances — — — Conversions of class A to class B common stock ( 1 ) — — Class A shares issued at end of year $ 1 $ 2 $ 2 Class B Common Stock: Balance at beginning of year $ 7 $ 7 $ 7 Common stock purchases — — — Conversions of class A to class B common stock 1 — — Class B shares issued at end of year $ 8 $ 7 $ 7 Additional Paid-In Capital: Balance at beginning of year $ 136 $ — $ — Stock award plans 89 ( 77 ) 425 Common stock purchases ( 262 ) ( 212 ) ( 882 ) Common stock issuances 321 425 467 Other ( 9 ) — ( 10 ) Balance at end of year $ 275 $ 136 $ — Retained Earnings: Balance at beginning of year $ 20,882 $ 21,055 $ 21,326 Net income attributable to controlling interests 5,572 5,782 6,708 Dividends ($ 6.56 , $ 6.52 and $ 6.48 per share) (1) ( 5,565 ) ( 5,594 ) ( 5,611 ) Common stock purchases ( 738 ) ( 288 ) ( 1,368 ) Other (2) — ( 73 ) — Balance at end of year $ 20,151 $ 20,882 $ 21,055 Non-Controlling Interests: Balance at beginning of year $ 25 $ 8 $ 17 Change in non-controlling interests 3 17 ( 9 ) Balance at end of year $ 28 $ 25 $ 8 (1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $ 167 , $ 195 and $ 239 million for 2025, 2024 and 2023, respectively, that were settled in shares of class A common stock. (2) Includes adjustments related to certain stock-based awards. 104 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accumulated Other Comprehensive Loss The activity in accumulated other comprehensive loss for 2025, 2024 and 2023 is as follows (in millions): 2025 2024 2023 Foreign Currency Translation Loss, Net of Tax: Balance at beginning of year $ ( 1,586 ) $ ( 1,248 ) $ ( 1,446 ) Translation adjustment (net of tax effect of $ 9 , $( 7 ) and $( 15 )) 528 ( 338 ) 190 Reclassification to earnings (net of tax effect of $ 0 , $ 0 and $ 0 ) — — 8 Balance at end of year $ ( 1,058 ) $ ( 1,586 ) $ ( 1,248 ) Unrealized Loss on Marketable Securities, Net of Tax: Balance at beginning of year $ ( 1 ) $ ( 2 ) $ ( 11 ) Current period changes in fair value (net of tax effect of $ 0 , $ 0 and $ 2 ) 1 1 7 Reclassification to earnings (net of tax effect of $ 0 , $ 0 and $ 1 ) — — 2 Balance at end of year $ — $ ( 1 ) $ ( 2 ) Unrealized (Loss) Gain on Cash Flow Hedges, Net of Tax: Balance at beginning of year $ 91 $ ( 76 ) $ 167 Current period changes in fair value (net of tax effect of $( 104 ), $ 93 and $( 28 )) ( 330 ) 296 ( 89 ) Reclassification to earnings (net of tax effect of $( 5 ), $( 41 ) and $( 48 )) ( 14 ) ( 129 ) ( 154 ) Balance at end of year $ ( 253 ) $ 91 $ ( 76 ) Unrecognized Pension and Postretirement Benefit Costs, Net of Tax: Balance at beginning of year $ ( 2,813 ) $ ( 2,432 ) $ ( 259 ) Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $( 65 ), $( 315 ) and $( 793 )) ( 204 ) ( 1,005 ) ( 2,530 ) Reclassification to earnings (net of tax effect of $ 38 , $ 195 and $ 111 ) 120 624 357 Balance at end of year $ ( 2,897 ) $ ( 2,813 ) $ ( 2,432 ) Accumulated other comprehensive loss at end of year $ ( 4,208 ) $ ( 4,309 ) $ ( 3,758 ) 105 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Detail of the gains (losses) reclassified from accumulated other comprehensive loss to the statements of consolidated income for 2025, 2024 and 2023 is as follows (in millions): Amount Reclassified from AOCI Affected Line Item in the Income Statement 2025 2024 2023 Unrealized Loss on Foreign Currency Translation: Realized loss on business wind-down $ — $ — $ ( 8 ) Other expenses Income tax expense — — — Income tax expense Impact on net income $ — $ — $ ( 8 ) Net income Unrealized Loss on Marketable Securities: Realized loss on sale of securities $ — $ — $ ( 3 ) Investment income (expense) and other Income tax benefit — — 1 Income tax expense Impact on net income $ — $ — $ ( 2 ) Net income Unrealized Gain on Cash Flow Hedges: Interest rate contracts $ ( 6 ) $ ( 5 ) $ ( 10 ) Interest expense Foreign currency exchange contracts 26 176 213 Revenue Foreign currency exchange contracts ( 1 ) ( 1 ) ( 1 ) Investment income (expense) and other Income tax expense ( 5 ) ( 41 ) ( 48 ) Income tax expense Impact on net income $ 14 $ 129 $ 154 Net income Unrecognized Pension and Postretirement Benefit Costs: Prior service costs $ ( 158 ) $ ( 154 ) $ ( 109 ) Investment income (expense) and other Remeasurement of benefit obligation — ( 665 ) ( 351 ) Investment income (expense) and other Curtailments and settlements of benefit obligations — — ( 8 ) Investment income (expense) and other Income tax benefit 38 195 111 Income tax expense Impact on net income $ ( 120 ) $ ( 624 ) $ ( 357 ) Net income Total amount reclassified for the year $ ( 106 ) $ ( 495 ) $ ( 213 ) Net income 106 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13. STOCK-BASED COMPENSATION We are authorized, under our 2021 Omnibus Incentive Compensation Plan (the "Plan"), to issue non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units ("RSUs"), and restricted performance shares and performance units ("RPUs", collectively with RSUs, "Restricted Units") underlying 25 million shares. Each award issued in the form of Restricted Units, stock options and other permitted awards reduces the share reserve by one share. We had 6 million shares available to be issued under the Plan as of December 31, 2025. Our primary equity compensation programs are the UPS Long-Term Incentive Performance Award program (the "LTIP") and the UPS Stock Option program. Restricted Units may be granted to certain senior management employees to support employee retention. We also grant Restricted Units to our Board of Directors (the "Board") as a component of their annual compensation. The awards issued under these programs are considered to be equity classified. The total expense recognized in our statements of consolidated income for these stock compensation programs during 2025, 2024 and 2023 was $ 73 , $ 24 and $ 220 million, respectively. The associated income tax benefit (expense) recognized in our statements of consolidated income during 2025, 2024 and 2023 was $ 9 , $( 18 ) and $ 42 million, respectively. The cash income tax benefit received from the exercise of stock options and conversion of Restricted Units to class A shares during 2025, 2024 and 2023 was $ 2 , $ 110 and $ 201 million, respectively. Management Incentive Program We maintain the UPS Management Incentive Program (the "MIP") for certain management employees. Non-executive management eligibility under the MIP is determined annually by the executive officers of UPS. Executive officer eligibility is determined annually by the Compensation and Human Capital Committee of the Board (the "Compensation Committee"). The MIP is an incentive-based compensation program, with awards based on annual Company performance. Beginning 2023, MIP awards are paid in cash, unless a participant elects to receive all or a portion of the award in unrestricted shares of class A common stock. As of December 31, 2025, the MIP was classified as a compensation obligation within Accrued wages and withholdings in our consolidated balance sheets. Substantially all MIP awards are settled in cash, based on participant elections. We also maintain an employee stock purchase plan which allows eligible employees to purchase shares of UPS class A common stock at a discount. Restricted Units On May 7, 2025, the Compensation Committee approved 0.4 million of special RSUs for certain of the Company's employees, excluding the Chief Executive Officer. Dividends earned on Restricted Units are reinvested in additional Restricted Units at each dividend payable date until conversion to class A shares occurs. The RSUs generally vest over three years , 25 % after year one, 25 % after year two, and 50 % after year three, assuming continued employment with the Company (except in the case of death in which immediate vesting occurs). The fair value of Restricted Units is the NYSE closing price of class B common stock on the date of grant. The weighted-average grant date fair value of Restricted Units, other than awards granted under the LTIP, which are discussed below, granted during 2025, 2024 and 2023 was $ 95.34 , $ 147.22 and $ 185.66 , respectively. The total fair value of RSUs vested was $ 6 million, $ 11 million and $ 1.1 billion in 2025, 2024 and 2023, respectively. As of December 31, 2025, there was $ 35 million of total unrecognized compensation cost related to non-vested Restricted Units, other than awards granted under the LTIP, which are discussed below. That cost is expected to be recognized over a weighted-average period of two years and three months. 107 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table shows the change in non-vested Restricted Units under our equity compensation programs other than the LTIP (defined below) in 2025: Restricted Units (in thousands) Weighted-Average Grant Date Fair Value Non-vested as of January 1, 2025 25 $ 177.76 Vested ( 58 ) 121.77 Granted 474 95.34 Reinvested dividends 36 N/A Forfeited / Expired ( 7 ) 96.39 Non-vested as of December 31, 2025 470 $ 97.09 Long-Term Incentive Performance Award Program ("LTIP") LTIP RPUs vest at the end of a three-year performance period, assuming continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurs on a prorated basis). The number of RPUs earned is based on achievement of performance targets established on the grant date. For LTIP awards granted in 2023 and 2024 with performance periods ending in 2025 and 2026, the performance targets are equally weighted between adjusted earnings per share and adjusted cumulative free cash flow. The performance targets for the LTIP awards granted in 2025 with a performance period ending in 2027 are equally weighted between adjusted revenue growth and adjusted operating return on invested capital. The final number of RPUs earned for all outstanding LTIP awards is subject to adjustment based on relative total shareholder return compared to the Standard & Poor's 500 Index. We determine the grant date fair value of these RPUs using a Monte Carlo model and recognize compensation expense (less estimated forfeitures) ratably over the vesting period, based on the number of awards expected to be earned. There is no expected dividend yield as units earn dividend equivalents. The weighted-average assumptions used in our Monte Carlo models for each award year were as follows: 2025 2024 2023 Risk-free interest rate 3.86 % 4.43 % 3.89 % Expected volatility 28.39 % 27.02 % 30.23 % Weighted-average fair value of units granted $ 94.38 $ 156.73 $ 198.78 Share payout 98.13 % 101.92 % 107.72 % The following table shows LTIP RPU activity during 2025: RPUs (in thousands) Weighted-Average Grant Date Fair Value Non-vested as of January 1, 2025 1,401 $ 174.12 Vested ( 87 ) 175.93 Granted 1,436 94.38 Reinvested dividends 179 N/A Performance adjustments (1) ( 576 ) 197.99 Forfeited / Expired ( 108 ) 135.12 Non-vested as of December 31, 2025 2,245 $ 116.17 (1) Represents the incremental performance adjustment to RPUs with a performance period ending in 2025, which vested during the year. The fair value of each LTIP RPU is based on the NYSE closing price of class B common stock on the date of grant. The weighted-average grant date fair value of LTIP RPUs granted during 2025, 2024 and 2023 was $ 94.38 , $ 156.73 and $ 198.78 , respectively. The total fair value of LTIP RPUs vested during 2025, 2024 and 2023 was $ 8 , $ 23 and $ 111 million, respectively. As of December 31, 2025, there was $ 127 million of total unrecognized compensation cost related to non-vested LTIP RPUs. That cost is expected to be recognized over a weighted-average period of one year and nine months. 108 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Non-qualified Stock Options Stock options may be granted under the Plan, and must have an exercise price at least equal to the NYSE closing price of UPS class B common stock on the date the option is granted. On February 4, 2026, we granted a total of 4.0 million stock options to approximately 460 employees. Options were granted at an exercise price of $ 116.74 per share, the closing New York Stock Exchange price of our class B common stock on that date. We grant non-qualified stock options to a limited group of eligible senior management employees annually, in which the value granted is determined as a percentage of salary. Stock option grants vest over a five-year period with approximately 20 % of the award vesting at each anniversary of the grant date (except in the case of death, disability or retirement, in which case immediate vesting occurs). Option grants expire 10 years after the date of the grant. Option holders may exercise their options via the payment of cash or class A common stock; new class A shares are issued upon exercise. The following table provides an analysis of activity relating to options to purchase shares of class A common stock: Options (in thousands) Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in millions) Outstanding as of January 1, 2025 1,452 $ 130.08 Exercised ( 24 ) 101.93 Granted 290 95.89 Forfeited / Expired ( 42 ) N/A Outstanding as of December 31, 2025 1,676 $ 124.55 5.06 $ 1 Options Vested and Expected to Vest 1,676 $ 124.55 5.06 $ 1 Exercisable as of December 31, 2025 1,194 $ 123.78 3.65 $ — The fair value of each option grant is estimated using the Black-Scholes option pricing model. The weighted-average assumptions used by year, and the calculated weighted-average fair values of options, are as follows: 2025 2024 2023 Expected dividend yield 5.21 % 3.96 % 3.54 % Risk-free interest rate 4.08 % 4.25 % 3.70 % Expected life in years 6.11 6.13 5.93 Expected volatility 30.35 % 28.94 % 28.31 % Weighted-average fair value of options granted $ 18.72 $ 34.76 $ 41.08 The expected dividend yield is based on recent historical dividend yields for our stock, taking into account changes in dividend policy. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant. The expected life represents an estimate of the period of time options are expected to remain outstanding. In determining this, we have relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics and the contractual term of the grants. Expected volatilities are based on the historical returns on our stock and the implied volatility of our publicly-traded options. Discounted Employee Stock Purchase Plan We maintain an employee stock purchase plan for all eligible employees that allows quarterly purchases of UPS class A common stock at a discount. In 2025, shares were purchased at 95 % of the NYSE closing price of UPS class B common stock on the last day of each quarterly period. Employees purchased 1.1 , 0.8 and 0.7 million shares at average prices of $ 92.83 , $ 130.14 and $ 162.34 per share, during 2025, 2024 and 2023, respectively. The plan was not considered to be compensatory as of 2025 and in the prior years, and therefore no compensation cost is incurred for the employees’ purchase rights. In November 2025, the Board of Directors approved an increase in the purchase discount from 5 % to 10 % starting January 2026. We expect the plan will be considered compensatory and therefore we expect to record compensation costs related to future employee purchases. 109 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. SEGMENT AND GEOGRAPHIC INFORMATION We have two reportable segments: U.S. Domestic Package and International Package, which are together referred to as our global small package operations. Our remaining businesses are reported as SCS. Global small package operations represent our most significant business and are broken down into regional operations around the world. Regional operations managers are responsible for both domestic and export products within their geographic area. SCS comprises the results of non-reportable operating segments that do not meet the quantitative and qualitative criteria of a reportable segment as defined under ASC Topic 280. U.S. Domestic Package U.S. Domestic Package operations include the time-definite delivery of letters, documents and packages throughout the United States. During the quarter ended December 31, 2024, based on a change in our management reporting structure, we began presenting our U.S. air cargo results within our U.S. Domestic Package segment. This activity was previously reported within SCS. This change aligns with how our chief operating decision maker ("CODM") reviews operating results to assess performance and allocate resources. Prior periods have been recast to conform to current presentation with no changes to consolidated results. International Package International Package operations include delivery to more than 200 countries and territories worldwide, including shipments wholly outside the United States, as well as shipments with either origin or destination outside the United States. We offer a wide selection of guaranteed day- and time-definite international transportation services supported by our brokerage capabilities that facilitate cross‑border clearance for international shipments. International Package includes our operations in Europe, the Middle East and Africa ("EMEA"), Canada and Latin America (together "Americas") and Asia. SCS SCS includes our Forwarding, Logistics, digital and other businesses. Our Forwarding and Logistics businesses operate globally, offering international air and ocean freight forwarding, customs brokerage, mail services, healthcare logistics, distribution and post-sales services. Our digital businesses leverage technology to enable a range of on-demand services such as same-day delivery, end-to-end return services and integrated supply chain and high-value shipment insurance solutions. Segment information We consider our Chief Executive Officer to be our CODM. The CODM is responsible for setting the Company's strategic direction, managing overall operations, and is the main point of communication between the Board and key operational personnel within the organization. The CODM utilizes operating profit as a primary measure of segment performance because it reflects the underlying business performance and provides the CODM with a basis for making resource allocation decisions. Operating profit is defined as income before investment income (expense) and other, interest expense and income tax expense. The CODM regularly reviews segment-level expense details which include compensation, benefits and purchased transportation when assessing operating segment performance. These expense categories represent the primary metrics used by the CODM to assess segment performance. For the Domestic Package segment, compensation and benefits are evaluated separately, whereas for the International Package segment, these categories are assessed in aggregate. Beginning with the second quarter of 2025, purchased transportation expense for the U.S. Domestic Package segment was no longer provided to the CODM when assessing the operating segment's performance. Certain expenses are allocated between the segments using activity-based costing methods. These activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed to each segment. Changes in these estimates directly impact the amount of expense allocated to each segment, and therefore the operating profit of each reporting segment. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses. There were no significant changes to our allocation methodologies in 2025 relative to 2024. 110 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As we operate an integrated, global multimodal network, we evaluate many of our capital expenditure decisions at a network level. Accordingly, expenditures on property, plant and equipment by segment are not presented. Segment results of operations for 2025, 2024 and 2023 were as follows (in millions): 2025 2024 2023 U.S. Domestic Package: Revenue $ 59,519 $ 60,376 $ 60,205 Less: Compensation 20,966 20,839 19,818 Benefits 17,116 16,862 16,859 Other segment items (1) 17,511 18,330 18,372 U.S. Domestic Operating profit/(loss) $ 3,926 $ 4,345 $ 5,156 International Package: Revenue $ 18,576 $ 17,960 $ 17,831 Less: Compensation and benefits 4,052 3,783 3,794 Purchased transportation 3,909 3,447 3,391 Other segment items (1) 7,742 7,539 7,415 International Operating profit/(loss) $ 2,873 $ 3,191 $ 3,231 Reconciliation of revenue: Total U.S. Domestic Package and International Package Revenue $ 78,095 $ 78,336 $ 78,036 Other revenues (2) 10,566 12,734 12,922 Total Consolidated Revenue $ 88,661 $ 91,070 $ 90,958 Reconciliation of segment operating profit to income before income taxes: Total U.S. Domestic Package and International Package Operating profit/(loss) $ 6,799 $ 7,536 $ 8,387 Other profit/(loss) (2) 1,068 932 754 Other pension income (expense) 169 ( 396 ) ( 95 ) Investment income (expense) and other 145 236 314 Interest expense ( 1,017 ) ( 866 ) ( 787 ) Total Consolidated Income Before Income Taxes $ 7,164 $ 7,442 $ 8,573 (1) Other segment items include purchased transportation (applicable only to our U.S. Domestic Package segment), repairs and maintenance, depreciation and amortization, fuel, other occupancy, and allocated costs for our air network, information services, and general and administrative service expenses. (2) Revenue and Operating profit/(loss) from segments below the quantitative thresholds are attributable to operating segments which provide supply chain solutions. Revenue by product type for 2025, 2024 and 2023 is provided in note 2. The amounts of depreciation and amortization by reportable segment disclosed for 2025, 2024 and 2023 are included within the other segment items captions in the table below. These totals are presented after applying activity-based costing methods to allocate expenses between segments as noted above. 2025 2024 2023 Depreciation and amortization U.S. Domestic Package $ 2,538 $ 2,470 $ 2,290 International Package 834 777 742 Other depreciation and amortization (1) 374 362 334 Consolidated Depreciation and Amortization $ 3,746 $ 3,609 $ 3,366 (1) Depreciation and amortization from segments below the quantitative thresholds are attributable to operating segments which provide supply chain solutions. 111 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Assets by reportable segment as of December 31, 2025 and 2024 consisted of the following (in millions): 2025 2024 Segment Assets U.S. Domestic Package $ 38,359 $ 38,657 International Package 18,214 18,300 Other assets (1) 12,693 9,850 Unallocated assets (2) 3,824 3,263 Consolidated Assets $ 73,090 $ 70,070 (1) Assets from segments below the quantitative thresholds are attributable to operating segments which provide supply chain solutions. (2) Unallocated assets are comprised primarily of cash held by our centralized investment entity. Geographic information for 2025, 2024 and 2023 is as follows (in millions): 2025 2024 2023 United States: Revenue $ 67,432 $ 70,389 $ 71,749 Long-lived assets $ 33,760 $ 33,173 $ 33,301 International: Revenue $ 21,229 $ 20,681 $ 19,209 Long-lived assets $ 15,861 $ 13,304 $ 13,687 Consolidated: Revenue $ 88,661 $ 91,070 $ 90,958 Long-lived assets $ 49,621 $ 46,477 $ 46,988 Long-lived assets include property, plant and equipment, pension and postretirement benefit assets, long-term investments, goodwill and intangible assets. No countries outside of the United States provided 10% or more of consolidated revenue for 2025, 2024 and 2023. For 2025, 2024 and 2023, Amazon.com, Inc. and its affiliates ("Amazon") represented 10.6 %, 11.8 % and 11.8 % of our consolidated revenues, respectively. Substantially all of this revenue was attributed to U.S. Domestic Package. Amazon accounted for approximately 13.6 % and 12.8 % of Accounts receivable, net , included within our consolidated balance sheets as of December 31, 2025 and 2024, respectively. 112 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15. INCOME TAXES The income tax expense (benefit) for 2025, 2024 and 2023 consists of the following (in millions): 2025 2024 2023 Current: U.S. Federal $ 970 $ 1,093 $ 1,012 U.S. State and Local 113 172 195 Non-U.S. 517 410 459 Total Current 1,600 1,675 1,666 Deferred: U.S. Federal ( 26 ) 38 150 U.S. State and Local 7 ( 30 ) 20 Non-U.S. 11 ( 23 ) 29 Total Deferred ( 8 ) ( 15 ) 199 Total Income Tax Expense $ 1,592 $ 1,660 $ 1,865 Income before income taxes includes the following components (in millions): 2025 2024 2023 United States $ 5,240 $ 5,839 $ 6,246 Non-U.S. 1,924 1,603 2,327 Total Income Before Income Taxes $ 7,164 $ 7,442 $ 8,573 The table below provides the updated effective tax rate reconciliation. A reconciliation of the statutory federal income tax rate to the effective income tax rate for 2025 consists of the following (in millions, except percentages): 2025 $ % U.S. Federal Statutory Tax Rate $ 1,505 21.0 State and Local Income Taxes, Net of Federal Income Tax Effect (1) 101 1.4 Foreign Tax Effects 168 2.4 Effect of Cross-Border Tax Laws, Net of Related Credits ( 68 ) ( 0.9 ) Tax Credits ( 90 ) ( 1.3 ) Changes in Valuation Allowances ( 91 ) ( 1.3 ) Nontaxable or Nondeductible Items 45 0.6 Other Adjustments 22 0.3 Effective Income Tax Rate $ 1,592 22.2 (1) State taxes in California, Illinois, New York, Minnesota, Florida, and Pennsylvania made up the majority (greater than 50 percent) of the tax effect in this category. 113 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As previously disclosed, during 2024 and 2023, a reconciliation of the statutory federal income tax rate to the effective income tax rate consists of the following: 2024 2023 Statutory U.S. federal income tax rate 21.0 % 21.0 % U.S. state and local income taxes (net of federal benefit) 1.8 1.9 Non-U.S. tax rate differential — ( 0.6 ) FDII and GILTI, net (1) ( 1.2 ) ( 0.9 ) U.S. federal tax credits ( 0.8 ) ( 0.7 ) Goodwill and other asset impairments — 0.1 Net uncertain tax positions 0.2 ( 0.5 ) Other 1.3 1.5 Effective income tax rate 22.3 % 21.8 % (1) Foreign-Derived Intangible Income ("FDII") and Global Intangible Low-Taxed Income ("GILTI"). Our effective tax rate is affected by recurring factors, such as statutory tax rates in the jurisdictions in which we operate and the relative amounts of taxable income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year, but may not be consistent from year to year. Our effective tax rate was 22.2 % in 2025, compared with 22.3 % and 21.8 % in 2024 and 2023, respectively, primarily due to the effects of the aforementioned recurring factors and the following discrete tax items. 2025 Discrete Items We recorded pre-tax transformation strategy costs of $ 593 million during 2025. As a result, we recorded an additional income tax benefit of $ 141 million. This income tax benefit was generated at a higher average tax rate than the 2025 U.S. federal statutory tax rate because it included the effect of U.S. state and local and foreign taxes. We recorded asset impairment charges of $ 201 million during 2025. As a result, we recorded an additional income tax benefit of $ 45 million. This income tax benefit was generated at a higher average tax rate than the 2025 U.S. federal statutory tax rate due to the effect of U.S. state and local and foreign taxes. We recorded a pre-tax loss of $ 19 million related to the divestiture of a business within SCS during 2025. As a result, we recorded an additional income tax benefit of $ 4 million. This income tax benefit was generated at a higher average tax rate than the 2025 U.S. federal statutory tax rate due to the effect of U.S. state and local taxes. We recognized an income tax benefit of $ 105 million related to the release of the valuation allowance on our U.S. capital loss deferred tax asset. Each quarter, we assess the available positive and negative evidence to determine whether it is more likely than not that the capital losses will be realized. As of December 31, 2024, the negative evidence of cumulative historical capital losses outweighed the limited subjective positive evidence of projections of future capital gains. Throughout 2025, we have released all of this valuation allowance as a result of net capital gains from the property sales transactions discussed in note 4. 2024 Discrete Items We recognized an income tax benefit of $ 159 million related to pre-tax defined benefit pension and postretirement medical plan losses of $ 665 million. This income tax benefit was generated at a higher average tax rate than the 2024 U.S. federal statutory tax rate because it included the effect of U.S. state and local and foreign taxes. We recorded pre-tax transformation strategy costs of $ 322 million. As a result, we recorded an additional income tax benefit of $ 77 million. This income tax benefit was generated at a higher average tax rate than the 2024 U.S. federal statutory tax rate due to the effect of U.S. state and local and foreign taxes. We recorded asset impairment charges of $ 108 million. As a result, we recorded an additional income tax benefit of $ 27 million. This income tax benefit was generated at a higher average tax rate than the 2024 U.S. federal statutory tax rate due to the effect of U.S. state and local and foreign taxes. 114 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We recorded a pre-tax expense of $ 19 million in connection with a multi-employer pension plan withdrawal. As a result, we recorded an income tax benefit of $ 5 million. This income tax benefit was generated at a higher average tax rate than the 2024 U.S. federal statutory tax rate due to the effect of U.S. state and local taxes. We recorded a pre-tax gain of $ 156 million related to the divestiture of Coyote. As a result, we recorded additional income tax expense of $ 4 million. This income tax expense was generated at a lower average tax rate than the 2024 U.S. federal statutory tax rate due to the disposition generating capital losses for tax purposes that were not expected to be realized. We paid $ 45 million in connection with the settlement of an Expense for a Regulatory Matter. We did not record any additional income tax benefit related to these expenses, which were not deductible for tax purposes. We recorded pre-tax expense of $ 94 million in connection with a One-Time Payment for International Regulatory Matter. We did not record any additional income tax benefit related to these expenses which are not deductible for tax purposes. The recognition of excess tax benefits and deficiencies related to share-based compensation in income tax expense resulted in a net tax expense of $ 22 million and increased our effective tax rate by 0.3 %. 2023 Discrete Items We recorded pre-tax transformation strategy costs of $ 435 million. As a result, we recorded an additional income tax benefit of $ 102 million. This income tax benefit was generated at a higher average tax rate than the 2023 U.S. federal statutory tax rate due to the effect of U.S. state and local and foreign taxes. We recognized an income tax benefit of $ 85 million related to pre-tax defined benefit pension and postretirement medical benefit plan losses of $ 359 million. This income tax benefit was generated at a higher average tax rate than the 2023 U.S. federal statutory tax rate because it included the effect of U.S. state and local and foreign taxes. We recorded goodwill and indefinite-lived intangible asset impairment charges of $ 236 million. As a result, we recorded an additional income tax benefit of $ 43 million. This income tax benefit was generated at a lower average tax rate than the 2023 U.S. federal statutory tax rate due to certain impairment charges not being deductible for tax purposes. We recorded a pre-tax expense of $ 61 million in connection with a one-time compensation payment made during the year. As a result, we recorded an additional income tax benefit of $ 15 million. This income tax benefit was generated at a higher average tax rate than the 2023 U.S. federal statutory tax rate due to the effect of U.S. state and local and foreign taxes. Other Items Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations. In 2022, the tax incentive was renegotiated and extended through December 31, 2026. The tax incentive was conditional upon our meeting specific employment and investment thresholds. We exited this tax incentive effective January 1, 2025. The impact of this tax incentive decreased non-U.S. tax expense by $ 24 and $ 15 million (increased diluted earnings per share by $ 0.03 and $ 0.02 ) for 2024 and 2023, respectively. 115 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income tax assets and liabilities are comprised of the following as of December 31, 2025 and 2024 (in millions): 2025 2024 Fixed assets and capitalized software $ ( 5,938 ) $ ( 5,914 ) Operating lease right-of-use assets ( 950 ) ( 943 ) Other ( 764 ) ( 612 ) Deferred tax liabilities ( 7,652 ) ( 7,469 ) Pension and postretirement benefits 1,433 1,474 Loss and credit carryforwards 241 308 Insurance reserves 683 646 Accrued employee compensation 356 352 Operating lease liabilities 1,018 1,021 Other 455 367 Deferred tax assets 4,186 4,168 Deferred tax assets valuation allowance ( 84 ) ( 182 ) Deferred tax asset (net of valuation allowance) 4,102 3,986 Net deferred tax asset (liability) $ ( 3,550 ) $ ( 3,483 ) Amounts recognized in our consolidated balance sheets: Deferred tax assets $ 140 $ 112 Deferred tax liabilities ( 3,690 ) ( 3,595 ) Net deferred tax asset (liability) $ ( 3,550 ) $ ( 3,483 ) The valuation allowance decreased by $ 98 million, increased by $ 63 million, and decreased by $ 4 million during 2025, 2024 and 2023, respectively. During 2025, we utilized $ 379 million of U.S. capital loss carryforwards to offset current year net realized capital gains. We have no remaining U.S. federal capital loss carryforwards as of December 31, 2025. Further, we have U.S. state and local operating loss and credit carryforwards as follows (in millions): 2025 2024 U.S. state and local operating loss carryforwards $ 976 $ 1,043 U.S. state and local credit carryforwards $ 66 $ 47 The U.S. state and local operating loss carryforwards and credits will begin to expire on various dates ranging from 2026 to indefinitely. We also have non-U.S. loss carryforwards of $ 580 million as of December 31, 2025, the majority of which may be carried forward indefinitely. As indicated in the table above, we have established a valuation allowance for certain U.S. state and non-U.S. carryforwards due to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions. The undistributed earnings and profits ("E&P") of certain foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no deferred income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to U.S. state and local taxes and withholding taxes payable in various jurisdictions. Determination of the amount of unrecognized deferred income tax liability is not practicable because of the complexities associated with its hypothetical calculation. 116 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the activity related to our uncertain tax positions (in millions): Tax Interest Penalties Balance as of January 1, 2023 $ 533 $ 104 $ 4 Additions for tax positions of the current year 26 — — Additions for tax positions of prior years 147 37 1 Reductions for tax positions of prior years for: Changes based on facts and circumstances ( 164 ) ( 24 ) ( 1 ) Settlements during the period ( 47 ) ( 9 ) — Lapses of applicable statute of limitations ( 3 ) — — Balance as of December 31, 2023 492 108 4 Additions for tax positions of the current year 33 — — Additions for tax positions of prior years 52 33 — Reductions for tax positions of prior years for: Changes based on facts and circumstances ( 81 ) ( 11 ) ( 1 ) Settlements during the period ( 33 ) ( 5 ) — Lapses of applicable statute of limitations ( 16 ) ( 3 ) — Balance as of December 31, 2024 447 122 3 Additions for tax positions of the current year 20 1 — Additions for tax positions of prior years 43 41 — Reductions for tax positions of prior years for: Changes based on facts and circumstances ( 42 ) ( 7 ) — Settlements during the period ( 15 ) ( 2 ) — Lapses of applicable statute of limitations ( 1 ) — — Balance as of December 31, 2025 $ 452 $ 155 $ 3 The total amount of gross uncertain tax positions as of December 31, 2025, 2024, and 2023 that, if recognized, would affect the effective tax rate was $ 439 , $ 430 , and $ 492 million, respectively. Our continuing policy is to recognize interest and penalties associated with income tax matters as a component of income tax expense. We file income tax returns in the U.S. federal jurisdiction, most U.S. state and local jurisdictions, and many non-U.S. jurisdictions. We have substantially resolved all U.S. federal income tax matters for tax years prior to 2016. The following table provides cash taxes paid for income taxes, net of refunds for the year 2025: 2025 U.S. Federal $ 1,329 U.S. State and Local 157 Non-U.S. Canada 106 Other 320 Total Non-U.S. $ 426 Total cash paid for income taxes (net of refunds) $ 1,912 117 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. EARNINGS PER SHARE The earnings per share amounts are the same for class A and class B common shares as the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation. The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share amounts): 2025 2024 2023 Numerator: Net income attributable to common shareowners $ 5,572 $ 5,782 $ 6,708 Denominator: Weighted-average shares 848 854 855 Vested portion of restricted shares 1 1 4 Denominator for basic earnings per share 849 855 859 Effect of Dilutive Securities: Restricted performance units and contingent shares (1) 1 1 1 Denominator for diluted earnings per share 850 856 860 Basic Earnings Per Share $ 6.56 $ 6.76 $ 7.81 Diluted Earnings Per Share $ 6.56 $ 6.75 $ 7.80 (1) Contingent shares relate to MIP awards that may be settled in cash or class A common stock at the employees' election - see note 13. Diluted earnings per share for 2025, 2024 and 2023 exclude the effect of 1.4 , 0.5 and 0.3 million shares, respectively, of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive. 118 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT Risk Management Policies Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations and we actively monitor these exposures. Where deemed appropriate, to manage the impact of these exposures on earnings and/or cash flows, we may enter into a variety of derivative financial instruments. We do not hold or issue derivative financial instruments for trading or speculative purposes. Credit Risk Management The forward contracts, swaps and options discussed below contain an element of risk that the counterparties may be unable to meet the terms of the agreements. We seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines. We may further manage credit risk through the use of bilateral collateral provisions and/or early termination rights utilizing master netting arrangements, whereby cash is exchanged based on the net fair value of derivatives associated with each counterparty when positions exceed $ 250 million. As of December 31, 2025 and 2024, we did no t hold any cash collateral and no collateral was required to be posted with our counterparties. Types of Hedges Commodity Risk Management The fuel surcharges that we apply in our domestic and international package businesses are the primary means we employ to reduce the risk of adverse fuel price changes on our business. In order to mitigate the impact of fuel surcharges imposed on us by outside carriers, we regularly adjust the rates we charge for our freight brokerage services. Foreign Currency Risk Management To protect against the reduction in value of forecasted foreign currency cash flows from our international package business, we maintain a foreign currency cash flow hedging program. Our most significant foreign currency exposures relate to the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We generally designate and account for these contracts as cash flow hedges of anticipated foreign currency denominated revenue. We may also hedge portions of our anticipated cash settlements of principal and interest on certain foreign currency denominated debt. We generally designate and account for these contracts as cash flow hedges of forecasted foreign currency denominated transactions. We hedge our net investment in certain foreign operations with foreign currency denominated debt instruments. Interest Rate Risk Management We may use a combination of derivative instruments to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing. We generally designate and account for interest rate swaps that convert fixed-rate interest payments into floating-rate interest payments as fair value hedges of the associated debt instruments. We designate and account for interest rate swaps that convert floating-rate interest payments into fixed-rate interest payments as cash flow hedges of the forecasted payment obligations. We may periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings by using forward starting interest rate swaps, interest rate locks or similar derivatives. 119 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Outstanding Positions As of December 31, 2025 and 2024, the notional amounts of our outstanding derivative positions were as follows (in millions): 2025 2024 Currency hedges: Euro EUR 2,764 3,222 British Pound Sterling GBP 410 536 Canadian Dollar CAD 1,574 1,623 Hong Kong Dollar HKD 4,317 4,160 Chinese Renminbi CNH 6,743 6,065 As of December 31, 2025 and 2024, we had no outstanding commodity hedge positions. Balance Sheet Recognition The following table indicates the location in our consolidated balance sheets where our derivative assets and liabilities have been recognized, the fair value hierarchy level applicable to each derivative type and the related fair values of those derivatives. We have master netting arrangements with substantially all of our counterparties giving us the right of offset for our derivative positions. However, we have not elected to offset the fair value positions of our derivative contracts recorded in our consolidated balance sheets. The columns labeled Net Amounts if Right of Offset had been Applied indicate the potential net fair value positions by type of contract and location in our consolidated balance sheets had we elected to apply the right of offset as of December 31, 2025 and 2024 (in millions): Fair Value Hierarchy Level Gross Amounts Presented in Consolidated Balance Sheets Net Amounts if Right of Offset had been Applied Asset Derivatives Balance Sheet Location 2025 2024 2025 2024 Derivatives designated as hedges: Foreign currency exchange contracts Other current assets Level 2 $ 5 $ 157 $ — $ 152 Foreign currency exchange contracts Other non-current assets Level 2 4 134 — 131 Total Asset Derivatives $ 9 $ 291 $ — $ 283 Fair Value Hierarchy Level Gross Amounts Presented in Consolidated Balance Sheets Net Amounts if Right of Offset had been Applied Liability Derivatives Balance Sheet Location 2025 2024 2025 2024 Derivatives designated as hedges: Foreign currency exchange contracts Other current liabilities Level 2 $ 83 $ 5 $ 78 $ — Foreign currency exchange contracts Other non-current liabilities Level 2 91 3 87 — Total Liability Derivatives $ 174 $ 8 $ 165 $ — Our foreign currency exchange rate and interest rate derivatives are largely comprised of over-the-counter derivatives, which are primarily valued using pricing models that rely on market observable inputs such as yield curves, foreign currency exchange rates and investment forward prices; therefore, these derivatives are classified as Level 2. 120 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Balance Sheet Location of Hedged Item in Fair Value Hedges The following table indicates the amounts that were recorded in our consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of December 31, 2025 and 2024 (in millions): 2025 2024 Line Item in our Consolidated Balance Sheets in Which the Hedged Item is Included Carrying Amount of Hedged Liabilities Cumulative Amount of Fair Value Hedge Adjustments Carrying Amount of Hedged Liabilities Cumulative Amount of Fair Value Hedge Adjustments Long-term debt and finance leases $ 279 $ 3 $ 279 $ 4 Income Statement and AOCI Recognition of Designated Hedges The following table indicates the amount of gains and (losses) that have been recognized in our statements of consolidated income for fair value and cash flow hedges, as well as the associated gain or (loss) for the underlying hedged item for fair value hedges during 2025 and 2024 (in millions): 2025 2024 Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships Revenue Interest Expense Investment Income (Expense) and Other Revenue Interest Expense Investment Income (Expense) and Other Gain or (loss) on cash flow hedging relationships: Interest Contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive income — ( 6 ) — — ( 5 ) — Foreign Currency Exchange Contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive income 26 — ( 1 ) 176 — ( 1 ) Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded $ 26 $ ( 6 ) $ ( 1 ) $ 176 $ ( 5 ) $ ( 1 ) The following table indicates the amount of gains and (losses) that have been recognized in AOCI during 2025 and 2024 for those derivatives designated as cash flow hedges (in millions): Derivative Instruments in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives 2025 2024 Foreign currency exchange contracts ( 434 ) 389 Total $ ( 434 ) $ 389 As of December 31, 2025, there were $ 85 million of pre-tax losses related to cash flow hedges deferred in AOCI that are expected to be reclassified to income over the 12-month period ending December 31, 2026. The actual amounts that will be reclassified to income over the next 12 months will vary from this amount as a result of changes in market conditions. The maximum term over which we are hedging exposures to the variability of cash flows is approximately 3 years. The following table indicates the amount of gains and (losses) that have been recognized in AOCI within foreign currency translation adjustment during 2025 and 2024 for those instruments designated as net investment hedges (in millions): Non-derivative Instruments in Net Investment Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Debt 2025 2024 Foreign denominated debt $ ( 254 ) $ 127 Total $ ( 254 ) $ 127 Income Statement Recognition of Non-Designated Derivative Instruments Derivative instruments that are not designated as hedges are recorded at fair value with unrealized gains and losses reported in earnings each period. Cash flows from the settlement of derivative instruments appear in our statements of consolidated cash flows within the same categories as the cash flows of the hedged item. 121 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We may periodically terminate interest rate swaps and foreign currency exchange forward contracts or enter into offsetting swap and foreign currency positions with different counterparties. As part of this process, we de-designate our original hedge relationship. Amounts recorded in our statements of consolidated income related to foreign currency forward contracts not designated as hedges during 2025 and 2024 (in millions) were as follows: Derivative Instruments Not Designated in Hedging Relationships Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in Income 2025 2024 Foreign currency exchange contracts Investment income (expense) and other $ ( 6 ) $ ( 1 ) Total $ ( 6 ) $ ( 1 ) 122 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18. TRANSFORMATION STRATEGY COSTS We are undertaking an enterprise-wide transformation of our organization that includes various projects and initiatives, including workforce reductions and changes in processes and technology, that impact our global direct and indirect operating costs. The table below presents Transformation Strategy Costs for 2025, 2024 and 2023 (in millions): 2025 2024 2023 Compensation and benefits $ 420 $ 213 $ 337 Total other expenses 173 109 98 Total Transformation Strategy Costs $ 593 $ 322 $ 435 Income Tax Benefit from Transformation Strategy Costs (1) ( 141 ) ( 77 ) ( 102 ) After-Tax Transformation Strategy Costs $ 452 $ 245 $ 333 (1) The income tax effects of Transformation Strategy Costs are calculated by multiplying the amount of the adjustments by the statutory tax rates applicable in each tax jurisdiction. Compensation and benefit costs under these programs are primarily related to severance costs incurred in conjunction with reductions in our workforce. We are primarily accounting for these separations under ASC Topic 712 as they have been, or will be, carried out under a plan which provides a contractual termination benefit to impacted employees. The nature of our separation initiatives has resulted in a relatively short period of time, typically less than one year , between the point at which the separation meets the criteria for recognition as an accrual and the point at which the separation is completed. Accruals for separation costs of $ 117 and $ 45 million were included in other current liabilities in our consolidated balance sheets as of December 31, 2025 and 2024, respectively. During 2025, we made payments of $ 315 million and recognized additional separation costs of $ 387 million. An additional $ 25 million of separation costs is expected to be incurred for the remaining participants in our voluntary separation programs over the employees' remaining term of service through the third quarter of 2026. Other costs incurred in furtherance of our transformation strategy are primarily related to fees paid to outside professional service providers and are not incurred as a result of restructuring, exit or disposal activities and, as period costs, do not give rise to restructuring, exit or disposal liabilities. As previously announced, we intend to offer a voluntary separation program to full-time drivers in the United States. At this time we are unable to estimate the full impact of this program on our consolidated financial position, results of operations or cash flows. However, we expect to incur costs associated with separation benefits provided under the program. We will also continue to monitor the impact of these uncertainties on our projected benefit obligation in accordance with ASC Topic 715. 123 UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Transformation Strategy Costs during the periods presented related to our Transformation 1.0, Transformation 2.0, Fit to Serve and Network Reconfiguration and Efficiency Reimagined programs. Total costs by program are shown in the table below (in millions): 2025 2024 2023 Transformation Strategy Costs: Transformation 1.0 $ — $ — $ 13 Transformation 2.0 Spans and layers — — 86 Business portfolio review ( 18 ) 29 84 Financial systems 55 54 36 Other initiatives — — 4 Transformation 2.0 total 37 83 210 Fit to Serve 47 204 212 Network Reconfiguration and Efficiency Reimagined 509 35 — Total Transformation Strategy Costs $ 593 $ 322 $ 435 Transformation 1.0: Transformation 1.0 was a fundamental change in our operating model, moving certain functions from a decentralized operating model to a centralized model, leveraging third-party offshore resources to supplement internal resources. We completed Transformation 1.0 in 2023. Transformation 2.0: Based on a number of factors including evaluating efficiencies previously gained, 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. 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. As of December 31, 2025, this initiative has now completed and we incurred total costs of $ 835 million, including $ 37 million in 2025. Fit to Serve: In 2023, a number of factors, including macroeconomic headwinds and volume diversion resulting from our labor negotiations with the International Brotherhood of Teamsters, contributed to volume declines in our U.S. Domestic Package business. In addition, our International Package and 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 and create a more efficient operating model to enhance responsiveness to changing market dynamics. As of December 31, 2025, this initiative has now completed, and we incurred total costs of $ 463 million, including $ 47 million in 2025. Network Reconfiguration and Efficiency Reimagined: 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 during 2025. We continue to review expected changes in volume in our integrated air and ground network to identify additional buildings for closure. As of December 31, 2025, we have incurred program costs of $ 544 million, including $ 509 million in 2025. 124 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.