~~Strikes, work stoppages and slowdowns by our employees could adversely affect our business, financial position and results of operations.~~

A significant number of our employees are employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters. In addition, our airline pilots, airline mechanics, ground mechanics and certain other employees are employed under other collective bargaining agreements. Strikes, work stoppages and slowdowns by our employees could adversely affect our ability to meet our customers' needs, and customers may do more business with competitors if they believe that such actions or threatened actions may adversely affect our ability to provide services. We may face a permanent loss of customers if we are unable to provide uninterrupted service, and this could adversely affect our business, financial position and results of operations. The terms of future collective bargaining agreements also may affect our competitive position and results of operations.

~~We are exposed to the effects of changing prices of energy, including gasoline, diesel and jet fuel, and interruptions in supplies of these commodities.~~

Changing fuel and energy costs may have a significant impact on our operations. We require significant quantities of fuel for our aircraft and delivery vehicles and are exposed to the risk associated with variations in the market price for petroleum products, including gasoline, diesel and jet fuel. We mitigate our exposure to changing fuel prices through our indexed fuel surcharges and we may also enter into hedging transactions from time to time. If we are unable to maintain or increase our fuel surcharges, higher fuel costs could adversely impact our operating results. Even if we are able to offset the cost of fuel with our surcharges, high fuel surcharges may result in a mix shift from our higher-yielding air products to lower-yielding ground products or an overall reduction in volume. There can be no assurance that our hedging transactions will be effective to protect us from changes in fuel prices. Moreover, we could experience a disruption in energy supplies, including our supply of gasoline, diesel and jet fuel, as a result of war, actions by producers or other factors beyond our control, which could have an adverse effect on our business.

~~Changes in exchange rates or interest rates may have an adverse effect on our results.~~

We conduct business across the globe with a significant portion of our revenue derived from operations outside the United States. Our operations in international markets are affected by changes in the exchange rates for local currencies, and in particular the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar.

We are exposed to changes in interest rates, primarily on our short-term debt and that portion of our long-term debt that carries floating interest rates. The impact of a 100-basis-point change in interest rates affecting our debt is discussed in the “Quantitative and Qualitative Disclosures about Market Risk” section of this report. Additionally, changes in interest rates impact the valuation of our pension and postretirement benefit obligations and the related benefit cost recognized in the income statement. The impact of changes in interest rates on our pension and postretirement benefit obligations and costs is discussed further in the "Critical Accounting Policies and Estimates" section of this report.

We monitor and manage our exposures to changes in currency exchange rates and interest rates, and make use of derivative instruments to mitigate the impact of changes in these rates on our financial position and results of operations; however, changes in exchange rates and interest rates cannot always be predicted or hedged.

~~If we are unable to maintain our brand image and corporate reputation, our business may suffer.~~

Our success depends in part on our ability to maintain the image of the UPS brand and our reputation for providing excellent service to our customers. Service quality issues, actual or perceived, even when false or unfounded, could tarnish the image of our brand and may cause customers to use other companies. Also, adverse publicity surrounding labor relations, environmental concerns, security matters, political activities and the like, or attempts to connect our company to these sorts of issues, either in the United States or other countries in which we operate, could negatively affect our overall reputation and acceptance of our services by customers. Damage to our reputation and loss of brand equity could reduce demand for our services and thus have an adverse effect on our business, financial position and results of operations, and could require additional resources to rebuild our reputation and restore the value of our brand.

~~A significant data breach or IT system disruption could adversely affect our business, financial results, or reputation, and we may be required to increase our spending on data and system security.~~

We rely heavily on information technology networks and systems, including the Internet, to manage or support a wide variety of important business processes and activities throughout our operations. For example, we rely on information technology to receive package level information in advance of physical receipt of packages, to track items that move through our delivery systems, to efficiently plan deliveries, to execute billing processes, and to track and report financial and operational data. Our franchised center locations and businesses we have acquired also are reliant on the use of information technology systems to manage their business processes and activities.

In addition, the provision of service to our customers and the operation of our networks and systems involve the storage and transmission of significant amounts of proprietary information and sensitive or confidential data, including personal information of customers, employees and others. To conduct our operations, we regularly move data across national borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and data security. The scope of the laws that may be applicable to us is often uncertain and may be conflicting, particularly with respect to foreign laws. For example, the European Union’s General Data Protection Regulation (“GDPR”), which greatly increases the jurisdictional reach of European Union law and adds a broad array of requirements for handling personal data, including the public disclosure of significant data breaches, becomes effective in May 2018. Other countries have enacted or are enacting data localization laws that require data to stay within their borders. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time.

Our information technology systems (as well as those of our franchisees and acquired businesses) may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, cyber-attacks, ransomware attacks, malware attacks, malicious employees or other insiders, telecommunications failures, human errors or catastrophic events. Hackers, foreign governments, cyber-terrorists and cyber-criminals, acting individually or in coordinated groups, may launch distributed denial of service attacks or other coordinated attacks that may cause service outages, gain inappropriate or block legitimate access to systems or information, or result in other interruptions in our business. In addition, breaches in security could expose us, our customers and franchisees, or the individuals affected, to a risk of loss or misuse of proprietary information and sensitive or confidential data, including personal information of customers, employees and others. The techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, may be difficult to detect for a long time and often are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures.

We also depend on and interact with the information technology networks and systems of third-parties for many aspects of our business operations, including our customers and franchisees and service providers such as cloud service providers and third-party delivery services. These third parties may have access to information we maintain about our company, operations, customers, employees and vendors, or operating systems that are critical to or can significantly impact our business operations. Like us, these third-parties are subject to risks imposed by data breaches and cyber-attacks and other events or actions that could damage, disrupt or close down their networks or systems. Security processes, protocols and standards that we have implemented and contractual provisions requiring security measures that we may have sought to impose on such third-parties may not be sufficient or effective at preventing such events, which could result in unauthorized access to, or disruptions or denials of access to, or misuse of, information or systems that are important to our business, including proprietary information, sensitive or confidential data, and other information about our operations, customers, employees and suppliers, including personal information.

Any of these events that impact our information technology networks or systems, or those of acquired businesses, franchisees, customers, service providers or other third-parties, could result in disruptions in our operations, the loss of existing or potential customers, damage to our brand and reputation, regulatory scrutiny, and litigation and potential liability for the company. Among other consequences, our customers’ confidence in our ability to protect data and systems and to provide services consistent with their expectations could be impacted, further disrupting our operations. Similarly, an actual or alleged failure to comply with applicable U.S. or foreign data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties.

We have invested and continue to invest in technology security initiatives, information technology risk management and disaster recovery plans. The cost and operational consequences of implementing, maintaining and enhancing further data or system protection measures could increase significantly to overcome increasingly intense, complex and sophisticated global cyber threats. Despite our best efforts, we are not fully insulated from data breaches and system disruptions. For example, in August 2014, a broad-based malware intrusion targeting retailers throughout the U.S. was discovered and subsequently eradicated at approximately 1% of our franchisees’ locations. While the impact of this cyber-attack, including the costs associated with investigation and remediation activities, was not material to our business and our financial results, there is no assurance that such impacts will not be material in the future, and our efforts to deter, identify, mitigate and/or eliminate future breaches may require significant additional effort and expense and may not be successful.

~~Severe weather or other natural or manmade disasters could adversely affect our business.~~

Severe weather conditions and other natural or manmade disasters, including storms, floods, fires or earthquakes, epidemics or pandemics, conflicts or unrest, or terrorist attacks, may result in decreased revenues, as our customers reduce their shipments, or increased costs to operate our business, which could have an adverse effect on our results of operations for a quarter or year. Any such event affecting one of our major facilities could result in a significant interruption in or disruption of our business.

~~We make significant capital investments in our business of which a significant portion is tied to projected volume levels.~~

We require significant capital investments in our business consisting of aircraft, vehicles, technology, facilities and sorting and other types of equipment to support both our existing business and anticipated growth. Forecasting projected volume involves many factors which are subject to uncertainty, such as general economic trends, changes in governmental regulation and competition. If we do not accurately forecast our future capital investment needs, we could have excess capacity or insufficient capacity, either of which would negatively affect our revenues and profitability. In addition to forecasting our capital investment requirements, we adjust other elements of our operations and cost structure in response to adverse economic conditions; however, these adjustments may not be sufficient to allow us to maintain our operating margins in a weak economy.

~~We derive a significant portion of our revenues from our international operations and are subject to the risks of doing business in international markets.~~

We have significant international operations, and while the geographical diversity of our international operations helps ensure that we are not overly reliant on a single region or country, we are continually exposed to changing economic, political and social developments that are beyond our control. Emerging markets are typically more volatile than those in the developed world, and any broad-based downturn in these markets could reduce our revenues and adversely affect our business, financial position and results of operations. We are subject to many laws governing our international operations, including those that prohibit improper payments to government officials and commercial customers, and restrict where we can do business, our shipments to certain countries and the information that we can provide to non-U.S. governments.

We are subject to changes in markets and our business plans that have resulted, and may in the future result, in substantial write-downs of the carrying value of our assets, thereby reducing our net income.

Our regular review of the carrying value of our assets has resulted, from time to time, in significant impairments, and we may in the future be required to recognize additional impairment charges. Changes in business strategy, government regulations, or economic or market conditions have resulted and may result in further substantial impairments of our intangible, fixed or other assets at any time in the future. In addition, we have been and may be required in the future to recognize increased depreciation and amortization charges if we determine that the useful lives of our fixed assets or intangible assets are shorter than we originally estimated. Such changes could reduce our net income.

~~Employee health and retiree health and pension benefit costs represent a significant expense to us.~~

Our expenses relating to employee health and retiree health and pension benefits are significant. In recent years, we have experienced significant increases in some of these costs, largely as a result of economic factors beyond our control, including, in particular, ongoing increases in healthcare costs well in excess of the rate of inflation and historically low discount rates that we use to value our benefit plan obligations. Continually increasing healthcare costs, volatility in investment returns and discount rates, as well as changes in laws, regulations and assumptions used to calculate retiree health and pension benefit expenses, may adversely affect our business, financial position, results of operations or require significant contributions to our benefit plans. The national master agreement with the IBT includes changes that are designed to mitigate certain of these healthcare expenses, but there can be no assurance that our efforts will be successful or that the failure or success of these efforts will not adversely affect our business, financial position, results of operations or liquidity.

We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees covered under collective bargaining agreements. As part of the overall collective bargaining process for wage and benefit levels, we have agreed to contribute certain amounts to the multiemployer benefit plans during the contract period. The multiemployer benefit plans set benefit levels and are responsible for benefit delivery to participants. Future contribution amounts to multiemployer benefit plans will be 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 in the event that a plan enters critical status, and our contributions are not sufficient to satisfy any rehabilitation plan funding schedule). In future collective bargaining negotiations, we could agree to make significantly higher future contributions to improve the funded status of one or more of these plans. The funded status of these multiemployer plans is impacted by various factors, including investment performance, healthcare inflation, changes in demographics and changes in participant benefit levels. At this time, we are unable to determine the amount of additional future contributions, if any, or whether any material adverse effect on our financial condition, results of operations or liquidity could result from our participation in these plans.

In addition to our on-going multiemployer pension plan obligations, we may have additional exposure with respect to benefits earned in the Central States Pension Fund (the "CSPF"). UPS was a contributing employer to the CSPF until 2007 when we withdrew from the plan and fully funded our allocable share of unfunded vested benefits by paying a $6.1 billion withdrawal liability. Under a collective bargaining agreement with the International Brotherhood of Teamsters (“IBT”), UPS agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 (“the UPS Transfer Group”) in the event that benefits are lawfully reduced by the CSPF in the future consistent with the terms of our withdrawal agreement with the CSPF.

In December 2014, Congress passed the Multiemployer Pension Reform Act (“MPRA”), which for the first time ever allowed multiemployer pension plans to reduce benefit payments to retirees, subject to specific guidelines in the statute and government approval. In September 2015, the CSPF submitted a proposed pension benefit reduction plan to the U.S. Department of the Treasury under the MPRA. The CSPF plan proposed to reduce retirement benefits to the CSPF participants, including the UPS Transfer Group. We vigorously challenged the proposed benefit reduction plan because we believed that it did not comply with the law and that the CSPF failed to comply with its contractual obligation to obtain our consent to reduce benefits to the UPS Transfer Group under the terms of the withdrawal agreement with the CSPF. On May 6, 2016, the U.S. Department of the Treasury rejected the proposed plan submitted by the CSPF, stating that it failed to satisfy a number of requirements set forth in the MPRA.

The CSPF has asserted that it will become insolvent in 2025, which could lead to the reduction of retirement benefits. Although there are numerous factors that could affect the CSPF’s funding status, if the CSPF were to become insolvent as they have projected, UPS may be required to provide coordinating benefits, thereby increasing the current projected benefit obligation for the UPS/IBT Plan by approximately $4 billion. The CSPF has said that it believes a legislative solution to its funding status is necessary, and we expect that the CSPF will continue to explore options to avoid insolvency.

The potential obligation to pay coordinating benefits from the UPS/IBT Plan is subject to a number of significant uncertainties, including actions that may be taken by the CSPF, the federal government or others. These actions include whether the CSPF will submit a revised pension benefit reduction plan or otherwise seek federal government assistance, the extent to which benefits are paid by the Pension Benefit Guaranty Corporation, our ability to successfully defend our legal positions as well as the effect of discount rates, CSPF asset returns and various other actuarial assumptions.

We account for this potential obligation under Accounting Standards Codification Topic 715- Compensation- Retirement Benefits (“ASC 715”). Under ASC 715 we are required to provide a best estimate of various actuarial assumptions, including the eventual outcome of this matter, in measuring our pension benefit obligation at the December 31st measurement date. While we currently believe the most likely solution to this matter and the broader systemic problems facing multiemployer pension plans is intervention by the federal government, ASC 715 does not permit anticipation of changes in law in making a best estimate of pension liabilities. Our best estimate as of the measurement date of December 31, 2017 does not incorporate this solution. However, if a future change in law resulted in an obligation to provide coordinating benefits under the UPS/IBT Plan, it may be a significant event, and may require us to remeasure the plan assets and projected benefit obligation of the UPS/IBT Plan at the date the law is enacted.

Our best estimate of the next most likely outcome to resolve the CSPF’s solvency concerns is that the CSPF will submit another benefit suspension application under the MPRA to forestall insolvency without reducing benefits to the UPS Transfer Group. If the CSPF attempts to reduce benefits for the UPS Transfer Group under a MPRA filing, we would be in a strong legal position to prevent that from occurring given that these benefits cannot be reduced without our consent and such a reduction, without first exhausting reductions to other groups in the CSPF, would be contrary to the statute. Accordingly, our best estimate as of the measurement date of December 31, 2017 is that there is no liability to be recognized for additional coordinating benefits of the UPS/IBT Plan. However, the projected benefit obligation could materially increase as the uncertainties are resolved. We will continue to assess the impact of these uncertainties on the projected benefit obligation of the UPS/IBT Plan in accordance with ASC 715.

~~We may have additional tax liabilities.~~

We are subject to income taxes in the U.S. and many foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. For example, compliance with the 2017 United States Tax Cut and Jobs Act (the “Tax Act”) may require the collection of information not regularly produced within our company, the use of provisional estimates in our financial statements, and the exercise of significant judgment in accounting for its provisions. Many aspects of the Tax Act are unclear and may not be clarified for some time. As regulations and guidance evolve with respect to the Tax Act, and as we gather more information and perform more analysis, our results may differ from previous estimates and may materially affect our financial position.

We regularly are under audit by tax authorities in different jurisdictions. Economic and political pressures to increase tax revenue in various jurisdictions may make resolving tax disputes favorably more difficult. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation in the jurisdictions where we are subject to taxation could be materially different from our historical income tax provisions and accruals. In addition, changes in U.S. federal and state or international tax laws applicable to corporate multinationals, other fundamental law changes currently being considered by many countries, including in the U.S., and changes in taxing jurisdictions’ administrative interpretations, decisions, policies and positions may materially adversely impact our tax expense and cash flows.

We may be subject to various claims and lawsuits that could result in significant expenditures.

The nature of our business exposes us to the potential for various claims and litigation related to labor and employment, personal injury, property damage, business practices, environmental liability and other matters. Any material litigation or a catastrophic accident or series of accidents could result in significant expenditures and have a material adverse effect on ~~our business, financial position and results of operations.~~us.

~~We may not realize the anticipated benefits of acquisitions, joint ventures or strategic alliances.~~

As part of our business strategy, we may acquire businesses and form joint ventures or strategic alliances. Whether we realize the anticipated benefits from these transactions depends, in part, upon the successful integration between the businesses involved, the performance of the underlying operations, capabilities or technologies and the management of the acquired operations. Accordingly, our financial results could be adversely affected by our failure to effectively integrate the acquired operations, unanticipated performance issues, transaction-related charges or charges for impairment of long-term assets that we acquire.

~~Insurance and claims expenses could have a material adverse effect on our business, financial condition and results of operations.~~

We have a combination of both self-insurance and high-deductible insurance programs for the risks arising out of the services we provide and the nature of our global operations, including claims exposure resulting from cargo loss, personal injury, property damage, aircraft and related liabilities, business interruption and workers' compensation. Workers' compensation, automobile and general liabilities are determined using actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims, on an undiscounted basis. Our accruals for insurance reserves reflect certain actuarial assumptions and management judgments, which are subject to a high degree of variability. If the number or severity of claims for which we are retaining risk increases, our financial condition and results of operations could be adversely affected. If we lose our ability to self-insure these risks, our insurance costs could materially increase and we may find it difficult to obtain adequate levels of insurance coverage.


~~Item 1B.~~	~~Unresolved Staff Comments~~

~~Not applicable.~~Item 1B.Unresolved Staff Comments

None.

Information About Our Executive Officers

For information about our executive officers, see Part III, "Item 10. Directors, Executive Officers and Corporate Governance".


~~Item 2.~~	~~Properties~~

Item 2.Properties

Operating Facilities

We own our corporate headquarters ~~which is located~~ in Atlanta, Georgia, ~~and consists of about 745,000 square feet of office space, and~~ our UPS Supply Chain Solutions ~~group’s~~ headquarters, ~~which is~~ located in Alpharetta, Georgia and ~~consists of about 310,000 square feet of office space.~~

our information technology headquarters, located in Parsippany, New Jersey. Our primary information technology operations are consolidated in ~~a 444,000 square foot~~an owned facility, the Ramapo Ridge facility, in Mahwah, New Jersey. Our information technology headquarters is located in Parsippany, New Jersey, consisting of about 200,000 square feet of office space. We also own a 175,000 square foot facility in Alpharetta, Georgia, which serves as a backup to the main information technology operations facility in New ~~Jersey. This~~Jersey and we own a backup facility ~~provides production functions and backup capacity~~ in ~~the event that a power outage or other disaster incapacitates the main data center. It also helps to meet our internal communication needs.~~Georgia.

We own or lease over 1,000 package operating facilities in the U.S., with approximately 6881 million square feet of floor space. ~~The smaller of these~~These facilities have vehicles and drivers stationed for the pickup and delivery of packages, and capacity to sort and transfer packages. ~~The~~Our larger ~~of these~~ facilities also service our vehicles and equipment, and employ specialized mechanical ~~installations~~equipment for the sorting and handling of packages. We own or lease approximately 800 facilities that support our international package operations, with approximately 2023 million square feet of floor space.

~~In addition,~~Our aircraft are operated in a hub and spoke pattern in the U.S., with our principal air hub, Worldport, located in Louisville, Kentucky. Our major air hub in Europe is located in Germany, and in Asia we operate two major air hubs in China and one in Hong Kong.

We own or lease more than 500 facilities, with approximately 3440 million square feet of floor space, ~~that~~which support our freight forwarding and logistics operations. We own and operate a logistics campus consisting of approximately 4 million square feet in Louisville, Kentucky.

We In addition, we own or lease approximately 200 UPS Freight service centers with approximately 6 million square feet of floor ~~space. The main offices of UPS Freight~~space which are ~~located in Richmond, Virginia and consist of about 217,000 square feet of office space.~~

~~Our aircraft are operated in a hub and spoke pattern~~classified as held for sale in the ~~U.S., with our principal air hub, known~~consolidated balance sheet as ~~Worldport, located in Louisville, Kentucky. The Worldport facility consists~~ of ~~over 5 million square feet and includes high speed conveyor and computer control systems.~~December 31, 2020. For additional information see note 4 to the audited, consolidated financial statements.

We also own or lease regional air hubs globally, with over 4 million square feet of floor space. Our U.S. regional air hubs are located in Dallas, Texas; Ontario, California; Philadelphia, Pennsylvania and Rockford, Illinois. These hubs house facilities for the sorting, transfer and delivery of packages. Our European air hub is located in Cologne, Germany, and we maintain Asia Pacific air hubs in Shanghai, China; Shenzhen, China and Hong Kong. Our regional air hub in Canada is located in Hamilton, Ontario, and our regional air hub for Latin America and the Caribbean is in Miami, Florida.

~~In 2017, we announced seven new buildings and one expansion that total more than 5 million square feet. We believe that our facilities are adequate to support our current operations.~~

Fleet

Aircraft

The following table shows information about our aircraft fleet as of December 31, ~~2017~~:2020:

Description
Owned and
Capital
Leases

Short-term
Leased or
Chartered
From
Others

On
Order

Under
Option
Boeing 757-200F 75
—
—
—
Boeing 767-300ERF 59
—
—
—
Boeing 767-300BCF 2
—
1
—
Airbus A300-600F 52
—
—
—
Boeing MD-11F 37
—
—
—
Boeing 747-400F 11
—
—
—
Boeing 747-400BCF 2
—
—
—
Boeing 747-8F 3
—
11
14
Other —
340
—
—
Total 241
340
12
14

~~On February 1, 2018, we announced an order for 14 Boeing 747-8 freighters previously under option and four new Boeing 767 aircraft to be delivered between 2019 and 2022.~~


Description	Owned & Finance Leases	Operating Leases & Charters From Others	On Order	Under Option
Boeing 757-200	75	—	—	—
Boeing 767-300	69	—	3	—
Boeing 767-300BCF	4	—	—	—
Boeing 767-300BDSF	4	—	—
Airbus A300-600	52	—	—	—
Boeing MD-11	40	—	2	—
Boeing 747-400F	11	—	—	—
Boeing 747-400BCF	2	—	—	—
Boeing 747-8F	20	—	8	—
Other	—	311	—	—
Total	277	311	13	—

Vehicles

We operate a global ground fleet of approximately ~~119,000~~127,000 package cars, vans, tractors and ~~motorcycles.~~ motorcycles, of which approximately 5,700 tractors used in our UPS Freight operations are classified as held for sale in the consolidated balance sheet as of December 31, 2020.

Our ground support fleet consists of ~~35,000~~38,000 pieces of equipment designed specifically to support our aircraft fleet, ranging from non-powered container dollies and racks to powered aircraft main deck loaders and cargo tractors. We also have ~~45,000~~58,000 containers used to transport cargo in our aircraft.


~~Item 3.~~	~~Legal Proceedings~~

~~For a discussion of legal proceedings affecting us and our subsidiaries, please see~~Item 3.Legal Proceedings

See note 46 to the audited, consolidated financial statements for a discussion of pension related matters and note 910 to the audited, consolidated financial statements for a discussion of judicial proceedings and other matters arising from the conduct of our business activities.


~~Item 4.~~	~~Mine Safety Disclosures~~

Item 4.Mine Safety Disclosures

Not applicable.

PART II


~~Item 5.~~	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our class A common stock is not listed on a national securities exchange or traded in an organized over-the-counter market, but each share of our class A common stock is convertible into one share of our class B common stock.

~~The following is a summary of our class B common stock price activity and dividend information for~~ ~~2017~~ ~~and~~ ~~2016~~. Our class B common stock is listed on the New York Stock Exchange under the symbol “UPS”.

High Low Close
Dividends
Declared
2017:
First Quarter $ 118.19
$ 103.23
$ 107.30
$ 0.83
Second Quarter $ 111.55
$ 102.12
$ 110.59
$ 0.83
Third Quarter $ 120.42
$ 106.98
$ 120.09
$ 0.83
Fourth Quarter $ 125.16
$ 111.30
$ 119.15
$ 0.83
2016:
First Quarter $ 106.10
$ 88.70
$ 105.47
$ 0.78
Second Quarter $ 107.72
$ 100.66
$ 107.72
$ 0.78
Third Quarter $ 111.50
$ 106.86
$ 109.36
$ 0.78
Fourth Quarter $ 120.16
$ 106.84
$ 114.64
$ 0.78

As of February 8, ~~2018,~~2021, there were ~~154,033~~159,333 and ~~18,863~~19,412 shareowners of record of class A and class B common stock, respectively.

Our practice has been to pay dividends on a quarterly basis. The declaration of dividends is subject to the discretion of the Board of Directors and will depend on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors.

On February ~~8, 2018,~~10, 2021, our Board declared a dividend of ~~$0.91~~$1.02 per share, which is payable on March ~~7, 2018~~10, 2021 to shareowners of record on February ~~20, 2018. This represents a 10% increase from the previous $0.83 quarterly dividend in 2017.~~

~~A summary of repurchases of our class A and class B common stock during the fourth quarter of~~ ~~2017~~ ~~is as follows (in millions, except per share amounts):~~

Total Number
of Shares
Purchased₍₁₎

Total Number
of Shares Purchased
as Part of Publicly
Announced Program

Average
Price Paid
Per Share

Approximate Dollar
Value of Shares that
May Yet be Purchased
Under the Program
(as of month-end)
October 1—October 31 1.3
1.3
$ 119.28
$ 4,644
November 1—November 30 1.2
1.2
123.47
4,490
December 1—December 31 1.3
1.3
119.50
4,339
Total October 1—December 31 3.8
3.8
$ 120.71


⁽¹⁾	~~Includes shares repurchased through our publicly announced share repurchase program and shares tendered to pay the exercise price and tax withholding on employee stock options.~~

22, 2021.

In May 2016, the Board of Directors approved a share repurchase authorization of $8.0 billion ~~which replaced an authorization previously~~for shares of class A and class B common stock. In the first quarter of 2020, our share repurchases totaled approximately $217 million. On April 28, 2020, we announced our intention to suspend share repurchases under our stock repurchase program. There were no repurchases of class A or class B common stock during the last nine months of 2020 and we do not currently anticipate any share repurchases in ~~2013. The new~~2021. As of December 31, 2020, we had $2.1 billion available under our share repurchase ~~authorization has no expiration date. We anticipate repurchasing approximately $1.0 billion of shares in 2018.~~

authorization.

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

Shareowner Return Performance Graph

The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates such information by reference into such filing.

The following graph shows a five-year comparison of cumulative total shareowners’ returns for our class B common stock, the Standard & Poor’s 500 Index and the Dow Jones Transportation Average. The comparison of the total cumulative return on investment, which is the change in the ~~quarterly~~ stock price plus reinvested dividends for each of the quarterly periods, assumes that $100 was invested on December 31, ~~2012~~2015 in the Standard & Poor’s 500 Index, the Dow Jones Transportation Average and our class B common stock.


	12/31/2015		12/31/2016		12/31/2017		12/31/2018		12/31/2019		12/31/2020
United Parcel Service, Inc.	$	100.00	$	122.71	$	131.47	$	111.12	$	139.45	$	207.36
Standard & Poor’s 500 Index	$	100.00	$	111.95	$	136.38	$	130.40	$	172.92	$	204.72
Dow Jones Transportation Average	$	100.00	$	121.86	$	145.04	$	127.15	$	154.68	$	180.23

For information regarding our equity compensation plans, see Item 12 of this report.

12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
United Parcel Service, Inc. $ 100.00
$ 146.54
$ 159.23
$ 148.89
$ 182.70
$ 195.75
Standard & Poor’s 500 Index $ 100.00
$ 132.38
$ 150.49
$ 152.55
$ 170.79
$ 208.06
Dow Jones Transportation Average $ 100.00
$ 141.38
$ 176.83
$ 147.19
$ 179.37
$ 213.49


~~Item 6.~~	~~Selected Financial Data~~

Item 6. Selected Financial Data

The following table sets forth selected financial data for each of the five years in the period ended December 31, ~~2017~~2020 (in millions, except per share amounts). This financial data should be read together with our consolidated financial statements and related notes, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including the Supplemental Information - Items Affecting Comparability section, and other financial data appearing elsewhere in this report.


	Years Ended December 31,
	2020		2019		2018		2017		2016
Selected Income Statement Data
Revenue:
U.S. Domestic Package	$	53,499	$	46,493	$	43,593	$	40,761	$	38,284
International Package	15,945		14,220		14,442		13,342		12,346
Supply Chain & Freight	15,184		13,381		13,826		12,482		10,980
Total Revenue	84,628		74,094		71,861		66,585		61,610
Operating Expenses:
Compensation and benefits	44,529		38,908		37,235		34,577		32,534
Other	32,415		27,388		27,602		24,479		21,388
Total Operating Expenses	76,944		66,296		64,837		59,056		53,922
Operating Profit:
U.S. Domestic Package	3,891		4,164		3,643		4,303		4,628
International Package	3,436		2,657		2,529		2,429		2,417
Supply Chain & Freight	357		977		852		797		643
Total Operating Profit	7,684		7,798		7,024		7,529		7,688
Other Income and (Expense):
Investment income (expense) and other	(5,139)		(1,493)		(400)		61		(2,186)
Interest expense	(701)		(653)		(605)		(453)		(381)
Income Before Income Taxes	1,844		5,652		6,019		7,137		5,121
Income Tax Expense	501		1,212		1,228		2,232		1,699
Net Income	$	1,343	$	4,440	$	4,791	$	4,905	$	3,422
Per Share Amounts:
Basic Earnings Per Share	$	1.55	$	5.14	$	5.53	$	5.63	$	3.88
Diluted Earnings Per Share	$	1.54	$	5.11	$	5.51	$	5.61	$	3.86
Dividends Declared Per Share	$	4.04	$	3.84	$	3.64	$	3.32	$	3.12
Weighted Average Shares Outstanding:
Basic	867		864		866		871		883
Diluted	871		869		870		875		887

	As of December 31,
	2020		2019		2018		2017		2016
Selected Balance Sheet Data:
Cash and marketable securities	$	6,316	$	5,741	$	5,035	$	4,069	$	4,567
Total assets	62,408		57,857		50,016		45,574		40,545
Long-term debt and finance leases	22,031		21,818		19,931		20,278		12,394
Shareowners’ equity	669		3,283		3,037		1,024		430

This table reflects the impact of the adoption of new accounting standards in 2018 and 2019. Refer to note 1 to the audited, consolidated financial statements.

Years Ended December 31,
2017 2016 2015 2014 2013
Selected Income Statement Data
Revenue:
U.S. Domestic Package $ 40,764
$ 38,301
$ 36,747
$ 35,851
$ 34,074
International Package 13,338
12,350
12,149
12,988
12,429
Supply Chain & Freight 11,770
10,255
9,467
9,393
8,935
Total Revenue 65,872
60,906
58,363
58,232
55,438
Operating Expenses:
Compensation and benefits 34,588
34,770
31,028
32,045
28,557
Other 23,755
20,669
19,667
21,219
19,847
Total Operating Expenses 58,343
55,439
50,695
53,264
48,404
Operating Profit:
U.S. Domestic Package 4,280
3,017
4,767
2,859
4,603
International Package 2,464
2,044
2,137
1,677
1,757
Supply Chain and Freight 785
406
764
432
674
Total Operating Profit 7,529
5,467
7,668
4,968
7,034
Other Income and (Expense):
Investment income 72
50
15
22
20
Interest expense (453 ) (381 ) (341 ) (353 ) (380 )
Income Before Income Taxes 7,148
5,136
7,342
4,637
6,674
Income Tax Expense 2,238
1,705
2,498
1,605
2,302
Net Income $ 4,910
$ 3,431
$ 4,844
$ 3,032
$ 4,372
Per Share Amounts:
Basic Earnings Per Share $ 5.64
$ 3.89
$ 5.38
$ 3.31
$ 4.65
Diluted Earnings Per Share $ 5.61
$ 3.87
$ 5.35
$ 3.28
$ 4.61
Dividends Declared Per Share $ 3.32
$ 3.12
$ 2.92
$ 2.68
$ 2.48
Weighted Average Shares Outstanding:
Basic 871
883
901
916
940
Diluted 875
887
906
924
948

As of December 31,
2017 2016 2015 2014 2013
Selected Balance Sheet Data:
Cash and marketable securities $ 4,069
$ 4,567
$ 4,726
$ 3,283
$ 5,245
Total assets 45,403
40,377
38,311
35,440
35,553
Long-term debt 20,278
12,394
11,316
9,856
10,824
Shareowners’ equity 1,030
429
2,491
2,158
6,488


~~Item 7.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

As described above, during 2020 we began implementing our Customer First, People Led, Innovation Driven strategy, as we seek to transform nearly every aspect of our business, improve our financial performance, provide the best customer experience and benefit our shareowners. We ~~produced solid~~focused on, among other things, enhancing the capabilities that we believe our customers value the most; speed and ease of access to our services. We completed enhancements to our U.S. ground network to improve time-in-transit and continued to deploy our digital access program into e-commerce platforms.

Beginning in the first quarter of 2020, unexpected business shutdowns and government restrictions implemented in many countries in response to the COVID-19 pandemic have significantly impacted the mix of demand for our services. In our global small package business, business-to-business activity has declined, while we continue to experience a significant increase in the level of business-to-consumer shipping, which we partially attribute to the capability enhancements described above. While business-to-business activity began to recover in the latter part of 2020, we believe that the market shift towards e-commerce will persist, with a continuing high level of residential deliveries that may continue to increase demand, but also drive higher operating costs. The pandemic also resulted in a reduction in global air cargo capacity. This caused market rates in the industry to increase and we experienced increased demand for our services.

On January 24, 2021, we entered into a definitive agreement to divest our UPS Freight business. This will allow us to be even more focused on the core parts of our business that drive the greatest value for our shareholders. The transaction, which is subject to customary closing conditions and regulatory approvals, is expected to close during the second quarter of 2021. We expect this divestiture to result in an improvement to our operating margin and return on invested capital.

We believe that we are well positioned for long-term growth, however we cannot reasonably estimate the duration or severity of the COVID-19 pandemic or the timing and ~~operating~~extent of the anticipated economic recovery, and the resulting impacts on our business results or liquidity. For additional information on these risks and uncertainties, see Part I, "Item 1A. Risk Factors" of this report.

Highlights of our results for the years ended December 31, 2020 and 2019, which are discussed in ~~2017 across all operating segments. In 2017, consolidated revenue increased 8.2% to $65.872 billion, up from $60.906 billion~~more detail in ~~2016.~~ the sections that follow, include:


	Year Ended December 31,						Change
	2020			2019			$		%
Revenue (in millions)	$	84,628		$	74,094		$	10,534	14.2	%
Operating Expenses (in millions)	76,944			66,296			10,648		16.1	%
Operating Profit (in millions)	$	7,684		$	7,798		$	(114)	(1.5)	%
Operating Margin	9.1		%	10.5		%
Net Income (in millions)	$	1,343		$	4,440		$	(3,097)	(69.8)	%
Basic Earnings Per Share	$	1.55		$	5.14		$	(3.59)	(69.8)	%
Diluted Earnings Per Share	$	1.54		$	5.11		$	(3.57)	(69.9)	%

Operating Days	255			253
Average Daily Package Volume (in thousands)	24,676			21,880					12.8	%
Average Revenue Per Piece	$	10.94		$	10.87		$	0.07	0.6	%

•Revenue ~~for 2017~~ increased in all segments and major product categories, due to shipment growth, yield expansion and benefits recognized from our network investments and portfolio initiatives. While operating profits were positively impacted by these growth factors discussed above, they were partially offset by impacts from natural disasters, capacity constraints due to volume surges in the fourth quarter of 2017, operating costs associated with facility construction and the deployment of Saturday operations in our U.S. Domestic Package segment.segments.

~~Operating profit for 2017 was up 37.7% to $7.529 billion, driven by strong performance in all segments and a $1.851 billion reduction in the pension mark-to-market charges.~~

•Average daily package volume increased ~~4.9%~~due to increases in ~~2017. We reported 2017 net income of $4.910 billion and diluted earnings per share of $5.61, compared~~business-to-consumer shipping.

•Operating expenses increased due to ~~2016 net income of $3.431 billion and diluted earnings per share of $3.87.~~

~~Our consolidated results are presented in the table below:~~volume growth.

Year Ended December 31, % Change
2017 2016 2015 2017/ 2016 2016/ 2015
Revenue (in millions) $ 65,872
$ 60,906
$ 58,363
8.2 % 4.4 %
Operating Expenses (in millions) 58,343
55,439
50,695
5.2 % 9.4 %
Operating Profit (in millions) $ 7,529
$ 5,467
$ 7,668
37.7 % (28.7 )%
Operating Margin 11.4 % 9.0 % 13.1 %
Average Daily Package Volume (in thousands) 20,030
19,090
18,324
4.9 % 4.2 %
Average Revenue Per Piece $ 10.53
$ 10.30
$ 10.37
2.2 % (0.7 )%
Net Income (in millions) $ 4,910
$ 3,431
$ 4,844
43.1 % (29.2 )%
Basic Earnings Per Share $ 5.64
$ 3.89
$ 5.38
45.0 % (27.7 )%
Diluted Earnings Per Share $ 5.61
$ 3.87
$ 5.35
45.0 % (27.7 )%

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

•Operating profit and operating margin were relatively flat, and included goodwill and other asset impairment charges of $686 million related to the anticipated divestiture of UPS Freight.

•We reported net income of $1.3 billion and diluted earnings per share of $1.54. Adjusted diluted earnings per share was $8.23 after adjusting for the after-tax impacts of:

◦goodwill and other asset impairment charges of $629 million or $0.72 per share;

◦transformation strategy costs of $265 million or $0.31 per share; and

◦pension mark-to-market losses recognized outside of a 10% corridor of $4.9 billion or $5.66 per share.

In the U.S. Domestic Package segment, volume and revenue growth was highest in our residential ground products. The increase in residential delivery volume drove increases in headcount, delivery stops per day, average daily miles driven and average daily union labor hours, all of which increased expense and compressed operating margins as described below. Operating expenses also increased as a result of the investments we made to improve our ground network.

The International Package segment experienced volume and revenue growth, driven by strong outbound demand from Asia as well as growth from e-commerce within Europe. Residential delivery volume growth drove an increase in third-party pickup and delivery expense.

In the Supply Chain & Freight segment, growth was primarily driven by our Forwarding and mail services businesses. The Forwarding business benefited from strong outbound demand from Asia and the implementation of capacity surcharges as COVID-19 led to reduced capacity in the air cargo market. Mail services benefited from the increase in e-commerce activity and favorable changes in shipment characteristics. We also experienced growth in demand for our healthcare logistics and distribution solutions, partly driven by the impacts of the COVID-19 pandemic.

2019 compared to 2018

See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 20, 2020.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Supplemental Information - Items Affecting Comparability

~~The results and discussions that follow are reflective of how our executive management monitors the performance of our reporting segments.~~ We supplement the reporting of our financial information determined under generally accepted accounting principles ~~(“GAAP”~~in the United States ("GAAP") with certain non-GAAP financial measures including "adjusted" compensation and benefits, operating expenses, operating profit, operating margin, other income and (expense), income before income taxes, income tax expense, ~~and~~ effective tax ~~rate. These adjustments reflect~~rate, net income and earnings per share. Adjusted financial measures may exclude the ~~non-comparable items discussed~~impact of period over period exchange rate changes and hedging activities, amounts related to mark-to-market gains or losses, restructuring costs, including transformation strategy costs, and costs related to certain legal contingencies and expenses, as described below. We believe that these adjusted financial measures provide additional meaningful information to assist ~~investors and analysts~~users of our financial statements in understanding our financial results and cash flows and assessing our ~~prospects for future~~ongoing performance. We believe these adjusted financial measures are important indicators of our recurring results of operations because they exclude items that may not be indicative of, or are unrelated to, our underlying ~~results of~~ operations, and may provide a useful baseline for analyzing trends in our underlying businesses. Additionally, these adjusted financial measures are used internally by management for ~~the determination of incentive compensation awards,~~ business unit operating performance analysis, ~~and~~ business unit resource ~~allocation.~~allocation and in connection with incentive compensation award determination.

~~Non-GAAP~~Adjusted financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our ~~non-GAAP~~adjusted financial ~~information does~~measures do not represent a comprehensive basis of accounting. Therefore, our ~~non-GAAP~~adjusted financial ~~information~~measures may not be comparable to similarly titled measures reported by other companies.

Year over year comparisons of our financial results are affected by the following (in millions):


	Year Ended December 31,
Non-GAAP Adjustments	2020		2019
Operating Expenses:
Transformation Strategy Costs	$	348	$	255
Goodwill and Other Asset Impairment Charges	686		—
Legal Contingencies and Expenses	—		97
Total Adjustments to Operating Expenses	$	1,034	$	352

Other Income and (Expense):
Defined Benefit Plans Mark-to-Market Charges	$	6,484	$	2,387


Total Adjustments to Other Income and (Expense)	$	6,484	$	2,387

Total Adjustments to Income Before Income Taxes	$	7,518	$	2,739

Income Tax Benefit from Defined Benefit Plans Mark-to-Market Charges	$	(1,555)	$	(571)
Income Tax Benefit from Transformation Strategy Costs	(83)		(59)
Income Tax Benefit from Goodwill and Other Asset Impairment Charges	(57)		—
Income Tax Benefit from Legal Contingencies and Expenses	—		(6)
Total Adjustments to Income Tax Expense	$	(1,695)	$	(636)

Total Adjustments to Net Income	$	5,823	$	2,103

These items have been excluded from comparisons of "adjusted" compensation and benefits, operating expenses, operating profit, operating margin, other income and (expense), income tax expense and effective tax rate in the discussion that follows. The income tax benefit from restructuring and other costs, legal contingencies and expenses and mark-to-market charges are calculated by multiplying the statutory tax rates applicable in each tax jurisdiction, including the U.S. federal jurisdiction and various U.S. state and non-U.S. jurisdictions, by the tax-deductible adjustments. The blended average of the effective tax rates in 2020 and 2019 was 22.5% and 23.2%, respectively.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Impact of Changes in Foreign Currency Exchange Rates and Hedging Activities

We supplement the reporting of our revenue, revenue per piece and operating profit with ~~similar~~ non-GAAP measures that exclude the ~~period-over-period~~period over period impact of foreign currency exchange rate changes and hedging activities. We believe currency-neutral revenue, revenue per piece and operating profit information allows users of our financial statements to understand growth trends in our products and results. We evaluate the performance of our International Package and Supply Chain & Freight businesses on a currency-neutral basis.

Currency-neutral revenue, revenue per piece and operating profit are calculated by dividing current period reported U.S. dollar revenue, revenue per piece and operating profit by the current period average exchange rates to derive current period local currency revenue, revenue per piece and operating profit. The derived ~~current period local currency revenue, revenue per piece and operating profit~~amounts are then multiplied by the average foreign currency exchange rates used to translate the comparable results for each month in the prior year period (including the period over period impact of foreign currency ~~revenue~~ hedging activities). The difference between the current period reported U.S. dollar revenue, revenue per piece and operating profit and the derived current period U.S. dollar revenue, revenue per piece and operating profit is the period over period impact of currency fluctuations.

~~The year-over-year comparisons~~Restructuring and Other Charges

We supplement the presentation of our ~~financial results are affected by the following items (in millions):~~

Year Ended December 31,
Non-GAAP Adjustments 2017 2016 2015
Operating Expenses:
Defined Benefit Plans Mark-to-Market Charges $ 800
$ 2,651
$ 118
Total Adjustments to Operating Expenses 800
2,651
118
Income Tax Benefit from the Mark-to-Market Charges (193 ) (978 ) (39 )
Income Tax Benefit from the Tax Cuts and Jobs Act and Other Non-U.S. Tax Law Changes (258 ) —
—
Total Adjustments to Net Income $ 349
$ 1,673
$ 79

~~These items have been excluded from comparisons of "adjusted" compensation and benefits, operating expenses,~~ operating profit, operating margin, income ~~tax expense~~before income taxes, net income and ~~effective tax rate in~~earnings per share with similar non-GAAP measures that exclude the ~~discussion~~impact of charges related to restructuring activities, including transformation strategy costs and asset impairments. For more information regarding transformation strategy costs, see note 18 to the audited, consolidated financial statements. For more information regarding asset impairments, see note 4 to the audited, consolidated financial statements.

Costs Related to Certain Legal Contingencies and Expenses

We supplement the presentation of our operating profit, operating margin, income before income taxes, net income and earnings per share with similar non-GAAP measures that ~~follows. The income tax effects~~exclude the impact of ~~the mark-to-market charges are calculated by multiplying the statutory tax rates applicable in each tax jurisdiction, including the U.S. federal jurisdiction~~costs related to certain legal contingencies and ~~various U.S. state and non-U.S. jurisdictions, by the adjustments. The blended average of the applicable statutory tax rates in 2017, 2016 and 2015 were 24.1%, 36.9% and 33.1%, respectively.~~

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

expenses.

Defined Benefit Plans Mark-to-Market Charges

We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor for our pension and postretirement defined benefit plans immediately as part of ~~net periodic benefit cost.~~other pension income (expense). We supplement the presentation of our ~~operating profit~~income before income taxes, net income and ~~operating margin~~earnings per share with ~~"adjusted"~~non-GAAP measures that exclude the impact of ~~the portion of net periodic benefit cost represented by the~~ gains and losses recognized in excess of the 10% corridor and the related income tax effects.

~~The adjustments made to exclude~~ We believe excluding these mark-to-market ~~adjustments utilize~~impacts provides important supplemental information by removing the volatility associated with short-term changes in market interest rates, equity values and similar factors.

This adjusted net periodic benefit cost ($641 million in 2020 and $754 million in 2019) utilizes the expected return on plan assets ~~($2.956, $2.580~~(7.70% in 2020 and ~~$2.567 billion for 2017, 2016 and 2015, respectively)~~7.68% in 2019) and the discount ~~rates~~rate used ~~for determining~~to determine net periodic benefit ~~cost.~~cost (3.55% in 2020 and 4.45% in 2019). The ~~non-adjusted~~unadjusted net periodic benefit cost reflects the actual return on plan assets ~~($4.811 billion, $1.846 billion~~(12.54% in 2020 and ~~$110 million for 2017, 2016 and 2015, respectively)~~17.57% in 2019) and the discount ~~rates~~rate used ~~for measuring~~to measure the projected benefit obligation ~~as summarized~~at the December 31st measurement date (2.87% in the table below. We believe excluding these mark-to-market charges from our adjusted results provides important supplemental information that reflects the anticipated long-term cost of our defined benefit plans2020 and ~~provides a benchmark for historical defined benefit cost trends that may provide a useful comparison of year-to-year financial performance without considering the short-term impact of changes~~3.55% in ~~market interest rates, equity prices and similar factors.~~2019).

~~In 2017, we~~We recognized pre-tax mark-to-market losses ~~in compensation and benefits expense~~outside of ~~$800 million on~~a 10% corridor related to the remeasurement of our pension and postretirement defined benefit ~~plans related to the remeasurement of plan~~plans' assets and liabilities ~~recognized outside~~in "Other Income and (Expense)" of ~~a 10% corridor. These charges impacted~~$6.5 and $2.4 billion for 2020 and 2019, respectively. In 2019, we refined the bond matching approach used to determine the discount rate for our U.S. ~~Domestic Package segment ($637 million), International Package segment ($35 million) and Supply Chain & Freight segment ($128 million).~~

~~In 2016, we recognized pre-tax mark-to-market losses in compensation and benefits expense of $2.651 billion on our~~ pension and postretirement ~~defined benefit~~ plans ~~related~~by implementing advances in technology and modeling techniques discussed in note 6 to the remeasurement of plan assets and liabilities recognized outside of a 10% corridor. These charges impacted our U.S. Domestic Package segment ($1.908 billion), International Package segment ($425 million) and Supply Chain & Freight segment ($318 million).

In 2015, we recognized pre-tax mark-to-market losses in compensation and benefits expense of $118 million on our pension and postretirement defined benefit plans related to the remeasurement of plan assets and liabilities recognized outside of a 10% corridor. These charges impacted our U.S. Domestic Package segment ($62 million), International Package segment ($44 million) and Supply Chain & Freight segment ($12 million).

The table below indicates the amounts associated with each component of the pre-tax mark-to-market losses, as well as the weighted-average actuarial assumptions used to determine our net periodic benefit costs, for each year:audited, consolidated financial statements.

Year Ended December 31,
Components of mark-to-market gain (loss) (in millions): 2017 2016 2015
Discount rates $ (2,288 ) $ (1,953 ) $ 1,624
Return on assets 1,525
(732 ) (1,550 )
Demographic and assumption changes (37 ) 34
(133 )
Reclassification of prior year unrecognized benefit cost —
—
(59 )
Total mark-to-market gain (loss) $ (800 ) $ (2,651 ) $ (118 )

Year Ended December 31,
Weighted-average actuarial assumptions used to determine net periodic benefit cost: 2017 2016 2015
Expected rate of return on plan assets 8.65 % 8.65 % 8.66 %
Actual rate of return on plan assets 14.25 % 6.06 % 0.37 %
Discount rate used for net periodic benefit cost 4.34 % 4.81 % 4.36 %
Discount rate at measurement date 3.81 % 4.34 % 4.81 %

~~The $800 million, $2.651 billion and $118 million pre-tax mark-to-market losses for the years ended December 31, 2017, 2016 and 2015, respectively, were comprised of the following components:~~

~~2017- $800 million pre-tax mark-to-market loss:~~

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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


	Year Ended December 31,
Components of mark-to-market gain (loss) (in millions):	2020			2019
Discount rates	$	(6,540)		$	(5,670)
Return on assets	2,390			3,850
Demographic and other assumption changes	(381)			(24)
Coordinating benefits attributable to the Central States Pension Fund	(1,953)			(543)
Total mark-to-market gain (loss)	$	(6,484)		$	(2,387)

	Year Ended December 31,
Weighted-average actuarial assumptions used to determine net periodic benefit cost:	2020			2019
Expected rate of return on plan assets	7.70		%	7.68		%
Actual rate of return on plan assets	12.54		%	17.57		%
Discount rate used for net periodic benefit cost	3.55		%	4.45		%
Discount rate at measurement date	2.87		%	3.55		%

The pre-tax mark-to-market losses for the years ended December 31, 2020 and 2019 were comprised of the following:

2020 - $6.5 billion pre-tax mark-to-market loss:

•Discount Rates ($~~2.288~~6.5 billion pre-tax loss):The weighted-average discount rate for our pension and postretirement medical plans decreased from ~~4.34% at~~3.55% as of December 31, ~~2016~~2019 to ~~3.81% at~~2.87% as of December 31, ~~2017,~~2020, primarily due to ~~both~~ a decline in U.S. treasury yields ~~and a decrease~~that was slightly offset by an increase in credit spreads on AA-rated corporate ~~bonds in 2017.~~

bonds.

•Return on Assets ($~~1.525~~2.4 billion pre-tax gain): In ~~2017,~~2020, the actual ~~14.25%~~ rate of return on plan assets ~~exceeded~~was higher than our expected rate of return, ~~of 8.65%,~~ primarily due to strong global equity and U.S. bond ~~markets.~~

market performance.

•Demographic and Other Assumption Changes ($37381 million pre-tax loss): This represents the difference between actual and estimated participant data and demographic factors, including items such as healthcare cost trends, compensation rate increases and rates of termination, retirement and mortality.

~~2016~~•Coordinating benefits attributable to the Central States Pension Fund ($2.0 billion pre-tax loss): This represents our current best estimate of additional potential coordinating benefits that may be required to be paid related to the Central States Pension Fund.

2019 - ~~$2.651~~$2.4 billion pre-tax mark-to-market loss:

•Discount Rates ($~~1.953~~5.7 billion pre-tax loss):The weighted-average discount rate for our pension and postretirement medical plans decreased from ~~4.81% at~~4.45% as of December 31, ~~2015~~2018 to ~~4.34% at~~3.55% as of December 31, ~~2016,~~2019, primarily due to a decline in U.S. treasury yields and a decrease in credit spreads on AA-rated corporate bonds in ~~2016.~~

2019. This was partially offset by a refinement to the bond matching approach used to determine the discount rate for our U.S. pension and postretirement plans as described in note 6 to the audited, consolidated financial statements.

•Return on Assets ($~~732 million~~3.9 billion pre-tax ~~loss)~~gain): In ~~2016,~~2019, the actual ~~6.06%~~ rate of return on plan assets ~~fell short of~~was higher than our expected rate of return, ~~of 8.65%,~~ primarily due to ~~weak~~strong global equity and U.S. bond ~~markets.~~

market performance.

•Demographic and Other Assumption Changes ($3424 million pre-tax ~~gain)~~loss): This ~~represents~~represented the difference between actual and estimated participant data and demographic factors, including items such as healthcare cost trends, compensation rate increases and rates of termination, retirement and mortality.

~~2015- $118 million pre-tax mark-to-market loss:~~

~~Discount Rates~~ •Coordinating benefits attributable to the Central States Pension Fund ($~~1.624 billion pre-tax gain):~~The weighted-average discount rate for our pension and postretirement medical plans increased from 4.36% at December 31, 2014 to 4.81% at December 31, 2015, primarily due to an increase in U.S. treasury yields and credit spreads on AA-rated corporate bonds in 2015.

~~Return on Assets~~ ~~($1.550 billion pre-tax loss): In 2015, the actual 0.37% rate of return on plan assets fell short of our expected rate of return of 8.66%, primarily due to weak global equity markets.~~

~~Demographic and Assumption Changes~~ ~~($133~~543 million pre-tax loss): This ~~represents the difference between actual and estimated participant data and demographic factors, including items such as healthcare cost trends, compensation rate increases and rates~~represented our then-best estimate of ~~termination, retirement and mortality.~~

~~Reclassification of Prior Year Unrecognized Benefit Cost~~ ~~($59 million pre-tax loss): Our mark-to-market accounting policy requires recognition of gains and losses in excess of a corridor equal~~additional potential coordinating benefits that may be required to 10% of the plans' projected benefit obligations (or fair value of the plans' assets, if greater). The decrease in certain plans' projected benefit obligations resulted in a lower corridor, which required recognition of prior year unrecognized benefit costs for some of our plans.

~~Income Tax Benefit from the Tax Cuts and Jobs Act~~

We supplement the presentation of our income tax expense and effective tax rate with "adjusted" measures that exclude the impact of the income tax benefit from the Tax Cuts and Jobs Act (the "Tax Act") described in the "Income Tax Expense" section of Management's Discussion and Analysis and note 13be paid related to the audited consolidated financial statements. We believe income tax expense and the effective tax rate excluding the tax benefit is useful in evaluating our ongoing operating performance for the current period to that of other periods presented. The estimates are based on our initial analysis and interpretations of the Tax Act.Central States Pension Fund.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Expense Allocations

Certain operating expenses are allocated between our reporting 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 ~~will~~would 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. Beginning in 2020, we updated our cost allocation methodology for the Ground with Freight Pricing ("GFP") product. The cost associated with GFP that is allocated from the U.S. Domestic Package segment to UPS Freight, within the Supply Chain & Freight segment, was adjusted to better reflect operational activities associated with this product. This change in methodology had only an immaterial impact on the expense allocated to UPS Freight for 2020. There were no significant changes in our expense allocation methodologies during ~~2017, 2016~~2019 or ~~2015.~~2018.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

U.S. Domestic Package Operations


	Year Ended December 31,									% Change					Year Ended December 31,						Change
	2017			2016			2015			2017/ 2016		2016/ 2015			2020			2019			$		%
Average Daily Package Volume (in thousands):														Average Daily Package Volume (in thousands):
Next Day Air	1,460			1,379			1,316			5.9	%	4.8	%	Next Day Air	1,987			1,889					5.2	%
Deferred	1,400			1,351			1,313			3.6	%	2.9	%	Deferred	1,783			1,622					9.9	%
Ground	14,061			13,515			12,969			4.0	%	4.2	%	Ground	17,371			15,176					14.5	%
Total Avg. Daily Package Volume	16,921			16,245			15,598			4.2	%	4.1	%
Total Average Daily Package Volume														Total Average Daily Package Volume	21,141			18,687					13.1	%
Average Revenue Per Piece:														Average Revenue Per Piece:
Next Day Air	$	19.11		$	19.20		$	19.66		(0.5	)%	(2.3	)%	Next Day Air	$	16.82		$	17.74		$	(0.92)	(5.2)	%
Deferred	12.43			11.85			11.70			4.9	%	1.3	%	Deferred	12.46			12.62			(0.16)		(1.3)	%
Ground	8.19			7.97			7.98			2.8	%	(0.1	)%	Ground	8.87			8.55			0.32		3.7	%
Total Avg. Revenue Per Piece	$	9.48		$	9.25		$	9.28		2.5	%	(0.3	)%
Total Average Revenue Per Piece														Total Average Revenue Per Piece	$	9.92		$	9.83		$	0.09	0.9	%
Operating Days in Period	254			255			254							Operating Days in Period	255			253
Revenue (in millions):														Revenue (in millions):
Next Day Air	$	7,088		$	6,752		$	6,570		5.0	%	2.8	%	Next Day Air	$	8,522		$	8,479		$	43	0.5	%
Deferred	4,421			4,082			3,903			8.3	%	4.6	%	Deferred	5,665			5,180			485		9.4	%
Ground	29,255			27,467			26,274			6.5	%	4.5	%	Ground	39,312			32,834			6,478		19.7	%
Total Revenue	$	40,764		$	38,301		$	36,747		6.4	%	4.2	%	Total Revenue	$	53,499		$	46,493		$	7,006	15.1	%
Operating Expenses (in millions):														Operating Expenses (in millions):
Operating Expenses	$	36,484		$	35,284		$	31,980		3.4	%	10.3	%	Operating Expenses	$	49,608		$	42,329		$	7,279	17.2	%
Defined Benefit Plans Mark-to-Market Charges	(637		)	(1,908		)	(62		)

Transformation Strategy Costs														Transformation Strategy Costs	(237)			(108)			(129)		119.4	%

Legal Contingencies and Expenses														Legal Contingencies and Expenses	—			(97)			97		N/M
Adjusted Operating Expenses	$	35,847		$	33,376		$	31,918		7.4	%	4.6	%	Adjusted Operating Expenses	$	49,371		$	42,124		$	7,247	17.2	%
Operating Profit (in millions) and Operating Margin:														Operating Profit (in millions) and Operating Margin:
Operating Profit	$	4,280		$	3,017		$	4,767		41.9	%	(36.7	)%	Operating Profit	$	3,891		$	4,164		$	(273)	(6.6)	%
Adjusted Operating Profit	$	4,917		$	4,925		$	4,829		(0.2	)%	2.0	%	Adjusted Operating Profit	$	4,128		$	4,369		$	(241)	(5.5)	%
Operating Margin	10.5		%	7.9		%	13.0		%					Operating Margin	7.3		%	9.0		%
Adjusted Operating Margin	12.1		%	12.9		%	13.1		%					Adjusted Operating Margin	7.7		%	9.4		%

Revenue

The change in ~~overall~~total revenue was ~~impacted by~~due to the ~~following factors for the years ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016, compared with the corresponding prior year periods:~~following:


Revenue Change Drivers:	Volume		Rates / Product Mix		Fuel Surcharges		Total Revenue Change

2020 vs. 2019	14.0	%	1.8	%	(0.7)	%	15.1	%

Volume
Rates /
Product Mix

Fuel
Surcharge

Total
Revenue
Change
Revenue Change Drivers:
2017/ 2016 3.8 % 1.7 % 0.9 % 6.4 %
2016/ 2015 4.6 % 0.2 % (0.6 )% 4.2 %

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Volume

~~2017~~2020 compared to ~~2016~~2019

~~Our overall volume~~Volume increased across all products, with growth strongest in ~~2017, largely~~residential ground services. Volume growth was primarily driven by business-to-consumer e-commerce, which grew by approximately 33%, partly due to ~~continued growth in overall retail sales, of which e-commerce continues to represent a larger percentage~~the impact of the ~~total growth. Business-to-consumer shipments, which represented more than 50%~~COVID-19 pandemic. We also benefited from the impact of ~~total U.S. Domestic Package volume,~~two additional operating days in 2020. Volume growth was led by our largest customer, Amazon, with growth stronger in the first half of the year. We also experienced growth from SMBs, as well as other large customers. Volume from SMBs grew ~~9.3%~~14.8% for the year, ~~which drove increases~~with growth accelerating in ~~both air and ground shipments. Business-to-business shipments decreased slightly in 2017 compared to 2016 largely due to declines in volume in professional services,~~the second half of the year as a result of ~~increased digitization,~~our investments to improve both time-in-transit and ~~high tech industries.~~our digital access platform.

~~Among~~Business-to-consumer shipments represented approximately 64% of total average daily volume for the year compared to approximately 54% in 2019. We believe that the COVID-19 pandemic has accelerated a change in consumer behavior, speeding up what we believe will be a long-term market shift towards e-commerce. Business-to-business shipments decreased 10% for the year, primarily in our ~~air~~ground products, as many businesses experienced disruption and periods of closure due to the pandemic. Business-to-business activity began to recover in the latter part of 2020.

Average daily volume increased in ~~2017 for~~both our Next Day Air and Deferred ~~services. Solid air volume~~products, driven by increased residential demand as a result of the growth continued for those products most aligned with business-to-consumer shipping, including our residential Next Day Air, Next Day Air Saver and Three Day Select package products, as consumers continue to demand faster options.in e-commerce. This ~~growth~~ was slightly offset by ~~a decline in Next Day Air letter volume, largely due to~~ declines in ~~the professional services industry~~business-to-business shipments, primarily as a result of COVID-19, as well as continued ~~growth~~declines in ~~digitization.~~Second Day Letter volume due to ongoing shifts in customer preferences.

~~The increase in ground volume in 2017 was~~Residential Ground and SurePost average daily volumes increased by 35% and 39%, respectively for the year, driven by ~~growth~~changes in ~~residential ground~~customer mix and SurePost volume, which benefited from continued e-commerce demand. Business-to-business shipments decreased slightly due to adverse weather conditions in third quarter 2017 however this decrease was partially offset by an increase in our return shipping services.

~~2016 compared to 2015~~

~~Our total volume increased across all products in 2016, largely due to continued~~the growth in e-commerce ~~and overall retail sales and the impact~~activity. Ground commercial average daily volume declined, as many businesses temporarily closed or operated on a limited basis as a result of one additional operating day. Business-to-consumer shipments, which represented more than 48% of total U.S. Domestic Package volume, grew nearly 9% for the year and 11.5% in the fourth quarter, which drove increases in both air and ground shipments. Business-to-business volume remained flat in 2016 due to revenue management initiatives and the overall slowing of the industrial manufacturing sector, offset by increased volume from the retail industry, including the use of our solutions for omni-channel (including ship-from-store and ship-to-store models) and returns shipping.

Next Day Air volume increased 5.2% in 2016, due to strong growth in e-commerce. We also experienced increased volume for our deferred air services in 2016, particularly for those products most aligned with business-to-consumer shipping, such as our residential Second Day Air Package and Three Day Select products partially offset by decreases in our business-to-business deferred air volume.

The increase in ground volume in 2016 was driven by growth in residential ground and SurePost volume while business-to-business shipments remained flat. Accelerating growth in e-commerce drove demand for our SurePost service, with volume increasing 19% in 2016.COVID-19.

Rates and Product Mix

~~2017~~2020 compared to ~~2016~~2019

Overall revenue per piece increased ~~2.5% in 2017, and was impacted by~~due to changes in base rates, customer and product mix and residential surcharges that went into effect in October 2020, partially offset by declines in fuel ~~surcharge rates.~~

~~Revenue per piece~~surcharges. Rates for UPS ground and UPS air ~~products was positively impacted by a base rate increase on December 26, 2016. UPS Ground rates and UPS Air~~ services ~~rates~~ increased an average net 4.9%~~. Effective January 8, 2017, we changed the dimensional weight calculation for packages subject to UPS daily rates. On June 19, 2017, we announced a new peak charge applicable during selected weeks~~ in ~~November and~~ December 2017 for U.S. Residential, Large Packages and packages Over Maximum Limits. The new charge is designed to enable UPS to continue to offset some of the additional expenses incurred during significant volume surges. Additionally on2019. SurePost rates increased effective October ~~25, 2017, we announced an average 4.9% base rate increase effective December 24, 2017 for UPS Ground and UPS Air services.~~

In the first quarter of 2017, we began our expanded Saturday ground operations to several metropolitan areas in the U.S. As of December 2017, Saturday service is available in approximately 4,700 cities and towns in the U.S. covering approximately 50% of the population. A Saturday pickup stop charge went into effect on May 1, 2017 and varies depending on the pickup service selected.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

2020.

Revenue per piece for our Next Day Air ~~services~~and Deferred products decreased primarily due to shifts in ~~2017 compared with 2016. The decrease in Next Day Air revenue per piece was primarily driven by a shift in~~customer and product mix, ~~as our~~ lower ~~yielding products experienced much larger volume growth than our higher yielding products. This shift was offset slightly by an increase~~fuel surcharges and a decrease in ~~the~~ average billable weight per piece. Revenue per piece offor our ~~deferred air services increased in 2017 compared with 2016. Deferred revenue per piece~~Ground products increased primarily due to anthe shift in customer mix, with a significant increase in SMB volume, and higher residential surcharges. These benefits were partially offset by shifts in product mix, lower fuel surcharges and a decrease in average billable weight per ~~piece, but was partially offset by an unfavorable shift in product mix. All products were positively impacted by higher fuel surcharge rates for 2017.~~

~~Ground revenue per piece increased in 2017, primarily due to base rate increases, higher fuel surcharge rates and an increase in average billable weight per~~ piece. ~~These factors were partially offset by changes in product mix, as we experienced faster volume growth in our SurePost product.~~

~~2016 compared to 2015~~

~~Overall revenue per piece decreased 0.3% in 2016, and was impacted by changes in base rates, customer and product mix and fuel surcharge rates.~~

Ground revenue per piece decreased in 2016, primarily due to customer and product mix changes, which adversely impacted revenue per piece as a greater portion of volume in 2016, relative to 2015, came from residential customers and lighter-weight shipments as SurePost volume surged. Additionally, lower fuel surcharge rates contributed to the decline. These drivers more than offset the rate actions taken since the fourth quarter of 2015.

Revenue per piece for Next Day Air products declined in 2016, while our deferred air products increased. All products were negatively impacted by lower fuel surcharge rates. The Next Day Air revenue per piece decline was caused by a shift in customer and product mix as well as an increase in lighter-weight packages. We experienced relatively stronger growth in our lighter-weight business-to-consumer shipments, particularly our Next Day Air Saver product, which have lower average yields than our heavier-weight commercial shipments. Customer mix also adversely impacted Next Day Air revenue per piece, due to faster volume growth among our larger customers, which have a lower average yield than our small and middle-market customers. Deferred revenue per piece increased primarily due to heavier-weight packages partially offset by product mix.

Revenue per piece for ground and air products was positively impacted by a base rate increase on December 28, 2015. UPS Ground rates and accessorial charges increased an average net 4.9%, while UPS Air services and accessorial charges increased an average net 5.2%. The surcharge increased for Over Maximum Packages and the index tables for the Ground and Air fuel surcharges were adjusted effective November 2, 2015. A charge for UPS’s Third-Party Billing Service was implemented, effective January 4, 2016. Additionally, the dimensions of ground packages incurring the UPS Additional Handling charge were changed effective June 6, 2016.

Fuel Surcharges

~~UPS applies~~We apply a fuel surcharge on our domestic air and ground services. The air fuel surcharge is based on the U.S. Department of Energy’s (“DOE”) Gulf Coast spot price for a gallon of kerosene-type jet fuel, while the ground fuel surcharge is based on the DOE’s On-Highway Diesel Fuel Price. Based on published rates, the average fuel surcharge rates for domestic ~~air~~Air and ~~ground~~Ground products were as follows:


	Year Ended December 31,				% Point Change
	2020		2019		2020 vs. 2019
Next Day Air / Deferred	3.9	%	7.3	%	(3.4)	%
Ground	6.6	%	7.2	%	(0.6)	%

Year Ended December 31, % Point Change
2017 2016 2015 2017/ 2016 2016/ 2015
Next Day Air / Deferred 5.2 % 3.6 % 4.8 % 1.6 % (1.2 )%
Ground 5.6 % 4.9 % 5.5 % 0.7 % (0.6 )%

~~Effective February 6, 2017,~~While fluctuations in fuel surcharges can be significant from period to period, fuel surcharges represent one of the ~~U.S. fuel surcharge rates are reset weekly instead~~many individual components of ~~monthly. In addition,~~our pricing structure that impact our overall revenue and yield. Additional components include the mix of products sold, the base price ~~indices have moved from a two month to a two week lag.~~and any additional charges or discounts on these services.

Total domestic fuel surcharge revenue increased by $347 million in 2017 as a result of higher fuel surcharge rates caused by an increase in jet and diesel fuel prices, as well as an overall increase in package volume. In addition to the factors above, fuel surcharge revenue was positively impacted by changes to the fuel surcharge calculation, as rates and price indices are updated more frequently to better align with prevailing market rates. In 2016, total fuel surcharge revenue decreased by ~~$219~~$344 million for the year as a result of lower fuel surcharge ~~rates caused by declining jet and diesel fuel prices,~~indices, partially offset by ~~the overall increase~~increases in ~~package~~ volume ~~for the period.~~and shifts in product mix.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Operating Expenses

~~2017~~2020 compared to ~~2016~~2019

Operating expenses, ~~for the period increased $1.2 billion, which included a $1.3 billion decrease in mark-to-market pension charges. Excluding~~and operating expenses excluding the impact of ~~the defined benefit plan mark-to-market charges, adjusted operating~~transformation strategy costs and legal contingencies and expenses, ~~for the segment~~ increased ~~$2.5 billion in 2017, primarily~~largely due to higher pickup and delivery costs (up ~~$1.0~~$4.2 billion),. In addition, the ~~cost~~costs of operating our domestic integrated air and ground network ~~(up $922 million), the~~increased $1.4 billion, costs of package sorting ~~(up $246 million)~~increased $927 million and ~~accessorials and~~other indirect operating costs ~~(up $279 million). These increases were~~increased $744 million. The overall increase in expense was driven ~~primarily by overall volume growth in 2017. Adjusted operating expenses were impacted~~ by several factors:

~~We incurred higher employee~~•Employee compensation and benefit costs increased $5.0 billion, largely resulting ~~from~~from:

◦residential volume growth that negatively impacted our delivery density, driving an increase in package delivery stops per day and in average daily miles driven. This drove an increase in average daily union labor hours ~~(up 6.5%),~~ of 14.1%;

◦union pay rate increases;

◦growth in the overall size of the ~~workforce~~workforce; and ~~an increase~~

◦acceleration of certain previously-issued incentive compensation awards for certain non-executive employees that resulted in ~~wage rates.~~additional expense of approximately $104 million.

~~Employee~~We also incurred higher employee benefit ~~costs increased, largely~~expenses due to additional headcount, contractual contribution rate increases to union multiemployer plans, and higher service costs for our company-sponsored pension and postretirement plans, primarily driven by lower discount rates used to measure the projected benefit obligations of these plans. Workers' compensation expense increased ~~employee healthcare,~~$114 million as a result of additional hours, medical and wage inflation and claims experience.

•Higher third-party transportation costs were driven by increased SurePost volume and utilization of outside carriers as part of our improvements to time-in-transit within our U.S. ground network.

•We incurred lower fuel costs for the year, driven by lower prices for jet fuel, diesel and gasoline that were partially offset by increased usage as a ~~decrease in pension expense and workers' compensation expense.~~

~~We incurred higher fuel expense in 2017 primarily due to higher fuel prices and increased volume which resulted in higher fuel usage (increase in aircraft block hours~~result of ~~7.0% and package delivery miles driven of 4.1%).~~

~~We incurred higher costs associated with outside contract carriers, primarily due to~~ volume growth ~~(including SurePost),~~and higher ~~fuel surcharges passed to us by carriers and general rate increases.~~average daily miles driven.

Total cost per piece, ~~decreased 0.3% in 2017 compared to 2016~~ and was primarily impacted by a 380 basis point decrease due to the defined benefit plan mark-to-market charge offset by the cost increases described previously. The increased expenses in 2017 were also driven by: capacity constraints due to volume surges in the fourth quarter of 2017, start-up costs of several investments underway to further expand and modernize our air and ground networks, and the costs of implementing Saturday operations. Costs were further impacted by rising fuel prices. In order to contain costs, we continually adjust our air and ground networks to better match higher volume levels. In addition, we continue to deploy and utilize technology to increase package sorting and delivery productivity.

~~2016 compared to 2015~~

Operating expenses for the period increased $3.3 billion, which included a $1.8 billion increase in mark-to-market pension charges. Excluding the impact of the defined benefit plan mark-to-market charges, adjusted operating expenses for the segment increased $1.5 billion in 2016, primarily due to pickup and delivery costs (up $814 million), the cost of operating our domestic integrated air and ground transportation network (up $282 million), the costs of package sorting (up $181 million) and accessorials and indirect operating costs (up $180 million). Adjusted operating expenses were impacted by several factors:

We incurred higher employee compensation, largely resulting from an increase in average daily union labor hours (up 4.2%) and growth in the overall size of the workforce partially offset by lower wage rates.

~~Employee benefit costs increased, largely due to increased employee healthcare, pension expense and workers' compensation expense.~~

We incurred lower fuel expense in 2016 primarily due to lower fuel prices and an increase in average miles per gallon. This was partially offset by higher fuel usage (due to an increase in aircraft block hours and vehicle miles driven.)

~~We incurred higher expenses for purchased transportation due to higher volume, partially offset by lower fuel surcharge rates passed to us from third-party carriers.~~

~~Total~~ cost per piece excluding the year over year impact of transformation strategy costs and legal contingencies and expenses, increased ~~5.5% in 2016~~2.8% as a result of the factors described above.

Operating Profit and Margin

2020 compared to ~~2015~~2019

As a result of the factors described above, operating profit decreased $273 million, with operating margins decreasing 170 basis points to 7.3%. Excluding the year over year impact of transformation strategy costs and ~~was primarily impacted by a 540~~legal contingencies and expenses, adjusted operating profit decreased $241 million, with operating margins decreasing 170 basis ~~point increase due~~points to the defined benefit plan mark-to-market charge and the cost increases described previously. These increases were partially offset by the continued deployment of ORION, which has contained the growth of average daily vehicle miles driven, and the increased redirect of SurePost volume to optimize delivery density on UPS vehicles, which has reduced the delivery costs for business-to-consumer shipments.7.7%.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~Operating Profit and Margin~~International Package Operations

~~2017 compared to 2016~~


	Year Ended December 31,						Change
	2020			2019			$		%
Average Daily Package Volume (in thousands):
Domestic	1,863			1,721					8.3	%
Export	1,672			1,472					13.6	%
Total Average Daily Package Volume	3,535			3,193					10.7	%
Average Revenue Per Piece:
Domestic	$	6.65		$	6.51		$	0.14	2.2	%
Export	28.52			29.10			(0.58)		(2.0)	%
Total Average Revenue Per Piece	$	16.99		$	16.93		$	0.06	0.4	%
Operating Days in Period	255			253
Revenue (in millions):
Domestic	$	3,160		$	2,836		$	324	11.4	%
Export	12,159			10,837			1,322		12.2	%
Cargo & Other	626			547			79		14.4	%
Total Revenue	$	15,945		$	14,220		$	1,725	12.1	%
Operating Expenses (in millions):
Operating Expenses	$	12,509		$	11,563		$	946	8.2	%

Transformation Strategy Costs	(96)			(122)			26		(21.3)	%


Adjusted Operating Expenses	$	12,413		$	11,441		$	972	8.5	%
Operating Profit (in millions) and Operating Margin:
Operating Profit	$	3,436		$	2,657		$	779	29.3	%
Adjusted Operating Profit	$	3,532		$	2,779		$	753	27.1	%
Operating Margin	21.5		%	18.7		%
Adjusted Operating Margin	22.2		%	19.5		%
Currency Translation Benefit / (Cost)—(in millions)*:
Revenue							$	129
Operating Expenses							(59)
Operating Profit							$	70

~~Operating profit increased $1.3 billion~~


*			Net of currency hedging; amount represents the change compared to the prior year.

Revenue

The change in ~~2017 compared with 2016, primarily~~total revenue was due to a $1.3 billion decrease in mark-to-market pension charges to operating expense. Operating margin increased 260 basis points to 10.5%. Adjusted operating profit decreased $8 million in 2017 compared with 2016, while the adjusted operating margin decreased 80 basis points to 12.1%. Operating profit was negatively impacted by an increase in continued investments in new buildings and new strategic investments including deployment of Saturday operations. There was an adverse impact from higher purchased transportation costs due to volume surges in the fourth quarter 2017 and from fuel as expense increased at a faster pace than fuel surcharge revenue.following:

~~2016 compared to 2015~~


Revenue Change Drivers:	Volume		Rates / Product Mix		Fuel Surcharges		Currency		Total Revenue Change

2020 vs. 2019	11.6	%	1.5	%	(1.9)	%	0.9	%	12.1	%

Operating profit decreased $1.8 billion in 2016 compared with 2015, primarily due to a $1.8 billion increase in mark-to-market pension charges to operating expense. Operating margin decreased 510 basis points to 7.9%. Adjusted operating profit increased $96 million in 2016 compared with 2015, while the adjusted operating margin decreased 20 basis points to 12.9%. Revenue growth from increased volume and enhanced productivity through the continued deployment of ORION technology resulted in higher operating profit, but was offset by an unfavorable shift in customer and product mix, especially in the fourth quarter. The net impact of fuel also negatively impacted operating profit as fuel surcharge revenue decreased faster than fuel expense.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~International Package Operations~~

Year Ended December 31, % Change
2017 2016 2015 2017/ 2016 2016/ 2015
Average Daily Package Volume (in thousands):
Domestic 1,714
1,635
1,575
4.8 % 3.8 %
Export 1,395
1,210
1,151
15.3 % 5.1 %
Total Avg. Daily Package Volume 3,109
2,845
2,726
9.3 % 4.4 %
Average Revenue Per Piece:
Domestic $ 6.08
$ 5.85
$ 6.06
3.9 % (3.5 )%
Export 28.69
30.38
31.10
(5.6 )% (2.3 )%
Total Avg. Revenue Per Piece $ 16.22
$ 16.29
$ 16.63
(0.4 )% (2.0 )%
Operating Days in Period 254
255
254

Revenue (in millions):
Domestic $ 2,645
$ 2,441
$ 2,425
8.4 % 0.7 %
Export 10,167
9,374
9,092
8.5 % 3.1 %
Cargo & Other 526
535
632
(1.7 )% (15.3 )%
Total Revenue $ 13,338
$ 12,350
$ 12,149
8.0 % 1.7 %
Operating Expenses (in millions):
Operating Expenses $ 10,874
$ 10,306
$ 10,012
5.5 % 2.9 %
Defined Benefit Plan Mark-to-Market Charges (35 ) (425 ) (44 )
Adjusted Operating Expenses $ 10,839
$ 9,881
$ 9,968
9.7 % (0.9 )%
Operating Profit (in millions) and Operating Margin:
Operating Profit $ 2,464
$ 2,044
$ 2,137
20.5 % (4.4 )%
Adjusted Operating Profit $ 2,499
$ 2,469
$ 2,181
1.2 % 13.2 %
Operating Margin 18.5 % 16.6 % 17.6 %
Adjusted Operating Margin 18.7 % 20.0 % 18.0 %
Currency Translation Benefit / (Cost)—(in millions)*:
Revenue $ (325 ) $ (138 )
Operating Expenses (50 ) 146
Operating Profit $ (375 ) $ 8



*	~~Net of currency hedging; amount represents the change compared to the prior year.~~

~~Revenue~~

~~The change in overall revenue was impacted by the following factors for the years ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016, compared with the corresponding prior year periods:~~

Volume
Rates /
Product Mix

Fuel
Surcharge
Currency
Total
Revenue
Change
Revenue Change Drivers:
2017/ 2016 8.9 % (0.9 )% 2.6 % (2.6 )% 8.0 %
2016/ 2015 4.8 % (1.2 )% (0.8 )% (1.1 )% 1.7 %

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

Volume

~~2017~~2020 compared to ~~2016~~2019

~~Our overall average~~Average daily volume increased for both domestic and export products. Business-to-consumer volume increased as the COVID-19 pandemic drove growth in ~~2017, largely due to continued strength~~e-commerce. Business-to-business volume declined as the pandemic negatively impacted business operations globally, however we experienced a slight increase in ~~business-to-consumer~~volumes in the fourth quarter.

Average daily volume ~~as well as~~growth was driven primarily by strong demand from ~~several~~the retail and technology sectors ~~including retail, industrial~~due to the increase in e-commerce activity. This was partially offset by lower volumes in manufacturing ~~high-tech~~ and ~~healthcare.~~other sectors as COVID-19 caused a decline in commercial activity.

~~We continued to experience~~Export volume increased across most major trade lanes, driven by Europe and Asia. Europe export volume growth ~~in 2017. The~~was highest on the Europe to U.S. trade lane, with intra-Europe volumes also growing significantly. Asia export volume growth was ~~mainly~~strongest on the Asia to U.S. trade lane. We experienced volume growth from both our large customers and SMBs, with SMB growth accelerating during the second half of the year. Our premium products saw volume growth, primarily driven by our ~~European, Asian~~Worldwide Express product, however growth was stronger in our non-premium products, such as World Wide Expedited and ~~U.S. operations, which experienced increases~~Transborder Standard due to shifts in ~~volume to major trade lanes of the world. European export~~customer preference for these products.

Domestic volume increased in ~~2017, with~~many of our markets, driven by growth in ~~all trade lanes. Asia export volume also increased in 2017, with particular strength in Asia-to-U.S., Asia-to-Americas~~Canada and intra-Asia trade lanes. Export volume into the U.S. grew in all trade lanes, led by Europe and the Americas. Export volume growth was strong across all major products, with a continued shift towards our premium express products, such as Worldwide Express and Transborder Express services.

~~The increase in domestic growth in 2017~~several European countries that was primarily due to ~~growth in Turkey, Germany, France, Italy and U.K.~~

~~2016 compared to 2015~~

Our overall average daily volume increased in 2016, largely due to continued strength in business-to-consumer volume, as well as strong demand from several sectors including retail, industrial manufacturing, high-tech and healthcare.

~~We continued to experience export~~residential volume growth ~~in 2016. The growth was mainly driven by our European and Asian operations, which experienced increases in volume to all regions of~~resulting from the world. European export volume increased in 2016, with particular strength in the Europe-to-U.S. and intra-Europe trade lanes. Asia export volume also increased in 2016, with growth in all trade lanes. However, U.S. export volume declined largely due to the impact of the stronger U.S. Dollar. Export volume growth was distributed across all products led by our Worldwide Express product.

~~The~~ increase in ~~domestic volume in 2016 was primarily due to growth in Italy, France, Turkey and Mexico.~~e-commerce.

Rates and Product Mix

~~2017~~2020 compared to ~~2016~~2019

~~Total average revenue per piece decreased 0.4% in 2017, impacted~~Rate changes for shipments originating outside the U.S. are made throughout the year and vary by ~~a 250 basis point reduction~~geographic market. In response to market capacity constraints resulting from ~~currency and a shift in product mix. These factors were partially offset by an increase in fuel surcharge rates as well as an increase in base rates.~~

Onthe COVID-19 pandemic, we implemented surcharges on certain lanes during the year. In December ~~26, 2016,~~2019, we implemented an average 4.9% net increase in base and accessorial rates for international shipments originating in the United States. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic markets. Effective September 17, 2017, a peak surcharge was applied to any shipment originating from China or Hong Kong to the United States for certain service levels during the peak period. The surcharge was applied

Total revenue per piece increased 0.4% as a ~~rate~~result of changes in customer and product mix, the impact of demand surcharges and currency movements, which were largely offset by a decline in fuel surcharges. Excluding the impact of currency, revenue per ~~pound based upon~~piece decreased 0.5%.

Domestic revenue per piece increased 2.2% due to changes in customer and product mix, demand surcharges and currency movements that were partially offset by a decline in fuel surcharges. Excluding the ~~billable weight~~impact of the shipment. Additionally, on October 25, 2017, we announced an average 4.9% net increase in base and accessorial rates for international shipping originating in the United States; changes became effective on December 24, 2017.currency, revenue per piece increased 1.2%.

Export revenue per piece decreased ~~5.6%~~2.0% primarily due to a decline in ~~2017, impacted by a 320 basis point reduction from currency and product mix. This was~~fuel surcharges that were partially offset by ~~an increase~~changes in ~~fuel surcharges, an increase in base rates and strong volume growth in premium products.~~

~~Domestic revenue per piece increased 3.9% in 2017, impacted by a 50 basis point increase from~~demand surcharges. Excluding the impact of currency, ~~increase in base rates and higher fuel surcharges.~~

~~2016 compared to 2015~~

~~Total average~~ revenue per piece decreased ~~2.0% in 2016, impacted by a 110 basis point reduction from currency as well as lower~~2.8%.

Fuel Surcharges

We apply fuel surcharges on our international air and ground services. The fuel surcharge ~~rates. These factors were~~for international air services originating inside or outside the U.S. is largely indexed to the DOE's Gulf Coast spot price for a gallon of kerosene-type jet fuel. The fuel surcharges for ground services originating outside the U.S. are indexed to fuel prices in the region or country where the shipment originates.

While fluctuations can be significant from period to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield. Additional components include the mix of services sold, the base price and extra service charges and the pricing discounts offered. Total international fuel surcharge revenue decreased by $263 million in 2020 as a result of declines in fuel surcharge indices, partially offset by ~~an increase~~volume growth and changes in ~~base rates, lower discounts~~customer and ~~a shift in~~ product ~~mix as the growth in premium products continued to exceed the growth in our standard products.~~mix.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~On December 28, 2015, we implemented~~Operating Expenses

2020 compared to 2019

Operating expenses, and operating expenses excluding the year over year impact of transformation strategy costs, increased in 2020. Pickup and delivery costs increased $540 million due to volume growth and an ~~average 5.2% net~~ increase in ~~base~~residential deliveries that drove additional third-party pickup and ~~accessorial rates for~~delivery expense.

The costs of operating our integrated international ~~shipments originating in the United States (Worldwide Express, Worldwide Saver, UPS Worldwide Expedited~~air and ~~UPS International Standard service). On November 2, 2015, the surcharge~~ground network increased for Over Maximum Packages and the tables for Ground, Air and International fuel surcharges were adjusted. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market.

~~Export revenue per piece decreased 2.3% in 2016, impacted by a 50 basis point reduction from currency~~$66 million, as ~~well as lower fuel surcharge rates. These factors~~increased block hours were partially offset by lower fuel prices.

In addition to variability in usage and market prices, the manner in which we purchase fuel also influences the net impact of costs on our results. The majority of our contracts for fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential. While many of the indices are aligned, each index may fluctuate at a different pace, driving variability in the prices paid for fuel. Because of this, our operating results may be affected should the market price of fuel suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our earnings either positively or negatively in the short-term.

The remaining increase in ~~base rates, lower discounts and favorable package weight and characteristics.~~

~~Domestic revenue per piece decreased 3.5%~~operating expenses in ~~2016, impacted by a 380 basis point reduction from currency as well as lower fuel surcharge rates. These factors were partially offset by an increase in base rates.~~

~~Fuel Surcharges~~

We maintain fuel surcharges on our international air and ground services. The fuel surcharges for international air products originating inside or outside the United States are indexed to the DOE's Gulf Coast spot price for a gallon of kerosene-type jet fuel, while the fuel surcharges for ground products originating outside the United States are indexed to fuel prices in the international region or country where the shipment takes place.

~~Total international fuel surcharge revenue increased by $325 million in 2017, primarily~~2020 was due to ~~volume increases, higher fuel prices~~package sorting and pricing changes made to base freight rates and to the fuel surcharge indices from a two month lag to a two week lag. Total international fuel surcharge revenue decreased by $119 million in 2016, primarily due to price reductions in the fuel surcharge indices; however, this was partially offset by an increase in volume and changes in mix.other indirect operating costs.

Operating ~~Expenses~~Profit and Margin

~~2017~~2020 compared to ~~2016~~2019

~~Overall~~As a result of the factors described above, operating ~~expenses~~profit increased ~~by $568~~$779 million, ~~which included a $390 million decrease in mark-to-market pension charges.~~with operating margin increasing 280 basis points to 21.5%. Excluding the year over year impact of ~~the defined benefit plan mark-to-market charges,~~transformation strategy costs, adjusted operating ~~expenses~~profit increased for the ~~segment increased $958 million in 2017 primarily due~~year, with operating margin increasing 270 basis points to ~~increased volumes, higher fuel usage and currency fluctuations.~~22.2%.

Operating expenses were impacted by changes in the cost of operating our international integrated air and ground network, which increased $418 million, as well as pickup and delivery costs, which increased $280 million. The increase in network costs was largely driven by volume growth in our Express products, which drove a 3.0% increase in aircraft block hours and higher fuel usage. Additionally, the increase in pickup and delivery costs is due to increased volume. Operating expenses were also impacted in 2017 by a $260 million increase in indirect overhead and package sorting costs and other costs.

~~2016~~ ~~compared to~~ ~~2015~~

Overall operating expenses increased by $294 million, which included a $381 million increase in mark-to-market pension charges. Excluding the impact of the defined benefit plan mark-to-market charges, adjusted operating expenses for the segment decreased $87 million in 2016 primarily due to currency exchange rate movements and lower fuel expense.

Operating expenses were impacted by changes in the cost of operating our international integrated air and ground network, which decreased $40 million, as well as pickup and delivery costs, which decreased $143 million. The decreases in network and pickup and delivery costs were largely due to the impact of currency exchange rate movements and lower fuel expense. Network cost reductions were somewhat offset by an increase in aircraft block hours (up 1.2% in 2016), driven by a 5.1% increase in international export volume and continuing air product service enhancements.

Operating expenses were also impacted in 2016 by a $96 million increase in indirect overhead, package sorting costs and other gains and losses. The total cost per piece for the segment decreased 1.8% in 2016.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~Operating Profit~~Supply Chain & Freight Operations


	Year Ended December 31,						Change
	2020			2019			$		%
Freight LTL Statistics:
Revenue (in millions)	$	2,566		$	2,679		$	(113)	(4.2)	%
Revenue Per Hundredweight	$	27.46		$	26.54		$	0.92	3.5	%
Shipments (in thousands)	8,847			9,281					(4.7)	%
Shipments Per Day (in thousands)	34.8			36.7					(5.2)	%
Gross Weight Hauled (in millions of lbs)	9,343			10,096					(7.5)	%
Weight Per Shipment (in lbs)	1,056			1,088					(2.9)	%
Operating Days in Period	254			253
Revenue (in millions):
Forwarding	$	6,975		$	5,867		$	1,108	18.9	%
Logistics	4,073			3,435			638		18.6	%
Freight	3,149			3,265			(116)		(3.6)	%
Other	987			814			173		21.3	%
Total Revenue	$	15,184		$	13,381		$	1,803	13.5	%
Operating Expenses (in millions):
Operating Expenses	$	14,827		$	12,404		$	2,423	19.5	%
Transformation Strategy Costs	(15)			(25)			10		(40.0)	%
Goodwill and Other Asset Impairment Charges	(686)			—			(686)		N/M
Adjusted Operating Expenses	$	14,126		$	12,379		$	1,747	14.1	%
Operating Profit (in millions) and Operating Margins:
Operating Profit	$	357		$	977		$	(620)	(63.5)	%
Adjusted Operating Profit	$	1,058		$	1,002		$	56	5.6	%
Operating Margin	2.4		%	7.3		%
Adjusted Operating Margin	7.0		%	7.5		%
Currency Translation Benefit / (Cost)—(in millions)*:
Revenue							$	(92)
Operating Expenses							90
Operating Profit							$	(2)


*			Amount represents the change compared to the prior year.


	Year Ended December 31,				Change
	2020		2019		$		%
Transformation Strategy Costs (in millions):
Forwarding	$	8	$	12	$	(4)	(33.3)	%
Logistics	6		13		(7)		(53.8)	%
Freight	1		—		1		N/M

Total Transformation Strategy Costs	$	15	$	25	$	(10)	(40.0)	%

In January 2021, we entered into a definitive agreement to sell our UPS Freight business. As of December 31, 2020, we classified certain assets and ~~Margin~~

~~2017 compared~~liabilities of UPS Freight as held for sale in the consolidated balance sheet. Upon classification as held for sale, we recognized a total impairment charge of $686 million within Other expenses in the statements of consolidated income. This was comprised of a goodwill impairment charge of $494 million and a valuation allowance to ~~2016~~

~~Operating profit increased $420 million in 2017 compared with 2016, which included a $390 million decrease in operating expenses due~~adjust the carrying value of the disposal group to ~~mark-to-market pension adjustments. Operating margin increased 190 basis points~~fair value less cost to 18.5%. Adjusted operating profit increased by $30 million in 2017, while the adjusted operating margin decreased 130 basis points to 18.7%. Operating margin was affected by negative currency exchange movements due to volatilitysell of ~~both hedged and unhedged currencies. Included in adjusted operating profit is a $375 million decrease due to currency.~~

~~2016 compared to 2015~~

Operating profit decreased $93 million in 2016 compared with 2015, which included a $381 million increase in operating expenses due to mark-to-market pension adjustments. Operating margin decreased 100 basis points to 16.6%. Adjusted operating profit increased by $288 million in 2016, while the adjusted operating margin increased 200 basis points to 20.0%. Operating profit and margin were positively affected by several factors including base rate increases, modifications$192 million. See note 4 to the ~~fuel surcharge indices and currency exchange rate movements (including currency hedging gains).~~audited, consolidated financial statements for additional information.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Revenue

2020 compared to 2019

Total revenue in the Supply Chain & Freight ~~Operations~~segment increased $1.8 billion. The impact of the COVID-19 pandemic varied within the segment. Our LTL business faced excess capacity and reduced demand in the first half of the year before market conditions began to improve. Conversely, our international air freight forwarding business benefited from demand for personal protective equipment out of Asia as well as increases in market rates caused by a sharp decline in passenger aircraft cargo capacity. Our Logistics business experienced increased demand from the healthcare and retail sectors, while activity in other sectors declined.

Overall Forwarding revenue increased for the year. In our international air freight business, revenue grew as a result of higher market rates, capacity surcharges and strong demand in Asia. Ocean freight forwarding revenue increased due to Asia-export volume growth in the second half of the year. Revenue in our truckload brokerage business increased as volume levels recovered in the third and fourth quarters. Higher demand, together with capacity constraints in the truckload brokerage market, drove rate increases.

Year Ended December 31, % Change
2017 2016 2015 2017/ 2016 2016/ 2015
Freight LTL Statistics:
Revenue (in millions) $ 2,596
$ 2,384
$ 2,479
8.9 % (3.8 )%
Revenue Per Hundredweight $ 24.08
$ 23.44
$ 22.94
2.7 % 2.2 %
Shipments (in thousands) 10,203
9,954
10,433
2.5 % (4.6 )%
Shipments Per Day (in thousands) 40.5
39.3
41.2
3.1 % (4.6 )%
Gross Weight Hauled (in millions of lbs) 10,782
10,167
10,808
6.0 % (5.9 )%
Weight Per Shipment (in lbs) 1,057
1,021
1,036
3.5 % (1.4 )%
Operating Days in Period 252
253
253

Revenue (in millions):
Forwarding and Logistics $ 7,981
$ 6,793
$ 5,900
17.5 % 15.1 %
Freight 2,998
2,736
2,881
9.6 % (5.0 )%
Other 791
726
686
9.0 % 5.8 %
Total Revenue $ 11,770
$ 10,255
$ 9,467
14.8 % 8.3 %
Operating Expenses (in millions):
Operating Expenses $ 10,985
$ 9,849
$ 8,703
11.5 % 13.2 %
Defined Benefit Plans Mark-to-Market Charges (128 ) (318 ) (12 )
Adjusted Operating Expenses $ 10,857
$ 9,531
$ 8,691
13.9 % 9.7 %
Operating Profit (in millions) and Operating Margins:
Operating Profit $ 785
$ 406
$ 764
93.3 % (46.9 )%
Adjusted Operating Profit $ 913
$ 724
$ 776
26.1 % (6.7 )%
Operating Margin 6.7 % 4.0 % 8.1 %
Adjusted Operating Margin 7.8 % 7.1 % 8.2 %
Currency Translation Benefit / (Cost)—(in millions)*:
Revenue $ 10
$ (56 )
Operating Expenses (12 ) 59
Operating Profit $ (2 ) $ 3



*	~~Amount represents the change compared to the prior year.~~

Within Logistics, revenue in our mail services business increased as a result of e-commerce growth, which also led to a favorable shift in product characteristics. In ~~December 2016,~~addition, we ~~acquired Marken,~~implemented a ~~global provider of supply chain solutions~~peak surcharge in mail services in the fourth quarter which contributed to the ~~life sciences industry~~overall increase in revenue. In the healthcare sector, we experienced growth in demand for our healthcare logistics and ~~leader~~distribution solutions, partly driven by the impacts of the COVID-19 pandemic.

UPS Freight revenue declined due to volume and tonnage declines in ~~clinical trials, material storage and distribution. Marken's financial results are included~~our LTL business driven by overall market conditions, as well as volume optimization initiatives that resulted in an increase in revenue per hundredweight. Revenue from the Ground with Freight Pricing product grew as volume levels increased in the ~~above table within Forwarding and Logistics~~second half of the year.

Revenue from the ~~date~~other businesses within the segment increased, driven by growth within UPS Customer Solutions, as well as additional volume from service contracts with the U.S. Postal Service.

Operating Expenses

2020 compared to 2019

Total operating expenses for the segment, and operating expenses excluding the year over year impact of restructuring and other costs, increased in 2020.

Forwarding operating expenses increased $1.1 billion, largely due to higher market rates and additional charter flights out of Asia which increased purchased transportation expense for international air freight. This increase was slightly offset by declines in tonnage and volume. In truckload brokerage, volume growth and higher market rates also contributed to the increase in purchased transportation expense. Other expenses decreased slightly as a result of ongoing cost management initiatives.

Logistics operating expenses increased $582 million, driven by higher purchased transportation expense in mail services as a result of volume growth and carrier rate increases, as well as volume growth in the healthcare sector.

UPS Freight operating expenses increased $607 million, due primarily to an impairment charge of $686 million in respect of goodwill and assets held for sale as a result of entering into an agreement to divest our UPS Freight business. We expect this divestiture to be completed in the second quarter of 2021.

Operating Profit and Margin

2020 compared to 2019

As a result of the ~~acquisition and have impacted the year-over-year comparability of revenue, operating expenses and~~factors described above, total operating profit for the ~~years ended December 31, 2017~~Supply Chain & Freight segment decreased $620 million. Excluding the year over year impact of restructuring and ~~2016.~~

In August 2015, we acquired Coyote, a truckload freight brokerage company. Coyote's financial results are included in the above table within Forwarding and Logistics from the date of the acquisition, which has impacted the year-over-year comparability of revenue, operating expenses andother costs, adjusted operating profit ~~for the years ended December 31, 2016 and 2015.~~increased $56 million. Operating margin decreased 490 basis points to 2.4%, while adjusted operating margin decreased 50 basis points to 7.0%.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~Revenue~~

~~2017 compared to 2016~~

~~Total revenue for the Supply Chain & Freight segment increased $1.515 billion in 2017 compared to 2016.~~

Forwarding and Logistics revenue increased $1.188 billion in 2017 compared with 2016, primarily due to increased truckload brokerage freight volume movement and tonnage increases in our international air freight and North American air freight forwarding businesses. The volume and tonnage increases were driven by improving overall market demand. Revenue for our logistics products increased in 2017 due to growth in mail services, healthcare, retail and aerospace solutions, offset by declines among our high tech customers. Additionally, the Marken acquisition on December 21, 2016 contributed to the increase in revenue. Revenue was positively impacted by currency exchange rate movements.

UPS Freight revenue increased $262 million in 2017 compared to 2016, driven by increases in shipments and weight per shipment. These increases were impacted by an overall improvement in market demand and customer mix. LTL revenue per hundredweight increased slightly as LTL base rate increases, averaging 4.9%, took effect September 19, 2016. Additionally, effective June 26, 2017, LTL base rates increased by an additional 4.9% for certain shipments in the U.S., Canada and Mexico. Fuel surcharge revenue also increased $70 million due to changes in overall LTL shipment volume and diesel fuel prices.

Revenue for the other businesses within Supply Chain & Freight increased $65 million in 2017 due to revenue growth at UPS Capital Corporation and UPS Customer Solutions, as well as service contracts with the U.S. Postal Service.

~~2016 compared to 2015~~

~~Total revenue for the Supply Chain & Freight segment increased $788 million in 2016 compared to 2015.~~

Forwarding and Logistics revenue increased $893 million in 2016 compared with 2015, primarily due to the Coyote acquisition midway through the third quarter of 2015, offset by a combination of volume and tonnage declines in our North American air freight and international air freight businesses (impacted by management focus to reduce lower-yielding accounts and softer market conditions). Additionally, revenue was adversely impacted by currency exchange rate movements and lower fuel surcharge rates (due to declining fuel prices). Revenue for our logistics products increased in 2016 as there was growth in our mail services and retail, aerospace, healthcare and automotive solutions.

UPS Freight revenue decreased $145 million in 2016 compared with 2015, driven by lower tonnage (down 5.9% from 2015) and a $73 million decrease in fuel surcharge revenue due to lower diesel fuel prices. The decline in shipments and the reduction in the weight per shipment were impacted by revenue management initiatives, an overall decline in market demand and customer mix. LTL revenue per hundredweight increased as LTL base rate increases averaging 4.9% took effect on October 26, 2015 and September 19, 2016.

~~Revenue for the other businesses within Supply Chain & Freight increased $40 million in 2016~~ d~~ue to revenue growth at UPS Capital Corporation, UPS Customer Solutions and The UPS Store.~~

Consolidated Operating Expenses

~~2017 compared to 2016~~


	Year Ended December 31,				Change
	2020		2019		$		%
Operating Expenses (in millions):
Compensation and benefits	$	44,529	$	38,908	$	5,621	14.4	%
Transformation strategy costs	(211)		(166)		(45)		27.1	%

Adjusted Compensation and benefits	44,318		38,742		5,576		14.4	%

Repairs and maintenance	2,365		1,838		527		28.7	%
Depreciation and amortization	2,698		2,360		338		14.3	%
Purchased transportation	15,631		12,590		3,041		24.2	%
Fuel	2,582		3,289		(707)		(21.5)	%
Other occupancy	1,539		1,392		147		10.6	%
Other expenses	7,600		5,919		1,681		28.4	%
Total Other expenses	32,415		27,388		5,027		18.4	%
Other Transformation strategy costs	(137)		(89)		(48)		53.9	%
Legal contingencies and expenses	—		(97)		97		(100.0)	%
Goodwill and other asset impairment charges	(686)		—		(686)		N/M
Adjusted Total Other expenses	$	31,592	$	27,202	$	4,390	16.1	%

Total Operating Expenses	$	76,944	$	66,296	$	10,648	16.1	%
Adjusted Total Operating Expenses	$	75,910	$	65,944	$	9,966	15.1	%

Currency Translation Benefit - (in millions)*					$	31
*Amount represents the change in currency translation compared to the prior year.


	Year Ended December 31,				Change
	2020		2019		$		%
Adjustments to Operating Expenses (in millions):
Transformation strategy costs:
Compensation	$	34	$	21	$	13	61.9	%
Benefits	177		145		32		22.1	%
Depreciation and amortization	—		3		(3)		(100.0)	%
Other occupancy	8		8		—		—	%
Other expenses	129		78		51		65.4	%
Total Transformation strategy costs	$	348	$	255	$	93	36.5	%
Legal contingencies and expenses:
Other expenses	$	—	$	97	$	(97)	(100.0)	%
Goodwill and other asset impairment charges:
Other expenses	$	686	$	—	$	686	N/M
Total Adjustments to Operating Expenses	$	1,034	$	352	$	682	193.8	%

~~Supply Chain & Freight operating expenses for the period increased $1.136 billion, which includes a $190 million decrease in mark-to-market pension charges.~~

Forwarding and Logistics operating expenses increased $927 million, largely due to increased purchased transportation expenses and the acquisition of Marken in 2016. This was offset by operating efficiencies, a decrease in the mark-to-market pension charges in 2017 compared to 2016 and the receipt of a $20 million favorable legal settlement in the second quarter of 2017. Purchased transportation expense increased by $949 million compared to 2016 due to increased truckload brokerage freight movement, the acquisition of Marken in 2016, and the resulting increased fuel surcharges passed to us from outside transportation providers. Increased tonnage and third-party air carrier procurement rates in our North American and international air freight forwarding businesses, and increased volume and rates for mail services, also contributed to increased purchased transportation expenses.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~UPS Freight operating expenses~~Compensation and Benefits

2020 compared to 2019

Total compensation and benefits, and total compensation and benefits excluding the year over year impact of transformation strategy costs, increased ~~$196 million~~ in 2017 compared with 2016. The increase in operating expense was largely due to costs associated with operating our linehaul network ($120 million) and increases in pickup and delivery costs ($79 million). The network2020.

Total compensation costs, and pickup and delivery expenses were driven by higher fuel cost and higher expense for outside transportation carriers (largely due to LTL volume growth and fuel surcharges passed to us by outside carriers). Total cost per LTL shipment increased 4.7% in 2017 compared to 2016. Operating expenses related to our casualty self-insurance reserves also increased in 2017 compared with 2016.

~~Other expenses for~~total compensation costs excluding the other businesses within Supply Chain & Freight increased $13 million in 2017 compared with 2016 primarily due to UPS Capital, UPS Customer Solutions and service contracts with the U.S. Postal Service, slightly offset by decreases in The UPS Store.

~~2016 compared to 2015~~

Supply Chain & Freight operating expenses for the period increased $1.146 billion, which included a $306 million increase in mark-to-market pension charges. Forwarding and Logistics operating expenses increased $910 million, largely due to the acquisition of Coyote during the third quarter of 2015 and the increase in mark-to-market pension adjustment, partially offset by theyear over year impact of ~~currency exchange rate movements and lower fuel expense. Purchased transportation expense~~transformation strategy costs, increased by $862 million compared to 2015 largely due to the acquisition of Coyote. These increases were partially offset by a combination of lower volume and tonnage in our North American air freight and international air freight forwarding businesses, lower buy rates due to softer market conditions and the impact of currency exchange rates.

~~UPS Freight operating expenses decreased $103 million in 2016 compared with 2015,~~$3.1 billion or 13.3%, primarily as a result of:

•U.S. Domestic labor costs increased as a result of ~~decreases~~residential volume growth, driving a 21.5% increase in ~~our network costs ($58 million)~~package delivery stops per day. This drove additional headcount and ~~pickup~~an increase in average daily union hours of 14.1%. Contractual union wage increases also contributed to the increase in compensation for hourly employees.

•Management compensation expense increased due to salary increases, higher incentive compensation, including the acceleration of certain previously-issued incentive compensation awards, and ~~delivery costs ($34 million), offset~~growth in ~~part by~~ the ~~increased mark-to-market pension charges. The declines in network~~overall size of the workforce.

Benefits costs, and ~~pickup~~benefits costs excluding the year over year impact of transformation strategy costs, increased $2.5 billion as a result of:

•Health and ~~delivery expenses~~welfare costs increased $558 million, driven by increased contributions to multiemployer plans resulting from growth in the workforce and contractually-mandated contribution rate increases.

•Pension and postretirement benefits increased $798 million. Higher service costs for company-sponsored plans were driven by a reduction in ~~fuel expense~~discount rates and ~~expense for outside transportation carriers (due~~an increase in participating employees. Contributions to ~~lower LTL volume~~multiemployer plans increased as a result of contractually-mandated contribution increases and fuel surcharges passed to us by outside carriers). Total cost per LTL shipment increased by 2.7% compared with 2015 due to operating expenses declining at a faster rate than the reduction in tonnage and shipments.

~~Other expenses for the other businesses within Supply Chain & Freight increased $33 million in 2016 compared with 2015 primarily due to UPS Capital, UPS Customer Solutions and The UPS Store.~~

~~Operating Profit and Margin~~

~~2017 compared to 2016~~

~~Supply Chain & Freight operating profit increased $379 million in 2017 compared with 2016, which includes a $190 million decrease~~an overall increase in the ~~mark-to-market pension charges. Operating margin~~size of the workforce.

•Vacation, excused absence, payroll taxes and other expenses increased ~~270 basis points to 6.7%, while~~$587 million, primarily driven by salary increases and growth in the ~~adjusted operating margin~~overall size of the workforce.

•Workers' compensation expense increased ~~70 basis points to 7.8%.~~

~~Operating profit for Forwarding and Logistics increased $261~~$517 million ~~in 2017 compared with 2016. Operating profit and margins for the North American air freight business increased in 2017~~ due to an increase in ~~volume, slightly offset~~total hours worked, wage and medical cost inflation and unfavorable claims trends.

Repairs and Maintenance

2020 compared to 2019

The increase in repairs and maintenance expense was driven by ~~higher transportation expenses. Operating profit and margins in our international air freight forwarding business increased~~additional aircraft engine maintenance cost, primarily due to ~~volume increases and higher revenue per kilo, slightly offset by higher rates at which we procure capacity from third-party air carriers. Operating profit for~~ the ~~logistics units improved from 2017 compared to 2016, due to strong performance in the U.S.~~replacement of parts on our A300-600 fleet, as well as ~~within our mail services. Additionally, the Marken acquisition in 2016 contributed to the~~an increase in ~~operating profit.~~

~~UPS Freight operating profit increased $66 million in 2017 compared with 2016, as increased volume~~routine repairs to buildings and ~~prices were partially offset by increased purchased transportation costs.~~

~~The combined operating profit for all~~facilities and maintenance of our other ~~businesses~~transportation equipment.

Depreciation and Amortization

2020 compared to 2019

Depreciation and amortization expense increased as a result of additional investments in ~~this segment~~facility automation and capacity expansion projects, increases in the size of our vehicle and aircraft fleets and investments in internally developed software.

Purchased Transportation

2020 compared to 2019

The increase in purchased transportation expense charged to us by third-party air, rail, ocean and truck carriers was primarily driven by:

•U.S. Domestic Package expense increased ~~$52 million in 2017, primarily~~$1.2 billion due to ~~higher operating profit at UPS Capital, UPS Customer Solutions~~investments to improve time-in-transit in our U.S. ground network, an increase in SurePost volume that drove approximately $480 million of incremental third-party transportation expense and ~~The UPS Store, as well as service contracts with the U.S. Postal Service.~~volume growth in our other products.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~2016 compared to 2015~~

Supply Chain & Freight operating profit decreased $358 million in 2016 compared with 2015, which includes a $306 million increase in the mark-to-market pension adjustments. Operating margin decreased 410 basis points to 4.0%, while the adjusted operating margin decreased 110 basis points to 7.1%.

~~Operating profit for~~ •Forwarding and Logistics ~~which includes Coyote, decreased $17 million~~expense increased $1.5 billion due to increased market rates in ~~2016 compared with 2015. Operating results for the North American~~our international air freight business, as well as volume growth and rate increases in our mail services and truckload brokerage businesses. The rate increases in our international air freight and ~~international air freight forwarding~~truckload brokerage businesses ~~declined, as buy and sell spreads for~~were primarily driven by market capacity ~~decreased. Profitability in ocean freight slightly declined due to margin compression from soft market conditions. Operating profit for the logistics unit~~constraints.

•International Package expense increased ~~slightly in 2016 compared to 2015.~~

~~Operating profit for the freight unit decreased $42~~$521 million ~~in 2016 compared with 2015, as a decline in tonnage and increase in pension costs more than offset the increased LTL revenue per hundredweight realized during the year.~~

~~The combined operating profit for all of our other businesses in this segment increased $7 million in 2016,~~ primarily due to volume increases in Asia and Europe that drove higher third-party pickup and delivery cost, as well as additional charter flights originating from Asia.

Fuel

2020 compared to 2019

The decrease in fuel expense was driven by lower prices for jet fuel, diesel and gasoline. These decreases were partially offset by higher consumption due to increases in aircraft block hours and miles driven as a result of increased volume, as well as the impact of higher alternative fuel tax credits in 2019.

Other Occupancy

2020 compared to 2019

The increase in other occupancy expense, and other occupancy expense excluding the year over year impact of transformation strategy costs, was driven by additional operating ~~profit at UPS Capital, UPS Customer Solutions~~facilities coming into service, rent and ~~The UPS Store.~~property tax increases and ongoing facility maintenance.

Other Expenses

2020 compared to 2019

Other expenses, and other expenses excluding the year over year impact of transformation strategy costs, legal contingencies and expenses and goodwill and other asset impairment charges, increased as a result of:

•Other operational expenses, including vehicle and equipment rentals, increased $385 million driven by volume growth. This included cleaning and other safety supplies related to COVID-19 amounting to $89 million.

•Professional fees increased $139 million, primarily related to information technology and other business support services.

•Self-insured automobile liability claims increased $125 million as a result of higher average daily miles driven in our U.S. Domestic business and unfavorable claims experience.

•Other increases included reserves for certain tax positions and contingencies, payment processing fees, recruitment costs, telecommunications costs, information technology expenses and allowances for credit losses and other bad debt expense.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~Operating Expenses~~

Year Ended December 31, % Change
2017 2016 2015 2017/ 2016 2016/ 2015
Operating Expenses (in millions):
Compensation and Benefits: $ 34,588
$ 34,770
$ 31,028
(0.5 )% 12.1 %
Defined Benefit Plans Mark-to-Market Charges (800 ) (2,651 ) (118 )
Adjusted Compensation and Benefits 33,788
32,119
30,910
5.2 % 3.9 %

Repairs and Maintenance 1,600
1,538
1,400
4.0 % 9.9 %
Depreciation and Amortization 2,282
2,224
2,084
2.6 % 6.7 %
Purchased Transportation 10,989
9,129
8,043
20.4 % 13.5 %
Fuel 2,690
2,118
2,482
27.0 % (14.7 )%
Other Occupancy 1,155
1,037
1,022
11.4 % 1.5 %

Other Expenses 5,039
4,623
4,636
9.0 % (0.3 )%

Total Operating Expenses $ 58,343
$ 55,439
$ 50,695
5.2 % 9.4 %
Adjusted Total Operating Expenses $ 57,543
$ 52,788
$ 50,577
9.0 % 4.4 %

Currency Translation Cost / (Benefit)* $ 62
$ (205 )



*	~~Amount represents the change compared to the prior year.~~

Other Income and (Expense)

~~Compensation~~The following table sets forth investment income (expense) and ~~Benefits~~other and interest expense for the years ended December 31, 2020 and 2019 (in millions):

~~2017~~


	Year Ended December 31,				Change
	2020		2019		$		%
Investment Income (Expense) and Other	$	(5,139)	$	(1,493)	$	(3,646)	N/M
Defined Benefit Plans Mark-to-Market Charges	6,484		2,387		4,097		171.6	%
Adjusted Investment Income (Expense) and Other	$	1,345	$	894	$	451	50.4	%

Interest Expense	(701)		(653)		(48)		7.4	%
Total Other Income and (Expense)	$	(5,840)	$	(2,146)	$	(3,694)	172.1	%
Adjusted Other Income and (Expense)	$	644	$	241	$	403	167.2	%

Investment Income (Expense) and Other

2020 compared to ~~2016~~2019

~~Total compensation~~Investment and ~~benefits decreased $182 million in 2017 compared to 2016. Excluding~~other expense for the ~~impact of the defined benefit plans mark-to-market charges, adjusted compensation and benefits expense~~year increased ~~$1.669~~$3.6 billion, ~~in 2017.~~

~~Employee payroll costs increased $1.295~~which included a $4.1 billion in 2017 compared with 2016, largely due to higher U.S. domestic hourly and management compensation costs. Total compensation costs increased 6.5%, while consolidated average daily volume growth was 4.9%. U.S. domestic compensation costs for hourly employees increased largely due to fourth quarter 2017 seasonal staffing increases resulting from a 5.4% volume growth, contractual union wage increases, headcount increases, wage rate adjustments for part time workers and a 6.5% increase ~~in average daily union labor hours. Compensation costs for management employees increased primarily due to merit salary increases and growth in the overall size of the workforce.~~

~~Benefits expense decreased $1.477 billion in 2017 compared to 2016, primarily due to the following factors:~~

~~Pension costs decreased $1.869 billion in 2017 compared to 2016, primarily due to a $1.851 billion decrease~~ in defined benefit plans mark-to-market charges. ~~Additionally, expenses decreased~~Excluding the impact of these mark-to-market charges, adjusted investment and other income increased $451 million for the year, primarily due to ~~higher asset~~an increase in other pension income, which includes expected investment returns ~~in company sponsored plans~~on pension assets, net of interest cost on projected benefit obligations and prior service costs. Expected returns on plan assets increased as a result of a higher asset base due to positive asset returns in 2019 and discretionary ~~contributions. This decrease was~~contributions made in 2020. Pension interest cost decreased due to the impact of lower year end discount rates, partially offset by ~~additional expense for multiemployer pension plans, which were impacted by contractual contribution rate increases~~ongoing plan growth and an ~~overall increase in size of workforce.~~

~~Health and welfare costs increased $229 million in 2017, largely due to increased contributions to multiemployer plans resulting from contractual contribution rate increases and an overall~~ increase in the ~~size~~projected benefit obligation as a result of the ~~workforce.~~

~~Vacation, holiday, excused absence, payroll tax and other expenses increased $226 million in 2017~~2019 year end measurement of our plans. Investment income decreased due to ~~salary increases~~lower yields on higher average invested asset balances and ~~growth in the overall size~~impairments of ~~the workforce.~~certain non-current investments, partially offset by foreign currency gains.

Interest Expense

2020 compared to 2019

Interest expense increased as a result of higher average outstanding debt balances and lower capitalization of interest, partially offset by lower effective interest rates on floating rate debt and commercial paper balances.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Workers' compensation expense decreased $63 million in 2017 as we experienced more favorable actuarial adjustments. This decrease was partially offset by increases in work hours, medical trends and wage increases. Insurance reserves are established for estimates of the loss that we will ultimately incur on reported workers' compensation claims, as well as estimates of claims that have been incurred but not reported, and take into account a number of factors, including our history of claim losses, payroll growth and the impact of safety improvement initiatives.

~~2016 compared to 2015~~

Total compensation and benefits increased $3.742 billion in 2016 compared to 2015. Excluding the impact of the defined benefit plans mark-to-market charges, adjusted compensation and benefits expense increased $1.209 billion in 2016.Income Tax Expense

Employee payroll costs increased $609 million in 2016 compared with 2015, largely due to higher U.S. domestic hourly and management compensation costs and the acquisition of Coyote during the third quarter of 2015. Total compensation costs increased 3.2%, while consolidated average daily volume growth was 4.2%. U.S. domestic compensation costs for hourly employees increased largely due to increased headcount, contractual union wage increases and a 4.2% increase in average daily union labor hours. Compensation costs for management employees increased primarily due to merit salary increases and growth in the overall size of the workforce, partially offset by lower incentive compensation.

Benefits expense increased $3.133 billion in 2016 compared to 2015, primarily due to increased pension costs, health and welfare costs, workers' compensation expenses, vacation, holiday and excused absence expenses and payroll taxes. These factors are discussed further as follows:

Pension costs increased $2.634 billion in 2016 compared to 2015, primarily due to $2.533 billion in defined benefit plans mark-to-market charges. Additionally, expenses increased for multiemployer pension plans due to increased contribution rates and headcount.

Health and welfare costs increased $277 million in 2016, largely due to increased contributions to multiemployer plans resulting from contractual contribution rate increases and an overall increase in the size of the workforce.

~~Vacation, holiday, excused absence and payroll~~The following table sets forth income tax expense ~~increased $125 million in 2016, due to salary increases~~ and ~~growth in~~our effective tax rate for the ~~overall size of the workforce.~~years ended December 31, 2020 and 2019 (in millions):

~~Workers' compensation~~


	Year Ended December 31,						Change
	2020			2019			$		%
Income Tax Expense:	$	501		$	1,212		$	(711)	(58.7)	%
Income Tax Impact of:
Defined Benefit Plans Mark-to-Market Charges	1,555			571			984		172.3	%
Transformation Strategy Costs	83			59			24		40.7	%
Goodwill and Other Asset Impairment Charges	57			—			57		N/M
Legal Contingencies and Expenses	—			6			(6)		N/M



Adjusted Income Tax Expense	$	2,196		$	1,848		$	348	18.8	%
Effective Tax Rate	27.2		%	21.4		%
Adjusted Effective Tax Rate	23.5		%	22.0		%

For additional information on income tax expense increased $96 million in 2016. Insurance reserves are established for estimates of the loss that we will ultimately incur on reported workers' compensation claims, as well as estimates of claims that have been incurred but not reported, and ~~take into account a number of factors, including~~ our ~~history of claim losses, payroll growth and the impact of safety improvement initiatives. In 2015, we experienced more favorable actuarial adjustments, resulting in increased expense in 2016.~~

~~Repairs and Maintenance~~

~~2017 compared to 2016~~

The $62 million increase in repairs and maintenance expense in 2017 was primarily due to repairs and maintenance of our transportation equipment resulting from growth in the size of our vehicle fleet and routine repairs to buildings and facilities.

~~2016 compared to 2015~~

The $138 million increase in repairs and maintenance expense in 2016 was primarily due to an increase in airframe and aircraft engine maintenance resulting from increased air volume and increased vehicle maintenance costs in our global package and freight operations, primarily dueeffective tax rate, see note 15 to the ~~growth in the size of our vehicle fleet.~~audited, consolidated financial statements.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~Depreciation and Amortization~~

~~2017 compared to 2016~~

Depreciation and amortization expense increased $58 million in 2017 compared with 2016, primarily due to the following factors: (1) depreciation expense on vehicles increased due to an overall increase in the size of our vehicle fleet in our U.S. Domestic Package and UPS Freight operations, (2) depreciation expense for buildings and facilities increased due to the opening of new facilities and facility automation and capacity expansion projects and (3) amortization expense of intangible assets increased in conjunction with the Marken acquisition. These factors were largely offset by a decrease in amortization expense related to longer lived internally developed capitalized software.

~~2016 compared to 2015~~

Depreciation and amortization expense increased $140 million in 2016 compared with 2015, primarily due to the following factors: (1) depreciation expense for buildings and facilities increased due to leasehold improvements and purchases of new equipment; (2) increase in amortization expense largely due to new internally developed capitalized software, as well as intangible assets resulting from business acquisitions and (3) depreciation expense on vehicles increased due to the replacement of older, fully-depreciated vehicles, technology upgrades on new vehicles and an overall increase in the size of our vehicle fleet in our U.S. Domestic Package and UPS Freight operations.

~~Purchased Transportation~~

~~2017 compared to 2016~~

~~The $1.860 billion increase in purchased transportation expense charged to us by third-party air, rail, ocean and truck carriers in 2017 was primarily driven by the following factors:~~

Expense for our forwarding and logistics business increased $949 million in 2017, primarily due to increased truckload brokerage freight loads per day and the resulting increased fuel surcharges passed to us from outside transportation providers; increased volume and rates for mail services and increased tonnage in our North American and international air freight forwarding businesses. Additionally, purchased transportation expense increased due to the acquisition of Marken in December 2016.

U.S. Domestic Package expense increased $421 million in 2017, primarily due to increased volume (including SurePost), higher rates and higher fuel surcharges passed to us from outside contract carriers.

International Package expense increased $270 million in 2017, primarily due to the increased usage of third-party carriers (due to higher volume); higher fuel surcharges passed to us from outside transportation providers and an unfavorable impact of currency exchange rate movements.

~~UPS Freight expense increased $163 million in 2017, due to an increase in LTL shipments and higher fuel surcharges passed to us from outside transportation providers.~~

~~2016 compared to 2015~~

~~The $1.086 billion increase in purchased transportation expense charged to us by third-party air, ocean and truck carriers in 2016 was driven by several factors:~~

Expense for our forwarding and logistics business increased $840 million in 2016, primarily due to the acquisition of Coyote and increased volume and rates for mail services; these items were partially offset by a combination of decreased volume and tonnage in our North American air freight and international air freight forwarding business, lower buy rates in international air freight due to softer market conditions and the impact of foreign currency exchange rates.

U.S. Domestic Package expense increased $130 million in 2016, primarily due to increased volume and rates, partially offset by lower fuel surcharges passed to us from rail carriers and outside contract carriers.

International Package expense increased $112 million in 2016, primarily due to increased usage of third-party carriers; this was partially offset by the impact of currency exchange rate movements as well as lower fuel surcharges passed to us from outside transportation providers.

UPS Freight expense decreased $18 million in 2016, largely due to decreased LTL shipments and the resulting decreased use of, and lower fuel surcharges passed to us from, outside transportation carriers.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

~~Fuel~~

~~2017 compared to 2016~~

The $572 million increase in fuel expense in 2017 was primarily due to higher jet fuel, diesel and unleaded gasoline prices, which increased fuel expense by $419 million. Additionally, increased alternative fuel costs and fuel consumption increased expense by $170 million primarily due to volume increases, which resulted in higher total aircraft block hours and Domestic Package delivery miles driven. These increases were partially offset by increased fuel efficiency.

~~2016 compared to 2015~~

The $364 million decrease in fuel expense in 2016 was primarily due to lower jet fuel, diesel and unleaded gasoline prices, which decreased fuel expense by $461 million. The lower fuel prices were partially offset by increased fuel consumption, primarily due to increases in total aircraft block hours and Domestic Package delivery stops (due to higher volume), which increased expense by $97 million and lower alternative fuel and tax credits.

~~Other Occupancy~~

~~2017 compared to 2016~~

~~The $118 million increase in other occupancy expense in 2017 was largely due to higher facility rent expense driven by new facilities, higher utilities and property taxes at our operating facilities.~~

~~2016 compared to 2015~~

~~The $15 million increase in other occupancy expense in 2016 was largely due to higher facility rent expense, partially offset by lower utilities and snow removal costs at our operating facilities.~~

~~Other Expenses~~

~~2017 compared to 2016~~

~~The $416 million increase in other expenses in 2017 was caused by a number of factors:~~

~~Auto liability insurance expense increased $75 million due to increased miles driven, medical trend rates and severity experience trends.~~

~~Transportation equipment rental increased $60 million driven by growth in package volume.~~

The remaining $280 million increase is comprised of increases in several other expense categories, including outside professional services, merchandise protection, computer and plant supplies and air cargo handling, partially offset by a decrease in advertising expense.

~~2016 compared to 2015~~

~~The $13 million decrease in other expenses in 2016 was largely due to a decrease in overall auto liability insurance, offset by an increase in outside professional services.~~

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

~~Investment Income and Interest Expense~~

~~The following table sets forth investment income and interest expense for the years ended~~ ~~December 31, 2017~~, ~~2016~~ ~~and~~ ~~2015~~ ~~(in millions):~~

Year Ended December 31, % Change
2017 2016 2015 2017/ 2016 2016/ 2015
Investment Income and Other $ 72
$ 50
$ 15
44.0 % NA
Interest Expense $ (453 ) $ (381 ) $ (341 ) 18.9 % 11.7 %

~~Investment Income and Other~~

~~2017~~ ~~compared to~~ ~~2016~~

The growth in investment income and other in 2017 as compared to 2016 was primarily due to higher interest income from invested assets and the continued decrease in losses from fair value adjustments on real estate partnerships partially offset by foreign currency exchange rate movements.

~~2016 compared to 2015~~

The growth in investment income and other in 2016 as compared to 2015 was primarily due to a decrease in losses from fair value adjustments on real estate partnerships, higher interest income and unrealized gains on investments and a benefit from foreign currency exchange rate movements.

~~Interest Expense~~

~~2017 compared to 2016~~

Interest expense increased in 2017 as compared to 2016 primarily due to the issuance of long-term CAD Senior Notes, Euro Senior Notes and USD Senior Notes and higher effective interest rates on senior notes.

~~2016~~ ~~compared to~~ ~~2015~~

Interest expense increased in 2016 as compared to 2015 primarily due to an increase in average outstanding commercial paper balances, an increase in long-term debt and higher effective interest rates on senior notes.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

~~Income Tax Expense~~

~~The following table sets forth income tax expense and our effective tax rate for the years ended~~ ~~December 31, 2017~~, ~~2016~~ ~~and~~ ~~2015~~ ~~(in millions):~~

Year Ended December 31, % Change
2017 2016 2015 2017/ 2016 2016/ 2015
Income Tax Expense: $ 2,238
$ 1,705
$ 2,498
31.3 % (31.7 )%
Income Tax Impact of:
Defined Benefit Plans Mark-to-Market Charge 193
978
39

Income Tax Benefit from the Tax Cuts and Jobs Act and Other Non-U.S. Tax Law Changes 258
—
—

Adjusted Income Tax Expense $ 2,689
$ 2,683
$ 2,537
0.2 % 5.8 %
Effective Tax Rate 31.3 % 33.2 % 34.0 %
Adjusted Effective Tax Rate 33.8 % 34.5 % 34.0 %

Our effective tax rate is affected by recurring factors, such as statutory tax rates in the jurisdictions we operate in 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 decreased to 31.3% in 2017, compared with 33.2% in 2016 and 34.0% in 2015, primarily due to the effects of the following discrete tax items and recurring factors:~~

~~Tax Cuts and Jobs Act~~

On December 22, 2017, the United States enacted into law the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including a permanent corporate rate reduction to 21% and a transition to a territorial international system effective in 2018. Going forward, we expect a lower future effective tax rate than we have reported in recent years. Applying the lower corporate tax rate will lower our overall income tax expense, which will impact net income and cash flows. Benefits from the lower tax rate will allow us to fund strategic initiatives for our customers, employees and shareowners. The Tax Act also includes provisions that affect 2017, including: (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries (“Transition Tax”) that is payable over eight years; (2) requiring a remeasurement of all U.S. deferred tax assets and liabilities to the newly enacted corporate tax rate of 21% and (3) providing for additional first-year depreciation that allows full expensing of qualified property placed into service after September 27, 2017.

In late December 2017, the SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the related accounting under U.S. GAAP. If a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. Accordingly, we have recorded provisional estimates related to our Transition Tax liability, our change in indefinite reinvestment assertion for certain foreign subsidiaries and the remeasurement of our U.S. net deferred tax liabilities.

To calculate the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 earnings and profits (“E&P”) of the foreign subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition Tax and recorded a provisional liability of $310 million; however, there are certain factors that could impact our provisional estimate.

First, several of our foreign subsidiaries have a fiscal year-end, and E&P for these subsidiaries cannot be precisely calculated until their fiscal years conclude during 2018. Second, we continue to gather additional information needed to precisely estimate the impact of the Transition Tax on our U.S. state and local tax liabilities given the complexity of the relevant state laws. Finally, we expect additional regulatory guidance and technical clarifications from the U.S. Department of the Treasury and Internal Revenue Service within the next 12 months that could change our provisional estimate of the Transition Tax.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

As the U.S. has moved to a territorial system, we have also changed our indefinite reinvestment assertion with respect to the earnings of certain foreign subsidiaries. As a result, we have recorded a provisional deferred tax liability and corresponding increase to deferred tax expense of $24 million. There are certain factors, discussed above with regard to the Transition Tax, which could also impact our provisional estimate for the change in indefinite reinvestment assertion. For all other foreign subsidiaries, we continue to assert that these earnings are indefinitely reinvested. We will continue to evaluate our indefinite reinvestment assertion for all foreign subsidiaries in light of the Tax Act, and our provisional estimate is subject to change.

For our net U.S. deferred tax liabilities, we have recorded a provisional decrease of $606 million with a corresponding reduction to deferred tax expense of $606 million for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in the corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, completing the analysis of our 2017 capital expenditures that qualify for full expensing and the state tax effect of adjustments made to federal temporary differences.

~~Other 2017 Discrete Items~~

In the fourth quarter of 2017, we recognized an income tax benefit of $193 million related to pre-tax mark-to-market losses of $800 million on our pension and postretirement defined benefit plans. This income tax benefit was generated at a lower average statutory tax rate than the 2017 U.S. federal statutory tax rate due to future tax rate changes enacted by the Tax Act and differences between U.S. and foreign statutory rates, which was partially offset by the effect of U.S. state and local taxes.

In the fourth quarter of 2017, tax law changes were enacted in certain non-U.S. jurisdictions in which we operate. As a result, we have recorded a decrease to our foreign net deferred tax assets of $14 million with a corresponding net increase to deferred tax expense of $14 million for the year ended December 31, 2017.

In the first quarter of 2017, we adopted a new accounting standard that requires the recognition of excess tax benefits related to share-based compensation in income tax expense, which resulted in tax benefits for the year ended December 31, 2017 of $71 million and reduced our effective tax rate by 1.0%.

~~2016 Discrete Items~~

In the fourth quarter of 2016, we recognized an income tax benefit of $978 million related to pre-tax mark-to-market losses of $2,651,000,000.000 billion on our pension and postretirement defined benefit plans. This income tax benefit was generated at a higher average statutory tax rate than the U.S. federal statutory tax rate because it included the effect of U.S. state and local taxes.

~~2015 Discrete Items~~

During the third quarter of 2015 and after the filing of our annual federal tax returns, we reconciled our deferred tax balances and identified adjustments to be made with respect to prior years’ deferred tax balances. The adjustments resulted in a reduction of income tax expense of $66 million.

In connection with our acquisition of Coyote Logistics in 2015, we distributed $500 million of cash held by a Canadian subsidiary to its U.S. parent during the fourth quarter of 2015. As a result of the distribution, we recorded additional net income tax expense of $28 million.

In the fourth quarter of 2015, we recognized an income tax benefit of $39 million related to pre-tax mark-to-market losses of $118 million on our pension and postretirement defined benefit plans. This income tax benefit was generated at a lower average statutory tax rate than our U.S. federal statutory tax rate because it was due, in part, to non-U.S. benefit plans.

Other favorable rate impacting items in 2015 include: resolution of several U.S. state and local tax matters; the extension of favorable U.S. federal tax provisions associated with the Protecting Americans from Tax Hikes Act of 2015 related to research and development tax credits and work opportunity tax credits; and the execution of two bilateral advance pricing agreements. These agreements established intercompany transfer pricing arrangements between the U.S. and certain non-U.S. jurisdictions related to our small package operations for tax years 2010 through 2019.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

~~As described in the~~ ~~Items Affecting Comparability~~ ~~section, certain items have been excluded from comparisons of "adjusted" income taxes in the discussion that follows.~~

Our adjusted effective tax rate decreased to 33.8% in 2017 from 34.5% in 2016 primarily due to favorable discrete tax adjustments related to recognition of excess tax benefits related to share-based compensation in income tax expense.

Our adjusted effective tax rate increased to 34.5% in 2016 from 34.0% in 2015 primarily due to a decrease in favorable discrete tax adjustments relative to 2015 partially offset by favorable changes in the proportion of our taxable income in certain U.S. and non-U.S. jurisdictions relative to total pre-tax income.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

Liquidity and Capital Resources

As of December 31, ~~2017,~~2020, we had ~~$4.069~~$6.3 billion in cash, cash equivalents and marketable securities. We believe that ~~our current~~these positions, expected cash ~~position,~~from operations, access to ~~the long-term debt~~commercial paper programs and capital markets and ~~cash flow generated from operations should~~other available liquidity options will be adequate ~~not only for~~to fund our operating requirements, ~~but also to enable us to complete our~~planned capital ~~expenditure programs~~expenditures and ~~to fund dividend payments, share repurchases~~pension contributions, transformation strategy costs, debt obligations and ~~long-term debt payments through the next several years. In addition, we have funds available from our commercial paper program and the ability to obtain alternative sources of financing.~~planned shareowner returns. We regularly evaluate opportunities to optimize our capital structure, including through issuances of debt to refinance existing debt and to fund ~~ongoing cash needs.~~

operations. We have currently suspended share repurchases under our stock repurchase program.

Cash Flows From Operating Activities

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


	2020		2019
Net income	$	1,343	$	4,440
Non-cash operating activities(a)	11,181		6,405
Pension and postretirement benefit plan contributions (company-sponsored plans)	(3,125)		(2,362)

Hedge margin receivables and payables	(507)		171
Income tax receivables and payables	205		599
Changes in working capital and other non-current assets and liabilities	1,383		(634)
Other operating activities	(21)		20
Net cash from operating activities	$	10,459	$	8,639

2017 2016 2015
Net Income $ 4,910
$ 3,431
$ 4,844
Non-cash operating activities⁽¹⁾
5,776
6,444
4,122
Pension and postretirement plan contributions (UPS-sponsored plans) (7,794 ) (2,668 ) (1,229 )
Hedge margin receivables and payables (732 ) (142 ) 170
Income tax receivables and payables (550 ) (505 ) (6 )
Changes in working capital and other non-current assets and liabilities (178 ) (62 ) (418 )
Other operating activities 47
(25 ) (53 )
Net cash from operating activities $ 1,479
$ 6,473
$ 7,430


⁽¹⁾	Represents depreciation and amortization, gains and losses on derivative transactions and foreign exchange, deferred income taxes, provisions for uncollectible accounts, pension and postretirement benefit expense, stock compensation expense and other non-cash items.

~~Cash from~~(a) Represents depreciation and amortization, gains and losses on derivative transactions and foreign currency exchange, deferred income taxes, allowances for expected credit losses, amortization of operating ~~activities remained strong throughout 2015 to 2017. Most of the variability in operating cash flows during the 2015 to 2017 time period relates to the funding of our company-sponsored~~lease assets, pension and postretirement benefit ~~plans (and related~~expense, stock compensation expense, changes in casualty self-insurance reserves, goodwill and other asset impairment charges and other non-cash items.

Net cash ~~tax deductions). Except~~from operating activities increased $1.8 billion for ~~discretionary or accelerated fundings of our plans,~~the year, driven by the following:

•Total contributions to our company-sponsored pension and U.S. postretirement medical benefit plans ~~have largely varied based on whether any minimum funding requirements are present for individual pension plans.~~

were $3.1 billion during 2020 compared to $2.4 billion in 2019. We made discretionary contributions of $2.8 billion to our three primary, company-sponsored U.S. pension plans ~~totaling $7.291, $2.461 and $1.030~~during 2020 compared to $2.0 billion in ~~2017, 2016 and 2015, respectively.~~2019.

~~The remaining contributions from 2015 to 2017 were largely due to contributions to our international pension plans and U.S. postretirement medical benefit plans.~~

Apart from the transactions described above, operating cash flow was impacted by changes in our working capital position, payments for income taxes and changes in hedge margin payables and receivables. Cash payments for income taxes were $1.559, $2.064 and $1.913 billion for 2017, 2016 and 2015, respectively, and were primarily impacted by the timing of current tax deductions. The•Our net hedge margin collateral ~~(paid)/received from derivative counterparties was $(732), $(142) and $170~~decreased by $678 million ~~during 2017, 2016 and 2015, respectively,~~ due to ~~settlements and changes~~the change in ~~the~~net fair value of ~~the~~ derivative contracts used in our currency and interest rate hedging programs.

•Cash payments for income taxes were $1.1 billion and $514 million for 2020 and 2019, respectively, with changes driven by the timing of deductions related to pension contributions, depreciation and employer payroll taxes.

•Favorable changes in working capital were driven by the deferral of approximately $1.1 billion of employer payroll taxes under the Coronavirus Aid, Relief and Economic Security (CARES) Act that was signed into law on March 27, 2020, as well as changes in incentive compensation plan payouts. These benefits were partially offset by an increase in working capital demand as a result of business growth.

As part of our ongoing efforts to improve our working capital efficiency, certain financial institutions offer a voluntary Supply Chain Finance ("SCF") program to certain of our suppliers. We agree 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. Then, if they are participating 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.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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, 2020 and 2019, suppliers sold them $639 and $268 million, respectively, of our outstanding payment obligations. Amounts due to suppliers that participate in the SCF program may be reflected in cash flows from operating activities or cash flows from investing activities in our consolidated statements of cash flows. The amount settled through the SCF program was approximately $1.8 billion for the year ended December 31, 2020.

As of December 31, ~~2017, the~~2020, our total ~~of our~~ worldwide holdings of cash, cash equivalents and marketable securities were ~~$4.069~~$6.3 billion, of which approximately ~~$1.800~~$3.0 billion was held by foreign subsidiaries. The amount of cash, cash equivalents and marketable securities held by our U.S. and foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts and disbursements in the normal course of business. Cash provided by operating activities in the U.S. continues to be our primary source of funds to finance domestic operating needs, capital expenditures, share repurchases, pension contributions and dividend payments to shareowners. ~~As a result of the Tax Act, all~~All cash, cash equivalents and marketable securities held by foreign subsidiaries are generally available for distribution to the U.S. without any U.S. federal income taxes. Any such distributions may be subject to foreign withholding and U.S. state taxes. When amounts earned by foreign subsidiaries are expected to be indefinitely reinvested, no accrual for taxes is provided.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Cash Flows From Investing Activities

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


	2020			2019
Net cash used in investing activities	$	(5,283)		$	(6,061)
Capital Expenditures:
Buildings, facilities and plant equipment	$	(2,460)		$	(2,729)
Aircraft and parts	(1,145)			(1,890)
Vehicles	(1,002)			(987)
Information technology	(805)			(774)
Total Capital Expenditures(1):	$	(5,412)		$	(6,380)

Capital Expenditures as a % of revenue	6.4		%	8.6		%

Other Investing Activities:
Proceeds from disposals of property, plant and equipment	$	40		$	65
Net change in finance receivables	$	44		$	13
Net (purchases), sales and maturities of marketable securities	$	106		$	322
Cash paid for business acquisitions, net of cash and cash equivalents acquired	$	(20)		$	(6)
Other investing activities	$	(41)		$	(75)

2017 2016 2015
Net cash used in investing activities $ (4,975 ) $ (2,566 ) $ (5,309 )
Capital Expenditures:
Buildings, facilities and plant equipment $ (2,954 ) $ (1,316 ) $ (996 )
Aircraft and parts (789 ) (350 ) (27 )
Vehicles (924 ) (864 ) (936 )
Information technology (560 ) (435 ) (420 )
Total Capital Expenditures: $ (5,227 ) $ (2,965 ) $ (2,379 )
Capital Expenditures as a % of Revenue 7.9 % 4.9 % 4.1 %
Other Investing Activities:
Proceeds from disposals of property, plant and equipment $ 24
$ 88
$ 26
Net decrease in finance receivables $ 5
$ 9
$ 5
Net (purchases), sales of marketable securities $ 356
$ 908
$ (1,027 )
Cash paid for business acquisitions $ (134 ) $ (547 ) $ (1,904 )
Other investing activities $ 1
$ (59 ) $ (30 )
(1) In addition to capital expenditures of $5.4 and $6.4 billion in 2020 and 2019, respectively, there were capital expenditures relating to principal repayments of finance lease obligations of $192 and $140 million. These are included in cash flows from financing activities.

We have commitments for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement of existing capacity and anticipated future growth. ~~We generally fund our capital expenditures with our cash from operations.~~ Future capital spending for anticipated growth and replacement assets will depend on a variety of factors, including economic and industry conditions. Our current investment program anticipates maintenance of buildings, facilities and plant equipment, as well as investments in technology initiatives and additional network capabilities. We ~~anticipate~~currently expect that our capital expenditures ~~for 2018~~ will be approximately ~~$6.5 to $7.0 billion.~~$4.0 billion in 2021.

~~Capital~~In 2020, capital expenditures on buildings, facilities and plant equipment ~~increased in 2017 compared to the 2015 to 2016 periods~~decreased in our ~~U.S. and international~~global small package ~~businesses, largely due to several~~business, as we reduced spending on facility automation and capacity expansion projects. Capital spending on aircraft ~~increased in 2017 compared to the 2015 to 2016 periods~~decreased due to reductions in contract deposits on open aircraft orders and in final payments ~~for new Boeing 747-8F cargo aircraft and previously owned Boeing 767-300 cargo~~associated with the delivery of aircraft. Capital spending on vehicles increased in 2017 in our U.S. and international package businesses, largely due to growth in our business and the timing of vehicle replacements. Capital spending on information technology increased in 2017 compared to the 2015 to 2016 periods due to further development of our smart logistics network, technology enhancements and capitalized software projects.

~~The proceeds~~Proceeds from the disposal of property, plant and equipment ~~in the 2015 to 2017 periods~~ were largely ~~due~~attributable to ~~vehicle retirements~~sales of international property in ~~2017, insurance recoveries in 2016~~2020 and real estate sales in 2015. The net decline in finance receivables in 2017 was primarily due to growth in our cargo finance products, partially offset by loan principal paydowns in our business credit portfolio.2019. The net change in finance receivables ~~in the 2016 and 2015 periods~~ was primarily due to ~~customer paydowns and loan sales activity, primarily~~reductions in outstanding balances within our ~~commercial lending, asset-based lending and leasing~~finance portfolios. ~~The purchases~~Purchases and sales of marketable securities are largely determined by liquidity needs and the periodic rebalancing of investment types, and will fluctuate from period to period.

Cash paid for business acquisitions in ~~the 2015 to 2017 periods was primarily~~2020 related to the acquisition of area franchise rights for The UPS Store. In 2019, we also acquired area franchise rights for The UPS Store, as well as made immaterial acquisitions ~~of Poltraf Sp. z.o.o., Parcel Pro, Inc.~~in our International Small Package and ~~Coyote in 2015; Marken in 2016 and Freightex, Nightline and STTAS in 2017.~~

Healthcare Logistics business units. Other investing activities ~~are~~were impacted by changes in our non-current investments, ~~and restricted cash balances, capital contributions into certain investment partnerships~~purchase contract deposits and various other items. ~~In 2017, 2016 and 2015, we increased~~

We anticipate that the ~~non-current investments and restricted cash balance associated with our self-insurance requirements by $4, $3 and $0 million, respectively.~~divestiture of UPS Freight will be completed in the second quarter of 2021. We intend to use the proceeds from this divestiture to repay outstanding debt.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Cash Flows From Financing Activities

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


	2020			2019
Net cash used in financing activities	$	(4,517)		$	(1,727)
Share Repurchases:
Cash expended for shares repurchased	$	(224)		$	(1,004)
Number of shares repurchased	(2.1)			(9.1)
Shares outstanding at period end	865			857
Percent increase (decrease) in shares outstanding	0.9		%	(0.1)		%
Dividends:
Dividends declared per share	$	4.04		$	3.84
Cash expended for dividend payments	$	(3,374)		$	(3,194)
Borrowings:
Net borrowings (repayments) of debt principal	$	(851)		$	2,419
Other Financing Activities:
Cash received for common stock issuances	$	285		$	218
Other financing activities	$	(353)		$	(166)
Capitalization:
Total debt outstanding at year end	$	24,654		$	25,238
Total shareowners’ equity at year end	669			3,283
Total capitalization	$	25,323		$	28,521

2017 2016 2015
Net cash used in financing activities $ 3,287
$ (3,140 ) $ (1,565 )
Share Repurchases:
Cash expended for shares repurchased $ (1,813 ) $ (2,678 ) $ (2,702 )
Number of shares repurchased (16.1 ) (25.4 ) (26.8 )
Shares outstanding at year-end 859
868
886
Percent reduction in shares outstanding (1.0 )% (2.0 )% (2.1 )%
Dividends:
Dividends declared per share $ 3.32
$ 3.12
$ 2.92
Cash expended for dividend payments $ (2,771 ) $ (2,643 ) $ (2,525 )
Borrowings:
Net borrowings (repayments) of debt principal $ 7,827
$ 2,034
$ 3,588
Other Financing Activities:
Cash received for common stock issuances $ 247
$ 245
$ 249
Other financing activities $ (203 ) $ (98 ) $ (175 )
Capitalization:
Total debt outstanding at year-end $ 24,289
$ 16,075
$ 14,334
Total shareowners’ equity at year-end 1,030
429
2,491
Total capitalization $ 25,319
$ 16,504
$ 16,825

~~For the years ended December 31, 2017, 2016 and 2015, we~~We repurchased a total of ~~16.1, 25.2 and 26.8~~2.1 million shares of class A and class B common stock for ~~$1.816, $2.680~~$217 million in 2020; substantially all of those purchases were in the first quarter of 2020. As previously disclosed, we have suspended share repurchases under our stock repurchase program. We repurchased 9.1 million shares for $1.0 billion throughout 2019 ($224 million and ~~$2.711 billion, respectively ($1.813, $2.678 and $2.702~~$1.0 billion in repurchases for ~~2017, 2016~~2020 and ~~2015,~~2019, respectively, are reported on the statement of cash ~~flow statement~~flows due to the timing of settlements). ~~During~~For additional information on our share repurchase activities, see note 12 to the first quarter of 2016, we also exercised a capped call option that we entered in 2015 for which we received 0.2 million UPS class B shares. The $25 million premium payment for this capped call option reducedaudited, consolidated financial statements.

For the years ended December 31, 2020 and 2019, dividends reported within shareowners' equity include $178 and $147 million, respectively, of non-cash dividends that were settled in ~~2015.~~

~~In May 2016, the Board~~shares of ~~Directors approved a share repurchase authorization of $8.0~~ ~~billion, which replaced an authorization previously announced in 2013. The share repurchase authorization has no expiration date. As of~~ ~~December 31, 2017, we had $4.339 billion of this share repurchase authorization remaining.~~

Share repurchases may take the form of accelerated share repurchases, open market purchases, or other such methods as we deem appropriate. The timing of our share repurchases will depend upon market conditions. Unless terminated earlier by the resolution of our Board, the program will expire when we have purchased all shares authorized for repurchase under the program. We anticipate repurchasing approximately $1.0 billion of shares in 2018.class A common stock.

The declaration of dividends is subject to the discretion of the Board of Directors and ~~will depend~~depends on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors. We expect to continue the practice of paying regular cash dividends. In February ~~2018,~~2021, we increased our quarterly dividend payment from ~~$0.83~~$1.01 to ~~$0.91~~$1.02 per ~~share, a 10% increase.~~

share.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~The following is a summary of debt issuances as of December 31, 2017, 2016 and 2015 (in millions):~~

Principal Amount in USD
2017
Fixed-rate senior notes:
2.050% senior notes $ 700
2.350% senior notes 600
2.500% senior notes 1,000
2.800% senior notes 500
3.050% senior notes 1,000
3.750% senior notes 1,150
Floating-rate senior notes (multiple issuances) 1,461
Euro senior notes:
0.375% senior notes (€700) 815
1.500% senior notes (€500) 582
Canadian senior notes:
2.125% senior notes (C$750) 547
Total $ 8,355

Principal Amount in USD
2016
Fixed-rate senior notes:
2.400% senior notes $ 500
3.400% senior notes 500
Floating-rate senior notes (multiple issuances) 226
Euro senior notes:
1.000% senior notes (€500) 549
Total $ 1,775

Principal Amount in USD
2015
Facility notes and bonds $ 100
Floating-rate senior notes (multiple issuances) 144
Euro senior notes:
1.625% senior notes (€700) 765
Floating-rate senior notes (€500) 547
Total $ 1,556

~~The remaining debt issuances for the 2015 to 2017 periods consisted primarily of commercial paper.~~

~~Repayment~~Issuances of debt in ~~2017~~2020 and 2019 consisted ~~primarily~~ of ~~the maturity~~borrowings under our commercial paper program and issuances of fixed-rate senior notes as follows (in millions):


	Principal Amount in USD
2020
Fixed-rate senior notes:
3.900% senior notes	$	1,000
4.450% senior notes	750
5.200% senior notes	500
5.300% senior notes	1,250
Total	$	3,500


	Principal Amount in USD
2019
Fixed-rate senior notes:
2.200% senior notes	$	400
2.500% senior notes	400
3.400% senior notes (multiple issuances)	1,450
4.250% senior notes	750
Total	$	3,000

Repayments of debt in 2020 included our ~~$375~~$424 million ~~fixed-rate~~8.375% debentures that matured in April 2020 and our €500 million floating rate senior notes that matured in July 2020. We also paid down commercial paper and made scheduled principal payments on ~~October 1, 2017. In 2016, there were no repayments of fixed-rate senior notes or floating-rate senior notes.~~our finance lease obligations. Repayments of debt in ~~2015 consisted primarily~~2019 included fixed-rate senior notes in the amount of the maturity of our $100 million facility bonds associated with our Philadelphia, Pennsylvania airport facilities. The remaining repayments of debt during the 2015 through 2017 time period included paydowns of$1.0 billion, commercial paper and scheduled principal payments on our ~~capitalized~~finance lease obligations.

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

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

We have $2.6 billion of senior notes that mature in 2021. We do not currently intend to refinance this debt when it becomes due.

The amount of commercial paper outstanding fluctuates throughout the year based on daily liquidity needs. The following is a summary of our commercial paper program ~~(amount in~~(in millions):


	Functional currency outstanding balance at year end		Outstanding balance at year end ($)		Average balance outstanding		Average balance outstanding ($)		Average interest rate
2020
USD	$	15	$	15	$	1,426	$	1,426	0.78	%
EUR	€	—	$	—	€	432	$	493	(0.39)	%

Total			$	15

Functional currency outstanding balance at year-end Outstanding balance at year-end ($) Average balance outstanding Average balance outstanding ($) Average interest rate
2017
USD $ 2,458
$ 2,458
$ 2,163
$ 2,163
0.88 %
EUR € 622
$ 745
€ 941
$ 1,062
(0.39 )%
Total $ 3,203

Functional currency outstanding balance at year-end Outstanding balance at year-end ($) Average balance outstanding Average balance outstanding ($) Average interest rate
2016
USD $ 2,406
$ 2,406
$ 1,838
$ 1,838
0.44 %
EUR € 801
$ 844
€ 776
$ 817
(0.28 )%
GBP £ —
$ —
£ 94
$ 116
0.50 %
Total $ 3,250


												Functional currency outstanding balance at year end		Outstanding balance at year end ($)		Average balance outstanding		Average balance outstanding ($)		Average interest rate
	Functional currency outstanding balance at year-end		Outstanding balance at year-end ($)		Average balance outstanding		Average balance outstanding ($)		Average interest rate
2015
2019											2019
USD	$	2,279	$	2,279	$	2,159	$	2,159	0.13	%	USD	$	2,172	$	2,172	$	1,665	$	1,665	2.24	%
EUR	€	310	$	339	€	10	$	11	(0.09	)%	EUR	€	949	$	1,062	€	903	$	1,011	(0.39)	%
GBP	£	234	$	347	£	241	$	368	0.50	%

Total			$	2,965							Total			$	3,234

The variation in cash received from common stock issuances was primarily due to the ~~level~~number of stock option exercises by employees in ~~the 2015 through 2017 period.~~2020 and 2019.

~~The cash outflows in other~~

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Other financing activities ~~were impacted by several factors, primarily the~~includes cash used to repurchase of shares from employees sold to satisfy tax withholding obligations on vested ~~employee~~ stock awards of ~~$247, $167~~$340 and ~~$217~~$180 million in 2020 and 2019, respectively. The increase in cash used was driven by changes in the vesting schedule for ~~2017, 2016 and 2015, respectively.~~certain of our awards. Net cash inflows ~~(outflows)~~ from ~~the~~ premium payments and settlements of capped call options for the purchase of UPS class B shares were ~~$54~~$0 and $21 million in ~~both 2017~~2020 and ~~2016, and $(17) million for 2015.~~2019, respectively.

Sources of Credit

See note 89 to the audited, consolidated financial statements for a discussion of our available credit and debt covenants.

Guarantees and Other Off-Balance Sheet Financing Arrangements

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

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

Contractual Commitments

We have contractual obligations and commitments in the form of ~~capital~~finance leases, operating leases, debt obligations, purchase commitments and certain other liabilities. We intend to satisfy these obligations primarily through the use of cash ~~flow~~flows from operations. The following table summarizes the expected cash outflow to satisfy our contractual obligations and commitments as of December 31, ~~2017~~2020 (in millions):


Commitment Type	2021		2022		2023		2024		2025		After 2025		Total
Finance Leases	$	69	$	64	$	50	$	30	$	27	$	188	$	428
Operating Leases (1)	815		557		458		335		259		1,468		3,892
Debt Principal	2,568		2,001		2,360		1,485		1,860		14,198		24,472
Debt Interest	754		725		671		633		638		7,703		11,124
Purchase Commitments	2,730		1,415		404		201		60		1		4,811
Tax Act Repatriation Liability	—		—		13		49		61		—		123
Pension Funding	252		—		—		—		—		—		252

Total	$	7,188	$	4,762	$	3,956	$	2,733	$	2,905	$	23,558	$	45,102

Commitment Type 2018 2019 2020 2021 2022 After 2022 Total
Capital Leases $ 81
$ 79
$ 69
$ 49
$ 45
$ 500
$ 823
Operating Leases 398
305
239
186
138
371
1,637
Debt Principal 3,960
1,009
1,024
2,551
2,000
13,342
23,886
Debt Interest 578
544
510
475
433
5,604
8,144
Purchase Commitments ⁽¹⁾
3,789
2,462
2,428
1,926
323
13
10,941
Tax Act Repatriation Liability 23
25
25
25
25
187
310
Pension Funding —
—
—
—
—
—
—
Other Liabilities 5
—
—
—
—
—
5
Total $ 8,834
$ 4,424
$ 4,295
$ 5,212
$ 2,964
$ 20,017
$ 45,746

⁽¹⁾~~Purchase~~ Operating lease commitments for 2021 include ~~our announcement on February 1, 2018 for 14 new Boeing 747-8 freighters and four new Boeing 767 aircraft.~~$184 million of committed leases that have not yet commenced.

Our ~~capital~~finance lease obligations relate primarily to leases on ~~aircraft. Capital~~aircraft and real estate. Finance leases and operating leases ~~and purchase~~are discussed further in note 11 to the audited, consolidated financial statements. Purchase commitments, as well as our debt principal obligations, are discussed further in note 89 to ~~our~~the audited, consolidated financial statements. The amount of interest on our debt was calculated as the contractual interest payments due on our fixed-rate debt ~~in addition to interest on~~and variable rate debt ~~that was calculated~~ based on interest rates as of December 31, ~~2017.~~2020. The calculations of debt interest take into account the effect of any interest rate swap agreements. For debt denominated in a foreign currency, the U.S. Dollar equivalent principal amount of the debt at the end of the year was used as the basis to calculate future interest payments.

Purchase commitments represent contractual agreements to purchase assets, goods or services that are legally binding, including contracts for aircraft, construction of new or expanded facilities and orders for technology equipment and vehicles. As of December 31, ~~2017,~~2020, we had firm commitments to purchase 14three new Boeing ~~747-8F cargo aircraft. The 14~~767-300 aircraft ~~are~~ to be delivered ~~between 2017~~in 2021 and ~~2020. On February 1, 2018, we announced an order for 14 additional Boeing 747-8 freighters previously under option and four~~8 new Boeing ~~767~~747-8F aircraft to be delivered between ~~2019~~2021 and 2022. We also had a firm commitment to purchase two Boeing MD-11 aircraft to be delivered in 2021. We paid a deposit equal to the full purchase price for these MD-11 aircraft in December 2019; therefore these aircraft are not included in the commitment table above.

OnIn December ~~22,~~ 2017, the United States enacted into law the Tax Act, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. ~~Companies may elect~~We elected to pay the tax over eight years based on an installment schedule outlined in the Tax ~~Act. We intend to make this election~~Act and, as required, have reflected our ~~estimated~~remaining transition tax due by year as a contractual obligation.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

There are no anticipated required minimum cash contributions to our qualified U.S. pension plans (these plans are discussed further in note 46 to the audited, consolidated financial statements). The amount of any minimum funding requirement, as applicable, for these plans could change significantly in future periods depending on many factors, including future plan asset returns, discount rates, other actuarial assumptions and changes to pension plan funding regulations. A decline in discount rates or a sustained significant decline in ~~the world~~ equity or bond ~~markets~~returns could result in our ~~domestic~~U.S. pension plans being subject to significantly higher minimum funding requirements. Actual contributions made in future years could materially differ and consequently required minimum contributions beyond ~~2020~~2021 cannot be reasonably estimated.

As discussed in note 57 to the audited, consolidated financial statements, we are not currently subject to any minimum contributions or surcharges with respect to the multiemployer pension and health and welfare plans in which we participate. Contribution rates to these multiemployer pension and health and welfare plans are established through the collective bargaining process. As we are not subject to any minimum contribution levels, we have not included any amounts in the contractual commitments table with respect to these multiemployer plans.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

~~The contractual payments due for “other liabilities” primarily include commitment payments related to our investment in certain partnerships.~~

The table above does not include approximately ~~$212~~$398 million of liabilities for uncertain tax positions because we are uncertain if or when such amounts will ultimately be settled in cash. Uncertain tax positions are further discussed in note 1315 to the audited, consolidated financial statements.

As of December 31, ~~2017,~~2020, we had outstanding letters of credit totaling approximately ~~$1.084~~$1.4 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, ~~2017,~~2020, we had ~~$932 million~~$1.3 billion of surety bonds written. As of December 31, ~~2017,~~2020, we had unfunded loan commitments totaling ~~$137~~$52 million associated with UPS Capital.

We believe that funds from operations and borrowing programs will provide adequate sources of liquidity and capital resources to meet our expected long-term needs for the operation of our business, including anticipated capital expenditures, transformation strategy costs and pension contributions for the foreseeable future.

Contingencies

Collective Bargaining Agreements

Status of Collective Bargaining Agreements

AsSee note 7 to the audited, consolidated financial statements for a discussion of ~~December 31, 2017, we had approximately 280,000 employees employed under a national master agreement and various supplemental agreements with local unions affiliated with~~ the ~~Teamsters. These agreements run through July 31, 2018.~~

~~We have approximately 2,700 pilots who are employed under a~~status of collective bargaining ~~agreement with the Independent Pilots Association ("IPA"), which runs through September 1, 2021.~~

Our airline mechanics are covered by a collective bargaining agreement with Teamsters Local 2727, which became amendable November 1, 2013. We are currently in negotiations with Teamsters Local 2727. In addition, approximately 3,100 of our auto and maintenance mechanics who are not employed under agreements with the Teamsters are employed under collective bargaining agreements with the International Association of Machinists and Aerospace Workers (“IAM”) that will expire on July 31, 2019.agreements.

Multiemployer Benefit Plans

We contribute to a number of multiemployer ~~defined benefit~~pension and health and welfare plans under the terms of collective bargaining agreements that cover our union represented employees. Our current collective bargaining agreements set forth the annual contribution increases allotted to the plans that we participate in, and we are in compliance with these contribution rates. These limitations will remain in effect throughout the terms of the existing collective bargaining agreements.

New Accounting Pronouncements

Recently Adopted Accounting Standards

See note 1 to the audited, consolidated financial statements for a discussion of recently adopted accounting standards.

Accounting Standards Issued But Not Yet Effective

See note 1 to the audited, consolidated financial statements for a discussion of accounting standards issued, but not yet effective.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Rate Adjustments

We announced various adjustments to our peak surcharges during the fourth quarter as follows:

•Effective October 25, 2020, surcharges applied to China and Hong Kong origin international shipments increased.

•Effective November 1, 2020, surcharges for certain Europe origin shipments increased.

•Effective November 8, 2020, surcharges increased for China Mainland, Hong Kong Special Administrative Region, Australia, New Zealand and other Asia origin shipments and a surcharge was applied to international shipments from Korea.

•Effective November 15, 2020, surcharges for certain Europe origin shipments increased.

•Effective December 27, 2020, surcharges for shipments from China Mainland and Hong Kong Special Administrative Region to the U.S. decreased.

•Effective January 17, 2021, updated surcharges were applied to U.S. shipments.

The following changes took effect on December 27, 2020:

•The rates for UPS Ground, UPS Air and International services increased by an average net 4.9%.

•UPS Air Freight rates within and between the U.S., Canada and Puerto Rico increased an average net 4.8%.

•Rates for all UPS SurePost services increased.

Additionally, effective January 10, 2021, an additional handling charge was applied to any package with a combined length plus girth exceeding 105 inches. Effective April 11, 2021, additional handling and large package surcharge rates for non-Hundredweight service packages will differ by zone and effective July 11, 2021, additional handling and large package surcharge rates for Hundredweight Service packages will differ by zone.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Critical Accounting ~~Policies and~~ Estimates

~~Our~~This discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which are prepared in accordance with ~~accounting principles generally accepted in the United States of America.~~GAAP. As indicated in note 1 to ~~our~~the audited, consolidated financial statements, the amounts of assets, liabilities, revenue and expenses reported in our financial statements are affected by estimates and judgments that are necessary to comply with ~~generally accepted accounting principles.~~GAAP. We base our estimates on prior experience, ~~and~~current trends, various other assumptions and third-party input that we consider reasonable to our circumstances. Actual results could differ materially from our estimates, which would affect the related amounts reported in our consolidated financial statements. While estimates and judgments are applied in arriving at many reported amounts, we believe that the following ~~matters may~~critical accounting policies involve a higher degree of judgment and complexity.

Contingencies

As discussed in note 910 to ~~our~~the audited, consolidated financial statements, we are involved in various legal proceedings and subject to various contingencies. The events that may impact our contingent liabilities are often unique and generally are not predictable. At the time a contingency is identified, we consider all relevant facts as part of our evaluation. We record a liability for a loss when the loss is probable of occurring and reasonably estimable. Events may arise that were not anticipated and the outcome of a contingency may result in a loss to us that differs from our previously estimated liability. ~~These factors~~This difference could ~~result in a material difference between estimated and actual operating results. Contingent losses that are probable and estimable, excluding those related to income~~be material. Income taxes and self-insurance ~~which~~ are discussed ~~further below,~~below. Except as disclosed in note 10 to the audited, consolidated financial statements, other contingent losses that were probable and estimable were not material to our financial position or results of operations as of, ~~and~~or for the year ended, December 31, ~~2017~~.2020. In addition, we have certain contingent liabilities that have not been recognized as of, or for the year ended, December 31, ~~2017~~,2020, because a loss iswas not reasonably estimable.

Goodwill and Intangible ~~Impairment~~Asset Impairments

We ~~perform~~test goodwill and indefinite-lived intangible assets for impairment ~~testing of goodwill for each of our reporting units~~ on an annual ~~basis. In our U.S. Domestic Package~~basis as of July 1st and ~~International Package reporting segments, we have~~between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the following reporting units: Europe, Asia, Americas and ISMEA (Indian Subcontinent, Middle East and Africa). In our Supply Chain & Freight segment we have the following reporting units: Forwarding, Logistics, UPS Mail Innovations, UPS Freight, The UPS Store, UPS Capital, Marken and Coyote Logistics. During the third quarter of 2017, we changed the measurement date of our annual goodwill impairment testing from October 1st to July 1st. This change better aligns the timing of the goodwill impairment test with our long-term business planning process. The change was not material to our consolidated financial statements as it did not result in the delay, acceleration or avoidance of an impairment charge. Our annual goodwill impairment testing date is July 1^st ~~for each reporting unit owned at the testing date. In assessing~~carrying amount may be impaired. We assess goodwill for impairment weat the reporting unit level, initially ~~evaluate~~evaluating 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. If the qualitative assessment is not conclusive, ~~and it is necessary to~~we calculate the fair value of a reporting unit ~~then we utilize a two-step process~~ to test goodwill for impairment. ~~First, a comparison of the fair value of the applicable reporting unit with the aggregate carrying value, including goodwill, is performed.~~ If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we ~~perform~~record the ~~second step of the~~excess amount as goodwill impairment, ~~test~~not to ~~determine~~exceed the total amount of ~~impairment loss. The second step includes comparing~~goodwill allocated to the ~~implied fair value of~~reporting unit. Our reporting units are set out in note 8 to the ~~affected reporting unit’s goodwill with the carrying value of that goodwill.~~audited, consolidated financial statements.

We primarily determine the fair value of our reporting units using a discounted cash flow (“DCF”) model ~~(“DCF model”)~~ and supplement this with observable valuation multiples for comparable companies, as appropriate. The completion of the DCF model requires that we make a number of significant assumptions to produce an estimate of future cash flows. These assumptions include projections of future revenue, costs, capital expenditures, ~~and~~ working capital ~~changes. In addition, we~~and our cost of capital. We are also required to make assumptions ~~about~~relating to our overall business and operating strategy, and the ~~estimated cost of capital~~regulatory and ~~other relevant variables, as required, in estimating the fair value of our reporting units.~~market environment. The projections that we use in our DCF model are updated annually and will change over time based on the historical performance and changing business conditions for each of our reporting units.

The determination of whether goodwill is impaired involves a significant level of judgment in these assumptions, and changes in our forecasts, business strategy, government regulations, or economic or market conditions could significantly impact these ~~judgments. We routinely monitor market conditions and other factors to determine if interim impairment tests are necessary. If impairment indicators are present in future periods,~~judgments, potentially decreasing the fair value of one or more reporting units. Any resulting impairment charges could have a material impact on our results of operations.

We recognized a goodwill impairment charge of $494 million for our UPS Freight reporting unit in 2020 in conjunction with our evaluation of assets held for sale, which is discussed in note 4 to the audited, consolidated financial statements. Based on the most recent tests, the fair value of our remaining reporting units exceeds their carrying value. None of our reporting units incurred any goodwill impairment charges in 2019.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~None of the reporting units incurred any goodwill impairment charges in~~ ~~2017~~, ~~2016~~ or ~~2015~~. Changes in our forecasts could cause carrying values of our reporting units to exceed their fair values in future periods, potentially resulting in a goodwill impairment charge. During the year, management monitored the actual performance of the business relative to the fair value assumptions used during our annual goodwill impairment test. For the periods presented, no triggering events were identified that required an interim impairment test. Based on most recent tests, the fair value of all our reporting units substantially exceed their carrying value.

A trade name with a carrying value of $200 million and licenses with a carrying value of $5 million as of December 31, ~~2017~~2020 are considered to be indefinite-lived ~~intangibles, and therefore are not amortized. Impairment tests for indefinite-lived intangibles are performed on an annual basis.~~intangibles. We determined that the income approach, specifically the relief from royalty method, is the most appropriate valuation method ~~for~~to estimate the ~~trade name. The estimated~~ fair value of the trade name is compared to the carrying value of the asset. If the carrying value of the trade name exceeds its estimated fair value, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value.name. This valuation approach requires that we make a number of assumptions to estimate fair value. These assumptions include projections of future revenues, market royalty rates, tax rates, discount rates and other relevant variables. The projections we use in the model are updated annually and will change over time based on the historical performance and changing business conditions.

If the carrying value of the trade name exceeds its estimated fair value, an impairment charge would be recognized for the excess amount.

All of our remaining ~~recorded~~ intangible assets are deemed to be finite-lived ~~intangibles,~~ and are ~~thus~~ amortized over their estimated useful lives. Impairment tests for these ~~intangible~~ assets are only performed when a triggering event occurs that indicates that the carrying value of the intangible may not be recoverable based on ~~the~~its undiscounted future cash ~~flows of the intangible.~~flows. If the carrying amount of the intangible is determined not to be recoverable, a write-down to fair value is recorded. Fair values are ~~determined based on~~estimated using a DCF model. If impairment indicators are present, ~~in future periods,~~ the resulting impairment charges could have a material impact on our results of operations. ~~There were no impairments~~See note 8 to the audited, consolidated financial statements for details of ~~any indefinite-lived or~~ finite-lived intangible ~~assets in 2017, 2016 or 2015.~~asset impairments.

Self-Insurance Accruals

We self-insure costs associated with workers’ compensation claims, ~~automotive~~automobile liability, health and welfare and general business liabilities, up to certain limits. Insurance reserves are ~~established for estimates of the loss that we will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported. Recorded balances are~~ based on ~~reserve levels,~~third-party actuarial estimates, which incorporate 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 ~~such~~our reserves. We believe our estimated reserves for such claims are adequate, but actual experience in claim frequency and/or severity could materially differ from our estimates and affect our results of operations.

Workers’ compensation, automobile liability and general liability insurance claims may take several years to completely settle. Consequently, actuarial estimates are required to project the ultimate cost that will be incurred to fully resolve ~~the claims.~~a claim. A number of factors can affect the actual cost of a claim, including the severity and length of time the claim remains open, trends in healthcare costs, ~~and~~ the results of any related ~~litigation.~~litigation and changes in legislation. Furthermore, claims may emerge in a future ~~years~~year for events that occurred in a prior year at a rate that differs from ~~previous~~ actuarial projections. ~~Changes in state legislation with respect to workers' compensation can affect the adequacy of our self-insurance accruals.~~ All of these factors can result in revisions to ~~prior~~ actuarial projections and produce a material difference between estimated and actual operating results. ~~Prior~~Based on our historical experience, in 2019 we changed our self-insurance reserves from the central estimate to ~~2017, outside~~the low end of the actuarial ~~studies were performed semi-annually~~range of losses. We believe our estimated reserves for such claims are adequate; actual experience in claim frequency and/or severity could materially differ from our estimates and ~~we used~~affect our results of operations. For additional information on our self-insurance reserves, refer to note 1 of the studies to estimate the liability in intervening quarters. Beginning in 2017, outside actuarial studies are now performed quarterly as we believe this provides us with better quarterly estimates of our outstanding workers' compensation liability.

audited, consolidated financial statements.

We sponsor a number of health and welfare insurance plans for our employees. ~~These liabilities~~Liabilities and expenses related ~~expenses~~to these plans are based on estimates of, among other things, 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. We believe our estimates are reasonable/appropriate. Actual experience may differ from these estimates and, therefore, produce a material difference between estimated and actual operating results.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

Pension and Other Postretirement Medical Benefits

Our pension and other postretirement medical benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates, healthcare cost trend rates, inflation, compensation ~~increase rates,~~increases, expected returns on plan assets, mortality rates, regulatory requirements and other factors. The assumptions utilized in recording the obligations under our plans represent our best estimates, and we believe that they are reasonable, based on information as to historical experience and performance as well as other factors that might cause future expectations to differ from past trends.

Differences in actual experience or changes in assumptions may affect our pension and other postretirement obligations and future ~~expense.~~expenses. The primary factors contributing to actuarial gains and losses each year are (1) changes in the discount rate used to value pension and postretirement benefit obligations as of the measurement date, (2) differences between the expected and the actual return on plan assets, (3) changes in demographic assumptions including mortality, (4) participant experience different from demographic assumptions and (5) changes in coordinating benefits with plans not sponsored by UPS. In 2019, we refined the bond matching approach used to determine the discount rate for our U.S. pension and postretirement plans by implementing advances in technology and modeling techniques as discussed in note 6 to the audited, consolidated financial statements.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

We recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of a corridor (defined as 10% of the greater of the fair value of plan assets or the plans' projected benefit obligations) in pension expense annually at December 31st each year. The remaining components of pension expense (herein referred to as "ongoing net periodic benefit cost"), primarily service and interest costs and the expected return on plan assets, are reported on a quarterly basis.

The following sensitivity analysis shows the impact of a 25 basis point change in the assumed discount rate and return on assets ~~and healthcare cost trend rate~~ for our pension and postretirement benefit plans, and the resulting increase (decrease) on our obligations and expense as of, and for the year ended, December 31, ~~2017~~2020 (in millions).:


Pension Plans	25 Basis Point Increase		25 Basis Point Decrease
Discount Rate:
Effect on ongoing net periodic benefit cost	$	(41)	$	42
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor	(2,434)		2,618
Effect on projected benefit obligation	(2,761)		2,942
Return on Assets:
Effect on ongoing net periodic benefit cost(1)	(118)		118
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor(2)	(115)		115

Postretirement Medical Plans
Discount Rate:
Effect on ongoing net periodic benefit cost	3		(3)
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor	(54)		64
Effect on accumulated postretirement benefit obligation	(60)		71
Healthcare Cost Trend Rate:
Effect on ongoing net periodic benefit cost	1		(1)
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor	13		(14)
Effect on accumulated postretirement benefit obligation	14		(16)

Pension Plans
25 Basis Point
Increase

25 Basis Point
Decrease
Discount Rate:
Effect on ongoing net periodic benefit cost $ (49 ) $ 50
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor (616 ) 1,492
Effect on projected benefit obligation (1,883 ) 2,007
Return on Assets:
Effect on ongoing net periodic benefit cost⁽¹⁾
(84 ) 84
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor⁽²⁾
(37 ) 37

Postretirement Medical Plans
Discount Rate:
Effect on ongoing net periodic benefit cost 3
(3 )
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor (11 ) 13
Effect on accumulated postretirement benefit obligation (62 ) 73
Healthcare Cost Trend Rate:
Effect on ongoing net periodic benefit cost 1
(1 )
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor 10
(10 )
Effect on accumulated postretirement benefit obligation 16
(17 )


⁽¹⁾	~~Amount calculated based on 25 basis point increase / decrease in the expected return on assets.~~


⁽²⁾	~~Amount calculated based on 25 basis point increase / decrease in the actual return on assets.~~

(1)Amount calculated based on 25 basis point increase / decrease in the expected return on assets.

(2)Amount calculated based on 25 basis point increase / decrease in the actual return on assets.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

~~Pension Backstop~~

~~UPS was a contributing employer~~Refer to note 6 to the audited, consolidated financial statements for information on our potential liability for coordinating benefits related to the Central States Pension Fund ("CSPF") until 2007 when we withdrew from the plan and fully funded our allocable share of unfunded vested benefits by paying a $6.1 billion withdrawal liability. Under a collective bargaining agreement with the International Brotherhood of Teamsters ("IBT"), UPS agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan ("UPS/IBT Plan") for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 ("the UPS Transfer Group") in the event that benefits are lawfully reduced by the CSPF in the future consistent with the terms of our withdrawal agreement with the CSPF.

In December 2014, Congress passed the Multiemployer Pension Reform Act ("MPRA") which for the first time ever allowed multiemployer pension plans to reduce benefit payments to retirees, subject to specific guidelines in the statute and government approval. In September 2015, the CSPF submitted a proposed pension benefit reduction plan to the U.S. Department of the Treasury under the MPRA. The CSPF plan proposed to reduce retirement benefits to the CSPF participants, including the UPS Transfer Group. We vigorously challenged the proposed benefit reduction plan because we believed that it did not comply with the law and the CSPF failed to comply with its contractual obligation to obtain our consent to reduce benefits to the UPS Transfer Group under the terms of the withdrawal agreement with the CSPF. On May 6, 2016, the U.S. Department of the Treasury rejected the proposed plan submitted by the CSPF, stating that it failed to satisfy a number of requirements set forth in the MPRA.

The CSPF has asserted that it will become insolvent in 2025, which could lead to the reduction of retirement benefits. Although there are numerous factors that could affect the CSPF's funding status, if the CSPF were to become insolvent as they have projected, UPS may be required to provide coordinating benefits, thereby increasing the current projected benefit obligation for the UPS/IBT Plan by approximately $4 billion. The CSPF has said that it believes a legislative solution to its funding status is necessary, and we expect that the CSPF will continue to explore options to avoid insolvency.

We account for this potential obligation under Accounting Standards Codification Topic 715- Compensation- Retirement Benefits (“ASC 715”). Under ASC 715 we are required to provide a best estimate of various actuarial assumptions, including the eventual outcome of this matter, in measuring our pension benefit obligation at the December 31st measurement date. While we currently believe the most likely solution to this matter and the broader systemic problems facing multiemployer pension plans is intervention by the federal government, ASC 715 does not permit anticipation of changes in law in making a best estimate of pension liabilities. Our best estimate as of the measurement date of December 31, 2017, does not incorporate this solution. However, if a future change in law resulted in an obligation to provide coordinating benefits under the UPS/IBT Plan, it may be a significant event, and may require us to remeasure the plan assets and projected benefit obligation of the UPS/IBT Plan at the date the law is enacted.

Our best estimate of the next most likely outcome to resolve the CSPF’s solvency concerns is that the CSPF will submit another benefit suspension application under the MPRA to forestall insolvency without reducing benefits to the UPS Transfer Group. If the CSPF attempts to reduce benefits for the UPS Transfer Group under a MPRA filing, we would be in a strong legal position to prevent that from occurring given that these benefits cannot be reduced without our consent and such a reduction, without first exhausting reductions to other groups in the CSPF, would be contrary to the statute. Accordingly, our best estimate as of the measurement date of December 31, 2017, is that there is no liability to be recognized for additional coordinating benefits of the UPS/IBT Plan. However, the projected benefit obligation could materially increase as the uncertainties are resolved. We will continue to assess the impact of these uncertainties on the projected benefit obligation of the UPS/IBT Plan in accordance with ASC 715.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

Fund.

Depreciation, Residual Value and Impairment of Fixed Assets

As of December 31, ~~2017~~,2020, we had $~~22.118~~$32.3 billion of net fixed assets, the most significant category of which is aircraft. In accounting for fixed assets, we make estimates ~~about~~of the expected useful lives and residual values. We review long-lived assets for impairment at either the ~~expected residual values~~individual asset level or the asset group for which the lowest level of independent cash flows can be identified. Impairment reviews occur when circumstances indicate the carrying amount of an asset or asset group may not be recoverable based on undiscounted future cash flows. The circumstances that would indicate potential impairment may include, but are not limited to, a significant change in the extent to which an asset is utilized and operating or cash flow losses associated with the use of the ~~assets, and~~asset. If the ~~potential for impairment~~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 ~~the fair~~quoted market values, ~~of the assets and the~~discounted cash flows ~~generated by these assets.~~or external appraisals, as appropriate. There were no material impairment charges on our fixed assets during 2020 or 2019.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

In estimating the lives and expected residual values of aircraft, we ~~have relied~~rely upon actual experience with the same or similar aircraft types. ~~Subsequent revisions~~Revisions to these estimates could be caused by changes to our maintenance ~~program,~~programs, changes in the utilization of the aircraft, governmental regulations on aging aircraft and changing market prices of new and used aircraft of the same or similar types. We periodically evaluate these estimates and assumptions, and adjust ~~the estimates and assumptions~~them as necessary. Adjustments ~~to the expected lives and residual values~~ are accounted for on a prospective basis through depreciation expense. In estimating cash flows, we project future volume levels for our different air ~~express~~ products in all geographic regions in which we do business. Adverse changes in these volume forecasts, or a shortfall of our actual volume compared with our projections, could result in our current aircraft capacity exceeding current or projected demand. This situation could lead to an excess of a particular aircraft, resulting in an ~~aircraft~~ impairment charge or a reduction of the expected useful life of an aircraft ~~(thus resulting~~that may result in increased depreciation ~~expense).~~expense.

We ~~review long-lived assets for impairment when circumstances indicate~~evaluate the ~~carrying amount~~useful lives of an asset may not be recoverable based on the undiscounted future cash flows of the asset. 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 review long-lived assets for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified. The circumstances that would indicate potential impairment may include, but are not limited to, a significant change in the extent to which an asset is utilized and operating or cash flow losses associated with the use of the asset.

~~There were no impairment charges on~~ our property, plant and equipment ~~during~~ ~~2017~~, ~~2016~~based on our usage, maintenance and ~~2015~~.replacement policies, and taking into account physical and economic factors that may affect the useful lives of the assets. See note 1 to the audited, consolidated financial statements for a discussion of our accounting policies for long-lived assets.

Fair Value Measurements

In the normal course of business, we hold and issue financial instruments that contain elements of market risk, including derivatives, marketable securities, finance receivables, pension assets, other investments and debt. Certain of these financial instruments are required to be recorded at fair value, principally derivatives, marketable securities, pension assets and certain other investments. Fair values are based on listed market prices, when such prices are available. To the extent that listed market prices are not available, fair value is determined based on other relevant factors, including dealer price quotations. If listed market prices or other relevant factors are not available, inputs are developed from unobservable data reflecting our own assumptions and include situations where there is little or no market activity for the asset or liability. Certain financial instruments, including over-the-counter derivative instruments, are valued using pricing models that consider, among other factors, contractual and market prices, correlations, time value, credit spreads and yield curve volatility factors. Changes in the fixed income, foreign currency exchange and commodity markets will impact our estimates of fair value in the future, potentially affecting our results of operations. A quantitative sensitivity analysis of our exposure to changes in commodity prices, foreign currency exchange rates and interest rates is presented in the “Quantitative and Qualitative Disclosures about Market Risk” section of this report.

WeCertain 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 not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of an impairment or when an asset or disposal group is classified as held for sale.

For business acquisitions, we allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, technology and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and ~~unpredictable and, as~~unpredictable. As a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

Income Taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of income by legal entity and jurisdiction, tax credits, benefits and deductions, and in the calculation of deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as tax, interest and penalties related to uncertain tax positions. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

We assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we will ultimately recover a substantial majority of the deferred tax assets recorded on our consolidated balance sheets. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not likely.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. Once it is determined that the position meets the recognition threshold, the second step requires us to estimate and measure the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement. The difference between the amount of recognizable tax benefit and the total amount of tax benefit from positions filed or to be filed with the tax authorities is recorded as a liability for uncertain tax benefits. It is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various possible outcomes. We reevaluate uncertain tax positions 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.

~~See note 13 to the audited consolidated financial statements for a discussion of impacts of the Tax Act.~~

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS


~~Item 7A.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~

Item 7A.Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in certain commodity prices, foreign currency exchange rates, interest rates and ~~interest rates.~~equity prices. All of these market risks arise in the normal course of business, as we do not engage in speculative trading activities. In order to manage the risk arising from these exposures, we may utilize a variety of commodity, foreign currency exchange rate and interest rate forward contracts, options and swaps. A discussion of our accounting policies for derivative instruments and further disclosures are provided in note 151 to the audited, consolidated financial statements.

Commodity Price Risk

We are exposed to changes in the prices of refined fuels, principally jet-A, diesel and unleaded gasoline, as well as changes in the price of natural ~~gas.~~gas and other alternative fuels. Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the primary means of reducing the risk of adverse fuel price changes. 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, inter-modal and truckload services. ~~Additionally, we periodically use~~The majority of our contracts for fuel purchases utilize index-based pricing formulas plus or minus a ~~combination~~fixed locational/supplier differential. While many of ~~option, forward and futures contracts to provide partial protection from changing~~the indices are aligned, each index may fluctuate at a different pace, driving variability in the prices paid for fuel. Because of this, our operating results may be affected should the market price of fuel ~~and energy prices.~~suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our results either positively or negatively in the short-term. As of December 31, ~~2017~~2020 and ~~2016, however,~~2019, we had no commodity contracts outstanding.

Foreign Currency Exchange Rate Risk

We have foreign currency risks related to our revenue, operating expenses and financing transactions in currencies other than the local currencies in which we operate. We are exposed to currency risk from the potential changes in functional currency values of our foreign currency-denominated assets, liabilities and cash flows. Our most significant foreign currency exposures relate to the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We use ~~forwards~~forward contracts as well as a combination of purchased and written options to hedge forecasted cash flow currency exposures. These derivative instruments generally cover forecasted foreign currency exposures for periods of 12 to 48 months. We also utilize forward contracts to hedge portions of our anticipated cash settlements of intercompany transactions and interest payments on certain debt subject to foreign currency remeasurement.

Interest Rate Risk

We have issued debt instruments, including debt associated with ~~capital~~finance leases, that accrue expense at fixed and floating rates of interest. We use a combination of interest rate swaps as part of our program to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing. The notional amount, interest payment and maturity dates of the swaps match the terms of the associated debt. We also utilize forward starting swaps and similar instruments to lock in all or a portion of the borrowing cost of anticipated debt issuances. Our floating-rate debt and interest rate swaps subject us to risk resulting from changes in short-term ~~(primarily LIBOR)~~ interest rates. For a discussion of the risks associated with the anticipated cessation of LIBOR, see Part I, "Item 1A. Risk Factors - Financial Risks - The proposed phase out of the London Interbank Offer Rate ("LIBOR") could have a material adverse effect on us".

We also are subject to interest rate risk with respect to our pension and postretirement benefit obligations, as changes in interest rates will effectively increase or decrease our liabilities associated with these benefit plans, which also results in changes to the amount of pension and postretirement benefit expense recognized in future periods.

We have investments in debt securities, as well as cash-equivalent instruments, some of which accrue income at variable rates of interest. Additionally, we hold a portfolio of finance receivables that accrue income at fixed and floating rates of interest.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Sensitivity Analysis

The following analysis provides quantitative information regarding our exposure to foreign currency exchange risk, interest rate risk and equity price risk embedded in our existing financial instruments. We utilize valuation models to evaluate the sensitivity of the fair value of financial instruments with exposure to market risk that assume instantaneous, parallel shifts in exchange rates, interest rate yield curves and commodity and equity prices. For options and instruments with non-linear returns, models appropriate to the instrument are utilized to determine the impact of market shifts.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS~~

There are certain limitations inherent in the sensitivity analyses presented, primarily due to the assumption that foreign currency exchange rates change in a parallel fashion and that interest rates change instantaneously. In addition, the analyses are unable to reflect the complex market reactions that normally would arise from the market shifts modeled. While this is our best estimate of the impact of the specified interest rate scenarios, these estimates should not be viewed as forecasts. We adjust the fixed and floating interest rate mix of our interest rate sensitive assets and liabilities in response to changes in market conditions. Additionally, changes in the fair value of foreign currency derivatives and commodity derivatives are offset by changes in the cash flows of the underlying hedged foreign currency and commodity transactions.


	Shock-Test Result As of December 31,
(in millions)	2020		2019
Change in Fair Value:
Currency Derivatives(1)	$	(809)	$	(786)
Change in Annual Interest Expense:
Variable Rate Debt(2)	$	26	$	64
Interest Rate Derivatives(2)	$	33	$	37

Shock-Test Result
As of December 31,
(in millions) 2017 2016
Change in Fair Value:
Currency Derivatives⁽¹⁾
$ (447 ) $ (437 )
Change in Annual Interest Expense:
Variable Rate Debt⁽²⁾
$ 51
$ 49
Interest Rate Derivatives⁽²⁾
$ 55
$ 58
Change in Annual Interest Income:
Marketable Securities⁽³⁾
$ 2
$ —
(1)The potential change in fair value from a hypothetical 10% weakening of the U.S. Dollar against local currency exchange rates across all maturities.


(2)The potential change in annual interest expense resulting from a hypothetical 100 basis point increase in short-term interest rates, applied to our variable rate debt and swap instruments (excluding hedges of anticipated debt issuances). ⁽¹⁾	~~The potential change in fair value from a hypothetical 10% weakening of the U.S. Dollar against local currency exchange rates across all maturities.~~


⁽²⁾	The potential change in annual interest expense resulting from a hypothetical 100 basis point increase in short-term interest rates, applied to our variable rate debt and swap instruments (excluding hedges of anticipated debt issuances).


⁽³⁾	~~The potential change in interest income resulting from a hypothetical 100 basis point increase in short-term interest rates, applied to our variable rate investment holdings.~~

The sensitivity of our pension and postretirement benefit obligations to changes in interest rates is quantified in “Critical Accounting ~~Policies and~~ Estimates”. The sensitivity in the fair value and interest income of our finance receivables and marketable securities due to changes in interest rates was not material as of December 31, ~~2017 and~~ ~~2016~~.

2020 or 2019.


~~Item 8.~~	~~Financial Statements and Supplementary Data~~

Item 8.Financial Statements and Supplementary Data

Table of Contents




Report of Independent Registered Public Accounting Firm	6257
Consolidated Balance Sheets		6361
Statements of Consolidated Income		6462
Statements of Consolidated Comprehensive Income (Loss)		6462
Statements of Consolidated Cash Flows		6563
Notes to Consolidated Financial Statements		6664
Note 1—Summary of Accounting Policies		6664
Note 2—~~Cash and Investments~~Revenue Recognition		7371
Note 3—Investments and Restricted Cash		74
Note 4—Assets Held for Sale		78
Note 5—Property, Plant and Equipment		7879
Note ~~4—Company-Sponsored~~6—Company -Sponsored Employee Benefit Plans		7880
Note 5—7—Multiemployer Employee Benefit Plans		8992
Note 6—8—Goodwill and Intangible Assets		9395
Note ~~7—Business Acquisitions~~		95
~~Note 8—~~9—Debt and Financing Arrangements	9697
Note 9—10—Legal Proceedings and Contingencies		102
Note ~~10—Shareowners’ Equity~~11—Leases		~~104~~103
Note ~~11—Stock-Based Compensation~~12—Shareowners’ Equity		107
Note ~~12—~~13—Stock-Based Compensation		111
Note 14—Segment and Geographic Information		~~111~~115
Note ~~13—~~15—Income Taxes		~~114~~118
Note ~~14—~~16—Earnings Per Share		~~119~~122
Note ~~15—~~17—Derivative Instruments and Risk Management		~~119~~123
Note ~~16—~~18—Transformation Strategy Costs		128
Note 19—Quarterly Information (Unaudited)		~~125~~129
Note 20—Subsequent Events		130

Report of Independent Registered Public Accounting Firm

To the Shareowners and Board of Directors ~~and Shareowners~~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”~~"Company") as of December 31, ~~2017~~2020 and ~~2016~~,2019, the related consolidated statements of income, comprehensive income, and cash flows, for each of the three years in the period ended December 31, ~~2017~~,2020, and the related notes (collectively referred to as the ~~“financial statements”~~"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2020 and ~~2016,~~2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2017,~~2020, 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”)~~(PCAOB), the Company's internal control over financial reporting as of December 31, ~~2017,~~2020, 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 ~~21, 2018,~~22, 2021, expressed an unqualified opinion on the ~~Company’s~~Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company changed its method of accounting for leases due to the adoption of Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases (Topic 842). This change has been applied on a modified retrospective basis effective on January 1, 2019.

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.

Central States Pension Fund coordinating benefit obligation assumptions - Refer to Note 6, Company-Sponsored Employee Benefit Plans (Actuarial Assumptions - Central States Pension Fund), to the financial statements

Critical Audit Matter Description

The Company was a contributing employer to the Central States Pension Fund (“CSPF”) until 2007 when it withdrew and fully funded its allocable share of unvested benefits. The Company agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) to CSPF participants whose last employer was the Company and who had not retired as of January 1, 2008 (the “UPS Transfer Group”) if the CSPF were to lawfully reduce benefits consistent with the terms of its withdrawal agreement with the Company. The CSPF has asserted that, absent legislative reform, it will become insolvent in 2025. If the CSPF were to become insolvent consistent with that assertion, the Company may be required to provide coordinating benefits through the UPS/IBT Plan to the UPS Transfer Group.

Under accounting standards generally accepted in the United States of America (“GAAP”), the Company is required to determine its best estimate of the eventual outcome of this matter and is prohibited from anticipating potential changes in law in making that best estimate. The Company considered potential outcomes based on the existing legislative framework, including the eventual insolvency of the CSPF or an approved application to reduce benefits under the U.S. Multiemployer Pension Reform Act (“MPRA”). Due to the passage of time and further deterioration of the CSPF’s funded status, the Company believes the trustees of the CSPF (the “Trustees”) can no longer submit and implement another benefit reduction plan under MPRA. As such, the Company developed a deterministic cash flow projection that reflects updated estimated CSPF cash flows and investment earnings, the lack of legislative action, and the projected financial assistance to the CSPF from the Pension Benefit Guaranty Corporation (“PBGC”) to fund the PBGC’s guaranteed benefit levels.

As a result, at the December 31, 2020 measurement date, the best estimate of the Company’s projected benefit obligation for coordinating benefits that may be required to be directly provided by the UPS/IBT Plan to the UPS Transfer Group increased by $2.9 billion. At the December 31, 2020 measurement date, the total obligation for the CSPF coordinating benefits was $5.5 billion.

The assumptions require significant management judgment and the following audit considerations:

1.Auditing management’s assumption related to the level of financial assistance that CSPF may receive from the PBGC based on enacted law is subjective.

2.Auditing the actuarial assumptions used to estimate the timing and present value of future CSPF cash flows is challenging because the underlying data is limited to information made publicly available by the CSPF.

3.Auditing the sufficiency of the Company’s disclosure of this matter in the footnotes to the financial statements is challenging due to the number of uncertainties associated with the obligation.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures to address the Company’s assumptions used to measure its obligation to pay for CSPF coordinating benefits to the UPS Transfer Group (the “Coordinating Benefits”) included the following, among others:

•We tested the effectiveness of controls over Coordinating Benefits assumptions, including those over the determination of the accounting model, the key legal position relevant to the level of financial assistance guaranteed by the PBGC based upon enacted law, the other actuarial assumptions used to project the Coordinating Benefits obligation; and the related financial statement disclosures.

•With the assistance of professionals in our firm having expertise in pension accounting, we evaluated the Company’s conclusions regarding the accounting model applied to the Coordinating Benefits obligation.

•With the assistance of our actuarial specialists, we tested the underlying data and actuarial model used by management to estimate the obligation to provide Coordinating Benefits, including consideration of (1) the discount rate; (2) the projected contributions and benefit payments, including PBGC contributions to the CSPF and (3) the expected return on CSPF assets. Further, because the data used by management is limited to publicly available CSPF information, we considered whether other available sources of data may yield a more precise estimate.

•We compared the Company’s footnote disclosure relating to this matter to the information communicated between management and the Company’s audit committee to evaluate whether significant uncertainties had been omitted from the disclosure.

Valuation of U.S. hedge fund, risk parity, private debt, private equity and real estate investments - Refer to Note 6, Company-Sponsored Employee Benefit Plans (Fair Value Measurements), to the financial statements

Critical Audit Matter Description

The Company’s U.S. pension and postretirement medical benefit plans (the “U.S. Plans”) held hedge fund, risk parity, private debt, private equity and real estate investments valued at $7.9 billion as of December 31, 2020.

The Company determines the reported values of the U.S. Plans’ investments in hedge, risk parity, private debt, private equity and real estate funds primarily based on the estimated net asset value (“NAV”) of the fund. In order to estimate NAV, the Company evaluates audited and unaudited financial reports from fund managers, and makes adjustments, as appropriate, for investment activity between the date of the financial reports and December 31st. These investments are not actively traded, and their values can only be estimated using these subjective assumptions.

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

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the inputs used by management to estimate the NAV of the U.S. Plans’ hedge fund, risk parity, private debt, private equity and real estate investments included the following, among others:

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

•For certain investments, we confirmed directly with the respective fund manager its preliminary estimate of the fund’s NAV as of December 31, 2020.

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

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

Revenue - Refer to Note 2, Revenue Recognition, to the financial statements

Critical Audit Matter Description

Approximately 82 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:

–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 ~~21, 2018~~22, 2021

We have served as the Company's auditor since 1969.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions)


	December 31,
	2020		2019
ASSETS
Current Assets:
Cash and cash equivalents	$	5,910	$	5,238
Marketable securities	406		503
Accounts receivable	10,888		9,645
Less: Allowance for credit losses	(138)		(93)
Accounts receivable, net	10,750		9,552

Assets held for sale	1,197		0
Other current assets	1,953		1,810
Total Current Assets	20,216		17,103
Property, Plant and Equipment, Net	32,254		30,482
Operating Lease Right-Of-Use Assets	3,073		2,856
Goodwill	3,367		3,813
Intangible Assets, Net	2,274		2,167
Investments and Restricted Cash	25		24

Deferred Income Tax Assets	527		330
Other Non-Current Assets	672		1,082
Total Assets	$	62,408	$	57,857
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt, commercial paper and finance leases	$	2,623	$	3,420
Current maturities of operating leases	560		538
Accounts payable	6,455		5,555
Accrued wages and withholdings	3,569		2,552


Self-insurance reserves	1,085		914
Accrued group welfare and retirement plan contributions	927		793

Liabilities to be disposed of	347		0
Other current liabilities	1,450		1,641
Total Current Liabilities	17,016		15,413
Long-Term Debt and Finance Leases	22,031		21,818
Non-Current Operating Leases	2,540		2,391
Pension and Postretirement Benefit Obligations	15,817		10,601
Deferred Income Tax Liabilities	488		1,632
Other Non-Current Liabilities	3,847		2,719
Shareowners’ Equity:
Class A common stock (147 and 156 shares issued in 2020 and 2019)	2		2
Class B common stock (718 and 701 shares issued in 2020 and 2019)	7		7
Additional paid-in capital	865		150
Retained earnings	6,896		9,105
Accumulated other comprehensive loss	(7,113)		(5,997)
Deferred compensation obligations	20		26
Less: Treasury stock (0.4 shares in 2020 and 2019)	(20)		(26)
Total Equity for Controlling Interests	657		3,267
Noncontrolling Interests	12		16
Total Shareowners’ Equity	669		3,283
Total Liabilities and Shareowners’ Equity	$	62,408	$	57,857

December 31,
2017 2016
ASSETS
Current Assets:
Cash and cash equivalents $ 3,320
$ 3,476
Marketable securities 749
1,091
Accounts receivable, net 8,773
7,695
Current income taxes receivable 1,573
633
Other current assets 1,133
954
Total Current Assets 15,548
13,849
Property, Plant and Equipment, Net 22,118
18,800
Goodwill 3,872
3,757
Intangible Assets, Net 1,964
1,758
Investments and Restricted Cash 483
476
Deferred Income Tax Assets 265
591
Other Non-Current Assets 1,153
1,146
Total Assets $ 45,403
$ 40,377
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt and commercial paper $ 4,011
$ 3,681
Accounts payable 3,872
3,042
Accrued wages and withholdings 2,521
2,317
Hedge margin liabilities 17
575
Self-insurance reserves 705
670
Accrued group welfare and retirement plan contributions 677
598
Other current liabilities 905
847
Total Current Liabilities 12,708
11,730
Long-Term Debt 20,278
12,394
Pension and Postretirement Benefit Obligations 7,061
12,694
Deferred Income Tax Liabilities 757
112
Self-Insurance Reserves 1,765
1,794
Other Non-Current Liabilities 1,804
1,224
Shareowners’ Equity:
Class A common stock (173 and 180 shares issued in 2017 and 2016) 2
2
Class B common stock (687 and 689 shares issued in 2017 and 2016) 7
7
Additional paid-in capital —
—
Retained earnings 5,858
4,879
Accumulated other comprehensive loss (4,867 ) (4,483 )
Deferred compensation obligations 37
45
Less: Treasury stock (1 share in 2017 and 2016) (37 ) (45 )
Total Equity for Controlling Interests 1,000
405
Noncontrolling Interests 30
24
Total Shareowners’ Equity 1,030
429
Total Liabilities and Shareowners’ Equity $ 45,403
$ 40,377

See notes to audited, consolidated financial statements.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

(In millions, except per share amounts)


	Years Ended December 31,
	2020		2019		2018
Revenue	$	84,628	$	74,094	$	71,861
Operating Expenses:
Compensation and benefits	44,529		38,908		37,235
Repairs and maintenance	2,365		1,838		1,732
Depreciation and amortization	2,698		2,360		2,207
Purchased transportation	15,631		12,590		13,409
Fuel	2,582		3,289		3,427
Other occupancy	1,539		1,392		1,362
Other expenses	7,600		5,919		5,465
Total Operating Expenses	76,944		66,296		64,837
Operating Profit	7,684		7,798		7,024
Other Income and (Expense):
Investment income (expense) and other	(5,139)		(1,493)		(400)
Interest expense	(701)		(653)		(605)
Total Other Income and (Expense)	(5,840)		(2,146)		(1,005)
Income Before Income Taxes	1,844		5,652		6,019
Income Tax Expense	501		1,212		1,228
Net Income	$	1,343	$	4,440	$	4,791
Basic Earnings Per Share	$	1.55	$	5.14	$	5.53
Diluted Earnings Per Share	$	1.54	$	5.11	$	5.51

Years Ended December 31,
2017 2016 2015
Revenue $ 65,872
$ 60,906
$ 58,363
Operating Expenses:
Compensation and benefits 34,588
34,770
31,028
Repairs and maintenance 1,600
1,538
1,400
Depreciation and amortization 2,282
2,224
2,084
Purchased transportation 10,989
9,129
8,043
Fuel 2,690
2,118
2,482
Other occupancy 1,155
1,037
1,022
Other expenses 5,039
4,623
4,636
Total Operating Expenses 58,343
55,439
50,695
Operating Profit 7,529
5,467
7,668
Other Income and (Expense):
Investment income and other 72
50
15
Interest expense (453 ) (381 ) (341 )
Total Other Income and (Expense) (381 ) (331 ) (326 )
Income Before Income Taxes 7,148
5,136
7,342
Income Tax Expense 2,238
1,705
2,498
Net Income $ 4,910
$ 3,431
$ 4,844
Basic Earnings Per Share $ 5.64
$ 3.89
$ 5.38
Diluted Earnings Per Share $ 5.61
$ 3.87
$ 5.35

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(In millions)


	Years Ended December 31,
	2020		2019		2018
Net Income	$	1,343	$	4,440	$	4,791
Change in foreign currency translation adjustment, net of tax	97		48		(149)
Change in unrealized gain (loss) on marketable securities, net of tax	2		6		0
Change in unrealized gain (loss) on cash flow hedges, net of tax	(335)		72		485
Change in unrecognized pension and postretirement benefit costs, net of tax	(880)		(1,129)		272
Comprehensive Income (Loss)	$	227	$	3,437	$	5,399

Years Ended December 31,
2017 2016 2015
Net Income $ 4,910
$ 3,431
$ 4,844
Change in foreign currency translation adjustment, net of tax 86
(119 ) (440 )
Change in unrealized gain (loss) on marketable securities, net of tax (1 ) —
(1 )
Change in unrealized gain (loss) on cash flow hedges, net of tax (321 ) (112 ) 6
Change in unrecognized pension and postretirement benefit costs, net of tax (148 ) (712 ) 489
Comprehensive Income (Loss) $ 4,526
$ 2,488
$ 4,898

See notes to audited, consolidated financial statements.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(In millions)


	Years Ended December 31,										Years Ended December 31,
	2017			2016			2015				2020		2019		2018
Cash Flows From Operating Activities:										Cash Flows From Operating Activities:
Net income	$	4,910		$	3,431		$	4,844		Net income	$	1,343	$	4,440	$	4,791
Adjustments to reconcile net income to net cash from operating activities:										Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	2,282			2,224			2,084			Depreciation and amortization	2,698		2,360		2,207
Pension and postretirement benefit expense	1,643			3,725			1,189			Pension and postretirement benefit expense	7,125		3,141		2,242
Pension and postretirement benefit contributions	(7,794		)	(2,668		)	(1,229		)	Pension and postretirement benefit contributions	(3,125)		(2,362)		(186)

Self-insurance reserves	—			(21		)	(80		)	Self-insurance reserves	503		(185)		(86)
Deferred tax expense	1,230			123			540
Deferred tax (benefit) expense										Deferred tax (benefit) expense	(858)		100		758
Stock compensation expense	584			591			574			Stock compensation expense	796		915		634
Other (gains) losses	37			(198		)	(185		)	Other (gains) losses	917		74		293
Changes in assets and liabilities, net of effect of acquisitions:
Changes in assets and liabilities, net of effects of business acquisitions:										Changes in assets and liabilities, net of effects of business acquisitions:
Accounts receivable	(1,022		)	(704		)	(452		)	Accounts receivable	(1,562)		(717)		(421)

Other assets	(982		)	(14		)	414			Other assets	218		698		754
Accounts payable	592			461			(147		)	Accounts payable	904		419		1,034
Accrued wages and withholdings	193			109			(63		)	Accrued wages and withholdings	1,631		(446)		505
Other liabilities	(241		)	(561		)	(6		)	Other liabilities	(110)		182		170

Other operating activities	47			(25		)	(53		)	Other operating activities	(21)		20		16
Net cash from operating activities	1,479			6,473			7,430			Net cash from operating activities	10,459		8,639		12,711
Cash Flows From Investing Activities:										Cash Flows From Investing Activities:
Capital expenditures	(5,227		)	(2,965		)	(2,379		)	Capital expenditures	(5,412)		(6,380)		(6,283)
Proceeds from disposals of property, plant and equipment	24			88			26			Proceeds from disposals of property, plant and equipment	40		65		37
Purchases of marketable securities	(1,634		)	(4,816		)	(7,415		)	Purchases of marketable securities	(254)		(561)		(973)
Sales and maturities of marketable securities	1,990			5,724			6,388			Sales and maturities of marketable securities	360		883		886
Net decrease in finance receivables	5			9			5
Cash paid for business acquisitions	(134		)	(547		)	(1,904		)
Net change in finance receivables										Net change in finance receivables	44		13		4
Cash paid for business acquisitions, net of cash and cash equivalents acquired										Cash paid for business acquisitions, net of cash and cash equivalents acquired	(20)		(6)		(2)

Other investing activities	1			(59		)	(30		)	Other investing activities	(41)		(75)		1
Net cash used in investing activities	(4,975		)	(2,566		)	(5,309		)
Net cash (used in) investing activities										Net cash (used in) investing activities	(5,283)		(6,061)		(6,330)
Cash Flows From Financing Activities:										Cash Flows From Financing Activities:
Net change in short-term debt	(250		)	(88		)	2,529			Net change in short-term debt	(2,462)		310		63
Proceeds from long-term borrowings	12,016			5,927			3,783			Proceeds from long-term borrowings	5,003		5,205		1,202
Repayments of long-term borrowings	(3,939		)	(3,805		)	(2,724		)	Repayments of long-term borrowings	(3,392)		(3,096)		(2,887)
Purchases of common stock	(1,813		)	(2,678		)	(2,702		)	Purchases of common stock	(224)		(1,004)		(1,011)
Issuances of common stock	247			245			249			Issuances of common stock	285		218		240
Dividends	(2,771		)	(2,643		)	(2,525		)	Dividends	(3,374)		(3,194)		(3,011)
Other financing activities	(203		)	(98		)	(175		)	Other financing activities	(353)		(166)		(288)
Net cash from (used in) financing activities	3,287			(3,140		)	(1,565		)
Effect Of Exchange Rate Changes On Cash And Cash Equivalents	53			(21		)	(117		)
Net Increase (Decrease) In Cash And Cash Equivalents	(156		)	746			439
Cash And Cash Equivalents:
Net cash (used in) financing activities										Net cash (used in) financing activities	(4,517)		(1,727)		(5,692)
Effect Of Exchange Rate Changes On Cash, Cash Equivalents and Restricted Cash										Effect Of Exchange Rate Changes On Cash, Cash Equivalents and Restricted Cash	13		20		(91)
Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Cash										Net Increase (Decrease) In Cash, Cash Equivalents and Restricted Cash	672		871		598
Cash, Cash Equivalents and Restricted Cash:										Cash, Cash Equivalents and Restricted Cash:
Beginning of period	3,476			2,730			2,291			Beginning of period	5,238		4,367		3,769
End of period	$	3,320		$	3,476		$	2,730		End of period	$	5,910	$	5,238	$	4,367
Cash Paid During The Period For:										Cash Paid During The Period For:
Interest (net of amount capitalized)	$	428		$	373		$	345		Interest (net of amount capitalized)	$	691	$	628	$	595
Income taxes (net of refunds and overpayments)	$	1,559		$	2,064		$	1,913		Income taxes (net of refunds and overpayments)	$	1,138	$	514	$	2

See notes to audited, consolidated financial statements.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF ACCOUNTING POLICIES

Basis of Financial Statements and Business Activities

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), and include the accounts of United Parcel Service, Inc., and all of its consolidated subsidiaries (collectively “UPS” or the “Company”). All intercompany balances and transactions have been eliminated.

~~UPS concentrates its operations in the field of~~We provide transportation services, primarily domestic and international letter and package delivery. Through our Supply Chain & Freight subsidiaries, we are also a global provider of ~~specialized~~ transportation, logistics and financial services.

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. In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic. The severity, magnitude and duration of the pandemic, and the resulting economic consequences, remain uncertain, rapidly changing and difficult to predict. As a result, our accounting estimates and assumptions may change over time.

Revenue Recognition

U.S. Domestic and International Package ~~Operations~~—Operations: Revenue is recognized ~~upon delivery of a letter or package.~~over time as we perform the services in the contract.

~~Forwarding and Logistics~~—Forwarding: Freight forwarding revenue and the expense related to the transportation of freight are recognized atover time as we perform the ~~time the services are completed.~~services. Truckload ~~freight~~ brokerage revenue and related transportation costs are recognized ~~upon delivery of~~over time as we perform the ~~shipment by a third-party carrier. Logistics and distribution revenue is recognized upon performance of the service provided.~~services. Customs brokerage revenue is recognized upon completing documents necessary for customs entry purposes.

Logistics & Distribution: In our Logistics & Distribution business we have a right to consideration from customers in an amount that corresponds directly with the value to the customers of our performance completed to date, and as such we recognize revenue in the amount to which we have a right to invoice the customer.

UPS ~~Freight~~—Freight: Revenue is recognized ~~upon delivery of a less-than-truckload (“LTL”) or truckload (“TL”) shipment.~~

~~In our transportation businesses,~~over time as we ~~utilize independent contractors and third-party carriers~~perform the services in the performance of some transportation services. In situations where we act as principal party to the transaction, we recognize revenue on a gross basis; in circumstances where we act as an agent, we recognize revenue net of the cost of the purchased transportation.contract.

Financial ~~Services~~—Services: Income on loans and direct finance leases is recognized on the effective interest method. Accrual of interest income is suspended at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days delinquent. Income on operating leases is recognized on the straight-line method over the terms of the underlying leases.

Principal vs. Agent Considerations: We utilize independent contractors and third-party carriers in the performance of some transportation services. GAAP requires us to evaluate whether our businesses themselves promise to transfer services to the customer (as the principal) or to arrange for services to be provided by another party (as the agent) using a control model. Based on our evaluation of the control model, we determined that all of our major businesses act as the principal rather than the agent within their revenue arrangements. Revenue and the associated purchased transportation costs are reported on a gross basis within our statements of consolidated income.

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

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments that are readily convertible into cash. We consider securities with maturities of three months or less, when purchased, to be cash equivalents. The carrying amount of these securities approximates fair value because of the short-term maturity of these instruments.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments

~~Marketable~~Debt securities are either classified as trading or available-for-sale securities and are carried at fair value. Unrealized gains and losses on trading securities are reported as ~~investment~~Investment income (expense) and other on the statements of consolidated income. Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive income (“AOCI”), 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~~Investment income (expense) and other, along 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~~Investment income (expense) and other.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~Accounts Receivable~~

Losses on accounts receivable are recognized when they are incurred, which requires us to make our best estimate of the probable losses inherent in our customer receivables at each balance sheet date. These estimates require consideration of historical loss experience, adjusted for current conditions, trends in customer payment frequency and judgments about the probable effects of relevant observable data, including present 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.

Our total allowance for doubtful accounts as of December 31, 2017 and 2016 was $104 and $102 million, respectively. Our total provision for doubtful accounts charged to expense during the years ended December 31, 2017, 2016 and 2015 was $133, $116 and $121 million, respectively.

Inventories

Fuel and other materials and supplies inventories 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 ~~market.~~net realizable value. Total inventories were ~~$404~~$620 and ~~$342~~$511 million as of December 31, ~~2017~~2020 and ~~2016,~~2019, respectively, and are included in ~~“other~~“Other current assets” onin the consolidated balance sheets.

Property, Plant and Equipment

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

Depreciation and amortization are provided by the straight-line method over the estimated useful lives of the assets, which are as follows: ~~Vehicles—3 to 15 years; Aircraft—~~

•Aircraft: 12 to ~~30 years; Buildings—20~~40 years

•Buildings: 10 to 40 ~~years;~~ years

•Leasehold ~~Improvements—~~Improvements: lesser of asset useful life or lease ~~term;~~ term

•Plant ~~Equipment—~~Equipment: 3 to 20 ~~years;~~ years

•Technology ~~Equipment—~~Equipment: 3 to 10 years

•Vehicles: 5 ~~years. The~~to 15 years

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

Interest incurred during the construction period of certain property, plant and equipment is capitalized until the underlying assets are placed in service, at which time amortization of the capitalized interest begins, straight-line, over the estimated useful lives of the related assets. Capitalized interest was ~~$49, $14~~$87 and ~~$13~~$91 million ~~for 2017, 2016,~~in 2020 and ~~2015,~~2019, respectively.

We review long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on ~~the~~its undiscounted future cash ~~flows of the asset.~~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 review long-lived assets for impairment at the individual asset level or the asset group ~~level~~ for which the lowest level of independent cash flows can be identified.

Leased Assets

For a discussion of our accounting policies related to leased assets, refer to note 11.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Intangible Assets

Costs of purchased businesses in excess of net identifiable assets acquired (goodwill), and indefinite-lived intangible assets are tested for impairment at least annually, unless changes in circumstances indicate an impairment may have occurred sooner. We are required to test goodwill on a ~~“reporting unit”~~reporting unit basis. A reporting unit is the operating segment unless, for businesses within that operating segment, discrete financial information is prepared and regularly reviewed by management, in which case such a component business is the reporting unit.

During the third quarter of 2017, we changed the measurement date of our annual goodwill impairment test from October 1st to July 1st. This change better aligns the timing of the goodwill impairment test with our long-term business planning process. The change was not material to our consolidated financial statements as it did not result in the delay, acceleration or avoidance of an impairment charge.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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, ~~and it is necessary to~~we calculate the fair value of a reporting unit ~~then we utilize a two-step process~~ to test goodwill for impairment. ~~First, a comparison of the fair value of the applicable reporting unit with the aggregate carrying value, including goodwill, is performed.~~ If the carrying amount of a reporting unit exceeds ~~its calculated~~the reporting unit’s fair value, ~~then~~we record the ~~second step is performed, and an~~excess amount as goodwill impairment, ~~charge is recognized for~~not to exceed the ~~amount, if any, by which the carrying~~total amount of goodwill ~~exceeds its implied fair value.~~allocated to the reporting unit. We primarily determine the fair value of our reporting units using a discounted cash flow model and supplement this with observable valuation multiples for comparable companies, as appropriate.

A trade name with a carrying value of $200 million and licenses with a carrying value of $5 million as of December 31, ~~2017~~2020 are considered to be indefinite-lived intangibles, and therefore are not amortized. ~~Indefinite-lived intangible assets are reviewed for impairment at least annually.~~ We determined that the income approach, specifically the relief from royalty method, is the most appropriate valuation method to estimate the fair value of the trade name. The estimated fair value of the trade name is compared to the carrying value of the asset. If the carrying value of the trade name exceeds its estimated fair value, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value.

Finite-lived intangible assets, including trademarks, licenses, patents, customer lists, non-compete agreements and franchise rights are amortized on a straight-line basis over the estimated useful lives of the assets, which range from 2 to 22 years. Capitalized software is generally amortized over 7 years.

Assets Held for Sale

We classify long-lived assets or disposal groups as held for sale in the period when all of the following conditions have been met:

•we have approved and committed to a plan to sell the assets or disposal group;

• the asset or disposal group is available for immediate sale in its present condition;

•an active program to locate a buyer and other actions required to complete the sale have been initiated;

•the sale of the asset or disposal group is probable and expected to be completed within one year;

•the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and

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

We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell and recognize any loss in the period in which the held for sale criteria are met. Gains are not recognized until the date of sale. We cease depreciation and amortization of a long-lived asset, or assets within a disposal group, upon their designation as held for sale and subsequently assess fair value less any costs to sell at each reporting period until the asset or disposal group is no longer classified as held for sale.

Self-Insurance Accruals

We self-insure costs associated with workers’ compensation claims, ~~automotive~~automobile liability, health and welfare and general business liabilities, up to certain limits. Insurance reserves are established for estimates of the loss that we will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported. ~~Recorded balances are~~The expected ultimate cost for claims incurred is estimated based ~~on reserve levels, which incorporate~~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 ~~such~~our reserves.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Workers’ compensation, automobile liability and general liability insurance claims may take several years to completely settle. Consequently, actuarial estimates are required to project the ultimate cost that will be incurred to fully resolve ~~the claims.~~a claim. A number of factors can affect the actual cost of a claim, including the length of time the claim remains open, trends in healthcare costs, ~~and~~ the results of any related ~~litigation.~~litigation and with respect to workers’ compensation claims, changes in legislation. Furthermore, claims may emerge in a future ~~years~~year for events that occurred in a prior year at a rate that differs from ~~previous~~ actuarial projections. ~~Changes in state legislation with respect to workers' compensation can affect the adequacy of our self-insurance accruals.~~ All of these factors can result in revisions to ~~prior~~ actuarial projections and produce a material difference between estimated and actual operating results. ~~Prior~~Based on our historical experience, in 2019 we changed our self-insurance reserves from the central estimate to ~~2017, outside~~the low end of the actuarial ~~studies were performed semi-annually~~range of losses. The principal result of this change was a decrease in expense of $94 million and ~~we used the studies to estimate the liability~~an increase in ~~intervening quarters. Beginning~~net income of $72 million, or $0.08 per share on a basic and diluted basis. We believe our estimated reserves for such claims are adequate, but actual experience in ~~2017, outside actuarial studies are now performed quarterly as we believe this provides us with better quarterly~~claim frequency and/or severity could materially differ from our estimates and affect our results of ~~our outstanding workers' compensation liability.~~operations.

We sponsor a number of health and welfare insurance plans for our employees. These liabilities and related expenses are based on estimates of the number of employees and eligible dependents covered under the plans, 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 pension and postretirement medical benefits. These pension and postretirement medical benefit costs for company-sponsored defined benefit plans are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation, compensation increase rates, mortality rates and coordination of benefits with plans not sponsored by UPS. Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim remeasurement ~~for~~of any of our plans.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

We recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of a corridor (defined as 10% of the greater of the fair value of plan assets or the ~~plans'~~plan's projected benefit ~~obligations)~~obligation) in ~~pension expense~~Investment income (expense) and other annually at December 31st each year. The remaining components of pension expense, primarily service and interest costs and the expected return on plan assets, are recorded on a quarterly basis.

~~Effective July 1, 2016, the UPS Retirement Plan was closed to new non-union participants.~~ For eligible employees hired after July 1, 2016, UPS contributes annually to a defined contribution plan. We recognize expense for the required contribution quarterly, and we recognize a liability for any contributions due and unpaid ~~(included in “other~~within Other current ~~liabilities”).~~

During June 2017, we amended the UPS Retirement Plan and Excess Coordinating Plans to cease accrual of additional benefits for future service for non-union participants effective January 1, 2023. We remeasured plan assets and pension benefit obligations compensation for the affected pension plans as of June 30, 2017 to recognize the impact of this change.liabilities.

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 ~~(included in “other~~within Other current ~~liabilities”).~~liabilities.

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 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 ~~atctivity.~~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.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Cuts and Jobs Act (the "Tax Act"). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election. We elect to treat any potential GILTI inclusions as period costs.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Foreign Currency Translation and Remeasurement

We translate the results of operations of our foreign subsidiaries using average exchange rates during each period, whereas balance sheet accounts are translated using exchange rates at the end of each period. Balance sheet currency translation adjustments are recorded in AOCI. Pre-tax foreign currency transaction gains (losses) from remeasurement, net of hedging, included in Investment income (expense) and other ~~operating expenses, investment income~~were $9, $(6) and ~~interest expense were $3, $5 and $7~~$(19) million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Stock-Based Compensation

All share-based awards to employees are measured based on their fair values and expensed over the period during which an employee is required to provide service in exchange for the award (the vesting period), less estimated forfeitures. We ~~issue~~have issued employee share-based awards under the UPS Incentive Compensation Plan that are subject to specific vesting ~~conditions;~~conditions, including service conditions, where the awards cliff vest or vest ratably over a one, three, or five year period (the "nominal vesting period”) or at the date the employee retires (as defined by the plan), if earlier. Compensation cost is generally recognized immediately for awards granted to retirement-eligible employees, or over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting period. We estimate forfeiture rates based on historical rates of forfeitures for awards with similar characteristics, historical 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 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 ~~not measured at fair value on a recurring basis; however, they are~~ subject to fair value adjustments in certain circumstances, such as when there is evidence of an impairment. A general description of the valuation methodologies used for assets and liabilities measured at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy, is included in each footnote with fair value measurements present.

WeFor acquisitions, we allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, acquired technology and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Derivative Instruments

~~All financial~~We recognize all derivative instruments ~~are recorded on our~~as assets or liabilities in the consolidated balance sheets at fair value. ~~Derivatives not designated as hedges must be adjusted to fair value through income. If a derivative is designated as a hedge,~~The accounting for changes in ~~its fair value that are considered to be effective, as defined, either (depending on~~ the ~~nature of the hedge) offset the change in~~ 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.

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 AOCI, and reclassified into earnings in the period during which the hedged assets, liabilities or firm commitments through income, or are recorded in AOCI until the hedged item is recorded in income. Any portion of a change in a hedge’s fair value that is considered to be ineffective, or is excluded from the measurement of effectiveness, is recorded immediately in income.transaction affects earnings.

~~Adoption of New Accounting Standards~~

In March 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standards update that simplifies the income tax accounting and cash flow presentation related to share-based compensation by requiring the recognition of all excess tax benefits and deficiencies directly on the income statement and classification as cash flows from operating activities on the statement of cash flows. This new guidance became effective for us in the first quarter of 2017 and we adopted the statements of consolidated cash flows presentation on a prospective basis. The impact to income tax expense in 2017 in the statements of consolidated income was a benefit of $71 million. Additionally, we have elected to continue estimating forfeitures expected to occur to determine the amount of compensation cost to be recognized each period.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A fair value hedge refers to hedging the exposure to changes in the fair value of an existing asset or liability that is attributable to a particular risk. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument is recognized during the current period, as well as the offsetting gain or loss on the hedged item.

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 AOCI, and are recorded in the income statement when the hedged item affects earnings.

Adoption of New Accounting Standards

In ~~September 2015,~~February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and lease obligation on their balance sheet for all leases with terms beyond twelve months. The new standard also requires enhanced disclosures that provide more transparency and information to financial statement users about lease portfolios. Effective January 1, 2019, we adopted the requirements of this ASU using the modified retrospective approach. We elected the transition package of practical expedients permitted within the standard. As a result, we did not reassess initial direct costs, lease classification, or whether our contracts contain or are leases. We also made an accounting policy election to not recognize right-of-use assets and liabilities for leases with an original lease term of twelve months or less, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised.

The adoption on January 1, 2019 resulted in the recognition of right-of-use assets for operating leases of approximately $2.7 billion and operating lease liabilities of approximately $2.7 billion. The consolidated financial statements for the years ended December 31, 2020 and 2019 are presented under the new standard, while earlier periods presented have not been adjusted and continue to be reported in accordance with the previous standard. See note 11 for additional disclosures required by this ASU.

In June 2016, the FASB issued an accounting standards update that simplifies the accounting for measurement-period adjustments related to business combinations. This update removes the requirement to retrospectively apply adjustments made to estimated amounts recognized in a business combination. This update permits the purchaser to adjust the estimated amounts in the reporting period in which the adjustment amounts are determined. This new guidance would have become effective for us in the first quarter of 2016; however, we elected to early adopt this standard in the third quarter of 2015. This accounting standards update did not have a material impact on our consolidated financial position or results of operations.

~~Accounting Standards Issued But Not Yet Effective~~

~~In February 2018, the FASB issued~~ASU introducing an accounting standards update that allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act. The guidance will generally be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The update becomes effective for us in the first quarter of 2019, but early adoption is permitted. We are currently evaluating this update to determine the full impact of its adoption.

In August 2017, the FASB issued an accounting standards update to enhance recognition of the economic results of hedging activities in the financial statements. In addition, this update makes certain targeted improvements to simplify the application of the hedge accounting guidance and increase transparency regarding the scope and results of hedging activities. The guidance will generally be applied prospectively and becomes effective for us in the first quarter of 2019, but early adoption is permitted. We are currently evaluating this update to determine the full impact of its adoption but do not expect this accounting standards update to have a material impact on our consolidated financial position, results of operations or cash flows.

In May 2017, the FASB issued an accounting standards update to provide clarity and reduce complexity on when to apply modification accounting to existing share-based payment awards. The guidance will be applied prospectively. We adopted this standard on January 1, 2018. This accounting standards update does not have a material impact on our consolidated financial position, results of operations or cash flows.

In March 2017, the FASB issued an accounting standards update to require the premium on callable debt securities to be amortized to the earliest call date. The amortization period for callable debt securities purchased at a discount would not be impacted by the proposed update. Under current GAAP, premiums on callable debt securities are generally amortized over the contractual life of the security. Only in cases when an entity has a large number of similar securities is it allowed to consider estimates of principal prepayments. Amortization of the premium over the contractual life of the instrument can result in losses being recordedexpected credit loss methodology for the ~~unamortized premium if~~measurement of financial assets not accounted for at fair value. The methodology replaced the ~~issuer exercises the call feature prior to maturity. The standard will be effective~~probable, incurred loss model for us in the first quarter of 2019, but early adoption is permitted. We are currently evaluating this update to determine the full impact of its adoption but do not expect this accounting standards update to have a material impact on our consolidated financial position, results of operations or cash flows.

In March 2017, the FASB issued an accounting standards update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The update requires employers to report the current service cost component in the same line item as other compensation costs arising from services rendered by employees during the period. The other components of net benefit cost are required to be presented separately from service cost and outside of income from operations. In accordance with the update, only the service cost component will be eligible for capitalization. The guidance in this update will be applied retrospectively for the presentation of service cost and other components of net benefit cost, and prospectively for the capitalization of the service cost component inthose assets. We adopted this standard on January 1, ~~2018. As a result of this update,~~2020 by updating our process for calculating our allowance for credit losses to include reasonable and supportable forecasts that could affect expected collectability. In 2020, we increased our allowance for credit losses by $45 million based upon our current forecasts that reflect ongoing economic uncertainty resulting from the net amount of interest cost, prior service cost, expected return on plan assets and the actuarial gain (loss) in excess of the 10% corridor will be presented as other income (expense). For the years ended December 31, 2017, 2016 and 2015, non-service cost components amounted to an $11 million expense, a $2.236 billion expense, and a $420 million benefit, respectively, which were recognized in "Compensation and benefits" on the statements of consolidated income. After adoption, the non-service cost components will be recognized in "Other Income and (Expense)" on the statements of consolidated income.COVID-19 pandemic.

In January 2017, the FASB issued an ~~accounting standards update~~ASU to simplify the accounting for goodwill ~~impairment. The update removes Step 2~~impairment by eliminating the requirement to calculate the implied fair value of ~~the~~ goodwill ~~impairment test, which requires~~using a hypothetical purchase price allocation. AUnder this ASU, goodwill impairment ~~will now be~~is the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The standard will be effective for us in the first quarter of 2020, but early adoption is permitted. We are currently evaluating this update to determine the full impact of its adoption but do not expect this accounting standards update to have a material impact on our consolidated financial position, results of operations or cash flows.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

In November 2016, the FASB issued an accounting standards update that is intended to reduce diversity in practice by adding or clarifying guidance on classification and presentation of changes in restricted cash on the statement of cash flows. The guidance in this update will be applied retrospectively. We adopted this standard on January 1, ~~2018. As a result~~2020, applying the simplified approach to calculate the goodwill impairment charge of ~~this update, restricted cash will be included within cash and cash equivalents on our statements~~$494 million that we recorded in conjunction with the pending divestiture of ~~consolidated cash flows. As of December 31, 2017 and 2016, we had $449 and $445 million, respectively, in investments and restricted cash primarily associated with our self-insurance requirements.~~UPS Freight.

In ~~August 2016,~~March 2017, the FASB issued an ~~accounting standards update that addresses~~ASU requiring the ~~classification and presentation of specific cash flow issues that currently result in diverse practices. The guidance also clarifies how~~premium on callable debt securities to be amortized to the ~~predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be applied retrospectively.~~earliest call date. We adopted this standard on January 1, ~~2018. We have evaluated the impact of this standard on our statements of consolidated cash flows, and have determined that this standard does not have a material impact.~~

In February 2016, the FASB issued an accounting standards update that requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with terms beyond twelve months. Although the distinction between operating and finance leases will continue to exist under the new standard, the recognition and measurement of expenses and cash flows will not change significantly from the current treatment. This new guidance requires modified retrospective application and becomes effective for us in the first quarter of 2019, but early adoption is permitted. We are currently evaluating this update to determine the full impact of its adoption on our consolidated financial position, results of operations, cash flows and related disclosures, as well as the impact of adoption on policies, practices and systems. As of December 31, 2017, we have $1.637 billion of future minimum operating lease commitments that are not currently recognized on our consolidated balance sheet (see note 8). Therefore, we expect material changes to our consolidated balance sheets.

In January 2016, the FASB issued an accounting standards update which addresses certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. We adopted this standard on January 1, 2018. This accounting standards update does2019. It did not have a material impact on our consolidated financial position, results of operations or cash flows.

In ~~May 2014,~~August 2017, the FASB issued an ASU to enhance recognition of the economic results of hedging activities in the financial statements. In addition, the update made certain targeted improvements to simplify the application of hedge accounting ~~standards update that changes~~guidance and increase transparency regarding the revenue recognition for companies that enter into contracts with customers to transfer goods or services. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner depicting the transferscope and results of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The FASB has also issued a number of updates to this standard.hedging activities. We adopted ~~the~~this standard on January 1, ~~2018. Companies~~2019. It did not have a material impact on our consolidated financial position, results of operations or cash flows but did require additional disclosures. See note 17 for disclosures required by this ASU.

In February 2018, the FASB issued an ASU that allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act. Effective January 1, 2018, we early adopted this ASU and elected to reclassify the income tax effects of the Tax Act from AOCI to retained earnings. This resulted in a $735 million increase to retained earnings and a $735 million decrease to AOCI. Our current accounting policy for releasing income tax effects from other comprehensive income is based on a portfolio approach.

In December 2019, the FASB issued an ASU to simplify the accounting for income taxes. The update removes certain exceptions to the general income tax principles. Effective October 1, 2020, we early adopted this ASU. It did not have a material impact on our consolidated financial position, results of operations or cash flows.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), to temporarily ease the potential burden in accounting for reference rate reform. The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The guidance was effective upon issuance and generally can be applied through December 31, 2022. We are evaluating the potential impacts of reference rate reform on our various contractual positions to determine whether we may ~~use~~apply any of the practical expedients set forth in this standard.

Other accounting pronouncements adopted during the periods covered by the consolidated financial statements did not have a material impact on our consolidated financial position, results of operations or cash flows.

Accounting Standards Issued But Not Yet Effective

Accounting pronouncements issued, but not effective until after December 31, 2020, are not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

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”), whether carried out by or arranged by UPS, either domestically or internationally, which generally occurs over a ~~full retrospective or a modified retrospective approach~~short period of time. Additionally, we provide value-added logistics services to ~~adopt this standard. We adopted the standard using a full retrospective approach.~~customers, both domestically and internationally, through our global network of company-owned and leased distribution centers and field stocking locations.

Disaggregation of Revenue


	Year Ended December 31,
	2020		2019		2018
Revenue:
Next Day Air	$	8,522	$	8,479	$	7,618
Deferred	5,665		5,180		4,752
Ground	39,312		32,834		31,223
U.S. Domestic Package	$	53,499	$	46,493	$	43,593

Domestic	$	3,160	$	2,836	$	2,874
Export	12,159		10,837		10,973
Cargo & Other	626		547		595
International Package	$	15,945	$	14,220	$	14,442

Forwarding	$	6,975	$	5,867	$	6,580
Logistics	4,073		3,435		3,234
Freight	3,149		3,265		3,218
Other	987		814		794
Supply Chain & Freight	$	15,184	$	13,381	$	13,826

Consolidated revenue	$	84,628	$	74,094	$	71,861

We account for a contract when both parties have ~~determined that revenue recognition will be accelerated for~~approved the ~~transportation businesses as~~contract and are committed to perform their obligations, the ~~standard requires revenue~~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 ~~be recognized as control is transferred~~transfer a distinct good or service to the customer, and is the basis of revenue recognition in accordance with GAAP. To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as a single contract, and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires judgment, and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. Within most of our contracts, the customer contracts with us to provide distinct services, such as transportation services. The vast majority of our contracts with customers for transportation services include only one performance obligation; the transportation services themselves. However, if a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We frequently sell standard transportation services with observable standalone sales prices. In these instances, the observable standalone sales are used to determine the standalone selling price.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In certain business units, such as Logistics, we sell customized, customer-specific solutions in which we integrate a complex set of tasks and components into a single capability (even if that single capability results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. In these cases we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Satisfaction of Performance Obligations

We generally recognize revenue over time ~~rather than upon delivery. We have determined that~~as we perform the ~~impact~~services in the contract because of ~~this change~~the continuous transfer of control to the ~~statements~~customer. Our customers receive the benefit of ~~consolidated income~~our services as the goods are transported from one location to another. Further, if we were unable to complete delivery to the final location, another entity would not need to reperform the transportation service already performed.

As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We use the cost-to-cost measure of progress for our package delivery contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including ancillary or accessorial fees and reductions for estimated customer incentives, are recorded proportionally as costs are incurred. Costs to fulfill include labor and other direct costs and an allocation of indirect costs. For our freight and freight forwarding contracts, an output method of progress based on time-in-transit is utilized as the timing of costs incurred does not best depict the transfer of control to the customer. In our Logistics business we have a right to consideration from customers in an amount that corresponds directly with the value to the customers of our performance completed to date, and as such, we recognize revenue in the amount to which we have a right to invoice the customer.

Variable Consideration

It is common for our contracts to contain customer incentives, guaranteed service refunds or other provisions that can either increase or decrease the transaction price. These variable amounts are generally dependent upon achievement of certain incentive tiers or performance metrics. We estimate variable consideration at the most likely amount to which we expect to be entitled. We include estimated amounts of revenue, which may be reduced by incentives or other contract provisions, in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of anticipated customer spending and all information (historical, current and forecasted) that is reasonably available to us.

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 additional 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, the customer pays 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, which is Saturday for the majority of our U.S. Domestic Package business, but could be another day depending on the business unit or the specific agreement with the customer. It is not ~~material.~~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.

~~The standard also~~

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Principal vs. Agent Considerations

In our transportation businesses, we utilize independent contractors and third-party carriers in the performance of some transportation services. GAAP requires us to evaluate, using a control model, whether our businesses themselves promise to transfer services to the customer ~~itself~~ (as athe principal) or to arrange for services to be provided by another party (as anthe agent). ~~To make that determination, the standard uses a control model rather than the risks-and-rewards model in current GAAP.~~ Based on our evaluation of the control model, we determined that ~~certain Supply Chain & Freight~~all of our major businesses act as the principal rather than the agent within their revenue arrangements. ~~This change will require~~Revenue and the ~~affected businesses to report transportation revenue gross of~~ associated purchased transportation costs ~~rather than net of such amounts~~are both reported on a gross basis within ~~the~~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 ~~change will result~~requires us to make our best estimate of the current expected losses inherent in ~~reclassifications~~our accounts receivable at each balance sheet date. These estimates require consideration of ~~approximately $709~~historical loss experience, adjusted for current conditions, forwarding-looking indicators, trends in customer payment frequency, and ~~$720~~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.

We increased our allowance for expected credit losses by $45 million ~~from contra-revenue~~during 2020 based upon current forecasts that anticipate a slight decline in the economic outlook. Our allowance for credit losses as of December 31, 2020 and 2019 was $138 and $93 million, respectively. Amounts for credit losses charged to ~~operating expenses on~~expense before recoveries during the ~~statements of consolidated income for the periods~~twelve months ended December 31, ~~2017~~2020 and ~~2016,~~2019 were $254 and $194 million, respectively.

~~In addition~~Contract Assets and Liabilities

Contract assets include billed and unbilled amounts resulting from in-transit packages, as we have an unconditional right to ~~completing~~payment only once all performance obligations have been completed (i.e. packages have been delivered), and our ~~review of contracts and quantifying the impacts~~right to payment is not solely based on the ~~consolidated financial statements, we have analyzed our internal control over financial reporting framework~~passage of time. Amounts may not exceed their net realizable value. Contract assets are generally classified as current and ~~determined that there will be new controls added around contract inception~~the full balance is converted each quarter based on the short-term nature of the transactions.

Contract liabilities consist of advance payments and ~~contract modifications,~~billings in excess of revenue as well as ~~periodic reviews~~deferred revenue. Advance payments and billings in excess of ~~material contracts. In addition, we have reviewed~~revenue represent payments received from our customers that will be earned over the ~~impacts~~contract term. Deferred revenue represents the amount of ~~this standard~~consideration due from customers related to in-transit shipments that has not yet been recognized as revenue based on our ~~footnote disclosures for periods subsequent to January 1, 2018.~~selected measure of progress. We ~~have determined that~~classify advance payments and billings in excess of revenue as either current or long-term, depending on the ~~adoption of this standard~~period over which the advance payment will ~~result in several additional disclosures, including but not limited to additional information around our performance obligations,~~be earned. We classify deferred revenue as current based on the timing of when we expect to recognize revenue, ~~recognition, remaining performance obligations at period end,~~which typically occurs within a short window after period-end. The full balance of deferred revenue is converted each quarter based on the short-term nature of the transactions. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that deferred revenue balance.

Contract assets related to in-transit packages were $279 and ~~significant judgments made that impact~~$272 million as of December 31, 2020 and 2019, respectively, net of deferred revenue related to in-transit packages of $279 and $264 million as of December 31, 2020 and 2019, respectively. Contract assets are included within "Other current assets" in the ~~amount~~consolidated balance sheets. Short-term contract liabilities related to advance payments from customers were $21 and ~~timing~~$7 million as of ~~revenue~~December 31, 2020 and 2019, respectively. Short-term contract liabilities are included within "Other current liabilities" in the consolidated balance sheets. Long-term contract liabilities related to advance payments from ~~our contracts with customers.~~customers were $26 million as of both December 31, 2020 and 2019. Long-term contract liabilities are included within "Other Non-Current Liabilities" in the consolidated balance sheets.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.3. INVESTMENTS AND RESTRICTED CASH ~~AND INVESTMENTS~~

The following is a summary of marketable securities classified as trading and available-for-sale atas of December 31, ~~2017~~2020 and ~~2016~~2019 (in millions):

Cost
Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
2017
Current trading marketable securities:
Corporate debt securities $ 75
$ —
$ —
$ 75
Carbon credit investments⁽¹⁾
77
16
—
93
Total trading marketable securities 152
16
—
168

Current available-for-sale marketable securities:
U.S. government and agency debt securities 286
—
(3 ) 283
Mortgage and asset-backed debt securities 86
—
—
86
Corporate debt securities 201
1
(1 ) 201
Equity securities 2
—
—
2
Non-U.S. government debt securities 9
—
—
9
Total available-for-sale marketable securities 584
1
(4 ) 581

Total current marketable securities $ 736
$ 17
$ (4 ) $ 749

Cost
Unrealized
Gains

Unrealized
Losses

Estimated
Fair Value
2016
Current trading marketable securities:
Corporate debt securities $ 427
$ —
$ —
$ 427
Carbon credit investments⁽¹⁾
80
10
—
90
Total trading marketable securities 507
10
—
517

Current available-for-sale marketable securities:
U.S. government and agency debt securities 314
—
(2 ) 312
Mortgage and asset-backed debt securities 90
1
—
91
Corporate debt securities 167
—
(1 ) 166
Equity securities 2
—
—
2
Non-U.S. government debt securities 3
—
—
3
Total available-for-sale marketable securities 576
1
(3 ) 574

Total current marketable securities $ 1,083
$ 11
$ (3 ) $ 1,091

⁽¹⁾ These investments are hedged with forward contracts that are not designated in hedging relationships. See note 15 for offsetting statement of consolidated income impact.


	Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
2020
Current trading marketable securities:


Corporate debt securities	$	0	$	0	$	0	$	0

Equity securities	2		0		0		2



Total trading marketable securities	2		0		0		2

Current available-for-sale marketable securities:
U.S. government and agency debt securities	181		3		0		184
Mortgage and asset-backed debt securities	30		1		0		31
Corporate debt securities	174		4		0		178


Non-U.S. government debt securities	11		0		0		11


Total available-for-sale marketable securities	396		8		0		404

Total current marketable securities	$	398	$	8	$	0	$	406

	Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
2019
Current trading marketable securities:


Corporate debt securities	$	112	$	0	$	0	$	112

Equity securities	2		0		0		2



Total trading marketable securities	114		0		0		114

Current available-for-sale marketable securities:
U.S. government and agency debt securities	191		2		0		193
Mortgage and asset-backed debt securities	46		1		0		47
Corporate debt securities	130		3		0		133


Non-U.S. government debt securities	16		0		0		16


Total available-for-sale marketable securities	383		6		0		389

Total current marketable securities	$	497	$	6	$	0	$	503

Total current marketable securities that were pledged as collateral for our self-insurance requirements had an estimated fair value of ~~$579~~$404 and ~~$572~~$389 million atas of December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

The gross realized gains on sales of available-for-sale marketable securities totaled ~~$0, $1~~$5 and $1$8 million in ~~2017, 2016,~~2020 and ~~2015,~~2019, respectively. There were 0 gross realized gains on sales of available-for-sale marketable securities in 2018. The gross realized losses on sales of available-for-sale marketable securities totaled $0, $2 $1 and $1$4 million in ~~2017, 2016,~~2020, 2019 and ~~2015,~~2018, respectively.

There were no0 material impairment losses recognized on marketable securities during ~~2017, 2016~~2020, 2019 or ~~2015.~~2018.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment ~~Other-Than-Temporary~~ Impairments

We have concluded that no material ~~other-than-temporary~~ impairment losses existed as of December 31, ~~2017.~~2020. In making this determination, we considered the financial condition and prospects of ~~the~~each issuer, the magnitude of the losses compared with the ~~investments’~~ cost, the probability that we will be unable to collect all amounts due according to the contractual terms of the security, the credit rating of the security and our ability and intent to hold these investments until the anticipated recovery in market value occurs.

Unrealized Losses

The following table presents the age of gross unrealized losses and fair value by investment category for all securities in a loss position as of December 31, ~~2017~~2020 (in millions):


	Less Than 12 Months					12 Months or More					Total						Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses				Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. government and agency debt securities	$	183	$	(2	)	$	90	$	(1	)	$	273	$	(3	)	U.S. government and agency debt securities	$	31	$	0	$	0	$	0	$	31	$	0
Mortgage and asset-backed debt securities	36		—			25		—			61		—			Mortgage and asset-backed debt securities	0		0		1		0		1		0
Corporate debt securities	101		(1		)	70		—			171		(1		)	Corporate debt securities	16		0		0		0		16		0

Non-U.S. government debt securities	8		—			—		—			8		—			Non-U.S. government debt securities	0		0		0		0		0		0

Total marketable securities	$	328	$	(3	)	$	185	$	(1	)	$	513	$	(4	)	Total marketable securities	$	47	$	0	$	1	$	0	$	48	$	0

The unrealized losses for the ~~corporate~~U.S. government and agency debt securities, mortgage and asset-backed debt securities, and ~~U.S. government and agency~~corporate debt securities are primarily due to changes in market interest rates. We have both the intent and ability to hold ~~the~~these securities ~~contained in~~for the ~~previous table for a~~ time necessary to recover the cost basis.

Maturity Information

The amortized cost and estimated fair value of marketable securities atas of December 31, ~~2017,~~2020, by contractual maturity, are shown below (in millions). Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations with or without prepayment penalties.


	Cost		Estimated Fair Value
Due in one year or less	$	27	$	27
Due after one year through three years	323		327
Due after three years through five years	10		10
Due after five years	36		40
	396		404
Equity securities	2		2
	$	398	$	406

Non-Current Investments and Restricted Cash

We previously held various marketable securities and cash equivalents as collateral under an escrow agreement to guarantee our self-insurance obligations which were reflected in "Cash, Cash Equivalents and Restricted Cash" in the statements of consolidated cash flows. In 2019 we fully liquidated our investment balance associated with this agreement and pledged the required collateral with a surety bond. For additional information on surety bonds written as of December 31, 2020, see note 9.

Cost
Estimated
Fair Value
Due in one year or less $ 112
$ 112
Due after one year through three years 453
449
Due after three years through five years 21
21
Due after five years 73
74
659
656
Equity and carbon credit investment securities 77
93
$ 736
$ 749

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Non-Current Investments and Restricted Cash~~

Investments and Restricted Cash are primarily associated with our self-insurance requirements. We entered into an escrow agreement with an insurance carrier to guarantee our self-insurance obligations. This agreement requires us to provide collateral to the insurance carrier, which is invested in money market funds and corporate and municipal bonds. Collateral provided is reflected in "other investing activities" in the statements of consolidated cash flows. At December 31, 2017 and 2016, we had $449 and $445 million in self-insurance investments and restricted cash, respectively.

We held a ~~$19~~$23 and ~~$18~~$21 million investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan atas of December 31, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~quarterly~~ change in investment fair value is recognized in ~~"investment~~"Investment income (expense) and other" onin the statements of consolidated income. Additionally, we held escrowed cash related to the acquisition and disposition of certain assets ~~primarily real estate,~~ of ~~$15~~$2 and ~~$13~~$3 million atas of December 31, ~~2017~~2020 and ~~2016,~~2019, respectively.

~~The~~ These amounts ~~described above~~ are classified as ~~“investments~~“Investments and ~~restricted cash”~~Restricted Cash” in the consolidated balance sheets.

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


	December 31, 2020		December 31, 2019		December 31, 2018
Cash and cash equivalents	$	5,910	$	5,238	$	4,225
Restricted cash	0		0		142
Total cash, cash equivalents and restricted cash	$	5,910	$	5,238	$	4,367

Fair Value Measurements

Marketable securities valued utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds, and most U.S. ~~Government~~government debt securities, as these securities all have quoted prices in active markets. Marketable securities valued utilizing Level 2 inputs include asset-backed securities, corporate bonds and municipal bonds. These securities are valued using market corroborated pricing, matrix pricing or other models that utilize observable inputs such as yield curves.

We maintain holdings in certain investment partnerships that are measured at fair value utilizing Level 3 inputs (classified as “other non-current investments” in the tables below, and as “other non-current assets” in the consolidated balance sheets). These partnership holdings do not have quoted prices, nor can they be valued using inputs based on observable market data. These investments are valued internally using a discounted cash flow model with two significant inputs: (1) the after-tax cash flow projections for each partnership, and (2) a risk-adjusted discount rate consistent with the duration of the expected cash flows for each partnership. The weighted-average discount rates used to value these investments were 7.56% and 8.06% as of December 31, 2017 and 2016, respectively. These inputs and the resulting fair values are updated on a quarterly basis.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information about our investments measured at fair value on a recurring basis as of December 31, ~~2017~~2020 and ~~2016~~,2019, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in millions):


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2020
Marketable Securities:
U.S. government and agency debt securities	$	184	$	0	$	0	$	184
Mortgage and asset-backed debt securities	0		31		0		31
Corporate debt securities	0		178		0		178

Equity securities	0		2		0		2
Non-U.S. government debt securities	0		11		0		11


Total marketable securities	184		222		0		406
Other non-current investments	23		0		0		23
Total	$	207	$	222	$	0	$	429

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2019
Marketable Securities:
U.S. government and agency debt securities	$	193	$	0	$	0	$	193
Mortgage and asset-backed debt securities	0		47		0		47
Corporate debt securities	0		245		0		245

Equity securities	0		2		0		2
Non-U.S. government debt securities	0		16		0		16


Total marketable securities	193		310		0		503
Other non-current investments	21		0		1		22
Total	$	214	$	310	$	1	$	525

There were no transfers of investments between Level 1 and Level 2 during 2020 or 2019.

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
2017
Marketable securities:
U.S. government and agency debt securities $ 283
$ —
$ —
$ 283
Mortgage and asset-backed debt securities —
86
—
86
Corporate debt securities —
276
—
276
Equity securities
—
2
—
2
Non-U.S. government debt securities
—
9
—
9
Carbon credit investments 93
—
—
93
Total marketable securities 376
373
—
749
Other non-current investments 19
—
6
25
Total $ 395
$ 373
$ 6
$ 774

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
2016
Marketable securities:
U.S. government and agency debt securities $ 312
$ —
$ —
$ 312
Mortgage and asset-backed debt securities —
91
—
91
Corporate debt securities —
593
—
593
Equity securities
—
2
—
2
Non-U.S. government debt securities
—
3
—
3
Carbon credit investments 90
—
—
90
Total marketable securities 402
689
—
1,091
Other non-current investments 18
—
13
31
Total $ 420
$ 689
$ 13
$ 1,122

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.ASSETS HELD FOR SALE

On January 24, 2021, we entered into a definitive agreement to divest our UPS Freight business to TFI International Inc. for $800 million, subject to working capital and other adjustments. The following table ~~presents~~summarizes the ~~changes~~carrying values of the assets and liabilities classified as held for sale in our consolidated balance sheet as of December 31, 2020 (in millions):


	2020
Assets:
Accounts receivable, net	$	263
Other current assets	62
Property, plant and equipment, net	940
Other non-current assets	124
Total assets	1,389
Valuation allowance	(192)
Total assets held for sale	$	1,197

Liabilities:
Accounts payable	$	50
Other current liabilities	112
Other non-current liabilities	185
Total liabilities to be disposed of	$	347

Net assets held for sale	$	850

Self-insurance reserves for the UPS Freight business and obligations for benefits earned within UPS-sponsored pension and postretirement medical benefit plans will be retained by us at closing and are not included in the ~~above Level 3 instruments measured on~~amounts presented above.

Upon classification as held for sale, we recognized a ~~recurring basis for~~total impairment charge of $686 million within Other expenses in the ~~years ended~~ ~~December 31, 2017~~statements of consolidated income. This was comprised of a goodwill impairment charge of $494 million and ~~2016~~ ~~(in millions).~~a valuation allowance to adjust the carrying value of the disposal group to fair value less cost to sell of $192 million.

We expect the transaction, which is subject to customary closing conditions and regulatory approvals, to close during the second quarter of 2021.

Marketable
Securities

Other
Investments
Total
Balance on January 1, 2016 $ —
$ 32
$ 32
Transfers into (out of) Level 3 —
—
—
Net realized and unrealized gains (losses):
Included in earnings (in investment income) —
(19 ) (19 )
Included in accumulated other comprehensive income (pre-tax) —
—
—
Purchases —
—
—
Settlements —
—
—
Balance on December 31, 2016 $ —
$ 13
$ 13
Transfers into (out of) Level 3 —
—
—
Net realized and unrealized gains (losses):
Included in earnings (in investment income) —
(7 ) (7 )
Included in accumulated other comprehensive income (pre-tax) —
—
—
Purchases —
—
—
Settlements —
—
—
Balance on December 31, 2017 $ —
$ 6
$ 6

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, including both owned assets as well as assets subject to ~~capital~~finance leases, consists of the following as of December 31, ~~2017~~2020 and ~~2016~~2019 (in millions):


	2020		2019
Vehicles	$	9,786	$	10,613
Aircraft	20,549		19,045
Land	2,052		2,087
Buildings	5,425		5,046
Building and leasehold improvements	4,921		4,898
Plant equipment	14,684		13,849
Technology equipment	2,626		2,206

Construction-in-progress	2,048		1,983
	62,091		59,727
Less: Accumulated depreciation and amortization	(29,837)		(29,245)
Property, Plant and Equipment, Net	$	32,254	$	30,482

2017 2016
Vehicles $ 9,365
$ 8,638
Aircraft 16,248
15,653
Land 1,582
1,397
Buildings 4,035
3,439
Building and leasehold improvements 3,934
3,612
Plant equipment 9,387
8,430
Technology equipment 1,907
1,741
Equipment under operating leases 29
29
Construction-in-progress 2,239
735
48,726
43,674
Less: Accumulated depreciation and amortization (26,608 ) (24,874 )
$ 22,118
$ 18,800
Property, plant and equipment purchased on account was $319 and $372 million as of December 31, 2020 and 2019, respectively.

We continually monitor our aircraft fleet utilization in light of current and projected volume levels, ~~aircraft~~aviation fuel prices and other factors. Additionally, we monitor ~~our~~all other property, plant and equipment categories for any indicators that the carrying value of the assets may not be recoverable. NoThere were 0 material impairment charges ~~on property, plant and equipment were recorded in~~ ~~2017~~, ~~2016~~during the years ended December 31, 2020 or ~~2015~~.2019.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.6. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS

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

The UPS Retirement Plan is noncontributory and includes substantially all eligible employees of participating domestic subsidiaries hired prior to July 1, 2016 who are not members of a collective bargaining unit, as well as certain employees covered by a collective bargaining agreement. This plan generally provides for retirement benefits based on average compensation ~~levels~~ 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 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.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

In the year ended December 31, 2017, we amended the UPS Retirement Plan and the UPS Excess Coordinating Benefit Plan to cease accruals of additional benefits for future service and compensation for non-union participants effective January 1, 2023. We remeasured plan assets and pension benefit obligations for the affected pension plans as of June 30, 2017, resulting in a net actuarial gain of $569 million. This reflected a curtailment gain of $1.525 billion resulting from the benefit plan changes that was partially offset by net actuarial losses of $956 million, driven by a reduction of approximately 32 basis points in the discount rate compared to December 31, 2016, offset by actual asset returns approximately 275 basis points above our expected return as of the remeasurement date. The net curtailment gain reduced the actuarial loss recorded in "Accumulated other comprehensive loss" in the equity section of the consolidated balance sheet. As actuarial losses were within the corridor (defined as 10% of the greater of the fair value of plan assets and the plan's projected benefit obligation), there was no impact to the statement of consolidated income as a result of this remeasurement.

The UPS Retirement Plan was closed to new non-union participants effective July 1, 2016. The Company amended the UPS 401(k) Savings Plan so that employees who previously would have been eligible for participation in the UPS Retirement Plan receive, in addition to current benefits under the UPS 401(k) Savings Plan, a UPS Retirement Contribution. For employees eligible to receive the Retirement Contribution, UPS will contribute 3% to 8% of eligible pay to the UPS 401(k) Savings Plan based on years of vesting service and business unit. Contributions will be made annually in cash to the accounts of participants who are employed on December 31st of each calendar year.

During the fourth quarter of ~~2016,~~2019, certain former U.S. employees were offered the option to receive a one-time payment of their vested pension benefit. Approximately ~~22,000 participants~~18,800 former employees accepted this option, accelerating ~~$685~~$820 million in benefit payments during ~~2016~~2019 while reducing the number of participants who are due future payments from U.S. pension plans. As the cost of these settlements did not exceed the plans' service cost and interest cost for the year, the impact of the settlement was not recognized in earnings.

On January 24, 2021, we entered into a definitive agreement to divest our UPS Freight business as discussed in note 4. Upon closing, our U.S. pension and postretirement plans may be subject to remeasurement of plan assets and pension benefit obligations.

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.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Postretirement Medical Benefits

We also sponsor postretirement medical plans in the U.S. that provide healthcare benefits to our non-union retirees, as well as select union retirees who meet certain eligibility requirements and who are not otherwise covered by multiemployer plans. 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.

Defined Contribution Plans

We ~~also~~ sponsor ~~several~~a defined contribution ~~plans~~plan for ~~all~~ employees not covered under collective bargaining agreements, and several smaller defined contribution plans for certain employees covered under collective bargaining agreements. ~~The Company matches,~~We match, in shares of UPS common stock or cash, a portion of the participating employees’ contributions. Matching contributions charged to expense were ~~$119, $111~~$139, $130 and ~~$104~~$127 million for ~~2017,~~2020, 2019 and 2018, respectively.

In addition to current benefits under the UPS 401(k) Savings Plan, non-union employees hired after July 1, 2016, receive a retirement contribution. UPS contributes 3% to 8% of eligible pay to the UPS 401(k) Savings Plan based on years of vesting service and ~~2015,~~business unit. Contributions under this plan are subject to maximum compensation and contribution limits for a tax-qualified defined contribution plan as prescribed by the IRS. Contributions charged to expense were $84, $67 and $28 million for 2020, 2019 and 2018 respectively.

Effective June 23, 2017, the Company amended the UPS 401(k) Savings Plan so that non-union employees who currently participate in the UPS Retirement Plan will, in addition to current benefits under the UPS 401(k) Savings Plan, earn a ~~UPS Retirement Contribution~~retirement contribution beginning January 1, 2023. UPS will contribute 5% to 8% of eligible compensation to the UPS 401(k) Savings Plan based on years of vesting service. The amendment also provides for transition contributions for certain participants. There was no0 impact to the ~~statement~~statements of consolidated income for ~~the year ended December 31, 2017~~2020, 2019 and 2018 as a result of this change.

~~As noted above, effective July 1, 2016,~~The UPS Restoration Savings Plan is a non-qualified plan that provides benefits to certain participants in the UPS 401(k) Savings Plan ~~was amended so~~for amounts that ~~newly hired employees who previously would have been eligible for participation in~~exceed the ~~UPS Retirement Plan began receiving a UPS Retirement Contribution. Contributions associated with this amendment charged to expense were $23 and $4 million for 2017 and 2016 respectively.~~benefit limits described above.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements. Amounts charged to expense were ~~$91, $~~82$107, $97 and $83$92 million for ~~2017~~, ~~2016~~2020, 2019 and ~~2015~~,2018, respectively.

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
	2020		2019		2018		2020		2019		2018		2020		2019		2018
Net Periodic Benefit Cost:
Service cost	$	1,853	$	1,439	$	1,661	$	29	$	23	$	29	$	67	$	57	$	62
Interest cost	1,977		2,067		1,799		91		108		104		40		47		45
Expected return on plan assets	(3,549)		(3,130)		(3,201)		(8)		(8)		(8)		(86)		(76)		(77)


Amortization of prior service cost	218		218		193		7		7		7		2		2		1
Actuarial (gain) loss	6,211		2,296		1,603		246		37		0		27		54		24
Curtailment and settlement loss	0		0		0		0		0		0		0		0		0

Net periodic benefit cost	$	6,710	$	2,890	$	2,055	$	365	$	167	$	132	$	50	$	84	$	55

U.S. Pension Benefits
U.S. Postretirement
Medical Benefits

International
Pension Benefits
2017 2016 2015 2017 2016 2015 2017 2016 2015
Net Periodic Benefit Cost:
Service cost $ 1,543
$ 1,412
$ 1,527
$ 29
$ 28
$ 34
$ 60
$ 49
$ 48
Interest cost 1,813
1,828
1,694
112
124
117
40
41
44
Expected return on assets (2,883 ) (2,516 ) (2,489 ) (7 ) (6 ) (17 ) (66 ) (58 ) (61 )
Amortization of prior service cost 192
166
168
7
5
5
1
1
1
Actuarial (gain) loss 729
2,520
70
53
17
17
18
114
31
Curtailment and settlement loss —
—
—
—
—
—
2
—
—
Net periodic benefit cost $ 1,394
$ 3,410
$ 970
$ 194
$ 168
$ 156
$ 55
$ 147
$ 63

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Actuarial Assumptions

The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit ~~cost.~~cost:

U.S. Pension Benefits
U.S. Postretirement
Medical Benefits

International
Pension Benefits
2017 2016 2015 2017 2016 2015 2017 2016 2015
Discount rate 4.41 % 4.86 % 4.40 % 4.23 % 4.79 % 4.18 % 2.75 % 3.51 % 3.56 %
Rate of compensation increase 4.27 % 4.29 % 4.29 % N/A
N/A
N/A
3.17 % 3.04 % 3.08 %
Expected return on assets 8.75 % 8.75 % 8.75 % 8.75 % 8.75 % 8.75 % 5.65 % 5.73 % 6.03 %


	U.S. Pension Benefits						U.S. Postretirement Medical Benefits						International Pension Benefits
	2020		2019		2018		2020		2019		2018		2020		2019		2018
Service cost discount rate	3.60	%	4.50	%	3.84	%	3.59	%	4.51	%	3.82	%	3.01	%	3.58	%	3.35	%
Interest cost discount rate	3.60	%	4.50	%	3.84	%	3.59	%	4.51	%	3.82	%	2.67	%	3.25	%	3.01	%
Rate of compensation increase	4.22	%	4.25	%	4.25	%	N/A		N/A		N/A		3.00	%	3.24	%	3.22	%
Expected return on plan assets	7.77	%	7.75	%	7.75	%	7.20	%	7.20	%	7.20	%	5.55	%	5.69	%	5.76	%
Cash balance interest credit rate	2.50	%	2.98	%	2.50	%	N/A		N/A		N/A		2.59	%	3.17	%	3.07	%

The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our ~~plans.~~plans:


	U.S. Pension Benefits				U.S. Postretirement Medical Benefits				International Pension Benefits					U.S. Pension Benefits				U.S. Postretirement Medical Benefits				International Pension Benefits
	2017		2016		2017		2016		2017		2016			2020		2019		2020		2019		2020		2019
Discount rate	3.84	%	4.41	%	3.82	%	4.23	%	2.78	%	2.75	%	Discount rate	2.90	%	3.60	%	2.88	%	3.59	%	1.94	%	2.21	%
Rate of compensation increase	4.25	%	4.27	%	N/A		N/A		3.23	%	3.17	%	Rate of compensation increase	4.21	%	4.22	%	N/A		N/A		2.93	%	3.00	%
Cash balance interest credit rate													Cash balance interest credit rate	2.50	%	2.50	%	N/A		N/A		2.74	%	2.59	%

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. In 2019, we refined the bond matching approach used to determine the discount rate for our U.S. pension and postretirement plans. Following a routine, periodic review of their standard bond matching tool which we reference to support discount rates, our external consultants refined their model to reflect the increased availability of longer duration high-quality corporate bonds, changes in the content and sources of available data and improvements in computational capabilities. We believe these refinements enhance the simulation of bond portfolios that match the plans' expected cash flows and result in a better estimate of the plan discount rates. These refinements resulted in an increase of approximately 10 basis points in the discount rates used to measure our plans, decreasing the total projected benefit obligation in our consolidated balance sheet at the December 31, 2019 measurement date by approximately $900 million and the resulting pre-tax mark-to-market charge within Other income and (expense) in our statements of consolidated income by approximately $810 million, and increasing net income by $616 million, or $0.71 per share on a basic and diluted basis. 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.

As of December 31, ~~2017~~,2020, the impact of each basis point change in the discount rate on the projected benefit obligation of ~~the~~our pension and postretirement medical benefit plans is as follows (in millions):

Increase (Decrease) in the Projected Benefit Obligation
Pension Benefits Postretirement Medical Benefits
One basis point increase in discount rate $ (75 ) $ (2 )
One basis point decrease in discount rate $ 80
$ 3

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	Increase (Decrease) in the Projected Benefit Obligation
	Pension Benefits		Postretirement Medical Benefits
One basis point increase in discount rate	$	(110)	$	(2)
One basis point decrease in discount rate	118		3

The Society of Actuaries ("SOA") published mortality tables and improvement scales are used in developing the best estimate of mortality for our U.S. plans. In October ~~2016,~~2020, the SOA published an updated improvement scale which reduced expected mortality improvements from previously published improvement scales. Based on our perspective of future longevity, we updated the mortality assumptions to incorporate ~~this updated~~the improvement scale for purposes of measuring pension and other postretirement benefit obligations.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assumptions for the expected return on plan assets are used to determine a component of net periodic benefit cost for the ~~fiscal~~ 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 and, if necessary, updated taking into consideration plan changes, funded status and actual performance. The expected return for each asset class is a function of passive, long-term capital market assumptions and excess returns generated from active management. The capital market assumptions used are provided by independent investment advisors, while excess return assumptions are supported by historical performance, fund mandates and investment expectations.

For plans outside the U.S., consideration is given to local market expectations of long-term returns. Strategic asset allocations are determined by plan, based on the nature of liabilities and considering the demographic composition of the plan participants.

Actuarial Assumptions - Central States Pension Fund

UPS was a contributing employer to the ~~Central States Pension Fund (“CSPF”)~~CSPF until 2007 when we withdrew from the ~~plan~~CSPF and fully funded our allocable share of unfunded vested benefits by paying a $6.1 billion withdrawal liability. Under a collective bargaining agreement with the International Brotherhood of Teamsters (“IBT”), UPS agreed to provide coordinating benefits in the UPS/IBT ~~Full-Time~~Full Time Employee Pension Plan (“UPS/IBT Plan”) for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 (“the UPS Transfer Group”) in the event that benefits are lawfully reduced by the CSPF in the future consistent with the terms of our withdrawal agreement with the CSPF.

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

In ~~December~~ 2014, Congress passed the Multiemployer Pension Reform Act (“MPRA”)~~, which~~. This change in law for the first time ~~ever allowed~~permitted multiemployer pension plans to reduce benefit payments to retirees, subject to specific guidelines in the statute and government approval. In ~~September~~ 2015, the CSPF submitted a proposed pension benefit reduction plan to the U.S. Department of the Treasury under the MPRA. The CSPF plan proposed to reduce retirement benefits to the CSPF participants, including the UPS Transfer Group. We vigorously challenged the proposed benefit reduction plan because we believed that it did not comply with the law and that the CSPF failed to comply with its contractual obligation to obtain our consent to reduce benefits to the UPS Transfer Group under the terms of the withdrawal agreement with the CSPF. On May 6,(“Treasury”). In 2016, ~~the U.S. Department of the~~ Treasury rejected the proposed plan submitted by the ~~CSPF, stating that it~~CSPF. In 2018, Congress established a Joint Select Committee to develop a recommendation to improve the solvency of multiemployer plans and the Pension Benefit Guaranty Corporation (“PBGC”) before a November 30, 2018 deadline. While the Committee’s efforts failed to ~~satisfy a number~~meet its deadline, the Committee made significant progress towards finding solutions that would address the long term solvency of ~~requirements set forth in~~multiemployer pension plans. In 2019, the ~~MPRA.~~

~~The CSPF has asserted that it will become insolvent in 2025, which could lead to~~U.S. House of Representatives passed the ~~reduction~~Rehabilitation for Multiemployer Pensions Act of ~~retirement benefits. Although there are numerous factors that could affect the CSPF’s funding status, if the CSPF were to become insolvent as they have projected, UPS may be required~~2019 to provide ~~coordinating benefits, thereby increasing~~assistance to critical and declining multiemployer pension plans. Additionally, in 2020, the ~~current projected benefit obligation~~U.S. House of Representatives passed two versions of the Health and Economic Recovery Omnibus Emergency Solutions Act ("HEROES Act"), which would provide financial support to those same plans. These bills remain with the U.S. Senate for ~~the UPS/IBT Plan by approximately $4 billion.~~ consideration. UPS continues to work with all stakeholders, including legislators and regulators, to implement an acceptable solution.

The CSPF has said that it believes a legislative solution to its ~~funding~~funded status is necessary ~~and we~~or that it will become insolvent in 2025. We expect that the CSPF will continue to explore options to avoid insolvency.

~~The~~ Numerous factors could affect the CSPF’s funded status and UPS’s potential obligation to pay coordinating benefits ~~from~~under the UPS/IBT Plan, ~~is subject to a number of significant uncertainties,~~ including ~~actions that may be taken by the CSPF, the federal government or others. These actions include~~ whether the CSPF ~~will submit~~submits a revised ~~pension~~ benefit reduction plan under MPRA and the terms thereof, or whether it otherwise ~~seek~~seeks federal government assistance, as well as the terms of any applicable legislation, the extent to which benefits are paid by the ~~Pension Benefit Guaranty Corporation,~~PBGC and our ability to successfully defend ~~our~~ legal positions ~~as well as~~we may take in the ~~effect of discount rates, CSPF asset returns~~future under the MPRA, including the suspension ordering provisions, our withdrawal agreement and ~~various~~ other ~~actuarial assumptions.~~applicable law.

We account for ~~this~~the potential obligation to pay coordinating benefits to the UPS Transfer Group under Accounting Standards Codification Topic 715- Compensation- Retirement Benefits (“ASC 715”)~~. Under ASC 715 we are required~~, which requires us to provide a best estimate of various actuarial assumptions, including the eventual outcome of this matter, in measuring our pension benefit obligation at the December 31st measurement date. While we currently believe the most likely ~~solution~~outcome to this matter and the broader systemic problems facing multiemployer pension plans is intervention by the federal government, ASC 715 does not permit anticipation of changes in law in making a best estimate of pension liabilities. ~~Our~~As such, our best estimate ~~as of~~in accordance with ASC 715 at the December 31, 2020 measurement date ~~of December 31, 2017, does not incorporate this solution. However, if a future change in law resulted in an obligation to provide coordinating benefits~~is that the CSPF can no longer submit and implement another benefit reduction plan under the ~~UPS/IBT Plan, it may be a significant event, and may require us to remeasure the plan assets and projected benefit obligation of the UPS/IBT Plan at the date the law is enacted.~~MPRA.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Our~~We developed our best estimate using a deterministic cash flow projection that reflects updated estimated CSPF cash flows and investment earnings, the lack of legislative action, payment of guaranteed benefits by the PBGC and the absence of a benefit reduction plan under MPRA having been filed by the CSPF. As a result, at the December 31, 2020 measurement date, the best estimate of our projected benefit obligation for coordinating benefits that may be required to be directly provided by the ~~next most likely outcome to resolve the CSPF’s solvency concerns is that the CSPF will submit another benefit suspension application under the MPRA to forestall insolvency without reducing benefits~~UPS/IBT Plan to the UPS Transfer ~~Group. If~~Group increased by $2.3 billion. Since 2018, we have recorded $4.9 billion for coordinating benefits that the ~~CSPF attempts~~UPS/IBT Plan may be required to ~~reduce benefits for~~pay. At the ~~UPS Transfer Group~~December 31, 2020 measurement date, discount rate changes increased this liability to $5.5 billion.

The future value of this estimate will be influenced by a number of factors, including the terms and timing of any benefit reduction plan under a MPRA, ~~filing, we would be~~changes in our discount rate, rate of return on assets and other actuarial assumptions, the ability of the PBGC to sustain its commitments, as well as potential solutions resulting from federal government intervention. Any such event may result in a ~~strong legal position to prevent that from occurring given that these benefits cannot be reduced without our consent and such a reduction, without first exhausting reductions to other groups~~decrease or an increase in the ~~CSPF, would be contrary to the statute. Accordingly, our~~ best estimate as of ~~the measurement date of December 31, 2017, is that there is no liability to~~our projected benefit obligation. If a future change in law occurs, it may be ~~recognized for additional coordinating benefits~~a significant event requiring an interim remeasurement of the UPS/IBT ~~Plan. However,~~Plan at the ~~projected benefit obligation could materially increase as~~date the ~~uncertainties are resolved.~~law is enacted. We will continue to assess the impact of these uncertainties on ~~the~~our projected benefit obligation ~~of the UPS/IBT Plan~~ in accordance with ASC 715.

Other Actuarial Assumptions

Healthcare cost trends are used to project future postretirement medical benefits payable from our plans. For ~~year-end 2017~~2020 U.S. plan obligations, future postretirement medical benefit costs were forecasted assuming an initial annual rate of increase of 6.5%, decreasing to 4.5% by the year ~~2022~~2029 and with consistent annual increases at that ultimate level thereafter.

Assumed healthcare cost trends can have a significant effect on the amounts reported for our postretirement medical plans. A one percent change in assumed healthcare cost trend rates would have had the following effects on ~~2017~~ ~~results (in millions):~~

1% Increase 1% Decrease
Effect on total of service cost and interest cost $ 3
$ (3 )
Effect on postretirement benefit obligation $ 65
$ (71 )

Funded Status

The following table discloses the funded status of our plans and the amounts recognized in our consolidated balance sheets as of December 31st (in millions):


	U.S. Pension Benefits				U.S. Postretirement Medical Benefits				International Pension Benefits
	2020		2019		2020		2019		2020		2019
Funded Status:
Fair value of plan assets	$	52,997	$	46,172	$	49	$	37	$	1,835	$	1,558
Benefit obligation	(65,922)		(54,039)		(2,759)		(2,616)		(2,177)		(1,906)
Funded status	$	(12,925)	$	(7,867)	$	(2,710)	$	(2,579)	$	(342)	$	(348)
Funded Status Recognized in our Balance Sheet:
Other non-current assets	$	0	$	0	$	0	$	0	$	51	$	34
Other current liabilities	(22)		(22)		(184)		(200)		(5)		(5)
Pension and postretirement benefit obligations	(12,903)		(7,845)		(2,526)		(2,379)		(388)		(377)
Net liability	$	(12,925)	$	(7,867)	$	(2,710)	$	(2,579)	$	(342)	$	(348)
Amounts Recognized in AOCI:
Unrecognized net prior service cost	$	(753)	$	(800)	$	(9)	$	(16)	$	(11)	$	(12)
Unrecognized net actuarial gain (loss)	(6,592)		(5,404)		(276)		(240)		(151)		(162)
Gross unrecognized cost	(7,345)		(6,204)		(285)		(256)		(162)		(174)
Deferred tax assets (liabilities)	1,770		1,497		69		62		38		40
Net unrecognized cost	$	(5,575)	$	(4,707)	$	(216)	$	(194)	$	(124)	$	(134)

U.S. Pension Benefits
U.S. Postretirement
Medical Benefits

International
Pension Benefits
2017 2016 2017 2016 2017 2016
Funded Status:
Fair value of plan assets $ 41,932
$ 31,215
$ 183
$ 15
$ 1,333
$ 1,092
Benefit obligation (45,847 ) (41,069 ) (2,792 ) (2,730 ) (1,651 ) (1,425 )
Funded status recognized at December 31 $ (3,915 ) $ (9,854 ) $ (2,609 ) $ (2,715 ) $ (318 ) $ (333 )
Funded Status Recognized in our Balance Sheet:
Other non-current assets $ 284
$ —
$ —
$ —
$ 35
$ 28
Other current liabilities (18 ) (17 ) (77 ) (216 ) (5 ) (3 )
Pension and postretirement benefit obligations (4,181 ) (9,837 ) (2,532 ) (2,499 ) (348 ) (358 )
Net liability at December 31 $ (3,915 ) $ (9,854 ) $ (2,609 ) $ (2,715 ) $ (318 ) $ (333 )
Amounts Recognized in AOCI:
Unrecognized net prior service cost $ (880 ) $ (1,074 ) $ (29 ) $ (36 ) $ (2 ) $ (3 )
Unrecognized net actuarial gain (loss) (4,277 ) (4,107 ) (195 ) (80 ) (126 ) (150 )
Gross unrecognized cost at December 31 (5,157 ) (5,181 ) (224 ) (116 ) (128 ) (153 )
Deferred tax assets (liabilities) at December 31 1,840
1,948
69
44
31
37
Net unrecognized cost at December 31 $ (3,317 ) $ (3,233 ) $ (155 ) $ (72 ) $ (97 ) $ (116 )

The accumulated benefit obligation for our pension plans as of the measurement dates in ~~2017~~2020 and ~~2016~~2019 was ~~$45.776~~$66.9 and $~~39.488~~$55.0 billion, respectively. The accumulated benefit obligation for our postretirement medical benefit plans as of the measurement dates in 2020 and 2019 was $2.8 and $2.6 billion, respectively.

Benefit payments under the pension plans include $22$26 and $27 million paid from employer assets in ~~2017~~2020 and in ~~2016~~.2019, respectively. Benefit payments (net of participant contributions) under the postretirement medical benefit plans include ~~$93~~$77 and $98$82 million paid from employer assets in ~~2017~~2020 and ~~2016~~,2019, respectively. Such benefit payments from employer assets are also categorized as employer contributions.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At As of December 31, ~~2017~~2020 and ~~2016~~,2019, 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					Projected Benefit Obligation Exceeds the Fair Value of Plan Assets				Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets
	2017		2016		2017		2016			2020		2019		2020		2019
U.S. Pension Benefits:									U.S. Pension Benefits:
Projected benefit obligation	$	37,113	$	41,069	$	37,113	$	41,069	Projected benefit obligation	$	65,922	$	54,039	$	65,922	$	54,039
Accumulated benefit obligation	35,538		38,194		35,538		38,194		Accumulated benefit obligation	64,937		53,194		64,937		53,194
Fair value of plan assets	32,914		31,215		32,914		31,215		Fair value of plan assets	52,997		46,172		52,997		46,172
International Pension Benefits:									International Pension Benefits:
Projected benefit obligation	$	1,138	$	1,370	$	647	$	1,365	Projected benefit obligation	$	845	$	1,319	$	845	$	1,319
Accumulated benefit obligation	992		1,238		549		1,234		Accumulated benefit obligation	728		1,210		728		1,210
Fair value of plan assets	798		1,020		342		1,016		Fair value of plan assets	452		948		452		948

The accumulated postretirement benefit obligation presented in the funded status table exceeds plan assets for all ~~of our~~ U.S. postretirement medical benefit plans.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Benefit Obligations and Fair Value of Plan Assets

The following ~~table provides~~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
	2020		2019		2020		2019		2020		2019
Benefit Obligations:
Projected benefit obligation at beginning of year	$	54,039	$	45,333	$	2,616	$	2,510	$	1,906	$	1,552
Service cost	1,853		1,439		29		23		67		57
Interest cost	1,977		2,067		91		108		40		47
Gross benefits paid	(1,846)		(2,394)		(274)		(288)		(38)		(40)
Plan participants’ contributions	0		0		32		30		3		3
Plan amendments	171		0		0		0		1		1
Actuarial (gain)/loss	9,728		7,594		265		233		123		213
Foreign currency exchange rate changes	0		0		0		0		80		47
Curtailments and settlements	0		0		0		0		(6)		(2)
Other	0		0		0		0		1		28
Projected benefit obligation at end of year	$	65,922	$	54,039	$	2,759	$	2,616	$	2,177	$	1,906

	U.S. Pension Benefits				U.S. Postretirement Medical Benefits				International Pension Benefits
	2020		2019		2020		2019		2020		2019
Fair Value of Plan Assets:
Fair value of plan assets at beginning of year	$	46,172	$	39,554	$	37	$	26	$	1,558	$	1,284
Actual return on plan assets	5,878		6,991		(9)		(5)		184		171
Employer contributions	2,793		2,021		263		274		69		67
Plan participants’ contributions	0		0		32		30		3		3
Gross benefits paid	(1,846)		(2,394)		(274)		(288)		(38)		(40)
Foreign currency exchange rate changes	0		0		0		0		62		49
Curtailments and settlements	0		0		0		0		(3)		(2)
Other	0		0		0		0		0		26
Fair value of plan assets at end of year	$	52,997	$	46,172	$	49	$	37	$	1,835	$	1,558

2020 - $10.1 billion pre-tax actuarial loss related to benefit obligation:

•Discount Rates ($7.3 billion pre-tax loss): The weighted-average discount rate for our pension and postretirement medical plans decreased from 3.55% as of December 31, 2019 to 2.87% as of December 31, 2020, primarily due to a decline in U.S. treasury yields that was slightly offset by an increase in credit spreads on AA-rated corporate bonds.

•Coordinating benefits attributable to the Central States Pension Fund ($2.3 billion pre-tax loss): This represents our current best estimate of additional potential coordinating benefits that may be required to be paid related to the Central States Pension Fund before taking into account the impact of the change in discount rates.

•Demographic and Assumption Changes ($513 million pre-tax loss): This represents the difference between actual and estimated participant data and demographic factors, including items such as healthcare cost trends, compensation changes, rates of termination, retirement, mortality and other changes.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Pension Benefits
U.S. Postretirement
Medical Benefits

International
Pension
Benefits
2017 2016 2017 2016 2017 2016
Benefit Obligations:
Projected benefit obligation at beginning of year $ 41,069
$ 36,846
$ 2,730
$ 2,673
$ 1,425
$ 1,219
Service cost 1,543
1,412
29
28
60
49
Interest cost 1,813
1,828
112
124
40
41
Gross benefits paid (1,309 ) (1,885 ) (264 ) (264 ) (32 ) (28 )
Plan participants’ contributions —
—
26
27
3
3
Plan amendments⁽¹⁾
—
285
—
15
—
—
Actuarial (gain)/loss 4,256
2,583
159
126
26
208
Foreign currency exchange rate changes —
—
—
—
129
(67 )
Curtailments and settlements (1,525 ) —
—
—
(3 ) (3 )
Other —
—
—
1
3
3
Projected benefit obligation at end of year $ 45,847
$ 41,069
$ 2,792
$ 2,730
$ 1,651
$ 1,425

⁽¹⁾ Resulting from a new labor contract with the Independent Pilots Association.

U.S. Pension Benefits
U.S. Postretirement
Medical Benefits

International
Pension
Benefits
2017 2016 2017 2016 2017 2016
Fair Value of Plan Assets:
Fair value of plan assets at beginning of year $ 31,215
$ 28,887
$ 15
$ 130
$ 1,092
$ 1,014
Actual return on plan assets 4,717
1,735
(2 ) 3
96
108
Employer contributions 7,309
2,478
408
119
77
71
Plan participants’ contributions —
—
26
27
3
3
Gross benefits paid (1,309 ) (1,885 ) (264 ) (264 ) (32 ) (28 )
Foreign currency exchange rate changes —
—
—
—
100
(73 )
Curtailments and settlements —
—
—
—
(3 ) (3 )
Fair value of plan assets at end of year $ 41,932
$ 31,215
$ 183
$ 15
$ 1,333
$ 1,092
2019 - $8.0 billion pre-tax actuarial loss related to benefit obligation:

•Discount Rates ($7.5 billion pre-tax loss): The weighted-average discount rate for our pension and postretirement medical plans decreased from 4.45% as of December 31, 2018 to 3.55% as of December 31, 2019, primarily due to both a decline in U.S. treasury yields and a decrease in credit spreads on AA-rated corporate bonds. This was partially offset by a refinement to the bond matching approach used to determine the discount rate for our U.S. pension and postretirement plans discussed above.

•Coordinating benefits attributable to the Central States Pension Fund ($603 million pre-tax loss): This represents our current best estimate of additional potential coordinating benefits that may be required to be paid related to the Central States Pension Fund before taking into account the impact of the change in discount rates.

•Demographic and Assumption Changes ($40 million pre-tax gain): This represents the difference between actual and estimated participant data and demographic factors, including items such as healthcare cost trends, compensation changes, rates of termination, retirement, mortality and other changes.

Pension and Postretirement Plan Assets

Under the governance of plan trustees, the ~~investment committee~~Investment Committee establishes investment guidelines and strategies and regularly monitors the performance of investments and investment managers. The investment guidelines address items such as establishing appropriate governance provisions; defining investment objectives; determining strategic asset allocation; monitoring and reporting the investments on a regular basis; appointing/dismissing investment managers, custodians, consultants and advisors; risk management; determining/defining the mandates for investment managers; rebalancing of assets and determining investment restrictions/prohibited investments.

~~Pension~~Plan assets are invested in accordance with applicable laws and regulations. The primary long-term investment ~~objectives~~objective for pension assets ~~are to: (1)~~is to provide for a reasonable amount of long-term growth of capital given prudent levels of risk exposure while minimizing permanent loss of ~~capital; (2) generate investment results that~~capital. To meet or exceed the long-term rate of return assumption for the plans and (3) match the duration of the liabilities and assets of the plans to reduce the need for large employer contributions in the future. In furtherance of these objectives,this objective, investment managers are engaged to actively manage assets within the guidelines and strategies set forth by the Investment Committee. Active managers are monitored regularly and their performance is compared to applicable benchmarks.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Fair Value Measurements

~~Pension~~Plan assets valued utilizing Level 1 inputs include equity investments, corporate debt instruments and U.S. government securities. 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 ~~asked~~ask prices.

Level 2 assets include certain bonds 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; and certain investments that are pooled with other investments in a commingled fund. We value our investments in commingled funds by taking the percentage ownership of the underlying assets, each of which has a readily determinable fair value.

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

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments that do not have a readily determinable fair value, and which provide a net asset value ("NAV") or its ~~equivalent)~~equivalent developed consistent with FASB measurement principles, are valued using NAV as a practical expedient. These investments are not classified in Levels 1, 2, or 3 of the fair value hierarchy but ~~are~~instead included inwithin the ~~totals in the tables shown below. These~~subtotals by asset category. Such investments include hedge funds, risk parity funds, real estate investments, private debt and private equity funds. Investments in hedge funds and risk parity funds are valued using the reported ~~NAVs~~NAV as of December 31st. ~~These assets are primarily invested in a portfolio of diversified, direct investments and funds of hedge funds.~~ Real estate investments, private debt and private equity funds are valued ~~using fair values~~at NAV per the most recent partnership audited financial reports, and adjusted, as appropriate, for ~~any lag~~investment activity between the date of the financial reports and December 31st. ~~The fair values may, due~~Due to the inherent ~~uncertainty of valuation~~limitations in obtaining a readily determinable fair value measurement for ~~those~~ alternative investments, the fair values reported may differ ~~significantly~~ from the values that would have been used had ~~a ready~~readily available market information for the alternative investments ~~existed, and any differences could be material.~~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, ~~2017.~~

2020.

•Risk Parity Funds: Plan assets are invested in risk parity strategies in order to provide diversification and balance risk/return objectives. These strategies reflect a multi-asset class balanced risk approach generally consisting of equity, interest rates, credit and commodities. These funds allow for monthly redemptions with only a brief notification period. No unfunded commitments existed with respect to risk parity funds as of December 31, ~~2017.~~

2020.

•Real Estate, Private Debt and Private Equity Funds: Plan assets are invested in limited partnership interests in various private equity, private debt and real estate funds. Limited provision exists for the redemption of these interests by the limited partners that invest in these funds until the end of the term of the partnerships, typically ranging between 10 and 15 years from the date of inception. An active secondary market exists for similar partnership interests, although no particular value (discount or premium) can be guaranteed. AtAs of December 31, ~~2017,~~2020, unfunded commitments to such limited partnerships totaling approximately ~~$2.546~~$3.3 billion are expected to be contributed over the remaining investment period, typically ranging between three and six years.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, ~~2017~~2020 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target ~~allocations.~~

allocations:


	Total Assets(1)		Level 1		Level 2		Level 3		Percentage of Plan Assets		Target Allocation
Asset Category (U.S. Plans):
Cash and cash equivalents	$	1,593	$	1,510	$	83	$	0	3.0	%	1-5
Equity Securities:
U.S. Large Cap	8,294		4,272		4,022		0
U.S. Small Cap	370		370		0		0
Emerging Markets	2,106		1,503		603		0
Global Equity	3,940		3,624		316		0
International Equity	4,335		2,043		2,292		0
Total Equity Securities	19,045		11,812		7,233		0		35.9		25-55
Fixed Income Securities:
U.S. Government Securities	16,145		14,646		1,499		0
Corporate Bonds	6,146		0		6,143		3
Global Bonds	42		0		42		0
Municipal Bonds	27		0		27		0
Total Fixed Income Securities	22,360		14,646		7,711		3		42.2		35-55
Other Investments:
Hedge Funds	3,518		0		1,652		0		6.6		5-15
Private Equity	3,424		0		0		0		6.5		1-10
Private Debt	695		0		0		0		1.3		1-10
Real Estate	1,986		244		82		0		3.7		1-10
Structured Products(2)	161		0		161		0		0.3		1-5
Risk Parity Funds	264		0		0		0		0.5		1-10

Total U.S. Plan Assets	$	53,046	$	28,212	$	16,922	$	3	100.0	%
Asset Category (International Plans):
Cash and cash equivalents	$	84	$	45	$	39	0		4.6		1-10
Equity Securities:
Local Markets Equity	214		0		214		0
U.S. Equity	59		0		59		0
Emerging Markets	55		41		14		0
International / Global Equity	534		210		324		0
Total Equity Securities	862		251		611		0		47.0		25-55
Fixed Income Securities:
Local Government Bonds	102		0		102		0
Corporate Bonds	215		22		193		0
Global Bonds	125		125		0		0
Total Fixed Income Securities	442		147		295		0		24.1		20-40
Other Investments:
Real Estate	154		0		80		21		8.3		5-10

Other	293		0		236		41		16.0		1-20
Total International Plan Assets	$	1,835	$	443	$	1,261	$	62	100.0	%
Total Plan Assets	$	54,881	$	28,655	$	18,183	$	65

Total
Assets⁽¹⁾
Level 1 Level 2 Level 3
Percentage of
Plan Assets

Target
Allocation

Asset Category (U.S. Plans):
Cash and cash equivalents⁽²⁾
$ 5,725
$ 5,292
$ 433
$ —
13.6 % 0-5
Equity Securities:
U.S. Large Cap 5,924
3,121
2,803
—

U.S. Small Cap 591
421
170
—

Emerging Markets 2,101
1,669
432
—

Global Equity 2,817
2,400
417
—

International Equity 4,791
2,950
1,841
—

Total Equity Securities 16,224
10,561
5,663
—
38.5
35-55
Fixed Income Securities:
U.S. Government Securities 7,695
7,323
372
—

Corporate Bonds 3,865
—
3,857
8

Global Bonds 53
—
53
—

Municipal Bonds 21
—
21
—

Total Fixed Income Securities 11,634
7,323
4,303
8
27.6
25-35
Other Investments:
Hedge Funds 2,910
—
1,031
—
6.9
5-15
Private Equity 2,107
—
—
—
5.0
1-10
Private Debt 953
—
237
—
2.3
1-10
Real Estate 2,031
157
139
—
4.8
1-10
Structured Products⁽³⁾
172
—
172
—
0.4
0-5
Risk Parity Funds 359
—
—

0.9
1-10
Total U.S. Plan Assets $ 42,115
$ 23,333
$ 11,978
$ 8
100.0 %
Asset Category (International Plans):
Cash and cash equivalents $ 78
$ 43
$ 35

5.8
0-10
Equity Securities:
Local Markets Equity 213
—
213

U.S. Equity 30
—
30

Emerging Markets 38
38
—

International / Global Equity 356
166
190

Total Equity Securities 637
204
433
—
47.7
30-60
Fixed Income Securities:
Local Government Bonds 103
25
78

Corporate Bonds 198
59
139

Total Fixed Income Securities 301
84
217
—
22.6
25-50
Other Investments:
Real Estate 124
—
79

9.3
5-10
Other 193
—
184

14.6
0-20
Total International Plan Assets $ 1,333
$ 331
$ 948
$ —
100.0 %
Total Plan Assets $ 43,448
$ 23,664
$ 12,926
$ 8

⁽¹⁾ Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the category totals.

⁽²⁾ ~~Includes $5 billion in contributions made in December 2017 that had not yet been invested according to the targeted allocation.~~

⁽³⁾ Represents mortgage and asset-backed securities.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, ~~2016~~2019 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target ~~allocations.~~

allocations:


	Total Assets(1)		Level 1		Level 2		Level 3		Percentage of Plan Assets		Target Allocation
Asset Category (U.S. Plans):
Cash and cash equivalents	$	964	$	818	$	146	$	0	2.1	%	1-5
Equity Securities:
U.S. Large Cap	6,607		2,889		3,718		0
U.S. Small Cap	505		376		129		0
Emerging Markets	2,039		1,523		516		0
Global Equity	2,892		2,553		339		0
International Equity	4,591		2,499		2,092		0
Total Equity Securities	16,634		9,840		6,794		0		36.0		25-55
Fixed Income Securities:
U.S. Government Securities	14,077		12,980		1,097		0
Corporate Bonds	5,051		0		5,051		0
Global Bonds	50		0		50		0
Municipal Bonds	24		0		24		0
Total Fixed Income Securities	19,202		12,980		6,222		0		41.5		35-55
Other Investments:
Hedge Funds	3,273		0		1,380		0		7.1		5-15
Private Equity	3,030		0		0		0		6.6		1-10
Private Debt	772		0		0		0		1.7		1-10
Real Estate	1,940		149		74		0		4.2		1-10
Structured Products(2)	153		0		153		0		0.3		1-5
Risk Parity Funds	241		0		0		0		0.5		1-10
Total U.S. Plan Assets	$	46,209	$	23,787	$	14,769	$	0	100.0	%
Asset Category (International Plans):
Cash and cash equivalents	$	72	$	32	$	40	0		4.6		1-10
Equity Securities:
Local Markets Equity	209		0		209		0
U.S. Equity	47		0		47		0
Emerging Markets	33		33		0		0
International / Global Equity	441		179		262		0
Total Equity Securities	730		212		518		0		46.8		30-60
Fixed Income Securities:
Local Government Bonds	94		0		94		0
Corporate Bonds	177		20		157		0
Global Bonds	110		110		0		0
Total Fixed Income Securities	381		130		251		0		24.5		25-45
Other Investments:
Real Estate	128		0		80		0		8.2		5-10

Other	247		0		218		12		15.9		1-20
Total International Plan Assets	$	1,558	$	374	$	1,107	$	12	100.0	%
Total Plan Assets	$	47,767	$	24,161	$	15,876	$	12

Total
Assets⁽¹⁾
Level 1 Level 2 Level 3
Percentage of
Plan Assets

Target
Allocation

Asset Category (U.S. Plans):
Cash and cash equivalents $ 304
$ 102
$ 202
$ —
1.0 % 0-5
Equity Securities:
U.S. Large Cap 4,883
2,327
2,556
—

U.S. Small Cap 542
393
149
—

Emerging Markets 1,396
1,236
160
—

Global Equity 2,603
2,555
48
—

International Equity 3,026
2,197
829
—

Total Equity Securities 12,450
8,708
3,742
—
39.9
35-55
Fixed Income Securities:
U.S. Government Securities 6,173
5,821
352
—

Corporate Bonds 4,492
—
4,492
—

Global Bonds 161
—
59
—

Municipal Bonds 24
—
24
—

Total Fixed Income Securities 10,850
5,821
4,927
—
34.6
25-35
Other Investments:
Hedge Funds 2,867
—
763
—
9.2
5-15
Private Equity 1,716
—
—
—
5.5
1-10
Private Debt 496
—
—
—
1.6
1-10
Real Estate 1,734
122
144
—
5.6
1-10
Structured Products⁽²⁾
492
—
492
—
1.6
0-5
Risk Parity Funds 321
—
—
—
1.0
1-10
Total U.S. Plan Assets $ 31,230
$ 14,753
$ 10,270
$ —
100.0 %
Asset Category (International Plans):
Cash and cash equivalents $ 54
$ 37
$ 17
—
4.9
0-15
Equity Securities:
Local Markets Equity 188
—
188
—

U.S. Equity 20
—
20
—

Emerging Markets 26
26
—
—

International / Global Equity 288
141
147
—

Total Equity Securities 522
167
355
—
47.7
50-65
Fixed Income Securities:
Local Government Bonds 84
22
62
—

Corporate Bonds 158
51
107
—

Total Fixed Income Securities 242
73
169
—
22.2
15-35
Other Investments:
Real Estate 93
—
57
—
8.5
0-17
Other 181
—
175
—
16.7
0-20
Total International Plan Assets $ 1,092
$ 277
$ 773
$ —
100.0 %
Total Plan Assets $ 32,322
$ 15,030
$ 11,043
$ —

⁽²⁾ Represents mortgage and asset-backed securities.

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 the years ended December 31, ~~2017~~2020 and ~~2016~~2019 (in millions).:


	Corporate Bonds		Other		Total
Balance on January 1, 2019	$	2	$	4	$	6
Actual Return on Assets:
Assets Held at End of Year	0		1		1
Assets Sold During the Year	(4)		0		(4)
Purchases	4		7		11
Sales	(2)		0		(2)

Transfers Into (Out of) Level 3	0		0		0
Balance on December 31, 2019	$	0	$	12	$	12
Actual Return on Assets:
Assets Held at End of Year	0		3		3
Assets Sold During the Year	(5)		0		(5)
Purchases	10		51		61
Sales	(2)		(4)		(6)

Transfers Into (Out of) Level 3	0		0		0
Balance on December 31, 2020	$	3	$	62	$	65

Corporate
Bonds
Other Total
Balance on January 1, 2016 $ 6
$ 49
$ 55
Actual Return on Assets:
Assets Held at End of Year —
—
—
Assets Sold During the Year —
(49 ) (49 )
Purchases —
—
—
Sales (6 ) —
(6 )
Transfers Into (Out of) Level 3 —
—
—
Balance on December 31, 2016 $ —
$ —
$ —
Actual Return on Assets:
Assets Held at End of Year —
—
—
Assets Sold During the Year —
—
—
Purchases 9
—
9
Sales (1 ) —
(1 )
Transfers Into (Out of) Level 3 —
—
—
Balance on December 31, 2017 $ 8
$ —
$ 8

There were no0 shares of UPS class A or B ~~shares of~~ common stock directly held in plan assets as of December 31, ~~2017~~2020 or ~~December 31, 2016~~.

~~Accumulated Other Comprehensive Income~~

~~The estimated amounts of prior service cost in AOCI expected to be amortized and recognized as a component of net periodic benefit cost in~~ ~~2018~~ ~~are as follows (in millions):~~

U.S. Pension Benefits
U.S. Postretirement
Medical Benefits

International Pension
Benefits
Prior service cost $ 193
$ 7
$ 1

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

2019.

Expected Cash Flows

Information about expected cash flows for the 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:
2018 to plan trusts $ —
$ —
$ 75
2018 to plan participants 19
78
5
Expected Benefit Payments:
2018 $ 1,294
$ 237
$ 24
2019 1,418
239
27
2020 1,551
237
30
2021 1,691
231
36
2022 1,836
222
41
2023 - 2027 11,358
967
286


	U.S. Pension Benefits		U.S. Postretirement Medical Benefits		International Pension Benefits
Expected Employer Contributions:
2021 to plan trusts	$	0	$	186	$	66
2021 to plan participants	23		70		6
Expected Benefit Payments:
2021	$	1,758	$	236	$	37
2022	1,892		227		42
2023	2,022		216		47
2024	2,156		205		54
2025	2,395		195		60
2026 - 2030	14,745		831		406

Our funding policy for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations, or to directly fund payments to plan participants, as applicable. 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 primarily paid from plan trusts. Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.7. MULTIEMPLOYER EMPLOYEE BENEFIT PLANS

We contribute to a number of multiemployer defined benefit plans under the terms of collective bargaining agreements that cover our union-represented employees. These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility/participation requirements, vesting periods and benefit formulas. The risks of participating in ~~these~~ multiemployer plans are different from single-employer plans in the following ~~aspects:~~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 plan, we may be required to pay that plan an amount based on our allocable share of its underfunded status, referred to as a "withdrawal liability". However, cessation of participation in a multiemployer plan and subsequent payment of any withdrawal liability is subject to the collective bargaining process.

•If any of the multiemployer pension plans in which we participate enter critical status, and our contributions are not sufficient to satisfy any rehabilitation plan funding schedule, we could be required under the Pension Protection Act of 2006 to make additional surcharge contributions to the multiemployer pension plan in the amount of five to ten percent of the existing contributions required by our labor agreement. Such surcharges would cease upon the ratification of a new collective bargaining agreement, and could not recur unless a plan re-entered critical status at a later date.

The discussion that follows sets forth the financial impact on our results of operations and cash flows for ~~the years ended~~ ~~December 31, 2017~~, ~~2016~~2020, 2019 and ~~2015~~,2018, from our participation in multiemployer benefit plans. As part of the overall collective bargaining process for wage and benefit levels, we have agreed to contribute certain amounts to the multiemployer benefit plans during the contract period. The multiemployer benefit plans set benefit levels and are responsible for benefit delivery to participants. Future contribution amounts to multiemployer benefit plans are determined only through collective bargaining, and we have no additional legal or constructive obligation to increase contributions beyond the agreed-upon amounts (except potential surcharges under the Pension Protection Act of 2006 as described above).

The number of employees covered by our multiemployer pension plans has ~~remained consistent over~~increased with the ~~past three years, and there~~growth in our business. There have been no other significant changes that affect the comparability of ~~2017~~, ~~2016~~2020, 2019 and ~~2015~~2018 contributions. We recognize expense for the contractually-required contribution for each period, and we recognize a liability for any contributions due and unpaid at the end of a reporting period.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Status of Collective Bargaining Agreements

As of December 31, ~~2017,~~2020, we had approximately ~~280,000~~327,000 employees employed under a national master agreement and various supplemental agreements with local unions affiliated with the ~~Teamsters.~~Teamsters, of which approximately 11,000 are employees of UPS Freight. These agreements run through July 31, ~~2018.~~ 2023.

We have approximately ~~2,700~~3,000 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association ("IPA")~~, which runs through~~. This collective bargaining agreement becomes amendable September 1, ~~2021. Our~~2023.

We have approximately 1,600 airline mechanics who are covered by a collective bargaining agreement with Teamsters Local 2727 which ~~became~~becomes amendable November 1, ~~2013. We are currently in negotiations with Teamsters Local 2727.~~2023. In addition, approximately ~~3,100~~3,400 of our auto and maintenance mechanics who are not employed under agreements with the Teamsters are employed under collective bargaining agreements with the International Association of Machinists and Aerospace Workers ~~(“IAM”~~("IAM") ~~that will expire on~~. The collective bargaining agreement with the IAM runs through July 31, ~~2019.~~2024.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Multiemployer Pension Plans

The following table outlines our participation in multiemployer pension plans for ~~the periods ended December 31, 2017, 2016~~2020, 2019 and ~~2015,~~2018, and sets forth our calendar year contributions and accruals for each plan. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit plan number. The most recent Pension Protection Act zone status available in ~~2017~~2020 and ~~2016~~2019 relates to the plans’ two most recent fiscal ~~year-ends.~~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,~~ 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,~~years; plans certified in the yellow zone are less than 80% ~~funded,~~ 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, ~~2017~~,2020, 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, ~~2018~~,2023, with the exception of ~~the Automotive Industries Pension Plan and~~ the IAM National Pension Fund / National Pension Plan, which ~~both have~~has a July 31, ~~2019~~2024 expiration date. For all plans detailed in the following table, we provided more than 5% of the total plan contributions from all employers for ~~2017~~, ~~2016~~2020, 2019 and ~~2015~~2018 (as disclosed in the annual filing with the Department of Labor for each respective plan).

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Certain plans have been aggregated in the ~~“all other multiemployer pension plans”~~“All Other Multiemployer Pension Plans” line in the following table, as the contributions to each of these individual plans are not material.


	EIN / Pension Plan Number	Pension Protection Act Zone Status		FIP / RP Status Pending / Implemented		(in millions) UPS Contributions and Accruals						Surcharge Imposed
Pension Fund		2020	2019			2020		2019		2018
Central Pennsylvania Teamsters Defined Benefit Plan	23-6262789-001	Green	Green	No	NA	$	57	$	48	$	44	No
Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund	55-6021850-001	Red	Red	Yes	Implemented	16		14		13		No
Hagerstown Motor Carriers and Teamsters Pension Fund	52-6045424-001	Red	Red	Yes	Implemented	11		10		9		No
I.A.M. National Pension Fund / National Pension Plan	51-6031295-002	Red	Green	Yes	Implemented	44		41		38		No
International Brotherhood of Teamsters Union Local No. 710 Pension Fund	36-2377656-001	Green	Green	No	NA	161		142		129		No
Local 705, International Brotherhood of Teamsters Pension Plan	36-6492502-001	Yellow	Yellow	Yes	Implemented	120		113		104		No
Local 804 I.B.T. & Local 447 I.A.M.—UPS Multiemployer Retirement Plan	51-6117726-001	Yellow	Yellow	Yes	Implemented	124		112		116		No
Milwaukee Drivers Pension Trust Fund	39-6045229-001	Green	Green	No	NA	53		48		42		No
New England Teamsters & Trucking Industry Pension Fund	04-6372430-001	Red	Red	Yes	Implemented	140		120		121		No
New York State Teamsters Conference Pension and Retirement Fund	16-6063585-074	Red	Red	Yes	Implemented	135		119		108		No
Teamster Pension Fund of Philadelphia and Vicinity	23-1511735-001	Yellow	Yellow	Yes	Implemented	85		74		66		No
Teamsters Joint Council No. 83 of Virginia Pension Fund	54-6097996-001	Green	Green	No	NA	82		75		69		No
Teamsters Local 639—Employers Pension Trust	53-0237142-001	Green	Green	No	NA	74		68		61		No
Teamsters Negotiated Pension Plan	43-6196083-001	Green	Green	No	NA	40		37		34		No
Truck Drivers and Helpers Local Union No. 355 Retirement Pension Plan	52-6043608-001	Green	Green	No	NA	27		24		22		No
United Parcel Service, Inc.—Local 177, I.B.T. Multiemployer Retirement Plan	13-1426500-419	Red	Red	Yes	Implemented	107		100		95		No
Western Conference of Teamsters Pension Plan	91-6145047-001	Green	Green	No	NA	1,138		939		868		No
Western Pennsylvania Teamsters and Employers Pension Fund	25-6029946-001	Red	Red	Yes	Implemented	37		34		31		No
All Other Multiemployer Pension Plans						104		102		72
					Total Contributions	$	2,555	$	2,220	$	2,042

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EIN / Pension
Plan

Pension
Protection Act
Zone Status

FIP / RP Status
Pending /

(in millions)
UPS Contributions and Accruals
Surcharge
Pension Fund Number 2017 2016 Implemented 2017 2016 2015 Imposed
Alaska Teamster-Employer Pension Plan 92-6003463-024 Red Red Yes/Implemented $ 5
$ 5
$ 5
No
Automotive Industries Pension Plan 94-1133245-001 Red Red Yes/Implemented 5
4
4
No
Central Pennsylvania Teamsters Defined Benefit Plan 23-6262789-001 Green Green No 40
38
36
No
Eastern Shore Teamsters Pension Fund 52-0904953-001 Green Green No 5
5
4
No
Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund 55-6021850-001 Red Red Yes/Implemented 12
11
11
No
Hagerstown Motor Carriers and Teamsters Pension Fund 52-6045424-001 Red Red Yes/Implemented 8
7
7
No
I.A.M. National Pension Fund / National Pension Plan 51-6031295-002 Green Green No 35
31
29
No
International Brotherhood of Teamsters Union Local No. 710 Pension Fund 36-2377656-001 Green Green No 118
107
106
No
Local 705, International Brotherhood of Teamsters Pension Plan 36-6492502-001 Yellow Red Yes/Implemented 93
88
91
No
Local 804 I.B.T. & Local 447 I.A.M.—UPS Multiemployer Retirement Plan 51-6117726-001 Yellow Red Yes/Implemented 110
103
97
No
Milwaukee Drivers Pension Trust Fund 39-6045229-001 Green Green No 38
36
35
No
New England Teamsters & Trucking Industry Pension Fund 04-6372430-001 Red Red Yes/Implemented 114
114
110
No
New York State Teamsters Conference Pension and Retirement Fund 16-6063585-074 Red Red Yes/Implemented 100
91
86
No
Teamster Pension Fund of Philadelphia and Vicinity 23-1511735-001 Yellow Yellow Yes/Implemented 60
56
53
No
Teamsters Joint Council No. 83 of Virginia Pension Fund 54-6097996-001 Green Yellow No 64
61
57
No
Teamsters Local 639—Employers Pension Trust 53-0237142-001 Green Green No 55
51
48
No
Teamsters Negotiated Pension Plan 43-6196083-001 Green Green No 32
31
30
No
Truck Drivers and Helpers Local Union No. 355 Retirement Pension Plan 52-6043608-001 Green Yellow No 20
19
17
No
United Parcel Service, Inc.—Local 177, I.B.T. Multiemployer Retirement Plan 13-1426500-419 Red Red Yes/Implemented 88
83
83
No
Western Conference of Teamsters Pension Plan 91-6145047-001 Green Green No 772
694
646
No
Western Pennsylvania Teamsters and Employers Pension Fund 25-6029946-001 Red Red Yes/Implemented 30
28
26
No
All Other Multiemployer Pension Plans 66
56
42

Total Contributions $ 1,870
$ 1,719
$ 1,623

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, ~~2017~~2020 and ~~2016,~~2019, we had ~~$859~~$837 and ~~$866~~$845 million, respectively, recognized in ~~"other non-current~~"Other Non-Current Liabilities" as well as $7 million as of December 31, 2020 and 2019 recorded in "Other current liabilities" onin 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 42 years. Based on the borrowing rates currently available to ~~the Company~~us for long-term financing of a similar maturity, the fair value of the NETTI Fund withdrawal liability as of December 31, ~~2017~~2020 and ~~2016~~2019 was ~~$921~~$1.0 billion and ~~$861 million.~~$929 million, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Multiemployer Health and Welfare Plans

We also contribute to ~~several~~a number of multiemployer health and welfare plans ~~that cover~~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~~“All Other Multiemployer Health and ~~welfare plans”~~Welfare Plans” line, ~~in the table,~~ as the contributions to each of these individual plans are not material.


	(in millions) UPS Contributions and Accruals
Health and Welfare Fund	2020		2019		2018
Bay Area Delivery Drivers	$	39	$	37	$	40
Central Pennsylvania Teamsters Health & Pension Fund	35		31		29
Central States, South East & South West Areas Health and Welfare Fund	3,202		2,899		2,530
Delta Health Systems—East Bay Drayage Drivers	37		30		30
Joint Council #83 Health & Welfare Fund	50		45		40
Local 804 Welfare Trust Fund	110		101		90
Milwaukee Drivers Pension Trust Fund—Milwaukee Drivers Health and Welfare Trust Fund	53		48		43
New York State Teamsters Health & Hospital Fund	84		71		62
Northern California General Teamsters (DELTA)	188		157		153
Northern New England Benefit Trust	72		59		54
Oregon / Teamster Employers Trust	59		51		43
Teamsters 170 Health & Welfare Fund	22		19		18
Teamsters Benefit Trust	57		47		48
Teamsters Local 251 Health & Insurance Plan	23		18		17
Teamsters Local 638 Health Fund	60		53		48
Teamsters Local 639—Employers Health & Pension Trust Funds	39		32		29
Teamsters Local 671 Health Services & Insurance Plan	23		20		19
Teamsters Union 25 Health Services & Insurance Plan	69		59		56
Teamsters Western Region & Local 177 Health Care Plan	859		769		656
Truck Drivers and Helpers Local 355 Baltimore Area Health & Welfare Fund	22		19		18
Utah-Idaho Teamsters Security Fund	45		37		32
Washington Teamsters Welfare Trust	76		67		57
All Other Multiemployer Health and Welfare Plans	175		141		156
Total Contributions	$	5,399	$	4,810	$	4,268

(in millions)
UPS Contributions and Accruals
Health and Welfare Fund 2017 2016 2015
Central States, South East & South West Areas Health and Welfare Fund $ 2,366
$ 2,268
$ 2,081
Teamsters Western Region & Local 177 Health Care Plan 605
571
515
Health & Welfare Insurance Fund Teamsters Local 653 7
6
6
Bay Area Delivery Drivers 37
35
34
Central Pennsylvania Teamsters Health & Pension Fund 27
25
23
Delta Health Systems—East Bay Drayage Drivers 29
27
27
Employer—Teamster Local Nos. 175 & 505 11
11
10
Joint Council #83 Health & Welfare Fund 37
33
28
Local 191 Teamsters Health Fund 13
12
11
Local 401 Teamsters Health & Welfare Fund 9
8
7
Local 804 Welfare Trust Fund 84
79
75
Milwaukee Drivers Pension Trust Fund—Milwaukee Drivers Health and Welfare Trust Fund 38
36
34
Montana Teamster Employers Trust 8
8
7
New York State Teamsters Health & Hospital Fund 59
56
53
North Coast Benefit Trust 11
8
8
Northern California General Teamsters (DELTA) 132
116
108
Northern New England Benefit Trust 50
47
42
Oregon / Teamster Employers Trust 38
34
31
Teamsters 170 Health & Welfare Fund 17
16
15
Teamsters Benefit Trust 46
43
36
Teamsters Local 251 Health & Insurance Plan 15
14
13
Teamsters Local 404 Health & Insurance Plan 8
7
7
Teamsters Local 638 Health Fund 43
40
39
Teamsters Local 639—Employers Health & Pension Trust Funds 27
27
26
Teamsters Local 671 Health Services & Insurance Plan 17
17
15
Teamsters Union 25 Health Services & Insurance Plan 52
50
46
Teamsters Union Local 677 Health Services & Insurance Plan 11
10
10
Truck Drivers and Helpers Local 355 Baltimore Area Health & Welfare Fund 16
16
15
Utah-Idaho Teamsters Security Fund 29
26
25
Washington Teamsters Welfare Trust 52
47
44
All Other Multiemployer Health and Welfare Plans 78
68
95
Total Contributions $ 3,972
$ 3,761
$ 3,486

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.8. GOODWILL AND INTANGIBLE ASSETS

The following table indicates the allocation of goodwill by segment (in millions):


	U.S. Domestic Package		International Package		Supply Chain & Freight		Consolidated
Balance on January 1, 2019	$	715	$	417	$	2,679	$	3,811
Acquired	0		2		3		5
Currency / Other	0		(3)		0		(3)
Balance on December 31, 2019	$	715	$	416	$	2,682	$	3,813
Acquired	0		0		0		0
Impairments	0		0		(494)		(494)
Currency / Other	0		6		42		48
Balance on December 31, 2020	$	715	$	422	$	2,230	$	3,367

U.S. Domestic
Package

International
Package

Supply Chain &
Freight
Consolidated
Balance on January 1, 2016 $ 715
$ 425
$ 2,279
$ 3,419
Acquired —
—
359
359
Currency / Other —
(18 ) (3 ) (21 )
Balance on December 31, 2016 $ 715
$ 407
$ 2,635
$ 3,757
Acquired —
18
54
72
Currency / Other —
10
33
43
Balance on December 31, 2017 $ 715
$ 435
$ 2,722
$ 3,872

~~2017~~2020 Goodwill Activity

~~The~~As of December 31, 2020 we classified our UPS Freight reporting unit as held for sale, which resulted in a goodwill ~~acquired in~~impairment charge of $494 million for the Supply Chain & Freight segment is primarily related to our January 2017 acquisition of Freightex Ltd. ("Freightex") and our November 2017 acquisition of STTAS Global Holdings, Inc ("Sandler & Travis Trade Advisory Services" or "STTAS"). The remaining goodwill acquired in the Supply Chain & Freight segment was related to other, smaller acquisitions immaterial to our consolidated financial position or results of operations.

~~The goodwill acquired in the International Package segment is related to our June 2017 acquisition of Eirpost Group Unlimited Company ("Nightline").~~segment.

The remaining change in goodwill for both the Supply Chain & Freight and ~~the~~ International Package segments was due to immaterial purchase accounting adjustments and the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances.

~~2016~~2019 Goodwill Activity

The change in goodwill acquired for the International Package segment was due to our January 2019 acquisition of Transmodal Services Private Limited in India. The goodwill acquired in the Supply Chain & Freight segment was ~~related~~primarily due to our ~~December 2016 acquisition of Maze 1 Limited ("Marken").~~July 2019 acquisitions by Marken in Europe.

The remaining change in goodwill for ~~both the Supply Chain & Freight and~~ the International Package ~~segments~~segment was due to immaterial purchase accounting adjustments and the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances.

The estimates of the fair value of assets acquired and liabilities assumed are subject to change based on the completion of purchase accounting. The purchase price allocation for acquired companies can be modified for up to one year from the date of acquisition. See note 7 for further discussion of these acquisitions.

Goodwill Impairment ~~and Annual Assessment Date Change~~

We completed our annual goodwill impairment ~~valuation,~~evaluation as of July 1st on a reporting unit ~~basis which we own at the testing date. For the periods presented,~~basis. Except as discussed below, no triggering events were identified for the periods presented that required an interim impairment test.

U.S. Domestic Package is our largest reporting ~~segment.~~segment and reporting unit. In our International Package reporting segment, we have the following reporting units: Europe, Asia, Americas and ~~ISMEA (Indian Subcontinent, Middle East and Africa).~~ISMEA. In our Supply Chain & Freight reporting segment we have the following reporting units: Forwarding, Logistics, UPS Mail Innovations, UPS Freight, The UPS Store, UPS Capital, Marken and ~~Coyote Logistics.~~

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Coyote.

In assessing ~~our~~ 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. If the qualitative assessment is not conclusive, ~~and it is necessary to~~we calculate the fair value of a reporting unit ~~then we utilize a two-step process~~ to test goodwill for impairment. ~~First, a comparison of the fair value of the applicable reporting unit with the aggregate carrying value, including goodwill, is performed.~~ We primarily determine the fair value of our reporting units using a discounted cash flow model, and supplement this with observable valuation multiples for comparable companies, as applicable. A comparison of the fair value of the reporting unit with its aggregate carrying value, including goodwill, is performed. If the carrying amount of a reporting unit exceeds ~~the reporting unit’s~~its fair value, we ~~perform~~record the ~~second step of the~~excess amount as goodwill impairment, ~~test~~not to ~~determine~~exceed the total amount of ~~impairment loss. The second step includes comparing~~goodwill allocated to the ~~implied fair value of the affected~~ reporting ~~unit’s goodwill with the carrying value of that goodwill.~~

unit.

In ~~2017,~~2020, we utilized a qualitative assessment to determine that it was more likely than not that the reporting unit fair value exceeded the carrying value for ~~our~~ U.S. Domestic Package, Europe Package, Asia Package, Americas Package, ISMEA Package, ~~Forwarding, UPS Mail Innovations,~~ The UPS Store and UPS ~~Capital reporting units.~~Capital. For the remaining reporting units owned at the annual goodwill impairment testing date, we utilized the ~~two-step~~quantitative process to test goodwill for impairment.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the fourth quarter of 2020, we determined that our UPS Freight reporting unit should be classified as held for sale. Accordingly, we tested goodwill for impairment as of December 31, 2020, and determined that the fair value of the reporting unit had decreased. A goodwill impairment charge of $494 million, representing the remaining goodwill balance for UPS Freight, is included within Other expenses in the statements of consolidated income. We did ~~not have~~0t record any goodwill impairment charges in ~~2017, 2016~~2019 or ~~2015.~~2018. Cumulatively, our Supply Chain & Freight segment has recorded ~~$622 million~~$1.1 billion of goodwill impairment charges, while our International and U.S. Domestic Package segments have ~~not~~0t recorded any goodwill impairment charges. For additional information on the pending divestiture of UPS Freight, see note 4.

Intangible Assets

The following is a summary of intangible assets at as of December 31, ~~2017~~2020 and ~~2016~~2019 (in millions):


										Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Weighted-Average Amortization Period (in years)
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Weighted- Average Amortization Period (in years)
December 31, 2017
December 31, 2020									December 31, 2020
Capitalized software	$	3,273	$	(2,310	)	$	963	6.9	Capitalized software	$	4,531	$	(2,962)	$	1,569	6.9
Licenses	114		(10		)	104		3.9	Licenses	100		(37)		63		3.8
Franchise rights	144		(97		)	47		20.0	Franchise rights	165		(113)		52		20.0
Customer relationships	776		(160		)	616		10.8	Customer relationships	729		(344)		385		10.6
Trade name	200		—			200		NA	Trade name	200		0		200		N/M
Trademarks, patents and other	71		(37		)	34		5.4	Trademarks, patents and other	18		(13)		5		12.0
Total Intangible Assets	$	4,578	$	(2,614	)	$	1,964	7.9	Total Intangible Assets	$	5,743	$	(3,469)	$	2,274	7.7
December 31, 2016
December 31, 2019									December 31, 2019
Capitalized software	$	2,933	$	(2,157	)	$	776		Capitalized software	$	4,125	$	(2,704)	$	1,421
Licenses	131		(70		)	61			Licenses	117		(64)		53
Franchise rights	128		(90		)	38			Franchise rights	146		(109)		37
Customer relationships	724		(85		)	639			Customer relationships	730		(282)		448
Trade name	200		—			200			Trade name	200		0		200
Trademarks, patents and other	67		(23		)	44			Trademarks, patents and other	29		(21)		8
Total Intangible Assets	$	4,183	$	(2,425	)	$	1,758		Total Intangible Assets	$	5,347	$	(3,180)	$	2,167

A trade name and licenses with a carrying ~~value~~values of $200 and $5 million, respectively, as of December 31, ~~2017~~2020 are deemed to be indefinite-lived intangible assets, and therefore are not amortized. Impairment tests for indefinite-lived intangible assets are performed on an annual basis. All of our other recorded intangible assets are deemed to be finite-lived intangibles, and are ~~thus~~ amortized over their estimated useful lives. Impairment tests for these intangible assets are only performed when a triggering event occurs that may indicate that the carrying value of the intangible may not be recoverable. ~~There was a $7 million impairment~~Impairments of a finite-lived intangible ~~asset~~assets were $13 and ~~no impairment of finite-lived~~$2 million in 2020 and ~~indefinite-lived intangible assets in 2017 and 2016,~~2019, respectively.

Amortization of intangible assets was ~~$287, $321~~$416, $377 and ~~$261~~$339 million during ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. Expected amortization of finite-lived intangible assets recorded as of December 31, ~~2017~~2020 for the next five years is as follows (in millions): ~~2018—$367; 2019—$328; 2020—$287;~~ 2021—$~~232;~~512; 2022—$~~180.~~437; 2023—$372; 2024—$297; 2025—$222. Amortization expense in future periods will be affected by business acquisitions and divestitures, software development, licensing agreements, franchise rights ~~purchases~~purchased and other factors.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~NOTE 7. BUSINESS ACQUISITIONS~~

In January 2017, we acquired Freightex Ltd. ("Freightex"), a U.K.-based asset-light provider of truckload, less-than-truckload and specialized over-the-road services, which was added to our Supply Chain & Freight segment. In June 2017, we acquired Eirpost Group Unlimited Company ("Nightline"), an Ireland-based express delivery and logistics company, which was added to our International Package reporting segment. In November 2017, we acquired STTAS, a global trade compliance management company, which was added to our Supply Chain & Freight segment. These acquisitions were funded with cash from operations and were not material to our consolidated financial position or results of operations.

In December 2016, we acquired Marken, a global provider of supply chain solutions to the life sciences industry and leader in clinical trials, material storage and distribution, for approximately $570 million. The purchase price allocation was completed in the fourth quarter of 2017 and there were no material changes to our estimated fair values of assets acquired and liabilities assumed. The financial results of Marken are included in the Supply Chain & Freight segment from the date of acquisition.

~~The following table summarizes the fair values of the Marken assets acquired and liabilities assumed at the acquisition date (in millions):~~

Marken Assets Acquired and (Liabilities) Assumed
Cash and cash equivalents $ 26
Accounts receivable 34
Other current assets 6
Deferred tax assets 35
Property, plant, and equipment 7
Goodwill 319
Intangible assets 238
Accounts payable and other current liabilities (29 )
Deferred tax liabilities (66 )
Total purchase price $ 570

~~The goodwill recognized of approximately $319 million is attributable to synergies anticipated from future growth of Marken. None of the goodwill is deductible for income tax purposes.~~

The intangible assets acquired of approximately $238 million primarily consist of $219 million of customer relationships (amortized over 12 years), $10 million of trade name (amortized over 3 years), $8 million of capitalized software (amortized over 3-5 years) and a $1 million agent network (amortized over 4 years). The carrying value of working capital approximates fair value.

~~We recognized approximately $8 million of acquisition related costs that were expensed in 2016. These costs are included in "other expenses" within the statements of consolidated income.~~

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 8.9. DEBT AND FINANCING ARRANGEMENTS

The ~~following table sets forth the principal amount, maturity or range of maturities, as well as the~~ carrying value of our outstanding debt obligations, as of December 31, ~~2017~~2020 and ~~2016~~2019 consists of the following (in millions). The carrying value of these debt obligations can differ from the principal amount due to the impact of unamortized discounts or premiums and valuation adjustments resulting from interest rate swap hedging relationships.


	Principal			Carrying Value
	Amount		Maturity	2020		2019
Commercial paper	$	15	2021	$	15	$	3,234
Fixed-rate senior notes:
3.125% senior notes	1,500		2021	1,507		1,524
2.050% senior notes	700		2021	700		699
2.450% senior notes	1,000		2022	1,028		1,003
2.350% senior notes	600		2022	599		598
2.500% senior notes	1,000		2023	997		995
2.800% senior notes	500		2024	498		497
2.200% senior notes	400		2024	398		398
3.900% senior notes	1,000		2025	995		0
2.400% senior notes	500		2026	498		498
3.050% senior notes	1,000		2027	993		992
3.400% senior notes	750		2029	746		745
2.500% senior notes	400		2029	397		397
4.450% senior notes	750		2030	743		0
6.200% senior notes	1,500		2038	1,483		1,483
5.200% senior notes	500		2040	493		0
4.875% senior notes	500		2040	490		490
3.625% senior notes	375		2042	368		368
3.400% senior notes	500		2046	491		491
3.750% senior notes	1,150		2047	1,137		1,136
4.250% senior notes	750		2049	742		742
3.400% senior notes	700		2049	688		688
5.300% senior notes	1,250		2050	1,231		0
Floating-rate senior notes:
Floating-rate senior notes	350		2021	350		349
Floating-rate senior notes	400		2022	399		399
Floating-rate senior notes	500		2023	499		499
Floating-rate senior notes	1,039		2049-2067	1,027		1,028
8.375% Debentures:
8.375% debentures	0		2020	0		426
8.375% debentures	276		2030	281		281
Pound Sterling Notes:
5.500% notes	90		2031	90		86
5.125% notes	618		2050	586		566
Euro Senior Notes:
0.375% senior notes	860		2023	857		779
1.625% senior notes	860		2025	856		779
1.000% senior notes	614		2028	611		556
1.500% senior notes	614		2032	611		556
Floating-rate senior notes	0		2020	0		559
Canadian senior notes:
2.125% senior notes	585		2024	583		571
Finance lease obligations	342		2021 – 2159	342		498
Facility notes and bonds	320		2029 – 2045	320		320
Other debt	6		2021 – 2025	5		8
Total debt	$	24,814		24,654		25,238
Less: current maturities				(2,623)		(3,420)
Long-term debt				$	22,031	$	21,818

Principal Carrying Value
Amount Maturity 2017 2016
Commercial paper $ 3,203
2018 $ 3,203
$ 3,250
Fixed-rate senior notes:
1.125% senior notes 375
2017 —
374
5.500% senior notes 750
2018 751
769
5.125% senior notes 1,000
2019 1,019
1,043
3.125% senior notes 1,500
2021 1,549
1,584
2.050% senior notes 700
2021 696
—
2.450% senior notes 1,000
2022 979
986
2.350% senior notes 600
2022 597
—
2.500% senior notes 1,000
2023 992
—
2.800% senior notes 500
2024 495
—
2.400% senior notes 500
2026 497
497
3.050% senior notes 1,000
2027 990
—
6.200% senior notes 1,500
2038 1,482
1,481
4.875% senior notes 500
2040 489
489
3.625% senior notes 375
2042 368
367
3.400% senior notes 500
2046 491
491
3.750% senior notes 1,150
2047 1,135
—
Floating-rate senior notes:
     Floating-rate senior notes 350
2021 348
—
     Floating-rate senior notes 400
2022 398
—
     Floating-rate senior notes 500
2023 496
—
Floating-rate senior notes 1,043
2049-2067 1,032
824
8.375% Debentures:
8.375% debentures 424
2020 447
461
8.375% debentures 276
2030 282
282
Pound Sterling Notes:
     5.500% notes 90
2031 84
76
     5.125% notes 614
2050 586
535
Euro Senior Notes:
0.375% senior notes 839
2023 832
—
1.625% senior notes 839
2025 833
732
1.000% senior notes 599
2028 595
523
1.500% senior notes 599
2032 594
—
Floating-rate senior notes 599
2020 598
525
Canadian senior notes:
     2.125% senior notes 597
2024 593
—
Capital lease obligations 500
2018– 3005 500
447
Facility notes and bonds 320
2029 – 2045 319
319
Other debt 19
2018 – 2022 19
20
Total debt $ 24,761
24,289
16,075
Less: current maturities (4,011 ) (3,681 )
Long-term debt $ 20,278
$ 12,394

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Debt Issuances~~

~~On May 16, 2017 we issued U.S. senior rate notes. These senior notes consist of two separate series, as follows:~~

Two series of notes, in the principal amounts of $600 and $400 million, were issued. These notes bear interest at a 2.350% fixed rate and at three-month LIBOR plus 38 basis points, respectively, and mature May 2022. Interest on the fixed-rate senior notes is payable semi-annually, beginning November 2017. Interest on the floating-rate senior notes is payable quarterly beginning August 2017. The 2.350% notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the discount rate of the treasury rate plus 10 basis points and accrued interest. The floating-rate senior notes are not callable.

~~On May 18, 2017 we issued Canadian senior notes. These senior notes consist of a single series as follows:~~

Notes in the principal amount of C$750 million ($547 million), which bear interest at a 2.125% fixed interest rate and mature May 2024. Interest on the notes is payable semi-annually beginning November 2017. The notes are callable at our option, in whole or in part at the Government of Canada yield plus 21.5 basis points, and on or after the par call date, at par value.

~~On November 8, 2017, we issued Euro senior rate notes. These senior notes consist of two separate series, as follows:~~

Two series of notes, in the principal amount of €700 million ($815 million) and €500 million ($582 million) were issued. These notes bear interest at 0.375% and 1.500% fixed rates, respectively, and mature November 2023 and November 2032, respectively. Interest on these notes is payable annually, beginning in November 2018. The notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable government bond yield plus 10 and 20 basis points, respectively, and accrued interest.

~~On November 9, 2017, we issued U.S. senior rate notes. These senior notes consist of seven separate series, as follows:~~

Notes in the principal amount of $350 million, which bear interest at three-month LIBOR plus 15 basis points and mature April 2021. Interest on the notes is payable quarterly beginning April 2018. These notes are not callable.

Notes in the principal amount of $500 million, which bear interest at three-month LIBOR plus 45 basis points and mature April 2023. Interest on the notes is payable quarterly beginning April 2018. These notes are not callable.

Notes in the principal amount of $700 million, which bear interest at a 2.050% fixed rate and mature April 2021. Interest on the fixed-rate senior notes is payable semi-annually, beginning April 2018. These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the discount rate of the treasury rate plus 10 basis points and accrued interest.

Notes in the principal amount of $1 billion, which bear interest at a 2.500% fixed interest rate and mature April 2023. Interest on the fixed-rate senior notes is payable semi-annually, beginning April 2018. These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the discount rate of the treasury rate plus 10 basis points plus accrued interest. If called within the one month prior to maturity, the redemption price is equal to 100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding the redemption date.

Notes in the principal amount of $500 million, which bear interest at a 2.800% fixed interest rate and mature November 2024. Interest on the fixed-rate senior notes is payable semi-annually, beginning May 2018. These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the discount rate of the treasury rate plus 10 basis points plus accrued interest. If called within the two months prior to maturity, the redemption price is equal to 100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding the redemption date.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Notes in the principal amount of $1 billion, which bear interest at a 3.050% fixed interest rate and mature November 2027. Interest on the fixed-rate senior notes is payable semi-annually, beginning May 2018. These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the discount rate of the treasury rate plus 15 basis points plus accrued interest. If called within the three months prior to maturity, the redemption price is equal to 100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding the redemption date.

Notes in the principal amount of $1.15 billion, which bear interest at a 3.750% fixed interest rate and mature November 2047. Interest on the fixed-rate senior notes is payable semi-annually, beginning May 2018. These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the discount rate of the treasury rate plus 15 basis points plus accrued interest. If called within the six months prior to maturity, the redemption price is equal to 100% of the principal amount plus accrued and unpaid interest, if any, to, but excluding the redemption date.

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. ~~We had the following amounts outstanding under these programs as~~As of December 31, ~~2017: $2.458 billion~~2020 we had U.S. commercial paper outstanding of $15 million with an average interest rate of ~~1.350%~~0.17% and ~~€622 million ($745 million) with an average interest rate~~we had 0 outstanding balances under our European commercial paper program. As of ~~-0.41%.~~December 31, 2020, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheets. The amount of commercial paper outstanding under these programs in ~~2018~~2021 is expected to fluctuate.

Debt Repayments

On July 15, 2020 our Euro floating-rate senior notes with a principal balance of €500 million ($566 million) matured and were repaid in full. On April 1, 2020, our 8.375% senior notes with a principal balance of $424 million matured and were repaid in full.

Debt Issuances

On March 24, 2020 we issued four series of notes, in the following principal amounts: $1.0 billion, $750 million, $500 million and $1.25 billion. These notes bear interest at 3.90%, 4.45%, 5.20% and 5.30%, respectively, and will mature on April 1, 2025, April 1, 2030, April 1, 2040 and April 1, 2050, respectively. Interest on the notes is payable semi-annually, beginning October 2020. Each series of notes is callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of scheduled payments of principal and interest, plus accrued and unpaid interest.

In such event, the present values of scheduled principal and interest payments are discounted to the redemption date on a semi-annual basis at the discount rate of the Treasury Rate plus 50 basis points, and are determined as follows:

•On the 3.90% notes, payments from the redemption date until one month prior to maturity

•On the 4.45% notes, payments from the redemption date until three months prior to maturity

•On the 5.20% and 5.30% notes, payments from the redemption date until six months prior to maturity

Fixed-Rate Senior Notes

~~We have completed several offerings of fixed-rate senior notes.~~ All of ~~the~~our fixed-rate notes pay interest semi-annually, and allow for redemption ~~of the notes~~ by UPS at any time by paying the greater of the principal amount or a “make-whole” amount, plus accrued interest. We subsequently entered into interest rate swaps on several of these notes, which effectively converted the fixed interest rates on the notes to variable LIBOR-based interest rates. The average interest rate payable on ~~these~~the notes where fixed interest rates were swapped to variable-based interest rates, including the impact of the interest rate swaps, for ~~2017~~2020 and ~~2016, respectively,~~2019 were as follows:

Principal Average Effective Interest Rate
Value Maturity 2017 2016
1.125% senior notes $ 375
2017 1.51 % 1.04 %
5.50% senior notes $ 750
2018 3.45 % 2.94 %
5.125% senior notes $ 1,000
2019 2.98 % 2.49 %
3.125% senior notes $ 1,500
2021 1.34 % 1.40 %
2.45% senior notes $ 1,000
2022 1.78 % 1.26 %

~~On October 1, 2017, our $375 million 1.125% senior notes matured and were repaid in full.~~


	Principal			Average Effective Interest Rate
	Value		Maturity	2020		2019

5.125% senior notes	$	1,000	2019	0	%	4.48	%
3.125% senior notes	1,500		2021	1.60	%	2.59	%
2.450% senior notes	1,000		2022	1.55	%	3.03	%

8.375% Debentures

The 8.375% debentures consist of ~~two~~2 separate tranches, as follows:

•$276 million of the debentures have a maturity of April 1, 2030. These debentures have an 8.375% interest rate until April 1, 2020, and, thereafter, the interest rate will be 7.62% for the final 10 years. These debentures are redeemable in whole or in part at our option at any time. The redemption price is equal to the greater of 100% of the principal amount and accrued interest, or the sum of the present values of the remaining scheduled ~~payout~~payments of principal and interest thereon discounted to the date of redemption (at a benchmark treasury yield plus five basis points) plus accrued interest.

•$424 million of the debentures ~~have a maturity of~~ matured and were paid in full on April 1, ~~2020~~.2020. These debentures ~~are~~were not subject to redemption prior to maturity.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest is payable semi-annually in April and October for both tranches and neither tranche is subject to sinking fund requirements. We subsequently entered into interest rate swaps on the 2020 debentures, which effectively converted the fixed interest rates on the debentures to variable LIBOR-based interest rates. The average interest rate payable on the 2020 debentures, including the impact of the interest rate swaps, for ~~2017~~2020 and ~~2016~~2019 was ~~5.95%~~6.66% and ~~5.43%~~7.20%, respectively.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Floating-Rate Senior Notes

The floating-rate senior notes, with principal amounts totaling ~~$1.043~~$1.0 billion, bear interest at either one or three-month LIBOR, less a spread ranging from 30 to 45 basis points. The average interest rate for ~~2017~~2020 and ~~2016~~2019 was ~~0.74%~~0.40% and ~~0.21%~~2.05%, respectively. These notes are callable at various times after 30 years at a stated percentage of par value, and putable by the note holders at various times after one year at a stated percentage of par value. The notes have maturities ranging from 2049 through 2067. We classified the floating-rate senior notes that are putable by the note holder as a long-term ~~liability,~~liabilities in our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised by the note holder.

In March and November 2017, we issued floating-rate senior notes in the principal amounts of $147 and $64 million, respectively, which are included in the $1.043 billion floating-rate senior notes described above. These notes will bear interest at three-month LIBOR less 30 and 35 basis points, respectively and mature in 2067.

The remaining three floating-rate senior notes in the principal amounts of $350, $400 and $500 million, bear interest at three-month LIBOR, plus a spread ranging from 15 to 45 basis points. The average interest rate for ~~2017~~2020 and ~~2016~~2019 was ~~0.50%~~1.29% and ~~0.0%~~2.82%, respectively. These notes are not callable. The notes have maturities ranging from 2021 through 2023. We classified the floating-rate senior notes that are putable by the note holder as a long-term liability, due to our intent and ability to refinance the debt if the put option is exercised by the note holder.

~~Capital~~Finance Lease Obligations

We have certain property, plant and equipment subject to ~~capital~~finance leases. ~~Some of the obligations associated with these capital leases have been legally defeased. The recorded value of our property, plant and equipment subject to capital leases is as follows as of~~ ~~December 31~~ ~~(in millions):~~

2017 2016
Vehicles $ 70
$ 68
Aircraft 2,291
2,291
Buildings 285
190
Accumulated amortization (990 ) (896 )
Property, plant and equipment subject to capital leases $ 1,656
$ 1,653

~~These capital~~For additional information on finance lease obligations, ~~have principal payments due at various dates from 2018 through 3005.~~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 ~~U.S. Domestic Package and Supply Chain & Freight~~ 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 ~~the municipalities,~~these entities, as follows:

•Bonds with a principal balance of $~~149~~$149 million issued by the Louisville Regional Airport Authority associated with our Worldport facility in Louisville, Kentucky. The bonds, which are due in January 2029, bear interest at a variable rate, and the average interest rates for ~~2017~~2020 and ~~2016~~2019 were ~~0.83%~~0.50% and ~~0.37%~~1.49%, respectively.

•Bonds with a principal balance of $42$42 million and due in November 2036 issued by the Louisville Regional Airport Authority associated with our air freight facility in Louisville, Kentucky. The bonds bear interest at a variable rate, and the average interest rates for ~~2017~~2020 and ~~2016~~2019 were ~~0.80%~~0.56% and ~~0.36%~~1.49%, respectively.

•Bonds with a principal balance of $29$29 million issued by the Dallas / Fort Worth International Airport Facility Improvement Corporation associated with our Dallas, Texas airport facilities. The bonds are due in May 2032 and bear interest at a variable rate, however the variable cash flows on the obligation have been swapped to a fixed 5.11%.

~~In September 2015, we entered into an agreement~~•Bonds with a principal balance of $100 million issued by the Delaware County, Pennsylvania Industrial Development Authority associated with our Philadelphia, Pennsylvania airport ~~facilities, for bonds issued with a principal balance of $100 million.~~facilities. These bonds, which are due September 2045, bear interest at a variable rate. The average interest rate for ~~2017~~2020 and ~~2016~~2019 was ~~0.78%~~0.62% and ~~0.40%~~1.48%, respectively.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Pound Sterling Notes

The Pound Sterling notes consist of ~~two~~2 separate tranches, as follows:

•Notes with a principal amount of ~~£66~~£66 million accrue interest at a 5.50% fixed rate, and are due in February ~~2031~~.2031. These notes are not callable.

•Notes with a principal amount of £~~455~~£455 million accrue interest at a 5.125% fixed rate, and are due in February 2050. These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount ~~and~~plus accrued interest, or the sum of the present values of the remaining scheduled ~~payout~~payments of principal and interest thereon discounted to the date of redemption at a benchmark U.K. government bond yield plus 15 basis points, ~~and~~plus accrued interest.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Canadian Dollar Senior Notes

The Canadian Dollar notes consist of a single series, as follows:

•Notes in the principal amount of C$750 million, which bear interest at a 2.125% fixed interest rate and mature in May 2024. Interest on the notes is payable semi-annually. The notes are callable at our option, in whole or in part, at the Government of Canada yield plus 21.5 basis points and on or after the par call date, at par value.

Euro Senior Notes

The ~~remaining euro senior~~Euro notes consist of three separate issuances, as follows:

•Notes in the principal amount of €500 million accrue interest at a 1%1.00% fixed rate and are due in November 2028. Interest is payable annually on the notes, commencing in November 2017. These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amounts, or the sum of the present values of the remaining schedule payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable German government bond yield plus 15 basis points and accrued interest.

Notes with a principal amount of €500 million accrue interest at a variable rate equal to three-month EURIBOR plus 43 basis points and are due in July 2020. Interest is payable quarterly on the notes, commencing in April 2016. These notes are not callable. The senior notes bear interest at a variable rate, and the average interest rates for 2017 and 2016 were 0.10% and 0.19%, respectively.

~~Notes with a principal amount of €700 million accrue interest at a 1.625% fixed rate and are due in November 2025. Interest is payable annually on the notes, commencing in November 2016.~~notes. These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled ~~payout~~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 €700 million accrue interest at a 1.625% fixed rate and are due in November 2025. Interest is payable annually on the notes. These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark German government bond yield plus 20 basis points, ~~and~~plus accrued interest.

•Notes with principal amounts of €700 million and €500 million accrue interest at 0.375% and 1.50% fixed rates, respectively, and are due in November 2023 and November 2032, respectively. Interest on these notes is payable annually. The notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable government bond yield plus 10 and 20 basis points, respectively, plus accrued interest.

Contractual Commitments

We lease certain aircraft, facilities, land, equipment and vehicles under operating leases, which expire at various dates through 2040. Certain of the leases contain escalation clauses and renewal or purchase options. Rent expense related to our operating leases was $804, $686 and $669 million for 2017, 2016 and 2015, respectively.

The following table sets forth ~~the aggregate minimum lease payments under capital and operating leases,~~ the aggregate annual principal payments due under our long-term debt and the aggregate amounts expected to be spent for purchase commitments (in millions).:

Year
Capital
Leases

Operating
Leases

Debt
Principal

Purchase
Commitments ⁽¹⁾
2018 $ 81
$ 398
$ 3,960
$ 3,789
2019 79
305
1,009
2,462
2020 69
239
1,024
2,428
2021 49
186
2,551
1,926
2022 45
138
2,000
323
After 2022 500
371
13,342
13
Total 823
$ 1,637
$ 23,886
$ 10,941
Less: imputed interest (323 )
Present value of minimum capitalized lease payments 500

Less: current portion (51 )
Long-term capitalized lease obligations $ 449

~~(1)~~ ~~Purchase commitments include our announcement on February 1, 2018 for 14 new Boeing 747-8 freighters and four new Boeing 767 aircraft.~~

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


Year	Debt Principal		Purchase Commitments
2021	$	2,568	$	2,730
2022	2,001		1,415
2023	2,360		404
2024	1,485		201
2025	1,860		60
After 2025	14,198		1
Total	$	24,472	$	4,811

~~Available~~Sources of Credit

We maintain ~~two~~2 credit agreements with a consortium of banks. ~~One~~The first of these agreements provides revolving credit facilities of ~~$1.5~~$2.0 billion, and expires on ~~March 23, 2018. Generally, amounts~~December 7, 2021. Amounts outstanding under this agreement bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus a margin of 0.875%. 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) LIBOR for a one-month interest period plus 1.0%, may be used at our discretion.

100

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The second agreement provides revolving credit facilities of $2.5 billion, and expires on December 11, 2023. Amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an applicable margin. Alternatively, a fluctuating rate of interest equal to the highest of (1) ~~JPMorgan Chase Bank’s publicly announced~~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) LIBOR for a one month interest period plus 1.00%, plus an applicable margin, may be used at our discretion. ~~In each case, the~~

The applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our ~~1-year~~one-year credit default swap spread, subject to a minimum rate of 0.10% and a maximum rate of 0.75% per annum. The rate is interpolated for a period of time from the date of determination of such credit default swap spread in connection with a new interest period until the latest maturity date of the facility then in effect (but not less than a period of one year).

The applicable margin for advances bearing interest based on the prime rate is 1.00% below the applicable margin for LIBOR advances (but not lower than ~~0.00%~~0%). We are also able to request advances under ~~this facility~~these facilities based on competitive bids for the applicable interest rate. There were no0 amounts outstanding under ~~this facility~~these facilities as of December 31, ~~2017.~~

The second agreement provides revolving credit facilities of $3.0 billion, and expires on March 24, 2022. Generally, amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an applicable margin. Alternatively, a fluctuating rate of interest equal to the highest of (1) JPMorgan Chase Bank’s publicly announced prime rate, (2) the Federal Funds effective rate plus 0.50%, and (3) LIBOR for a one month interest period plus 1.00%, plus an applicable margin, may be used at our discretion. In each case, the applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our 1-year credit default swap spread, interpolated for a period from the date of determination of such credit default swap spread in connection with a new interest period until the latest maturity date of this facility then in effect (but not less than a period of one year). The minimum applicable margin rate is 0.10% and the maximum applicable margin rate is 0.75% per annum. The applicable margin for advances bearing interest based on the prime rate is 1.00% below the applicable margin for LIBOR advances (but not less than 0.00%). We are also able to request advances under this facility based on competitive bids. There were no amounts outstanding under this facility as of December 31, 2017.2020.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of December 31, ~~2017~~2020 and for all prior periods presented, we have satisfied these 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, to 10% of net tangible assets. As of December 31, ~~2017,~~2020, 10% of net tangible assets is equivalent to ~~$2.686~~$4.0 billion; however, we have no covered sale-leaseback transactions or secured indebtedness outstanding. We do not expect these covenants to have a material impact on our financial condition or liquidity.

Fair Value of Debt

Based on the borrowing rates currently available to ~~the Company~~us for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, is approximately ~~$25.206~~$28.3 and ~~$17.134~~$26.9 billion as of December 31, ~~2017~~2020 and ~~2016,~~2019, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of all of our debt instruments.

101

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.10. LEGAL PROCEEDINGS AND CONTINGENCIES

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

Although there can be no assurance as to the ultimate outcome, we have generally denied, or believe we have a meritorious ~~defense~~defenses and will deny, liability in all ~~litigation~~ pending ~~against us,~~matters, including (except as otherwise noted herein) the matters described below, and we intend to vigorously defend ~~vigorously~~ each ~~case.~~matter. We ~~have accrued for~~accrue amounts associated with legal ~~claims~~proceedings when and to the extent ~~that, amounts associated with the claims become~~a loss becomes probable and can be reasonably estimated. The actual costs of resolving legal ~~claims~~proceedings may be substantially higher or lower than the amounts accrued ~~for~~on those claims.

For ~~those~~ matters as to which we are not able to estimate a possible loss or range of ~~loss,~~losses, we are not able to determine whether ~~the~~any such loss will have a material ~~adverse effect~~impact on our ~~business, financial condition or results of~~ operations or ~~liquidity.~~financial condition. For these matters, ~~in this category,~~ we have ~~indicated in the descriptions that follow~~described the reasons that we are unable to estimate ~~the~~a possible loss or range of ~~loss.~~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. At this time, we do not believe that any loss associated with ~~these matters would~~any such matter will have a material ~~adverse effect~~impact on our ~~financial condition, results of~~ operations or ~~liquidity.~~

~~UPS and our subsidiary The UPS Store, Inc. are defendants in Morgate v. The UPS Store, Inc. et al., an action in the Los Angeles Superior Court brought on behalf~~financial condition. One of a certified class of all franchisees who chose to rebrand their Mail Boxes Etc. franchises to The UPS Store in March 2003. Plaintiff alleges that UPS and The UPS Store, Inc. misrepresented and omitted facts to the class about the market tests that were conducted before offering the class the choice of whether to rebrand to The UPS Store. Defendants’ motion to decertify the class was granted in August 2017. The plaintiff has filed a notice of appeal, and further proceedings in the trial court are stayed pending resolution by the California Court of Appeal. There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from the remaining aspects of this case, including: (1) we are vigorously defending ourselves and believe we have a number of meritorious legal defenses; (2) it remains uncertain what evidence of damages, if any, plaintiffs will be able to present; and (3) plaintiff’s notice of appeal is pending. Accordingly, at this time, 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 AFMS LLC~~these matters, Hughes v. UPS Supply Chain Solutions, Inc. and FedEx Corporation, a lawsuit filed in federal court in the Central District of California in August 2010, the plaintiff asserts that UPS and FedEx violated U.S. antitrust law by conspiring to refuse to negotiate with third-party negotiators retained by shippers and by individually imposing policies that prevent shippers from using such negotiators. The Court granted summary judgment motions filed by UPS and FedEx, entered judgment in favor of UPS and FedEx, and dismissed the case. Plaintiff appealed to the Court of Appeals for the Ninth Circuit. In August 2017, the Ninth Circuit affirmed the District Court's order dismissing the case. AFMS filed a petition for rehearing in September 2017, which was denied. AFMS filed a Petition for Writ of Certiorari in the Supreme Court in January 29, 2018. The Antitrust Division of the U.S. Department of Justice (“DOJ”) opened a civil investigation of our policies and practices for dealing with third-party negotiators. We have cooperated with this investigation, although the DOJ has not communicated with us for over five years. We deny any liability with respect to these matters and intend to vigorously defend ourselves in the event that any of these proceedings were to continue. There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from these matters including: (1) the DOJ investigation may be pending and (2) AFMS filed a petition for discretionary review by the U.S. Supreme Court. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from these matters or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity.

~~We are a defendant in Ryan Wright and Julia Zislin v.~~ United Parcel Service, ~~Canada Ltd., an~~Inc. had previously been certified as a class action ~~brought~~in Kentucky state court. In the second quarter of 2019, the court granted our motion for judgment on ~~behalf of a certified class of customers in~~ the Superior Court of Justice in Ontario, Canada. Plaintiffs filed suit in February 2007, alleging inadequate disclosure concerning the existence and cost of brokerage services provided by us under applicable provincial consumer protection legislation and infringement of interest restriction provisions under the Criminal Code of Canada. Partial summary judgment was granted to us and the plaintiffs by the Ontario motions court in August 2011, when it dismissed plaintiffs' complaint under the Criminal Code and granted plaintiffs' complaint of inadequate disclosure. We appealed the Court's decision pertaining to inadequate disclosure in September 2011. In October 2017, we reached an agreement in principle to resolve the case for an immaterial amount. Final resolution of this matter is subjectpleadings related to the ~~negotiation, execution and delivery of a settlement agreement and court approval.~~

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

In February 2015, the State and City of New York filed suit against UPS in the U.S. District Court for the Southern District of New York, arising from alleged shipments of cigarettes to New York State and City residents.wage-and-hour claims. The complaint asserted claims under various federal and state laws. The complaint also included a claim that UPS violated the Assurance of Discontinuance it entered into with the New York Attorney General in 2005 concerning cigarette deliveries. On March 24, 2017, the District Court issued an opinion and order finding liability against UPS on each of the plaintiffs’ causes of action. On May 25, 2017, the District Court issued a corrected opinion and order on liability and an order awarding the plaintiffs damages of $9.4 million and penalties of $237.6 million. An accrual of $9.4 million with respect to the damages awarded by the court is included on our consolidated balance sheet at December 31, 2017. We estimate that the amount of losses could be up to $247 million, plus interest; however, the amount of penalties ultimately payable, if any, is subject to a variety of complex factors and potential outcomes that remain to be determined in future legal proceedings. Consequently, we are unable to reasonably estimate a likely amount of loss within that range. We strongly disagree with the District Court’s analysis and conclusions, and have appealed ~~to the United States Court of Appeals for the Second Circuit. UPS filed its opening brief with the Appellate Court in October 2017.~~this decision.

Other Matters

In October 2015, the ~~DOJ~~Department of Justice ("DOJ") informed us of an industry-wide inquiry into the transportation of mail under the United States Postal Service ("USPS") International Commercial Air contracts. In October 2017, we received a Civil Investigative Demand seeking certain information relating to our contracts. The DOJ has indicated it is investigating potential violations of the False Claims Act or other statutes. We are cooperating with the DOJ. ~~The Company~~An immaterial accrual with respect to this matter is included in our consolidated balance sheets. We do not believe that any loss from this matter would have a material impact on our operations or financial condition, although we are unable to predict what action, if any, might be taken in the future by any government authorities as a result of their investigation. Accordingly, at this time, 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 August 2016, Spain’s National Markets and Competition Commission (“CNMC”) ~~opened~~announced an investigation into 10 companies in the commercial delivery and parcel industry, including UPS, related to alleged nonaggression agreements to allocate customers. In May 2017, UPS received a Statement of Objections issued by the CNMC. In July 2017, UPS received a Proposed Decision ~~Proposal~~ from the CNMC. ~~These documents~~On March 8, 2018, the CNMC adopted a final decision, finding an infringement and imposing an immaterial fine on UPS. UPS appealed the decision and in September 2018, obtained a suspension of the implementation of the decision (including payment of the fine). The appeal is pending. We do not ~~prejudge the final decision (which is subject to appeal) as to facts or law. There are multiple factors~~believe that ~~prevent us from being able to estimate the amount of~~any loss ~~if any, that may result~~ from this matter ~~including: (1) we~~would have a material impact on our operations or financial condition. We are vigorously defending ourselves and believe that we have a number of meritorious legal ~~defenses; and (2) there~~defenses. There are also unresolved questions of law and fact that could be important to the ultimate resolution of this matter. ~~Accordingly,~~

In May 2020, the Environmental Protection Agency (“EPA”) sent us an information request related to hazardous waste regulatory compliance at ~~this time, we are not able to estimate a possible loss or range~~certain of ~~loss~~our facilities. The EPA indicated that ~~may result from~~it was investigating potential recordkeeping violations of the Resource Conservation and Recovery Act at those facilities. We have settled this matter ~~or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results~~with the payment of ~~operations or liquidity.~~an immaterial amount.

We are a ~~defendant~~party in various other ~~lawsuits~~matters that arose in the normal course of business. We do not believe that the eventual resolution of these other ~~lawsuits~~matters (either individually or in the aggregate), including any reasonably possible losses in excess of current accruals, will have a material ~~adverse effect~~impact on our ~~financial condition, results of~~ operations or ~~liquidity.~~financial condition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. LEASES

We recognize a right-of-use ("ROU") asset and lease obligation for all leases. Some of our leases contain both lease and non-lease components, which we have elected to treat as a single lease component. We have also elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase options, of twelve months or less in our consolidated balance sheets for all classes of underlying assets. Lease costs for short-term leases are recognized on a straight-line basis over the lease term. We elected the package of transition practical expedients for existing contracts, which allowed us to carry forward our historical assessments of whether contracts are, or contain, leases, lease classification and determination of initial direct costs.

We lease property and equipment under finance and operating leases. We have finance and operating leases for package centers, airport facilities, warehouses, office space, aircraft, aircraft engines, information technology equipment (primarily mainframes, servers and copiers), vehicles and various other equipment used in operating our business. Certain leases for real estate and aircraft contain options to purchase, extend or terminate the lease. Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease obligation for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and whether the optional period and payments should be included in the calculation of the associated ROU asset and lease obligation. In making this determination, we consider all relevant economic factors that would compel us to exercise or not exercise an option.

When our leases contain future payments that are dependent on an index or rate, such as the consumer price index, we initially measure the lease obligation and ROU asset using the index or rate at the commencement date. In subsequent periods, lease payments dependent on an index or rate are not remeasured. Rather, changes to payments due to a change in an index or rate are recognized in our statements of consolidated income in the period of the change.

When available, we use the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of our leases. For these leases, we use an estimate of our incremental borrowing rate to discount lease payments based on information available at lease commencement. The incremental borrowing rate is derived using multiple inputs including our credit rating, the impact of full collateralization, lease term and denominated currency. The remaining lease terms vary from 1 month to 140 years.

Aircraft

In addition to the aircraft that we own, we have leases for 338 aircraft. Of these leased aircraft, 27 are classified as finance leases, 17 are classified as operating leases and the remaining 294 are classified as short-term leases. A majority of the obligations associated with the aircraft classified as finance leases have been legally defeased. Most of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline.

In order to meet customers' needs, we charter aircraft to handle package and cargo volume on certain international trade lanes and domestic routes. Due to the nature of these agreements, primarily being that either party can cancel the agreement with short notice, we have classified these as short-term leases. Additionally, the lease payments associated with these charter agreements are variable in nature based on the number of hours flown.

Real Estate

We have operating and finance leases for package centers, airport facilities, warehouses, office space and expansion facilities utilized during peak shipping periods. Many of our leases contain charges for common area maintenance or other expenses that are updated based on landlord estimates. Due to this variability, the cash flows associated with these charges are not included in the minimum lease payments used in determining the ROU asset and associated lease obligation.

Some of our real estate leases contain options to renew or extend the lease or terminate the lease before the expiration date. These options are factored into the determination of the lease term and lease payments when their exercise is considered to be reasonably certain.

We also enter into real estate leases that contain lease incentives, such as tenant improvement allowances or move-in allowances, that are received or receivable at lease commencement. These incentives reduce lease payments for classification purposes and reduce the initial ROU asset. When lease incentives are receivable at lease commencement, they also reduce the initial lease obligation.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

From time to time, we enter into leases with the intention of purchasing the property, either through purchase options with a fixed price or a purchase agreement negotiated contemporaneously with the lease agreement. We classify these leases as finance leases and include the purchase date and purchase price in the determination of the lease term and lease payments, respectively, when the option to exercise or purchase is reasonably certain.

Transportation equipment and other equipment

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. The lease term for these types of leases is determined by the length of the underlying customer contract or based on the judgment of the business unit. We also enter into multi-year leases for trailers to increase capacity during periods of high demand, which are typically only used for 90-120 days during the year. These leases are treated as short-term as the cumulative right-of-use is less than 12 months over the term of the contract.

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

Some of our transportation and technology equipment leases require us to make additional lease payments based on the underlying usage of the assets. Due to the variable nature of these costs, these are expensed as incurred and are not included in the ROU asset and associated lease obligation.

The components of lease expense for the years ended December 31, 2020 and 2019 were as follows (in millions):


	2020		2019
Operating lease costs	$	711	$	643
Finance lease costs:
Amortization of assets	$	79	$	73
Interest on lease liabilities	18		19
Total finance lease costs	97		92
Variable lease costs	247		206
Short-term lease costs	1,299		1,122
Total lease costs	$	2,354	$	2,063

We perform impairment assessments for our ROU assets when events or changes in circumstances indicate that their carrying values may not be recoverable. In addition to the lease costs disclosed in the table above, impairment charges for ROU assets were $17 million in 2020. We did 0t record any impairment charges in 2019 or 2018. Rent expense related to our operating leases was $959 million for 2018.

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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, 2020 and 2019 are as follows (in millions, except lease term and discount rate):


	2020			2019
Operating Leases:
Operating lease right-of-use assets	$	3,073		$	2,856

Current maturities of operating leases	$	560		$	538
Non-current operating leases	2,540			2,391
Total operating lease obligations	$	3,100		$	2,929

Finance Leases:
Property, plant and equipment, net	$	1,225		$	1,502

Current maturities of long-term debt, commercial paper and finance leases	$	56		$	181
Long-term debt and finance leases	286			317
Total finance lease obligations	$	342		$	498

Weighted average remaining lease term (in years):
Operating leases	11.2			9.7
Finance leases	9.3			8.9

Weighted average discount rate:
Operating leases	2.28		%	2.78		%
Finance leases	4.14		%	4.03		%

Supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019 were as follows (in millions):


	2020		2019
Cash paid for amounts included in measurement of obligations:
Operating cash flows from operating leases	$	686	$	620
Operating cash flows from finance leases	18		19
Financing cash flows from finance leases	192		140

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	787	$	810
Finance leases	$	66	$	110

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of lease obligations as of December 31, 2020 are as follows (in millions):


	Finance Leases		Operating Leases
2021	$	69	$	631
2022	64		557
2023	50		458
2024	30		335
2025	27		259
Thereafter	188		1,468
Total lease payments	428		3,708
Less: Imputed interest	(86)		(608)
Total lease obligations	342		3,100
Less: Current obligations	(56)		(560)
Long-term lease obligations	$	286	$	2,540

As of December 31, 2020, we have additional leases which have not commenced of $184 million. These leases will commence in 2021 and 2022 when we are granted access to the property, such as when leasehold improvements are completed by the lessor or a certificate of occupancy is obtained.

106

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~10. SHAREOWNERS’~~12. SHAREOWNERS' EQUITY

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

We maintain ~~two~~2 classes of common stock, which are distinguished from each other 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~~1 vote per share. Class A shares are primarily held by UPS employees and retirees, as well as trusts and descendants of the ~~Company’s~~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”~~("NYSE") under the symbol “UPS”. Class A and B shares both have a $~~0.01~~$0.01 par value, and as of December 31, ~~2017,~~2020, 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~~share. As of December 31, ~~2017, no~~2020, 0 preferred shares had been issued.

The following is a rollforward of our common stock, additional paid-in capital, ~~and~~ retained earnings and non-controlling minority interests accounts for the years ended December 31, 2020, 2019 and 2018 (in millions, except per share amounts):


	2020			2019			2018
	Shares	Dollars		Shares	Dollars		Shares	Dollars
Class A Common Stock:
Balance at beginning of year	156	$	2	163	$	2	173	$	2
Common stock purchases	0	0		(3)	0		(3)	0
Stock award plans	6	0		5	0		3	0
Common stock issuances	4	0		3	0		4	0
Conversions of class A to class B common stock	(19)	0		(12)	0		(14)	0
Class A shares issued at end of year	147	$	2	156	$	2	163	$	2
Class B Common Stock:
Balance at beginning of year	701	$	7	696	$	7	687	$	7
Common stock purchases	(2)	0		(7)	0		(5)	0
Conversions of class A to class B common stock	19	0		12	0		14	0
Class B shares issued at end of year	718	$	7	701	$	7	696	$	7
Additional Paid-In Capital:
Balance at beginning of year		$	150		$	0		$	0
Stock award plans		498			778			419
Common stock purchases		(217)			(1,005)			(859)
Common stock issuances		434			356			406
Option premiums received (paid)		0			21			34
Balance at end of year		$	865		$	150		$	0
Retained Earnings:
Balance at beginning of year		$	9,105		$	8,006		$	5,852
Net income attributable to controlling interests		1,343			4,440			4,791
Dividends ($4.04, $3.84, and $3.64 per share) (1)		(3,552)			(3,341)			(3,189)
Common stock purchases		0			0			(141)
Reclassification from AOCI pursuant to the early adoption of ASU 2018-02		0			0			735
Other		0			0			(42)
Balance at end of year		$	6,896		$	9,105		$	8,006
Non-Controlling Interests:
Balance at beginning of year		$	16		$	16		$	30
Change in non-controlling interests		(4)			0			(14)
Balance at end of year		$	12		$	16		$	16

2017 2016 2015
Shares Dollars Shares Dollars Shares Dollars
Class A Common Stock:
Balance at beginning of year 180
$ 2
194
$ 2
201
$ 2
Common stock purchases (4 ) —
(4 ) —
(4 ) —
Stock award plans 4
—
5
—
5
—
Common stock issuances 3
—
2
—
3
—
Conversions of class A to class B common stock (10 ) —
(17 ) —
(11 ) —
Class A shares issued at end of year 173
$ 2
180
$ 2
194
$ 2
Class B Common Stock:
Balance at beginning of year 689
$ 7
693
$ 7
705
$ 7
Common stock purchases (12 ) —
(21 ) —
(23 ) —
Conversions of class A to class B common stock 10
—
17
—
11
—
Class B shares issued at end of year 687
$ 7
689
$ 7
693
$ 7
Additional Paid-In Capital:
Balance at beginning of year $ —
$ —
$ —
Stock award plans 396
541
492
Common stock purchases (813 ) (898 ) (791 )
Common stock issuances 363
303
316
Option premiums received (paid) 54
54
(17 )
Balance at end of year $ —
$ —
$ —
Retained Earnings:
Balance at beginning of year $ 4,879
$ 6,001
$ 5,726
Net income attributable to controlling interests 4,910
3,431
4,844
Dividends ($3.32, $3.12, and $2.92 per share) (2,928 ) (2,771 ) (2,649 )
Common stock purchases (1,003 ) (1,782 ) (1,920 )
Balance at end of year $ 5,858
$ 4,879
$ 6,001

~~For~~(1) The dividend per share amount is the ~~years ended December 31, 2017, 2016 and 2015, we repurchased a total of 16.1, 25.2 and 26.8 million shares of~~same for both class A and class B common ~~stock~~stock. Dividends include $178, $147 and $178 million for ~~$1.816, $2.680~~2020, 2019 and ~~$2.711 billion,~~2018, respectively, ~~($1.813, $2.678 and $2.702 billion~~that were settled in ~~repurchases for 2017, 2016 and 2015, respectively, are reported on the cash flow statement due to the timing~~shares of ~~settlements). During the first quarter of 2016, we also exercised a capped call option that we entered in 2015 for which we received 0.2 million UPS~~ class B shares. The $25 million premium payment for this capped call option reduced shareowners' equity in 2015. In total, shares repurchased and received the twelve months ended December 31, 2016 were 25.4 million shares for $2.705 billion. In May 2016, the Board of Directors approved a new share repurchase authorization of $8.0 billion, which replaced an authorization previously announced in 2013. This new share repurchase authorization has no expiration date. As of December 31, 2017, we had $4.339 billion of this share repurchase authorization remaining.A common stock.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In May 2016, the Board of Directors approved a share repurchase authorization of $8.0 billion for shares of class A and class B common stock, which has no expiration date. As of December 31, 2020, we had $2.1 billion of this share repurchase authorization available.

~~From time to time, we enter into~~Share repurchases may be in the form of accelerated share repurchase programs, ~~with large financial institutions~~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, the program will expire when we have purchased all shares authorized for repurchase under the program. On April 28, 2020, we announced our intention to ~~assist~~suspend stock repurchases.

For the years ended December 31, 2020, 2019 and 2018, we repurchased a total of 2.1, 9.1 and 8.9 million shares of class A and class B common stock for $217 million, $1.0 and $1.0 billion, respectively ($224 million, $1.0 and $1.0 billion in ~~our buyback~~repurchases for 2020, 2019 and 2018, respectively, are reported on the statements of ~~company stock. These programs allow us~~consolidated cash flows due to ~~repurchase our shares at a price below~~ the ~~weighted average UPS share price for a given period. During the fourth quarter~~timing of ~~2016, we entered into an accelerated share repurchase program, which allowed us to repurchase $300 million of shares (2.6 million shares)~~settlements). ~~The program was completed in December 2016.~~

In order to lower the average cost of acquiring shares in our ongoing share repurchase program, we periodically enter into structured repurchase agreements involving the use of capped call options for the purchase of UPS class B shares. We pay a fixed sum of cash upon execution of each agreement in exchange for the right to receive either a ~~pre-determined~~predetermined amount of cash or stock. Upon expiration of each agreement, if the closing market price of our common stock is above the ~~pre-determined~~predetermined price, we will have our initial investment returned with a premium in either cash or shares (at our election). If the closing market price of our common stock is at or below the pre-determined price, we will receive the number of shares specified in the agreement. We received net premiums of ~~$54~~$21 and ~~$54~~$34 million during ~~2017~~the years ended December 31, 2019 and ~~2016,~~2018, respectively, related to entering into and settling capped call options for the purchase of class B shares. As of December 31, ~~2017,~~2020, we had 0 capped call options outstanding, ~~options~~nor did we enter into any of these structured repurchase agreements during the year.

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 ~~purchase of 0.5 million shares with an average strike price of $101.91 per share that will settle~~period. The movement year over year was driven by changes in the ~~first quarter~~vesting schedule for certain of ~~2018.~~our awards.

108

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Income (Loss)

We ~~incur~~recognize activity in AOCI for foreign currency translation adjustments, unrealized holding gains and losses on available-for-sale securities, ~~foreign currency translation adjustments,~~ unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized pension and postretirement benefit costs. The activity in AOCI isfor the years ended December 31, 2020, 2019 and 2018 was as follows (in millions):


	2020		2019		2018
Foreign Currency Translation Gain (Loss), Net of Tax:
Balance at beginning of year	$	(1,078)	$	(1,126)	$	(930)
Translation adjustment (net of tax effect of $(36), $10 and $37)	97		48		(149)
Reclassification to retained earnings pursuant to the early adoption of ASU 2018-02	0		0		(47)
Balance at end of year	$	(981)	$	(1,078)	$	(1,126)
Unrealized Gain (Loss) on Marketable Securities, Net of Tax:
Balance at beginning of year	$	4	$	(2)	$	(2)
Current period changes in fair value (net of tax effect of $1, $4 and $(1))	6		11		(3)
Reclassification to earnings (net of tax effect of $(1), $(1) and $1)	(4)		(5)		3
Balance at end of year	$	6	$	4	$	(2)
Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax:
Balance at beginning of year	$	112	$	40	$	(366)
Current period changes in fair value (net of tax effect of $(61), $61 and $135)	(192)		195		429
Reclassification to earnings (net of tax effect of $(45), $(39) and $18)	(143)		(123)		56
Reclassification to retained earnings pursuant to the early adoption of ASU 2018-02	0		0		(79)
Balance at end of year	$	(223)	$	112	$	40
Unrecognized Pension and Postretirement Benefit Costs, Net of Tax:
Balance at beginning of year	$	(5,035)	$	(3,906)	$	(3,569)
Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $(1,885), $(979)and $(355))	(5,984)		(3,117)		(1,117)
Reclassification to earnings (net of tax effect of $1,607, $626 and $439)	5,104		1,988		1,389
Reclassification to retained earnings pursuant to the early adoption of ASU 2018-02	0		0		(609)
Balance at end of year	$	(5,915)	$	(5,035)	$	(3,906)
Accumulated other comprehensive income (loss) at end of year	$	(7,113)	$	(5,997)	$	(4,994)

109

2017 2016 2015
Foreign Currency Translation Gain (Loss), Net of Tax:
Balance at beginning of year $ (1,016 ) $ (897 ) $ (457 )
Translation adjustment (net of tax effect of $(161), $32 and $0) 86
(119 ) (440 )
Balance at end of year (930 ) (1,016 ) (897 )
Unrealized Gain (Loss) on Marketable Securities, Net of Tax:
Balance at beginning of year (1 ) (1 ) —
Current period changes in fair value (net of tax effect of $(1), $0 and $(1)) (2 ) —
(1 )
Reclassification to earnings (net of tax effect of $1, $0 and $0) 1
—
—
Balance at end of year (2 ) (1 ) (1 )
Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax:
Balance at beginning of year (45 ) 67
61
Current period changes in fair value (net of tax effect of $(190), $75 and $103) (316 ) 124
171
Reclassification to earnings (net of tax effect of $(3), $(142) and $(99)) (5 ) (236 ) (165 )
Balance at end of year (366 ) (45 ) 67
Unrecognized Pension and Postretirement Benefit Costs, Net of Tax:
Balance at beginning of year (3,421 ) (2,709 ) (3,198 )
Reclassification to earnings (net of tax effect of $269, $1,040 and $97) 731
1,783
195
Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $(180), $(1,460) and $197) (879 ) (2,495 ) 294
Balance at end of year (3,569 ) (3,421 ) (2,709 )
Accumulated other comprehensive income (loss) at end of year $ (4,867 ) $ (4,483 ) $ (3,540 )

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the years ended December 31, ~~2017~~, ~~2016~~2020, 2019 and ~~2015 is~~2018 was as follows (in millions):


												Amount Reclassified from AOCI						Affected Line Item in the Income Statement
												2020		2019		2018

	2017 Amount Reclassified from AOCI			2016 Amount Reclassified from AOCI			2015 Amount Reclassified from AOCI			Affected Line Item in the Income Statement
Unrealized Gain (Loss) on Marketable Securities:	Unrealized Gain (Loss) on Marketable Securities:										Unrealized Gain (Loss) on Marketable Securities:
Realized gain (loss) on sale of securities	(2		)	—			—			Investment income	Realized gain (loss) on sale of securities	$	5	$	6	$	(4)	Investment income (expense) and other
Income tax (expense) benefit	1			—			—			Income tax expense	Income tax (expense) benefit	(1)		(1)		1		Income tax expense
Impact on net income	(1		)	—			—			Net income	Impact on net income	4		5		(3)		Net income
Unrealized Gain (Loss) on Cash Flow Hedges:											Unrealized Gain (Loss) on Cash Flow Hedges:
Interest rate contracts	(27		)	(26		)	(24		)	Interest expense	Interest rate contracts	(8)		(15)		(24)		Interest expense
Foreign exchange contracts	—			—			(25		)	Interest expense
Foreign exchange contracts	35			404			313			Revenue

Foreign currency exchange contracts											Foreign currency exchange contracts	196		177		(50)		Revenue

Income tax (expense) benefit	(3		)	(142		)	(99		)	Income tax expense	Income tax (expense) benefit	(45)		(39)		18		Income tax expense
Impact on net income	5			236			165			Net income	Impact on net income	143		123		(56)		Net income
Unrecognized Pension and Postretirement Benefit Costs:	Unrecognized Pension and Postretirement Benefit Costs:										Unrecognized Pension and Postretirement Benefit Costs:
Prior service costs	(200		)	(172		)	(174		)	Compensation and benefits	Prior service costs	(227)		(227)		(201)		Investment income (expense) and other

Remeasurement of benefit obligation	(800		)	(2,651		)	(118		)	Compensation and benefits	Remeasurement of benefit obligation	(6,484)		(2,387)		(1,627)		Investment income (expense) and other
Income tax (expense) benefit	269			1,040			97			Income tax expense	Income tax (expense) benefit	1,607		626		439		Income tax expense
Impact on net income	(731		)	(1,783		)	(195		)	Net income	Impact on net income	(5,104)		(1,988)		(1,389)		Net income

Total amount reclassified for the period	$	(727	)	$	(1,547	)	$	(30	)	Net income
Total amount reclassified for the year											Total amount reclassified for the year	$	(4,957)	$	(1,860)	$	(1,448)	Net income

Deferred Compensation Obligations and Treasury Stock

We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer the gains on stock option exercises by deferring the shares received upon exercise into a rabbi trust. The shares held in this trust are classified as treasury stock, and the liability to participating employees is classified as ~~“deferred~~“Deferred compensation obligations” in the shareowners’ equity section of the consolidated balance sheets. The number of shares needed to settle the liability for deferred

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

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

Activity in the deferred compensation program for the years ended December 31, ~~2017~~, ~~2016~~2020, 2019 and ~~2015~~2018 is as follows (in millions):


	2020			2019			2018
	Shares	Dollars		Shares	Dollars		Shares	Dollars
Deferred Compensation Obligations:
Balance at beginning of year		$	26		$	32		$	37
Reinvested dividends		1			2			2

Benefit payments		(7)			(8)			(7)
Balance at end of year		$	20		$	26		$	32
Treasury Stock:
Balance at beginning of year	0	$	(26)	(1)	$	(32)	(1)	$	(37)
Reinvested dividends	0	(1)		0	(2)		0	(2)

Benefit payments	0	7		1	8		0	7
Balance at end of year	0	$	(20)	0	$	(26)	(1)	$	(32)

110

2017 2016 2015
Shares Dollars Shares Dollars Shares Dollars
Deferred Compensation Obligations:
Balance at beginning of year $ 45
$ 51
$ 59
Reinvested dividends 2
3
3
Benefit payments (10 ) (9 ) (11 )
Balance at end of year $ 37
$ 45
$ 51
Treasury Stock:
Balance at beginning of year (1 ) $ (45 ) (1 ) $ (51 ) (1 ) $ (59 )
Reinvested dividends —
(2 ) —
(3 ) —
(3 )
Benefit payments —
10
—
9
—
11
Balance at end of year (1 ) $ (37 ) (1 ) $ (45 ) (1 ) $ (51 )

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Noncontrolling Interests~~

We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain & Freight segments. Noncontrolling interests increased $6 and $3 million for the years ended December 31, 2017 and 2016, respectively.

NOTE ~~11. STOCK-BASED~~13. STOCK - BASED COMPENSATION

The UPS Incentive Compensation Plan permits the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units, and restricted performance shares and units to eligible employees. ~~The number of shares reserved for issuance under the~~On May 14, 2018, our shareholders approved our 2018 Omnibus Incentive Compensation Plan ~~is 27 million.~~under which we are authorized to issue an additional 26 million shares. Each share issued ~~pursuant to~~in the form of restricted stock units and restricted performance units (collectively referred to as "Restricted Units"), stock options and other permitted awards ~~will reduce~~reduces the share reserve by ~~one~~1 share. We had 127 millionshares available to be issued under the UPS Incentive Compensation Plan as of December 31, ~~2017.~~2020.

The primary compensation programs offered under the UPS Incentive Compensation Plan include the UPS Management Incentive Award program, ~~the Coyote Restricted Stock Award,~~ the UPS Long-Term Incentive Performance Award program and the UPS Stock Option program. These awards are discussed in the following paragraphs. We also match a portion of participating employees’ contributions to the UPS 401(k) Savings Plan in shares of UPS class A common stock. The total expense recognized in our statements of consolidated income ~~statement~~ under all stock compensation ~~award~~ programs was ~~$584, $591~~$796, $915 and ~~$574~~$634 million during ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. The associated income tax benefit recognized in our statements of consolidated income ~~statement~~ was ~~$227, $219~~$210, $216 and ~~$215~~$186 million during ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. The cash income tax benefit received from the exercise of stock options and ~~the lapsing~~conversion of Restricted Units to class A shares was ~~$276, $207~~$272, $148 and ~~$252~~$175 million during ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively.

Management Incentive Award Program ("MIP")

Non-executive management earning the right to receive ~~the Management Incentive Award are~~MIP awards is determined annually by the Salary Committee, which is comprised of executive officers of UPS. Awards granted to executive officers are determined annually by the Compensation Committee of the UPS Board of Directors. Our ~~Management Incentive Award program~~MIP provides, with certain exceptions, that one-half to two-thirds of the annual ~~Management Incentive Award~~award will be made in Restricted Units, ~~(depending~~depending upon the level of management ~~involved).~~involved. The ~~other~~remaining one-third to one-half of the award is electable in the form of cash or unrestricted shares of class A common stock, and is fully vested at the time of grant.

Upon ~~vesting,~~conversion, Restricted Units result in the issuance of ~~the~~an equivalent number of UPS class A common shares after required tax withholdings.

Except in the case of death, Restricted Units granted ~~for our Management Incentive Award vest~~under the MIP prior to 2019 previously vested over a five-year period with approximately 20% of the award vesting and converting to class A shares at the anniversary of each ~~anniversary date of the grant.~~grant date. The ~~entire~~ grant ~~(less~~value, less estimated ~~forfeitures) is~~forfeitures, was expensed on a straight-line basis over the requisite service period ~~(except~~except in the case of death, disability or retirement, in which case immediate expensing ~~occurs).~~ occurred. On November 3, 2020, the Compensation Committee of the UPS Board of Directors approved an acceleration of the five-year vesting period for all outstanding Restricted Units granted to non-executive management under the MIP prior to 2019. These Restricted Units became fully vested as of December 31, 2020, however, conversion to class A shares will continue to occur over a five-year period. The elimination of the future service requirement for these awards resulted in the recognition of an additional $133 million of stock compensation expense for the year, of which approximately $104 million was recorded in U.S. Domestic Package.

Beginning with the MIP grant in the first quarter of 2019, Restricted Units vest one year following the grant date, except in the case of death, disability or retirement, in which case immediate vesting occurs. The grant value is expensed on a straight-line basis, less estimated forfeitures, over the requisite service period except in the case of death, disability or retirement, in which case immediate expensing occurs.

All Restricted Units granted are subject to ~~earlier~~early cancellation or vesting under certain conditions. Dividends earned on Restricted Units are reinvested in additional Restricted Units at each dividend payable ~~date.~~

~~Coyote Restricted Stock Award~~

~~In August 2015~~date until they have fully vested. As of December 31, 2020, we ~~acquired Coyote, a U.S.-based truckload freight brokerage company. During~~had the ~~third quarter of 2015, we granted~~following outstanding Restricted Units, to certain eligible Coyote management employees. The vesting of Restricted Units granted under this award will vary between one and four years with an equal number of restricted units vesting at each anniversary date (except in the case of death, in which case immediate vesting occurs). The entire grant is expensed on a straight-line basis over the requisite service period (except in the case of death, disability or retirement, in which case immediate expensing occurs).

~~Long-Term Incentive Performance Award granted prior to 2014~~

~~We award Restricted Units in conjunction with our Long-Term Incentive Performance Award program to certain eligible employees. The Restricted Units ultimately~~including reinvested dividends, granted under the Long-Term Incentive Performance Award program were based upon the achievement of certain performance measures, including growth in consolidated revenue and operating return on invested capital during the performance award cycle, and other measures, including the achievement of an adjusted earnings per share target over the entire three-year performance award cycle. The last award granted under this program fully vested in the first quarter of 2016.MIP:


	Restricted Units (in thousands)	Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Non-vested as of January 1, 2020	10,739	$	106.94
Vested	(12,195)	106.60
Granted	3,638	102.54
Reinvested Dividends	276	N/A
Forfeited / Expired	(165)	101.80
Non-vested as of December 31, 2020	2,293	$	102.91	0.26	$	386

111

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2017, we had the following Restricted Units outstanding, including reinvested dividends, that were granted under our Management Incentive Award program and the Coyote Restricted Stock Award:

Shares
(in thousands)

Weighted-Average
Grant Date
Fair Value

Weighted-Average Remaining
Contractual Term
(in years)

Aggregate Intrinsic
Value (in millions)
Nonvested at January 1, 2017 11,475
$ 94.32

Vested (5,100 ) 90.71

Granted 3,927
105.62

Reinvested Dividends 332
N/A

Forfeited / Expired (163 ) 99.70

Nonvested at December 31, 2017 10,471
$ 99.16
1.38 $ 1,248
Restricted Units Expected to Vest 10,325
$ 99.20
1.38 $ 1,230

The fair value of each Restricted Unit is the NYSE closing price of class B common stock on the date of grant. The weighted-average grant date fair value of Restricted Units granted during ~~2017, 2016~~2020, 2019 and ~~2015~~2018 was ~~$105.62, $97.04~~$102.54, $108.78 and ~~$100.63,~~$110.95, respectively. The total fair value of Restricted Units vested was ~~$534, $445~~$827, $457 and ~~$564~~$596 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. As of December 31, ~~2017,~~2020, there was ~~$475~~$37 million of total unrecognized compensation cost related to ~~nonvested~~non-vested Restricted Units. That cost is expected to be recognized over a weighted-average period of ~~three years and one month.~~eight months.

Long-Term Incentive Performance Award Program ~~granted after 2013~~("LTIP")

We award Restricted Units ~~in conjunction with our Long-Term Incentive Performance Award program~~under the LTIP to certain eligible management employees. Beginning with the Long-Term Incentive Performance grant in 2014, the performance targets are equally-weighted among consolidated operating return on invested capital, growth in currency-constant consolidated revenue and total shareowner return relative ("RTSR") to a peer group of companies. TheThese Restricted Units ~~granted under this award~~generally vest at the end of a three-year performance period ~~(except~~except in the case of death, disability or retirement, in which case immediate vesting occurs on a prorated basis. ~~In the case of disability and retirement, vesting occurs at the end of the three-year period on a prorated basis).~~ The number of Restricted Units earned ~~will be~~is based on the ~~percentage~~ achievement of the performance targets ~~set forth~~established on the grant date. ~~The range~~

For awards granted prior to 2020, the performance targets are equally weighted among consolidated operating return on

invested capital ("ROIC"), growth in currency-constant consolidated revenue and total shareholder return ("RTSR") relative to a

peer group of ~~percentage achievement can vary from 0% to 200% of the target award.~~

companies. For the two-thirds of the award related to ~~consolidated operating return on invested capital~~ROIC and growth in currency-constant consolidated revenue, we recognize the grant date fair value of these ~~units (less~~Restricted Units, less estimated ~~forfeitures)~~forfeitures, as compensation expense ratably over the vesting period, based on the number of awards expected to be earned. The remaining one-third of the award related to RTSR is valued using a Monte Carlo model. ~~This~~We recognize the grant date fair value of this portion of the award, ~~is recognized~~less estimated forfeitures, as compensation expense ~~(less estimated forfeitures)~~ ratably over the vesting period.

Beginning with the LTIP grant in 2020, the performance targets are equally weighted between adjusted earnings per share and adjusted cumulative free cash flow. The final number of Restricted Units earned will then be subject to adjustment based on RTSR relative to the companies within the Standard & Poor's 500 Index. We determine the grant date fair value of the Restricted Units using a Monte Carlo model and recognize compensation expense, less estimated forfeitures, ratably over the vesting period based on the number of awards expected to be earned.

For the 2020 award, the LTIP will be subdivided into two measurement periods. The first measurement period will evaluate the achievement of performance targets for the year 2020. The second measurement period will evaluate the achievement of performance targets for the years 2021 through 2022. The performance targets for the second measurement period will be determined at a future date.

The weighted-average assumptions used byin our Monte Carlo models for each award year ~~and the calculated weighted-average fair values of the RTSR portion of the grants, are~~were as follows:


	2017			2016			2015				2020			2019			2018
Risk-free interest rate	1.46		%	1.00		%	0.89		%	Risk-free interest rate	0.15		%	2.23		%	2.61		%
Expected volatility	16.59		%	16.46		%	15.53		%	Expected volatility	27.53		%	19.64		%	16.51		%
Weighted-average fair value of units granted	$	119.29		$	136.18		$	63.64		Weighted-average fair value of units granted	$	92.77		$	123.44		$	137.57
Share payout	113.55		%	129.08		%	65.86		%	Share payout	101.00		%	115.04		%	123.47		%

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

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

As of December 31, ~~2017,~~2020, we had the following Restricted Units outstanding, including reinvested dividends, that were granted under our ~~Long-Term Incentive Performance Award~~LTIP program:


	Restricted Units (in thousands)	Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Non-vested as of January 1, 2020	1,691	$	109.18
Vested	(867)	110.79
Granted	230	92.76
Reinvested Dividends	64	N/A
Forfeited / Expired	(114)	107.34
Non-vested as of December 31, 2020	1,004	$	104.15	1.22	$	169

112

Shares
(in thousands)

Weighted-Average
Grant Date
Fair Value

Weighted-Average Remaining
Contractual Term
(in years)

Aggregate Intrinsic
Value (in millions)
Nonvested at January 1, 2017 1,683
$ 101.36

Vested (839 ) 97.11

Granted 958
105.65

Reinvested Dividends 73
N/A

Forfeited / Expired (88 ) 103.87

Nonvested at December 31, 2017 1,787
$ 105.58
1.53 $ 213
Performance Units Expected to Vest 1,699
$ 105.72
1.54 $ 202

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each Restricted Unit is the NYSE closing price of class B common stock on the date of grant. The weighted-average grant date fair value of Restricted Units granted during ~~2017, 2016~~2020, 2019 and ~~2015~~2018 was ~~$105.65, $105.50~~$92.76, $107.30 and ~~$96.64,~~$111.42, respectively. The total fair value of Restricted Units vested was $112, $71 ~~$13~~ and $5$97 million in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. As of December 31, ~~2017,~~2020, there was ~~$100~~$31 million of total unrecognized compensation cost related to ~~nonvested~~non-vested Restricted Units. That cost is expected to be recognized over a weighted-average period of one ~~year and nine months.~~year.

Non-qualified Stock Options

We maintain ~~fixed~~ stock option plans under which options are granted to purchase shares of UPS class A common stock. Stock options granted in connection with the UPS Incentive Compensation Plan must have an exercise price at least equal to the NYSE closing price of UPS class B common stock on the date the option is granted.

~~Executive officers and certain senior managers receive a~~We grant non-qualified stock ~~option grant~~options to a limited group of eligible senior management employees annually, in which the value granted is determined as a percentage of salary. Options granted generally vest over a ~~five-year~~five-year period with approximately 20% of the award vesting at each anniversary ~~date~~ of the ~~grant. All options granted are subject to earlier cancellation~~grant date except in the case of death, disability or retirement, in which case immediate vesting ~~under certain conditions.~~occurs. The options granted ~~will~~ expire ~~ten~~10 years after the date of the grant. Option holders may exercise their options via the ~~tender~~payment of cash or class A common stock and new class A shares are issued upon exercise.

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

Shares
(in thousands)

Weighted-Average
Exercise
Price

Weighted-Average Remaining
Contractual Term
(in years)

Aggregate Intrinsic
Value (in millions)
Outstanding at January 1, 2017 1,828
$ 80.45

Exercised (802 ) 71.57

Granted 272
106.87

Forfeited / Expired (7 ) 70.90

Outstanding at December 31, 2017 1,291
$ 91.58
6.30 $ 36
Options Vested and Expected to Vest 1,291
$ 91.58
6.30 $ 36
Exercisable at December 31, 2017 757
$ 83.28
4.80 $ 27


	Options (in thousands)	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2020	1,498	$	100.74
Exercised	(375)	92.76
Granted	441	104.10
Forfeited / Expired	0	0
Outstanding at December 31, 2020	1,564	$	103.60	6.84	$	101
Options Vested and Expected to Vest	1,564	$	103.60	6.84	$	101
Exercisable at December 31, 2020	801	$	101.33	5.46	$	54

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:


	2020			2019			2018
Expected dividend yield	3.51		%	2.94		%	2.93		%
Risk-free interest rate	1.26		%	2.60		%	2.84		%
Expected life in years	7.5			7.5			7.5
Expected volatility	19.25		%	17.79		%	16.72		%
Weighted-average fair value of options granted	$	11.74		$	16.34		$	15.23

2017 2016 2015
Expected dividend yield 2.89 % 2.95 % 2.63 %
Risk-free interest rate 2.15 % 1.62 % 2.07 %
Expected life in years 7.5
7.5
7.5
Expected volatility 17.81 % 22.40 % 20.61 %
Weighted-average fair value of options granted $ 14.70
$ 16.46
$ 18.07

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Expected volatilities are based on the historical returns on our stock and the implied volatility of our publicly-traded options.~~ The expected dividend yield is based on the recent historical dividend yields for our stock, taking into account changes in dividend policy. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant. The expected life represents an estimate of the period of time options are expected to remain outstanding, and we have relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule of the grants and an index of peer companies with similar grant characteristics in estimating this variable. Expected volatilities are based on the historical returns on our stock and the implied volatility of our publicly-traded options.

We received cash of ~~$41, $72~~$28, $7 and ~~$56~~$12 million during ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively, from option holders resulting from the exercise of stock options. The total intrinsic value of options exercised during ~~2017, 2016~~2020, 2019 and ~~2015~~2018 was ~~$22, $24~~$17, $5 and ~~$31~~$6 million, respectively. As of December 31, ~~2017,~~2020, there was $1$3 million of total unrecognized compensation cost related to ~~nonvested~~non-vested options. That cost is expected to be recognized over a weighted-average period of three years and ~~six~~five months.

113

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information about stock options outstanding and exercisable atas of December 31, ~~2017:~~2020:

Options Outstanding Options Exercisable
Exercise Price Range
Shares
(in thousands)

Weighted-Average
Remaining Contractual Term
(in years)

Weighted-Average
Exercise
Price

Shares
(in thousands)

Weighted-Average
Exercise
Price
$55.01 - $70.00 131
1.89 $ 61.97
131
$ 61.97
$70.01 - $80.00 223
3.30 75.12
223
75.12
$80.01 - $90.00 141
5.17 82.88
127
82.87
$90.01 - $110.00 796
8.07 102.59
276
100.11
1,291
6.30 $ 91.58
757
$ 83.28


	Options Outstanding				Options Exercisable
Exercise Price Range	Options (in thousands)	Weighted-Average Remaining Contractual Term (in years)	Weighted-Average Exercise Price		Options (in thousands)	Weighted-Average Exercise Price
$65.01 - $80.00	67	0.90	$	76.02	67	$	76.02
$80.01 - $95.00	46	2.17	82.87		46	82.87
$95.01 - $110.00	1,208	7.09	104.28		587	103.87
$110.01 - $125.00	243	8.12	111.80		101	111.80
	1,564	6.84	$	103.60	801	$	101.33

Discounted Employee Stock Purchase Plan

We maintain an employee stock purchase plan for all eligible employees. Under this plan, shares of UPS class A common stock may be purchased at quarterly intervals at 95% of the NYSE closing price of UPS class B common stock on the last day of each quarterly period. Employees purchased 0.9, ~~0.9~~1.0 and 0.9 million shares at average prices of ~~$108.98, $99.27~~$110.92, $102.11 and ~~$95.41~~$105.53 per share, during ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. This plan is not considered to be compensatory, and therefore no compensation cost is measured for the employees’ purchase rights.

114

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~12.~~14. SEGMENT AND GEOGRAPHIC INFORMATION

We report our operations in ~~three~~3 reporting segments: U.S. Domestic Package, ~~operations,~~ International Package ~~operations~~ and Supply Chain & ~~Freight operations.~~Freight. 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.

U.S. Domestic Package

U.S. Domestic Package operations include the time-definite delivery of letters, documents and packages throughout the United States.

International Package

International Package operations include delivery to more than 220 countries and territories worldwide, including shipments wholly outside the United States, as well as shipments with either origin or destination outside the United States. Our International Package reporting segment includes ~~the~~our operations ~~of our~~in Europe, Asia, Americas and ~~ISMEA operating segments.~~ISMEA.

Supply Chain & Freight

Supply Chain & Freight includes our Forwarding, Logistics, Coyote, Marken, UPS Mail Innovations, UPS Freight and other aggregated business units. Our Forwarding, Logistics and UPS Mail Innovations units provide services in more than 200 countries and territories worldwide and include international air and ocean freight forwarding, customs brokerage, distribution and post-sales services, mail and consulting services. UPS Freight offers a variety of ~~LTL~~less-than-truckload and TLtruckload services to customers in North America. On January 24, 2021, we entered into a definitive agreement to sell our UPS Freight business as discussed in note 4. Coyote offers truckload brokerage services primarily in the United States. Marken is a global provider of supply chain solutions to the healthcare and life sciences ~~industry.~~industry, specializing in clinical trials logistics. Other aggregated business units within this segment include The UPS Store and UPS Capital.

In evaluating financial performance, we focus on operating profit as a segment’s measure of profit or loss. Operating profit is before investment income (expense) and other, interest expense and income ~~taxes. The accounting policies of~~tax expense. Certain expenses are allocated between the segments ~~are the same~~using activity-based costing methods as ~~those~~ described in ~~the "Items~~Part I, "Item 7. Supplemental Information - Items Affecting Comparability" section of Management's Discussion and ~~Analysis, with certain expenses allocated between the segments using activity-based costing methods.~~Analysis. 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. Unallocated assets are comprised primarily of cash, marketable securities and certain investment partnerships. In 2018, we changed the segment allocation methodology for certain shared assets. All prior periods have been recast to reflect this change in methodology.

115

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment information for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 is as follows (in millions):


	2020		2019		2018
Revenue:
U.S. Domestic Package	$	53,499	$	46,493	$	43,593
International Package	15,945		14,220		14,442
Supply Chain & Freight	15,184		13,381		13,826
Consolidated revenue	$	84,628	$	74,094	$	71,861
Operating Profit:
U.S. Domestic Package	$	3,891	$	4,164	$	3,643
International Package	3,436		2,657		2,529
Supply Chain & Freight	357		977		852
Consolidated operating profit	$	7,684	$	7,798	$	7,024
Assets:
U.S. Domestic Package	$	35,067	$	32,795	$	28,216
International Package	15,717		14,044		12,070
Supply Chain & Freight(1)	9,041		9,045		8,411
Unallocated	2,583		1,973		1,319
Consolidated assets	$	62,408	$	57,857	$	50,016
Depreciation and Amortization Expense:
U.S. Domestic Package	$	1,805	$	1,520	$	1,375
International Package	597		547		526
Supply Chain & Freight	296		293		306
Consolidated depreciation and amortization expense	$	2,698	$	2,360	$	2,207

2017 2016 2015
Revenue:
U.S. Domestic Package $ 40,764
$ 38,301
$ 36,747
International Package 13,338
12,350
12,149
Supply Chain & Freight 11,770
10,255
9,467
Consolidated $ 65,872
$ 60,906
$ 58,363
Operating Profit:
U.S. Domestic Package $ 4,280
$ 3,017
$ 4,767
International Package 2,464
2,044
2,137
Supply Chain & Freight 785
406
764
Consolidated $ 7,529
$ 5,467
$ 7,668
Assets:
U.S. Domestic Package $ 27,121
$ 23,191
$ 21,701
International Package 8,544
8,193
7,858
Supply Chain & Freight 8,241
7,806
7,728
Unallocated 1,497
1,187
1,024
Consolidated $ 45,403
$ 40,377
$ 38,311
Depreciation and Amortization Expense:
U.S. Domestic Package $ 1,479
$ 1,479
$ 1,408
International Package 509
491
475
Supply Chain & Freight 294
254
201
Consolidated $ 2,282
$ 2,224
$ 2,084
(1) Includes $1.2 billion of assets held for sale related to the UPS Freight divestiture.

Revenue by product type for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 is as follows (in millions):


	2020		2019		2018
U.S. Domestic Package:
Next Day Air	$	8,522	$	8,479	$	7,618
Deferred	5,665		5,180		4,752
Ground	39,312		32,834		31,223
Total U.S. Domestic Package	53,499		46,493		43,593
International Package:
Domestic	3,160		2,836		2,874
Export	12,159		10,837		10,973
Cargo	626		547		595
Total International Package	15,945		14,220		14,442
Supply Chain & Freight:
Forwarding	6,975		5,867		6,580
Logistics	4,073		3,435		3,234
Freight	3,149		3,265		3,218
Other	987		814		794
Total Supply Chain & Freight	15,184		13,381		13,826
Consolidated revenue	$	84,628	$	74,094	$	71,861

116

2017 2016 2015
U.S. Domestic Package:
Next Day Air $ 7,088
$ 6,752
$ 6,570
Deferred 4,421
4,082
3,903
Ground 29,255
27,467
26,274
Total U.S. Domestic Package 40,764
38,301
36,747
International Package:
Domestic 2,645
2,441
2,425
Export 10,167
9,374
9,092
Cargo 526
535
632
Total International Package 13,338
12,350
12,149
Supply Chain & Freight:
Forwarding and Logistics 7,981
6,793
5,900
Freight 2,998
2,736
2,881
Other 791
726
686
Total Supply Chain & Freight 11,770
10,255
9,467
Consolidated $ 65,872
$ 60,906
$ 58,363

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Geographic information for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 is as follows (in millions):


	2017		2016		2015			2020		2019		2018
United States:							United States:
Revenue	$	51,936	$	48,013	$	45,309	Revenue	$	66,580	$	58,699	$	56,115
Long-lived assets	$	22,638	$	19,253	$	18,196	Long-lived assets	$	28,354	$	27,976	$	24,918
International:							International:
Revenue	$	13,936	$	12,893	$	13,054	Revenue	$	18,048	$	15,395	$	15,746
Long-lived assets	$	6,382	$	5,898	$	5,828	Long-lived assets	$	10,213	$	9,567	$	8,577
Consolidated:							Consolidated:
Revenue	$	65,872	$	60,906	$	58,363	Revenue	$	84,628	$	74,094	$	71,861
Long-lived assets	$	29,020	$	25,151	$	24,024	Long-lived assets	$	38,567	$	37,543	$	33,495

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 ~~nor any individual customers,~~ provided 10% or more of consolidated revenue for the years ended December 31, ~~2017, 2016~~2020, 2019 or ~~2015.~~2018. For the year ended December 31, 2020, Amazon.com, Inc. and its affiliates ("Amazon") represented 13.3% of our consolidated revenues. Substantially all of this revenue was attributed to U.S. Domestic Package. Amazon accounted for approximately 18.1% and 16.9% of accounts receivable, net, included within the consolidated balance sheets as of December 31, 2020 and 2019, respectively. No single customer represented 10% or more of our consolidated revenues for the year ended December 31, 2018.

117

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~13.~~15. INCOME TAXES

The income tax expense (benefit) for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 consists of the following (in millions):


	2017			2016			2015			2020		2019		2018
Current:									Current:
U.S. Federal	$	671		$	1,338		$	1,634	U.S. Federal	$	839	$	570	$	89
U.S. State and Local	49			67			88		U.S. State and Local	100		183		7
Non-U.S.	288			177			236		Non-U.S.	420		359		374
Total Current	1,008			1,582			1,958		Total Current	1,359		1,112		470
Deferred:									Deferred:
U.S. Federal	1,121			103			469		U.S. Federal	(725)		255		668
U.S. State and Local	118			31			65		U.S. State and Local	(159)		(93)		75
Non-U.S.	(9		)	(11		)	6		Non-U.S.	26		(62)		15
Total Deferred	1,230			123			540		Total Deferred	(858)		100		758
Total Income Tax Expense	$	2,238		$	1,705		$	2,498	Total Income Tax Expense	$	501	$	1,212	$	1,228

Income before income taxes includes the following components (in millions):


	2017		2016		2015			2020		2019		2018
United States	$	5,998	$	4,322	$	6,348	United States	$	(39)	$	3,972	$	4,307
Non-U.S.	1,150		814		994		Non-U.S.	1,883		1,680		1,712
Total Income Before Income Taxes:	$	7,148	$	5,136	$	7,342	Total Income Before Income Taxes:	$	1,844	$	5,652	$	6,019

A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 consists of the following:


	2020		2019		2018
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
U.S. state and local income taxes (net of federal benefit) (1)	(2.6)		1.4		1.4
Non-U.S. tax rate differential	1.6		0.3		0.2
U.S. federal tax credits	(3.6)		(1.4)		(1.1)
Goodwill and other asset impairments	5.1		0		0
Net uncertain tax positions	3.6		0.1		(0.6)
Non-U.S. valuation allowance release	0		(1.2)		0
Other	2.1		1.2		(0.5)
Effective income tax rate	27.2	%	21.4	%	20.4	%

2017 2016 2015
Statutory U.S. federal income tax rate 35.0 % 35.0 % 35.0 %
U.S. state and local income taxes (net of federal benefit) 1.5
1.5
1.7
Non-U.S. tax rate differential (2.0 ) (2.4 ) (1.2 )
Nondeductible/nontaxable items (0.1 ) 0.8
0.2
U.S. federal tax credits (1.8 ) (1.2 ) (1.3 )
Income tax benefit from the Tax Cuts and Jobs Act and other non-U.S. tax law changes (3.6 ) —
—
Defined benefit plans mark-to-market charge tax rate differential ⁽¹⁾
1.5
—
—
Other 0.8
(0.5 ) (0.4 )
Effective income tax rate 31.3 % 33.2 % 34.0 %

⁽¹⁾ ~~Impact~~The 2020 state tax impact to the effective tax rate is negative due to the favorable proportion of ~~applying Tax Act corporate rate enacted of 21% versus 35%~~state tax credits in comparison to pretax income.

Our effective tax rate is affected by recurring factors, such as statutory tax rates in the jurisdictions in which we operate in 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 ~~decreased to 31.3%~~was 27.2% in ~~2017,~~2020, compared with ~~33.2%~~21.4% in ~~2016~~2019 and ~~34.0%~~20.4% in ~~2015,~~2018, primarily due to the effects of the aforementioned recurring factors and the following discrete tax ~~items:~~items.

118

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2020 Discrete Items

~~Tax Cuts~~In the fourth quarter of 2020, we recognized an income tax benefit of $1.6 billion related to pre-tax mark-to-market losses of $6.5 billion on our pension and ~~Jobs Act~~postretirement defined benefit plans. This income tax benefit was generated at a higher average tax rate than the 2020 U.S. federal statutory tax rate because it included the effect of U.S. state and local and foreign taxes.

OnWe recorded pre-tax transformation strategy costs of $348 million during the year ended December ~~22, 2017,~~31, 2020. As a result, we recorded an additional income tax benefit of $83 million. This income tax benefit was generated at a higher average tax rate than the ~~United States enacted into law the Tax Act. The Tax Act makes broad and complex changes~~2020 U.S. federal statutory tax rate due to the effect of U.S. state and local and foreign taxes.

We recorded goodwill and other asset impairment charges of $686 million during the year ended December 31, 2020. As a result, we recorded an additional income tax ~~code, including~~benefit of $57 million. This income tax benefit was generated at a ~~permanent corporate~~lower average tax rate ~~reduction~~than the U.S. federal statutory tax rate due to ~~21%~~the portion of the costs related to goodwill impairment, which is not deductible for tax purposes.

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

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

2019 Discrete Items

In the fourth quarter of 2019, we recognized an income tax benefit of $571 million related to pre-tax mark-to-market losses of $2.4 billion on our pension and postretirement defined benefit plans. This income tax benefit was generated at a ~~territorial international system effective~~higher average tax rate than the 2019 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 $255 million during the year ended December 31, 2019. As a result, we recorded an additional income tax benefit of $59 million. This income tax benefit was generated at a higher average tax rate than the 2019 U.S. federal statutory tax rate due to the effect of U.S. state and local and foreign taxes.

Legal contingencies and expenses of $97 million were accrued during 2019 in ~~2018. The Tax Act also includes provisions that affect 2017, including: (1) requiring~~respect of certain legal proceedings for which we recorded an additional income tax benefit of $6 million. This income tax benefit was generated at a ~~one-time transition~~lower average tax onrate than the U.S. federal statutory tax rate due to the portion of the accrual related to penalties, which are not deductible for tax purposes.

As of December 31, 2018, we maintained a valuation allowance against certain ~~unrepatriated earnings of foreign subsidiaries (“Transition Tax”) that is payable over eight years; (2) requiring a remeasurement of all U.S.~~ deferred tax assets, primarily related to foreign net operating loss carryforwards. As of each reporting date, we consider new evidence, both positive and ~~liabilities~~negative, that could affect the future realization of deferred tax assets. During 2019, we determined that there was sufficient positive evidence to conclude that it was more likely than not that the deferred tax assets related to certain foreign net operating loss carryforwards would be realized. This conclusion was primarily related to achieving cumulative three-year income and anticipated future earnings within the relevant jurisdiction. Accordingly, we reversed the related valuation allowance and recognized a discrete tax benefit of approximately $68 million.

Other factors that impacted our 2019 effective tax rate include favorable tax provisions enacted in the Taxpayer Certainty and Disaster Tax Relief Act of 2019.

2018 Discrete Items

In the fourth quarter of 2018, we recognized an income tax benefit of $390 million related to pre-tax mark-to-market losses of $1.6 billion on our pension and postretirement defined benefit plans. This income tax benefit was generated at a higher average tax rate than the 2018 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 $360 million during the year ended December 31, 2018. As a result, we recorded an additional income tax benefit of $87 million. This income tax benefit was generated at a higher average tax rate than the 2018 U.S. federal statutory tax rate due to the ~~newly enacted corporate~~effect of U.S. state and local and foreign taxes.

119

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The recognition of excess tax benefits and deficiencies related to share-based compensation in income tax expense resulted in a net tax benefit of $38 million and reduced our effective tax rate ~~of 21%; and (3) providing for additional first-year depreciation that allows full expensing of qualified property placed into service after September 27, 2017.~~by 0.6% during the year ended December 31, 2018.

To calculate the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 earnings and profits (“E&P”) of the foreign subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition Tax and recorded a provisional liability of $310 million; however, there are certainOther factors that ~~could impact~~impacted our ~~provisional estimate.~~

~~First, several~~2018 effective tax rate include favorable resolutions of our foreign subsidiaries have a fiscal year-end, and E&P for these subsidiaries cannot be precisely calculated until their fiscal years conclude during 2018. Second, we continue to gather additional information needed to precisely estimate the impact of the Transition Tax on ouruncertain tax positions, favorable U.S. state and local tax law changes, favorable tax provisions enacted in the Bipartisan Budget Act of 2018 and discrete tax credits associated with the filing of our 2017 U.S. federal income tax return.

Other Items

Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations, which is effective through December 31, 2021. The tax incentive is conditional upon our meeting specific employment and investment thresholds. The impact of this tax incentive decreased non-U.S. tax expense by $35, $27 and $27 million (increased diluted earnings per share by $0.04, $0.03 and $0.03) for 2020, 2019 and 2018, respectively.

Deferred income tax assets and liabilities ~~given the complexity~~are comprised of the ~~relevant~~following as of December 31, 2020 and 2019 (in millions):


	2020		2019
Fixed assets and capitalized software	$	(5,355)	$	(4,720)

Operating lease right-of-use assets	(730)		(685)
Other	(501)		(538)
Deferred tax liabilities	(6,586)		(5,943)

Pension and postretirement benefits	3,994		2,522
Loss and credit carryforwards	325		328
Insurance reserves	535		413

Stock compensation	183		249
Accrued employee compensation	583		287
Operating lease liabilities	736		691
Other	357		205
Deferred tax assets	6,713		4,695
Deferred tax assets valuation allowance	(88)		(54)
Deferred tax asset (net of valuation allowance)	6,625		4,641

Net deferred tax asset (liability)	$	39	$	(1,302)

Amounts recognized in the consolidated balance sheets:


Deferred tax assets	$	527	$	330
Deferred tax liabilities	(488)		(1,632)
Net deferred tax asset (liability)	$	39	$	(1,302)

The valuation allowance changed by $34, $(58) and $(14) million during the years ended December 31, 2020, 2019 and 2018, respectively.

We have a U.S. federal capital loss carryforward of $38 million as of December 31, 2020, $15 million of which expires on December 31, 2021 and the remainder of which expires on December 31, 2025.

Further, we have U.S. state ~~laws. Finally,~~and local operating loss and credit carryforwards as follows (in millions):


	2020		2019
U.S. state and local operating loss carryforwards	$	1,253	$	1,374
U.S. state and local credit carryforwards	$	108	$	110

120

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The U.S. state and local operating loss carryforwards and credits can be carried forward for periods ranging from one year to indefinitely. We also have non-U.S. loss carryforwards of $716 million as of December 31, 2020, the majority of which may be carried forward indefinitely. As indicated in the table above, we ~~expect additional regulatory guidance~~have established a valuation allowance for certain U.S. federal, state and ~~technical clarifications~~non-U.S. carryforwards and outside basis differences due to the uncertainty resulting from ~~the U.S. Department~~a lack of ~~the Treasury and Internal Revenue Service~~previous taxable income within the ~~next 12 months that could change our provisional estimate of the Transition Tax.~~applicable tax jurisdictions and other limitations.

Undistributed earnings and profits ("E&P&P") of our foreign subsidiaries amounted to ~~$5.002~~$5.6 billion atas of December 31, 2017. As the U.S. has moved to a territorial system, we have changed our indefinite reinvestment assertion with respect to the earnings of certain foreign subsidiaries. As a result, we have recorded a provisional deferred tax liability and corresponding increase to deferred tax expense of $24 million. There are certain factors, discussed above with regard to the Transition Tax, which could also impact our provisional estimate for the change in indefinite reinvestment assertion. For all other foreign subsidiaries, we continue to assert that these earnings are indefinitely reinvested. $1.3352020. Currently, $1.4 billion of the undistributed E&P of our foreign subsidiaries is 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. ~~We will continue to evaluate our indefinite reinvestment assertion for all foreign subsidiaries in light of the Tax Act, and our provisional estimate is subject to change.~~

For our net U.S. deferred tax liabilities, we have recorded a provisional decrease of $606 million with a corresponding reduction to deferred tax expense of $606 million for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, completing the analysis of our 2017 capital expenditures that qualify for full expensing and the state tax effect of adjustments made to federal temporary differences.

~~Other 2017 Discrete Items~~

In the fourth quarter of 2017, we recognized an income tax benefit of $193 million related to pre-tax mark-to-market losses of $800 million on our pension and postretirement defined benefit plans.This income tax benefit was generated at a lower average statutory tax rate than the 2017 U.S. federal statutory tax rate due to future tax rate changes enacted by the Tax Act and differences between U.S. and foreign statutory rates, which was partially offset by the effect of U.S. state and local taxes.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~2016 Discrete Items~~

In the fourth quarter of 2016, we recognized an income tax benefit of $978 million related to pre-tax mark-to-market losses of $2.651 billion on our pension and postretirement defined benefit plans. This income tax benefit was generated at a higher average statutory tax rate than the U.S. federal statutory tax rate because it included the effect of U.S. state and local taxes.

~~2015 Discrete Items~~

~~Other Items~~

Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations, which is effective through December 31, 2021. The tax incentive is conditional upon our meeting specific employment and investment thresholds. The impact of this tax incentive decreased non-U.S. tax expense by $24 million ($0.03 per share), $21 million ($0.02 per share) and $25 million ($0.03 per share) for 2017, 2016, and 2015, respectively.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Deferred income tax assets and liabilities are comprised of the following at December 31, 2017 and 2016 (in millions):~~

2017 2016
Fixed assets and capitalized software $ (3,288 ) $ (4,782 )
Other (535 ) (756 )
Deferred tax liabilities (3,823 ) (5,538 )

Pension and postretirement benefits 1,877
4,236
Loss and credit carryforwards 323
229
Insurance reserves 449
733
Stock compensation 182
297
Other 626
681
Deferred tax assets 3,457
6,176
Deferred tax assets valuation allowance (126 ) (159 )
Deferred tax asset (net of valuation allowance) 3,331
6,017

Net deferred tax asset (liability) $ (492 ) $ 479

Amounts recognized in the consolidated balance sheets:
Deferred tax assets $ 265
$ 591
Deferred tax liabilities (757 ) (112 )
Net deferred tax asset (liability) $ (492 ) $ 479

~~The valuation allowance changed by $(33), $(38)~~ ~~and $(11)~~ ~~million during the years ended~~ ~~December 31, 2017~~, ~~2016~~ ~~and~~ ~~2015, respectively.~~

We have a U.S. federal capital loss carryforward of $34 million as of December 31, 2017, $32 million of which expires on December 31, 2021 and the remainder of which expires on December 31, 2022. In addition, we have U.S. state and local operating loss and credit carryforwards as follows (in millions):

2017 2016
U.S. state and local operating loss carryforwards $ 1,215
$ 603
U.S. state and local credit carryforwards $ 83
$ 70

~~The U.S. state and local operating loss carryforwards expire at varying dates through~~ ~~2037. The U.S. state and local credits can be carried forward for periods ranging from~~ ~~one year~~ ~~to indefinitely. We also have non-U.S. loss carryforwards of $728~~ ~~million as of~~ ~~December 31, 2017~~, the majority of which may be carried forward indefinitely. As indicated in the table above, we have established a valuation allowance for certain non-U.S. and state carryforwards, due to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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


	Tax		Interest		Penalties
Balance at January 1, 2018	$	160	$	43	$	9
Additions for tax positions of the current year	47		0		1
Additions for tax positions of prior years	7		10		0
Reductions for tax positions of prior years for:
Changes based on facts and circumstances	(43)		(8)		(5)
Settlements during the period	(1)		(1)		0
Lapses of applicable statute of limitations	(3)		0		0
Balance as of December 31, 2018	167		44		5
Additions for tax positions of the current year	6		0		0
Additions for tax positions of prior years	51		13		0
Reductions for tax positions of prior years for:
Changes based on facts and circumstances	(45)		(4)		(1)
Settlements during the period	(3)		(1)		0
Lapses of applicable statute of limitations	(4)		0		0
Balance as of December 31, 2019	172		52		4
Additions for tax positions of the current year	61		0		0
Additions for tax positions of prior years	154		34		2
Reductions for tax positions of prior years for:
Changes based on facts and circumstances	(54)		(24)		(2)
Settlements during the period	0		(1)		0
Lapses of applicable statute of limitations	0		0		0
Balance as of December 31, 2020	$	333	$	61	$	4

Tax Interest Penalties
Balance at January 1, 2015 $ 172
$ 42
$ 3
Additions for tax positions of the current year 24
—
—
Additions for tax positions of prior years 45
21
3
Reductions for tax positions of prior years for:
Changes based on facts and circumstances (85 ) (8 ) —
Settlements during the period (6 ) (2 ) —
Lapses of applicable statute of limitations (2 ) —
—
Balance at December 31, 2015 148
53
6
Additions for tax positions of the current year 17
—
—
Additions for tax positions of prior years 20
10
—
Reductions for tax positions of prior years for:
Changes based on facts and circumstances (41 ) (13 ) —
Settlements during the period —
—
—
Lapses of applicable statute of limitations —
—
—
Balance at December 31, 2016 144
50
6
Additions for tax positions of the current year 16
—
—
Additions for tax positions of prior years 33
14
3
Reductions for tax positions of prior years for:
Changes based on facts and circumstances (24 ) (18 ) —
Settlements during the period (6 ) (3 ) —
Lapses of applicable statute of limitations (3 ) —
—
Balance at December 31, 2017 $ 160
$ 43
$ 9

The total amount of gross ~~unrecognized~~uncertain tax ~~benefits~~positions as of December 31, ~~2017~~, ~~2016~~2020, 2019 and ~~2015~~2018 that, if recognized, would affect the effective tax rate ~~were $159, $142~~was $332, $171 and $~~147~~$165 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 ~~2014~~.2016.

A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the ~~amount of unrecognized~~liability for uncertain tax ~~benefits~~positions could significantly increase or decrease within the next twelve months. Items that may cause changes to ~~unrecognized~~uncertain tax ~~benefits~~positions include the timing of interest deductions and the allocation of income and expense between tax jurisdictions. These changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of the statute of limitations, or other unforeseen circumstances. At this time, an estimate of the range of the reasonably possible change cannot be made.

121

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~14.~~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):

2017 2016 2015
Numerator:
Net income attributable to common shareowners $ 4,910
$ 3,431
$ 4,844
Denominator:
Weighted-average shares 865
878
896
Deferred compensation obligations 1
1
1
Vested portion of restricted shares 5
4
4
Denominator for basic earnings per share 871
883
901
Effect of Dilutive Securities:
Restricted performance units 3
3
4
Stock options 1
1
1
Denominator for diluted earnings per share 875
887
906
Basic Earnings Per Share $ 5.64
$ 3.89
$ 5.38
Diluted Earnings Per Share $ 5.61
$ 3.87
$ 5.35


	2020		2019		2018
Numerator:
Net income attributable to common shareowners	$	1,343	$	4,440	$	4,791
Denominator:
Weighted-average shares	862		859		860
Deferred compensation obligations	0		0		1
Vested portion of restricted shares	5		5		5
Denominator for basic earnings per share	867		864		866
Effect of Dilutive Securities:
Restricted performance units	4		5		4

Denominator for diluted earnings per share	871		869		870
Basic Earnings Per Share	$	1.55	$	5.14	$	5.53
Diluted Earnings Per Share	$	1.54	$	5.11	$	5.51

Diluted earnings per share for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015~~2018 exclude the effect of ~~0.1, 0.2~~0.6, 0.5 and 0.2 million shares, respectively, of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive.

122

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~15.~~17. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT

Risk Management Policies

~~We are exposed to market risk, primarily related to~~Changes in fuel prices, interest rates and foreign currency exchange rates ~~commodity prices~~impact our results of operations and ~~interest rates. These exposures are~~we actively ~~monitored by management.~~monitor these exposures. To manage the ~~volatility relating to certain~~impact of these exposures, we may enter into a variety of derivative financial instruments. Our objective is to ~~reduce,~~manage, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates, commodity prices and interest rates. It is our policy and practice to use derivative financial instruments only to the extent necessary to manage exposures. As we use price sensitive instruments to hedge a certain portion of our existing and anticipated transactions, we expect that any loss in value ~~for~~from those instruments generally would be offset by increases in the value of those hedged transactions. 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. However,~~agreements; however, we seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines and by monitoring ~~counterparty credit risk~~counterparties to prevent concentrations of credit risk with any single counterparty.

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

As of December 31, 2020 and 2019, we held cash collateral of $146 and $495 million, respectively, under these agreements. This collateral is included in Cash and cash equivalents in the consolidated balance sheets and its use by UPS is not restricted. As of December 31, 2020, $158 million of collateral was required to be posted with our counterparties. As of December 31, 2019, 0 collateral was required to be posted with our counterparties.

Events such as a counterparty credit rating downgrade (depending on the ultimate rating level) could also allow us to take additional protective measures such as the early termination of trades. ~~At December 31, 2017 and 2016,~~Alternatively, we held cash collateral of $17 and $575 million, respectively, under these agreements; this collateral is included in "cash and cash equivalents" on the consolidated balance sheets and its use by UPS is not restricted.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~In connection with the agreements described above, we~~ could ~~also~~ be required to provide additional collateral or terminate transactions with certain counterparties in the event of a downgrade of our credit rating. The amount of collateral required would be determined by the net fair value of the associated derivatives with each counterparty. At December 31, 2017 and 2016, $174 and $0 million, respectively, of additional collateral was required to be posted with our counterparties. In addition, the aggregate fair value of instruments not covered by the zero threshold bilateral collateral provisions that were in a net liability position was $16 million at December 31, 2017.

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

~~Accounting Policy for Derivative Instruments~~

~~We recognize all derivative~~As of December 31, 2020, there were 0 instruments ~~as assets or liabilities~~ in the 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, a company must designate the derivative, based upon the exposure being hedged, as a cash flow hedge, a fair value hedge or a hedge of a net ~~investment in a foreign operation.~~

~~A cash flow hedge refers to hedging~~liability position that were not covered by 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 a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI, and reclassified into earnings in the same period during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, or hedge components excluded from the assessment of effectiveness, are recognized in the statements of consolidated income during the current period.

A fair value hedge refers to hedging the exposure to changes in the fair value of an existing asset or liability on the consolidated balance sheets that is attributable to a particular risk. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument is recognized in the statements of consolidated income during the current period, as well as the offsetting 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 our net investments in foreign operations. For hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in the cumulative translation adjustment within AOCI. The remainder of the change in value of such instruments is recorded in earnings.zero threshold bilateral collateral provisions.

Types of Hedges

Commodity Risk Management

Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the primary means of reducing the risk of adverse fuel price changes on our business. In order to mitigate the impact of fuel surcharges imposed on us by outside carriers, we regularly adjust the rates we charge for our freight brokerage, inter-modal and truckload services. We periodically enter into option and future contracts on energy commodity products to manage the price risk associated with forecasted transactions involving refined fuels, principally jet-A, diesel and unleaded gasoline. The objective of the hedges is to reduce the variability of cash flows, due to changing fuel prices, associated with the forecasted transactions involving those products. We have designated and account for these contracts as cash flow hedges of the underlying forecasted transactions involving these fuel products and, therefore, the resulting gains and losses from these hedges are recognized as a component of fuel expense or revenue when the underlying transactions occur.

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 hedge portions of our forecasted revenue denominated in foreign currencies with ~~foreign currency option and~~ forward contracts. We ~~have designated~~normally designate and account for these contracts as cash flow hedges of anticipated foreign currency denominated revenue and, therefore, the resulting gains and losses from these hedges are recognized as a component of international package revenue when the underlying sales transactions occur.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

We also hedge portions of our anticipated cash settlements of intercompany transactions and interest payments on certain debt subject to foreign currency remeasurement using foreign currency forward contracts. We ~~have designated~~normally designate and account for these contracts as cash flow hedges of forecasted foreign currency denominated ~~transactions, and~~transactions; therefore, the resulting gains and losses from these hedges are recognized as a component of ~~investment~~Investment income (expense) and other when the underlying transactions are subject to currency remeasurement.

123

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We hedge our net investment in certain foreign operations with foreign currency denominated debt instruments. The use of foreign denominated debt as the hedging instrument allows the debt to be remeasured to ~~cumulative~~foreign currency translation adjustment within AOCI to offset the translation risk from those investments. ~~Any ineffective portion of net investment hedges is recognized as a component of investment income and other.~~ Balances in the cumulative translation adjustment ~~account~~accounts remain until the sale or substantially complete liquidation of the foreign ~~entity.~~entity, upon which they are recognized as a component of Investment income (expense) and other.

Interest Rate Risk Management

Our indebtedness under our various financing arrangements creates interest rate risk. We use a combination of derivative instruments as part of our program to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing. Interest rate swaps allow us to maintain a target range of floating-rate debt within our capital structure. The notional amount, interest payment date and maturity date of the swaps match the terms of the associated debt being hedged. ~~Interest rate swaps allow us to maintain a target range of floating-rate debt within our capital structure.~~

We have designated and account for the majority of our interest rate swaps that convert fixed-rate interest payments into floating-rate interest payments as ~~hedges of the~~ fair value hedges of the associated debt instruments. Therefore, the gains and losses resulting from fair value adjustments to the interest rate swaps and fair value adjustments to the associated debt instruments are recorded to interest expense in the period in which the gains and losses occur. We have designated and account for interest rate swaps that convert floating-rate interest payments into fixed-rate interest payments as cash flow hedges of the forecasted payment obligations. The gains and losses resulting from fair value adjustments to ~~the~~these interest rate swaps are recorded to AOCI.

We periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings by using forward starting interest rate swaps, interest rate locks or similar derivatives. These agreements effectively lock a portion of our interest rate exposure between the time the agreement is entered into and the date when the debt offering is completed, thereby mitigating the impact of interest rate changes on future interest expense. These derivatives are settled commensurate with the issuance of the debt, and any gain or loss upon settlement is amortized as an adjustment to the effective interest yield on the debt.

Outstanding Positions

The notional amounts of our outstanding derivative positions were as follows as of December 31, ~~2017~~2020 and ~~2016~~2019 (in millions):

2017 2016
Currency Hedges:
Euro EUR 4,942
3,702
British Pound Sterling GBP 1,736
1,380
Canadian Dollar CAD 1,259
1,053
Indian Rupee INR —
76
Mexican Peso MXN 169
—
Japanese Yen JPY —
3,972
Singapore Dollar SGD 11
32

Interest Rate Hedges:
Fixed to Floating Interest Rate Swaps USD 5,424
5,799
Floating to Fixed Interest Rate Swaps USD 778
778

Investment Market Price Hedges:
Marketable Securities EUR 64
76


		2020	2019
Currency hedges:
Euro	EUR	4,197	4,571
British Pound Sterling	GBP	1,400	1,494
Canadian Dollar	CAD	1,576	1,402
Hong Kong Dollar	HKD	3,717	3,327




Interest rate hedges:
Fixed to Floating Interest Rate Swaps	USD	3,250	3,674
Floating to Fixed Interest Rate Swaps	USD	778	778

As of December 31, ~~2017,~~2020 and 2019, we had no0 outstanding commodity hedge positions.

124

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet Recognition

The following table indicates the location onin the consolidated balance sheets ~~in which~~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 as of December 31, 2017 and~~ ~~2016~~ (in millions). The table is segregated between those derivative instruments that qualify and are designated as hedging instruments and those that are not, as well as by type of contract and whether the derivative is in an asset or liability position.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 ~~the~~our derivative contracts recorded ~~on our~~in the consolidated balance sheets. The columns labeled ~~"net amounts~~"Net Amounts if ~~right~~Right of ~~offset~~Offset had been ~~applied"~~Applied" indicate the potential net fair value positions by type of contract and location onin the consolidated balance sheets had we elected to apply the right of ~~offset.~~offset as of December 31, 2020 and December 31, 2019 (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		2020		2019		2020		2019
Derivatives designated as hedges:
Foreign currency exchange contracts	Other current assets	Level 2	$	56	$	138	$	45	$	131
Interest rate contracts	Other current assets	Level 2	2		2		2		2
Foreign currency exchange contracts	Other non-current assets	Level 2	35		252		4		236
Interest rate contracts	Other non-current assets	Level 2	29		21		26		20
Derivatives not designated as hedges:
Foreign currency exchange contracts	Other current assets	Level 2	4		7		4		7

Interest rate contracts	Other non-current assets	Level 2	0		12		0		11
Total Asset Derivatives			$	126	$	432	$	81	$	407


		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		2020		2019		2020		2019
Derivatives designated as hedges:
Foreign currency exchange contracts	Other current liabilities	Level 2	$	34	$	7	$	23	$	0
Foreign currency exchange contracts	Other non-current liabilities	Level 2	142		16		111		0
Interest rate contracts	Other non-current liabilities	Level 2	13		11		10		10
Derivatives not designated as hedges:
Foreign currency exchange contracts	Other current liabilities	Level 2	2		0		2		0
Interest rate contracts	Other current liabilities		1		0		1		0

Interest rate contracts	Other non-current liabilities	Level 2	0		3		0		2
Total Liability Derivatives			$	192	$	37	$	147	$	12

Our foreign currency exchange, interest rate and investment market price derivatives are largely comprised of over-the-counter derivatives, which are primarily valued using pricing models that rely on market observable inputs such as yield curves, currency exchange rates and investment forward prices; therefore, these derivatives are classified as Level 2. As of December 31, 2020 and 2019 we did 0t have any derivatives that were classified as Level 1 (valued using quoted prices in active markets for identical assets) or Level 3 (valued using significant unobservable inputs).

125

Gross Amounts Presented in
Consolidated Balance Sheets Net Amounts if Right of
Offset had been Applied
Asset Derivatives Balance Sheet Location 2017 2016 2017 2016
Derivatives Designated As Hedges:
Foreign exchange contracts Other current assets $ 2
$ 176
$ —
$ 176
Interest rate contracts Other current assets 1
—
1
—
Foreign exchange contracts Other non-current assets 1
131
—
126
Interest rate contracts Other non-current assets 59
137
43
119
Derivatives Not Designated As Hedges:
Foreign exchange contracts Other current assets 18
1
17
1
Interest rate contracts Other non-current assets 26
42
26
40
Total Asset Derivatives $ 107
$ 487
$ 87
$ 462

Gross Amounts Presented in
Consolidated Balance Sheets

Net Amounts if Right of
Offset had been Applied
Liability Derivatives Balance Sheet Location 2017 2016 2017 2016
Derivatives Designated As Hedges:
Foreign exchange contracts Other current liabilities $ 93
$ —
$ 91
$ —
Interest rate contracts Other current liabilities —
1
—
1
Foreign exchange contracts Other non-current liabilities 194
6
193
1
Interest rate contracts Other non-current liabilities 28
21
12
3
Derivatives Not Designated As Hedges:
Foreign exchange contracts Other current liabilities 1
—
—
—
Investment market price contracts Other current liabilities 16
10
16
10
Interest rate contracts Other non-current liabilities —
7

5
Total Liability Derivatives $ 332
$ 45
$ 312
$ 20

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 the consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of December 31, 2020 and 2019 (in millions):


	2020				2019
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included	Carrying Amount of Hedged Liabilities		Cumulative Amount of Fair Value Hedge Adjustments		Carrying Amount of Hedged Liabilities		Cumulative Amount of Fair Value Hedge Adjustments
Long-Term Debt and Finance Leases	$	2,816	$	42	$	3,234	$	40

The cumulative amount of fair value hedging losses remaining for any hedged assets and liabilities for which hedge accounting has been discontinued as of December 31, 2020 is $7 million. These amounts will be recognized over the next 10 years.

Income Statement and AOCI Recognition

The following table indicates the amount of gains and ~~losses~~(losses) that have been recognized in the statements of consolidated income for fair value and cash flow hedges, as well as the associated gain or (loss) for the underlying hedged item for fair value hedges for the years ended December 31, 2020 and 2019 (in millions):


	2020						2019
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships	Revenue		Interest Expense		Investment Income and Other		Revenue		Interest Expense		Investment Income and Other
Gain or (loss) on fair value hedging relationships:
Interest Contracts:
Hedged items	$	0	$	(8)	$	0	$	0	$	(38)	$	0
Derivatives designated as hedging instruments	0		8		0		0		38		0
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income	0		(8)		0		0		(15)		0
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income	196		0		0		177		0		0
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	$	196	$	(8)	$	0	$	177	$	(15)	$	0

126

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table indicates the amount of gains and (losses) that have been recognized in AOCI ~~within "unrealized gain (loss) on cash flow hedges"~~ for the years ended December 31, ~~2017~~2020 and ~~2016~~2019 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 Derivative (Effective Portion)					Derivative Instruments in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives
	2017			2016			2020		2019
Interest rate contracts	$	—		$	1	Interest rate contracts	$	0	$	6
Foreign exchange contracts	(506		)	198
Foreign currency exchange contracts						Foreign currency exchange contracts	(253)		250

Total	$	(506	)	$	199	Total	$	(253)	$	256

As of December 31, ~~2017, $150~~2020, there were $11 million of pre-tax ~~losses~~gains related to cash flow hedges ~~that are currently~~ deferred in AOCI that are expected to be reclassified to income over the 12 month period ~~ended~~ending December 31, ~~2018.~~2021. 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 ~~flow~~flows is 15approximately 12 years.

~~The amount of ineffectiveness recognized in income on derivative instruments designated in cash flow hedging relationships was immaterial for the years ended December 31, 2017, 2016 and 2015.~~

The following table indicates the amount of gains and ~~losses~~(losses) that have been recognized in AOCI within ~~"foreign~~foreign currency translation ~~gain (loss)"~~adjustment for the years ended December 31, ~~2017~~2020 and ~~2016~~2019 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 (Effective Portion)
2017 2016
Foreign denominated debt $ (428 ) $ 119
Total $ (428 ) $ 119

The amount of ineffectiveness recognized in income on non-derivative instruments designated in net investment hedging relationships was immaterial for the years ended December 31, 2017, 2016 and 2015.

The following table indicates the amount and location in the statements of consolidated income in which derivative gains and losses, as well as the associated gains and losses on the underlying exposure, have been recognized for those derivatives designated as fair value hedges for the years ended December 31, 2017 and ~~2016~~ ~~(in millions):~~

Derivative Instruments
in Fair Value Hedging
Relationships

Location of
Gain (Loss)
Recognized in
Income

Amount of Gain (Loss)
Recognized in Income

Hedged Items in
Fair Value Hedging
Relationships

Location of
Gain (Loss)
Recognized in
Income

Amount of Gain (Loss)
Recognized in Income
2017 2016 2017 2016
Interest rate contracts Interest Expense $ (84 ) $ (71 )
Fixed-Rate Debt
and Capital Leases
Interest Expense $ 84
$ 71


Non-derivative Instruments in Net Investment Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Debt
	2020		2019
Foreign denominated debt	$	(265)	$	75
Total	$	(265)	$	75

Additionally, we maintain ~~some~~ interest rate swaps, foreign currency exchange forwards and investment market price ~~forwards and commodity~~forward contracts that are not designated as hedges. ~~These~~The interest rate swap contracts are intended to provide an economic hedge of portions of our outstanding debt. ~~These~~The foreign currency exchange forward contracts are intended to provide an economic offset to foreign currency remeasurement ~~risks~~and settlement risk for certain assets and liabilities in our consolidated balance sheets. ~~These~~The investment market price forward contracts are intended to provide an economic offset to fair value fluctuations of certain investments in marketable securities.

We also periodically terminate interest rate swaps and foreign currency ~~options~~exchange forward contracts by entering into offsetting swap and foreign currency positions with different counterparties. As part of this process, we de-designate our original swap and foreign currency exchange contracts. These transactions provide an economic offset that effectively eliminates the ~~impact~~effects of changes in market valuation.

~~UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following is a summary of the amounts recorded in the statements of consolidated income related to fair value changes and settlements of these ~~foreign currency forwards,~~ interest rate swaps, foreign currency forward and investment market price ~~and commodity~~forward contracts not designated as hedges for the years ended December 31, ~~2017~~2020 and ~~2016~~2019 (in millions):


Derivative Instruments Not Designated in Hedging Relationships	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
		2020		2019




Interest rate contracts	Interest expense	$	(9)	$	(9)
Foreign currency exchange contracts	Investment income and other	27		(1)

Total		$	18	$	(10)

127

Derivative Instruments Not Designated in
Hedging Relationships

Location of Gain
(Loss) Recognized
in Income
Amount of Gain (Loss) Recognized in Income
2017 2016
Foreign exchange contracts Investment income and other $ 60
$ (145 )
Investment market price contracts Investment income and other (5 ) (5 )
Interest rate contracts Interest Expense (9 ) (8 )
Total $ 46
$ (158 )

~~Fair Value Measurements~~

Our foreign currency, interest rate and investment market price derivatives are largely comprised of over-the-counter derivatives, which are primarily valued using pricing models that rely on market observable inputs such as yield curves, currency exchange rates and commodity forward prices, and therefore are classified as Level 2. The fair values of our derivative assets and liabilities as of ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~by hedge type are as follows (in millions):~~

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
2017
Assets:
Foreign Exchange Contracts $ —
$ 21
$ —
$ 21
Interest Rate Contracts —
86
—
86
Total $ —
$ 107
$ —
$ 107
Liabilities:
Foreign Exchange Contracts $ —
$ 288
$ —
$ 288
Investment Market Price Contracts —
16
—
16
Interest Rate Contracts —
28
—
28
Total $ —
$ 332
$ —
$ 332

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
2016
Assets:
Foreign Exchange Contracts $ —
$ 308
$ —
$ 308
Interest Rate Contracts —
179
—
179
Total $ —
$ 487
$ —
$ 487
Liabilities:
Foreign Exchange Contracts $ —
$ 6
$ —
$ 6
Investment Market Price Contracts —
10
—
10
Interest Rate Contracts —
29
—
29
Total $ —
$ 45
$ —
$ 45

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~16.~~ 18. TRANSFORMATION STRATEGY COSTS

In the first quarter of 2018, we launched the first phase of a multi-year, enterprise-wide transformation strategy impacting our organization. Over the next several years additional phases will be implemented. The program includes investments, as well as changes in processes and technology, that impact global direct and indirect operating costs.

The table below presents the transformation strategy costs for the years ended December 31, 2020, 2019 and 2018 (in millions):


Transformation Strategy Costs	2020		2019		2018
Compensation and benefits	$	211	$	166	$	262
Total other expenses	137		89		98
Total Transformation Strategy Costs	$	348	$	255	$	360

Income Tax Benefit from Transformation Strategy Costs	(83)		(59)		(87)
After-Tax Transformation Strategy Costs	$	265	$	196	$	273

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.

128

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19.QUARTERLY INFORMATION (UNAUDITED)

Our segment revenue, segment operating profit, ~~(loss)~~other income and (expense), net income (loss), basic and diluted earnings (loss) per share on a quarterly basis are presented below (in millions, except per share amounts):


	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	2020		2019		2020		2019		2020		2019		2020		2019
Revenue:
U.S. Domestic Package	$	11,456	$	10,480	$	13,074	$	11,150	$	13,225	$	11,455	$	15,744	$	13,408
International Package	3,383		3,459		3,705		3,505		4,087		3,494		4,770		3,762
Supply Chain & Freight	3,196		3,221		3,680		3,393		3,926		3,369		4,382		3,398
Total revenue	18,035		17,160		20,459		18,048		21,238		18,318		24,896		20,568
Operating Profit (Loss):
U.S. Domestic Package	364		666		1,182		1,208		1,098		1,216		1,247		1,074
International Package	551		528		771		663		966		667		1,148		799
Supply Chain & Freight	157		200		259		272		299		245		(358)		260
Total operating profit	1,072		1,394		2,212		2,143		2,363		2,128		2,037		2,133
Total Other Income and (Expense)	$	178	$	46	$	145	$	61	$	162	$	78	$	(6,325)	$	(2,331)

Net Income (Loss)	$	965	$	1,111	$	1,768	$	1,685	$	1,957	$	1,750	$	(3,347)	$	(106)
Net Income (Loss) Per Share:
Basic Earnings (Loss) Per Share	$	1.12	$	1.28	$	2.04	$	1.95	$	2.25	$	2.03	$	(3.84)	$	(0.12)
Diluted Earnings (Loss) Per Share	$	1.11	$	1.28	$	2.03	$	1.94	$	2.24	$	2.01	$	(3.84)	$	(0.12)

Our quarterly results were impacted by restructuring and other costs, legal contingencies and expenses and defined benefit plans mark-to-market charges. The table below presents the impact on operating profit and other income and (expense) for each period (in millions, except per share amounts):


	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	2020		2019		2020		2019		2020		2019		2020		2019

Impact to Operating Profit
Restructuring & Other - Employee Benefits	$	12	$	106	$	81	$	2	$	18	$	41	$	100	$	17
Restructuring & Other - Other Costs	33		17		31		19		26		22		47		31
Restructuring & Other - Impairment Charges	0		0		0		0		0		0		686		0
Legal Contingencies and Expenses	0		0		0		0		0		0		0		97

Allocation of Matters Impacting Operating Profit to Segments
U.S. Domestic Package	$	37	$	28	$	33	$	18	$	35	$	26	$	132	$	133
International Package	7		84		71		2		6		26		12		10
Supply Chain & Freight	1		11		8		1		3		11		689		2

Impact to Other Income and (Expense)
Defined Benefit Plans Mark-to-Market Charges	$	0	$	0	$	0	$	0	$	0	$	0	$	6,484	$	2,387

129

First Quarter Second Quarter Third Quarter Fourth Quarter
2017 2016 2017 2016 2017 2016 2017 2016
Revenue:
U.S. Domestic Package $ 9,535
$ 9,084
$ 9,745
$ 9,015
$ 9,649
$ 9,289
$ 11,835
$ 10,913
International Package 3,058
2,914
3,163
3,077
3,364
3,024
3,753
3,335
Supply Chain & Freight 2,722
2,420
2,842
2,537
2,965
2,615
3,241
2,683
Total revenue 15,315
14,418
15,750
14,629
15,978
14,928
18,829
16,931
Operating Profit (Loss):
U.S. Domestic Package 1,076
1,102
1,395
1,233
1,182
1,252
627
(570 )
International Package 529
574
583
613
627
576
725
281
Supply Chain & Freight 179
147
238
192
226
206
142
(139 )
Total operating profit (loss) 1,784
1,823
2,216
2,038
2,035
2,034
1,494
(428 )
Net Income (Loss) $ 1,158
$ 1,131
$ 1,384
$ 1,269
$ 1,264
$ 1,270
$ 1,104
$ (239 )
Net Income (Loss) Per Share:
Basic $ 1.32
$ 1.27
$ 1.59
$ 1.43
$ 1.45
$ 1.44
$ 1.27
$ (0.27 )
Diluted $ 1.32
$ 1.27
$ 1.58
$ 1.43
$ 1.45
$ 1.44
$ 1.27
$ (0.27 )

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

~~Operating profit~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20.SUBSEQUENT EVENTS

On January 24, 2021, we entered into a definitive agreement to divest our UPS Freight business to TFI International Inc. for $800 million, subject to working capital and other adjustments. This agreement provides for the ~~quarter ended December 31, 2017 was~~continuation of certain pension and postretirement benefits within UPS-sponsored plans that we estimate will require us to record an additional pre-tax expense when we close on the UPS Freight divestiture and amend the impacted plans. Upon closing, we also anticipate recording a pre-tax curtailment gain resulting from the acceleration of prior service credits. We currently anticipate that a favorable impact from reducing future benefit accruals for UPS Freight employees will be offset by ~~a mark-to-market loss~~net losses recorded in AOCI. The divestiture of ~~$800 million on~~UPS Freight may require an interim measurement of certain of our U.S. pension and postretirement benefit ~~plans related~~plans. We expect to record the ~~remeasurement~~impacts discussed herein by the second quarter of ~~plan assets and liabilities recognized outside~~2021.

As of ~~a 10% corridor (allocated as follows—U.S. Domestic Package $637 million, International Package $35 million, and Supply Chain & Freight $128 million). Net income for the quarter ended~~ December 31, ~~2017 includes an income tax benefit of $258 million attributable to~~2020, UPS Freight was classified as held for sale in the ~~2017 Tax Act. These items reduced fourth quarter net income by $349 million and basic and diluted earnings per share by $0.41 and $0.40, respectively.~~consolidated balance sheet. For additional information, see note 4.

Operating profit for the quarter ended December 31, 2016 was impacted by a mark-to-market loss of $2.651 billion on our pension and postretirement benefit plans related to the remeasurement of plan assets and liabilities recognized outside of a 10% corridor (allocated as follows—U.S. Domestic Package $1.908 billion, International Package $425 million and Supply Chain & Freight $318 million). This loss reduced fourth quarter net income by $1.673 billion, and basic and diluted earnings per share by $1.91.

130


~~Item 9.~~	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures:

As of the end of the period covered by this report, management, including our ~~Chief~~Principal Executive Officer and ~~Chief~~Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and ~~procedures and internal controls over financial reporting.~~procedures. Based upon, and as of the date of, the evaluation, our ~~Chief~~Principal Executive Officer and ~~Chief~~Principal Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required and is accumulated and communicated to our management, including ~~the Chief~~our Principal Executive Officer and ~~Chief~~Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal ~~Control:~~Control Over Financial Reporting:

There were no changes in ~~the Company’s~~our internal ~~controls~~control over financial reporting during the quarter ended December 31, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that more of our employees are working remotely during the COVID-19 pandemic. We have enhanced our oversight and monitoring during the close and reporting process and we are continually monitoring and assessing the effects of the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Management’s Report on Internal Control Over Financial Reporting:

UPS management is responsible for establishing and maintaining adequate internal ~~controls~~control over financial reporting for United Parcel Service, Inc. and its subsidiaries (the “Company”). Based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, management has assessed ~~the Company’s~~our internal control over financial reporting as effective as of December 31, ~~2017.~~2020. The independent registered public accounting firm of Deloitte & Touche LLP, as auditors of the consolidated balance sheets of United Parcel Service, Inc. and its subsidiaries as of December 31, ~~2017~~2020 and the related statements of consolidated income, consolidated comprehensive income and consolidated cash flows for the year ended December 31, ~~2017,~~2020, has issued an attestation report on ~~the Company’s~~our internal control over financial reporting, which is included herein.

131

Report of Independent Registered Public Accounting Firm

To the Shareowners and Board of Directors ~~and Shareowners~~of

United Parcel Service, Inc.

Atlanta, Georgia

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of United Parcel Service, Inc. and subsidiaries (the ~~"Company"~~“Company”) as of December 31, ~~2017,~~2020, based on criteria established in Internal ~~Control-Integrated~~Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2017,~~2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements as of and for the year ended December 31, ~~2017,~~2020, of the Company and our report dated February ~~21, 2018,~~22, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Atlanta, Georgia

February ~~21, 2018~~22, 2021

132


~~Item 9B.~~	~~Other Information~~

Item 9B.Other Information

None.

PART III

133

Item 10. Directors, Executive Officers and Corporate Governance

Information about our Executive Officers


~~Item 10.~~	~~Directors, Executive Officers and Corporate Governance~~

~~Executive Officers of the Registrant~~

Name and Office

Age

Principal Occupation

and Employment For

the Last Five Years

~~David P. Abney~~Carol B.Tomé

~~Chairman and~~ Chief Executive Officer

6264

Chief Executive Officer ~~(2014 - present), Chairman (2016 - present) Senior Vice President and Chief Operating Officer (2007 - 2014).~~

~~James J. Barber, Jr.~~

~~Senior Vice President and President, UPS International~~

~~President, UPS International (2013~~(2020 - present), Chief ~~Operating~~Financial Officer, ~~UPS Europe, Middle East and Africa (2010~~The Home Depot, Inc. (2001 - ~~2013)~~2019).

Norman M. Brothers, Jr.

~~Senior Vice President, General Counsel~~
Chief Legal and

Compliance Officer and Corporate Secretary

5053

Chief Legal and Compliance Officer and Corporate Secretary (2020 - present), Senior Vice President, General Counsel and Corporate Secretary (2016 - ~~present)~~2020), Corporate Legal Department Manager (2014 - 2016)~~, Vice President, Corporate Legal (2004 - 2014)~~.

~~Alan Gershenhorn~~

~~Senior Vice~~ Nando Cesarone
President, ~~Chief Commercial Officer~~

U.S. Operations

5949

~~Executive Vice~~ President, ~~and Chief Commercial Officer (2014~~U.S. Operations (2020 - present), ~~Senior Vice~~ President, ~~Worldwide Sales, Marketing and Strategy (2011~~UPS International (2018 - ~~2014)~~2020), Europe Region Manager (2016 - 2018), Asia Pacific Region Manager (2013 - 2016).

~~Myron A. Gray~~

~~Senior Vice President and President, United States~~

~~Operations~~

Darrell Ford
Chief Human Resources Officer

6056

~~President, United States Operations (2014~~Chief Human Resources Officer (2021 - present), ~~Senior Vice President, United States Operations (2009~~Chief Human Resources Officer, DuPont (2018 - ~~2014)~~2020), Chief Human Resources Officer, Xerox Corporation ( 2015 - 2018).

Philippe Gilbert
President, UPS Supply Chain Solutions

President, UPS Supply Chain Solutions (2019 - present), Regional CEO, Americas, DB Schenker Logistics (2015 - 2018), Regional CEO, West Europe, DB Schenker Logistics (2013 - 2015).

Kate M. Gutmann

~~Senior Vice President,~~
Chief Sales and Solutions Officer,

Executive VP, UPS
Healthcare and Life Sciences Unit

4952

Chief Sales and Solutions Officer, Executive VP, UPS Healthcare and Life Sciences Unit (2020 - present), Chief Sales and Solutions Officer; Senior Vice President The UPS Store and UPS Capital (2017 - ~~present),~~2019) Senior Vice President, Worldwide Sales and Solutions (2014 - 2017)~~, President, Worldwide Sales (2011 - 2014)~~.

~~Teri P. McClure Senior Vice President,~~ Laura Lane
Chief ~~Human Resources~~Corporate Affairs, Communications and Sustainability
Officer

Chief Corporate Affairs, Communications and Sustainability Officer ~~Labor Relations~~

~~Chief Human Resources Officer and Senior Vice President, Labor (2016~~(2020 - present), Chief ~~Legal,~~Corporate Affairs and Communications ~~and Human Resources~~ Officer ~~(2015~~(August 2020 - ~~2016)~~October 2020), ~~Senior Vice~~ President, ~~of Legal, Compliance and~~Global Public Affairs ~~General Counsel and Corporate Secretary (2006 -2014)~~(2011 - 2020).

~~Richard N. Peretz~~Brian Newman

~~Senior Vice President,~~ Chief Financial Officer and Treasurer

5652

Chief Financial Officer ~~(2015~~and Treasurer (2019 - present), ~~Corporate Controller and Treasurer (2014-2015), Corporate Controller (2013 - 2015),~~Executive Vice President, ~~of Corporate~~ Finance and ~~Accounting (2008~~Operations, Latin America, PepsiCo, Inc. (2017 - ~~2013)~~2019), Executive Vice President, Global Operations, PepsiCo, Inc. (2015 - 2017), Global Head of e-Commerce, PepsiCo, Inc. (2014 - 2015).

Juan R. Perez ~~Senior Vice President,~~

Chief Information and Engineering Officer

5154

Chief Information ~~Officer~~ and Engineering Officer (2017 - present), Chief Information Officer (2016 - 2017), Vice President, Information Services (2011 - 2016).

Scott A. Price

~~Senior Vice~~
President, UPS International

President, UPS International (2020 - present), Chief ~~Transformation Officer~~

~~Chief~~Strategy and Transformation Officer (2017 - ~~present)~~2020), ~~Walmart International~~ Executive Vice President of Global Leverage, Walmart International, Walmart Stores, Inc. (2017), Chief Administrative Officer and Executive Vice President, Walmart International, Walmart Stores Inc. (2016 - 2017), Chief Executive Officer and President of Walmart Asia Pte. Ltd. (2014 - 2016).

Charlene Thomas

Chief Diversity, Equity and Inclusion Officer

Chief Diversity, Equity and Inclusion Officer (2021 - present), Chief Human Resources Officer (2019 - 2020), President, Human Capital Transformation (March 2019 - July 2019), West Region Manager (2018 - 2019), North Atlantic District Manager (2018 - 2018), Mid-South District Manager (2016-2018), West-OPS Package Operations Manager (March 2016 - August 2016), U.S. Operations Training Staff Manager (2015-2016).

Kevin Warren
Chief Marketing Officer

Chief Marketing Officer (2018 - present), Executive Vice President and Chief ~~Executive~~Commercial Officer, ~~(2009~~Xerox Corp. (2017 - ~~2017).~~

~~Mark R. Wallace~~

~~Senior Vice~~2018), President, ~~Global Engineering~~Commercial Business Group, Xerox Corp. (2016 - 2017), President, Industrial, Retail and ~~Sustainability~~

~~Senior Vice President, Global Engineering and Sustainability~~Hospitality Business Group, Xerox Corp. (2015 - ~~present)~~2016), President ~~Global Logistics & Distribution (2013~~of Strategic Growth Initiatives, Xerox Corp. (2014 - 2015)~~, Corporate U.S. Engineering Coordinator (2012 - 2013)~~.

134

Information about our directors iswill be presented under the caption ~~“Your~~“Our Board of Directors" in our definitive ~~Proxy Statement~~proxy statement for ~~the Annual Meeting~~our meeting of ~~Shareowners~~shareowners to be held on May ~~10, 2018~~13, 2021 (the “Proxy Statement”) and is incorporated herein by reference.

Information about our Audit Committee iswill be presented under the caption ~~“Your~~“Our Board of Directors - Committees of the Board of Directors” and "Audit Committee Matters" in our ~~definitive~~ Proxy Statement ~~for the Annual Meeting of Shareowners to be held on May 10, 2018~~ and is incorporated herein by reference.

Information about our Code of Business Conduct is presented under the caption “Where You Can Find More Information” in Part I, Item 1 of this report.

Information about our compliance with Section 16 of the Exchange Act of 1934, as amended, is presented under the caption “Ownership of Our Securities - Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 10, 2018 and is incorporated herein by reference.


~~Item 11.~~	~~Executive Compensation~~

Item 11. Executive Compensation

Information about our board and executive compensation iswill be presented under the captions ~~“Your~~“Our Board of Directors - Director Compensation" and "Executive Compensation" in our ~~definitive~~ Proxy Statement ~~for the Annual Meeting of Shareowners to be held on May 10, 2018~~ and is incorporated herein by reference.


~~Item 12.~~	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information about security ownership iswill be presented under the caption “Ownership of Our Securities - Securities Ownership of Certain Beneficial Owners and Management” in our ~~definitive~~ Proxy Statement ~~for the Annual Meeting of Shareowners to be held on May 10, 2018~~ and is incorporated herein by reference.

Information about our equity compensation plans iswill be presented under the caption “Executive Compensation - Equity Compensation Plans” in our ~~definitive~~ Proxy Statement ~~for the Annual Meeting of Shareowners to be held on May 10, 2018~~ and is incorporated herein by reference.


~~Item 13.~~	~~Certain Relationships and Related Transactions, and Director Independence~~

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information about transactions with related persons iswill be presented under the caption “Corporate Governance - Conflicts of Interest and Related Person Transactions” in our ~~definitive~~ Proxy Statement ~~for the Annual Meeting of Shareowners to be held on May 10, 2018~~ and is incorporated herein by reference.

Information about director independence iswill be presented under the caption “Corporate Governance - Director Independence” in our ~~definitive~~ Proxy Statement ~~for the Annual Meeting of Shareowners to be held on May 10, 2018~~ and is incorporated herein by reference.


~~Item 14.~~	~~Principal Accounting Fees and Services~~

Item 14. Principal Accountant Fees and Services

Information about aggregate fees billed to us by our principal accountant iswill be presented under the caption “Audit Committee Matters - Principal Accounting Firm Fees” in our ~~definitive~~ Proxy Statement ~~for the Annual Meetings of Shareowners to be held on May 10, 2018~~ and is incorporated herein by reference.

135

PART IV


~~Item 15.~~	~~Exhibits and Financial Statement Schedules~~

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as a part of this report:

1. Financial Statements.

See Item 8 for the financial statements filed with this report.

2. Financial Statement Schedules.

None.

3. Exhibits.

See the Exhibit Index below for a list of the exhibits incorporated by reference into or filed with this report.

(b) Exhibits Required To Be Filed

See Item 15(a)1 ~~above~~above.

See Item 15(a) 2 ~~above~~above.


~~Item 16.~~	~~Form 10-K Summary~~

Item 16.Form 10-K Summary

~~None~~

None.

136

EXHIBIT INDEX


Exhibit No.				Description

~~Exhibit~~ ~~No.~~ 3.1				~~Description~~

~~3.1~~	—	~~Form of~~ Restated Certificate of Incorporation of United Parcel Service, Inc. (incorporated by reference to Exhibit ~~3.2~~3.3 to Form 8-K filed on May 12, 2010).

3.2			—	Amended and Restated Bylaws of United Parcel Service, Inc. as of November 17, 2017 (incorporated by reference to Exhibit 3.1 to Form 8-K, filed on November 17, 2017).

4.1			—	~~Indenture relating to 8 3/8% Debentures due April 1, 2020 (incorporated by reference to Exhibit 4(c) to Registration Statement No. 33-32481, filed December 7, 1989)~~⁽¹⁾.

~~4.2~~	—	Indenture dated as of December 18, 1997 (incorporated by reference to Exhibit T-3C to Form T-3 (No. 022-22295), filed on December 18, 1997)(1).

~~4.3~~4.2			—	Indenture dated as of January 26, 1999 (incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 1 to Form S-3 (No. 333-08369), filed on January 26, 1999)(1).

~~4.4~~4.3			—	Form of First Supplemental Indenture to Indenture dated as of ~~March 27, 2000 to Indenture dated~~ January 26, 1999 (incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 1 to Form S-3 (No. 333-08369-01), filed on March 15, 2000).

~~4.5~~4.4			—	Second Supplemental Indenture dated as of September 21, 2001 to Indenture dated as of January 26, 1999 (incorporated by reference to Exhibit 4 to Form 10-Q for the ~~Quarter Ended~~quarter ended September 30, 2001).

~~4.6~~4.5			—	Indenture dated as of August 26, 2003 (incorporated by reference to Exhibit 4.1 to Form S-3 (No. 333-108272), filed on August 27, 2003).

~~4.7~~4.6			—	First Supplemental Indenture dated as of November 15, 2013 to Indenture dated as of August 26, 2003 (incorporated by reference to Exhibit 4.2 to Form S-3ASR (No. 333-192369), filed on November 15, 2013).

~~4.8~~4.7			—	~~Form of~~ Second Supplemental Indenture dated as of May 18, 2017 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on May 18, 2017).

~~4.9~~4.8			—	Form of ~~Note for 5.50% Senior Notes due January 15, 2018 (incorporated by reference to Exhibit 4.2 to Form 8-K filed on January 15, 2008).~~

~~4.10~~	—	~~Form of Note for~~ 6.20% Senior Notes due January 15, 2038 (incorporated by reference to Exhibit 4.3 to Form 8-K, filed on January 15, 2008).



~~4.11~~4.9			—	Form of ~~Note for 5.125% Senior Notes due April 1, 2019 (incorporated by reference to Exhibit 4.2 to Form 8-K filed on March 24, 2009).~~

~~4.12~~	—	~~Form of Note for 3.125% Senior Notes due January 15, 2021 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on November 12, 2010).~~

~~4.13~~	—	~~Form of Note for~~ 4.875% Senior Notes due November 15, 2040 (incorporated by reference to Exhibit 4.2 to Form 8-K, filed on November 12, 2010).

~~4.14~~4.10			—	Form of ~~Note for 1.125% Senior Notes due October 1, 2017 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on September 27, 2012).~~

~~4.15~~	—	~~Form of Note for~~ 2.450% Senior Notes due October 1, 2022 (incorporated by reference to Exhibit 4.2 to Form 8-K, filed on September 27, 2012).

~~4.16~~4.11			—	Form of ~~Note for~~ 3.625% Senior Notes due October 1, 2042 (incorporated by reference to Exhibit 4.3 to Form 8-K, filed on September 27, 2012).

~~4.17~~4.12			—	Form of ~~Note for~~ Floating Rate Senior Notes due December 15, 2064 (incorporated by reference to Exhibit ~~4.3~~4.1 to Form 8-K, filed on December 15, 2014).

~~4.18~~4.13			—	Form of ~~Note for~~ Floating Rate Senior Notes due September 15, 2065 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on September 17, 2015).

~~4.19~~4.14			—	Form of ~~Note for Floating Rate Senior Notes due July 15, 2020 (incorporated by reference to Exhibit 4.1 and Exhibit 4.2 to Form 8-K filed on November 20, 2015).~~

~~4.20~~	—	~~Form of Note for~~ 1.625% Senior Notes due November 15, 2025 (incorporated by reference to Exhibit ~~4.1 and Exhibit~~ 4.2 to Form 8-K, filed on November 20, 2015).

~~4.21~~4.15			—	Form of ~~Note for Floating Rate Senior Notes due September 15, 2065 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on December 15, 2015).~~

~~4.22~~	—	~~Form of Note for~~ Floating Rate Senior Notes due March 15, 2066 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on April 1, 2016).

~~4.23~~4.16			—	Form of ~~Note for Floating Rate Senior Notes due March 15, 2066 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on June 15, 2016).~~

~~4.24~~	—	~~Form of Note for Floating Rate Senior Notes due March 15, 2066 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on August 24, 2016).~~

~~4.25~~	—	~~Form of Note for~~ 2.40% Senior Notes Due November 2026 (incorporated by reference to Exhibit 4.2 to Form 8-K, filed on October ~~24,~~25, 2016).

~~4.26~~4.17			—	Form of ~~Note for~~ 3.40% Senior Notes Due November 2046 (incorporated by reference to Exhibit 4.3 to Form 8-K, filed on October ~~24,~~25, 2016).

~~4.27~~4.18			—	Form of ~~Note for~~ 1.00% Senior Notes Due November 2028 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on October ~~24,~~25, 2016).

~~4.28~~4.19			—	Form of ~~Note for~~ Floating Rate Senior Notes due March 15, 2067 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on March 31, 2017).

~~4.29~~4.20			—	Form of ~~Note for~~ Floating Rate Senior Notes due May 16, 2022 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on May 16, 2017).

137


~~4.30~~4.21	—	Form of ~~Note~~ 2.350% Senior ~~Noted~~Notes due May 16, 2022 (incorporated by reference to Exhibit 4.2 to Form 8-K, filed on May 16, 2017).

~~4.31~~4.22	—	Form of ~~Note for~~ 2.125% Senior Notes due May 21, 2024 (incorporated by reference to Exhibit 4.2 to Form 8-K, filed on May 18, 2017).

~~4.32~~4.23	—	Form of ~~Note~~ 0.375% Senior Notes due November 15, 2023 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on November 13, 2017).

~~4.33~~4.24	—	Form of ~~Note~~ 1.500% Senior Notes due November 15, 2032 (incorporated by reference to Exhibit 4.2 to Form 8-K, filed on November 13, 2017).

~~4.34~~4.25	—	Form of ~~Note for~~ Floating Rate Senior Notes due April 1, 2021 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on November 14, 2017).



~~4.35~~4.26	—	Form of ~~Note for~~ Floating Rate Senior Notes due April 1, 2023 (incorporated by reference to Exhibit 4.2 to Form 8-K, filed on November 14, 2017).

~~4.36~~4.27	—	Form of ~~Note~~ 2.050% Senior Notes due April 1, 2021 (incorporated by reference to Exhibit 4.3 to Form 8-K, filed on November 14, 2017).

~~4.37~~4.28	—	Form of ~~Note~~ 2.500% Senior Notes due April 1, 2023 (incorporated by reference to Exhibit 4.4 to Form 8-K, filed on November 14, 2017).

~~4.38~~4.29	—	Form of ~~Note~~ 2.800% Senior Notes due November 15, 2024 (incorporated by reference to Exhibit 4.5 to Form 8-K, filed on November 14, 2017).

~~4.39~~4.30	—	Form of ~~Note~~ 3.050% Senior Notes due November 15, 2027 (incorporated by reference to Exhibit 4.6 to Form 8-K, filed on November 14, 2017).

~~4.40~~4.31	—	Form of ~~Note~~ 3.750% Senior Notes due November 15, 2047 (incorporated by reference to Exhibit 4.7 to Form 8-K, filed on November 14, 2017).

~~4.41~~4.32	—	Form of ~~Note for~~ Floating Rate Senior Notes due November 15, 2067 (incorporated by reference to Exhibit 4.8 to Form 8-K, filed on November 14, 2017).

~~10.1~~4.33	—	Form of 3.400% Senior Notes due March 15, 2029 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on March 15, 2019).

4.34	—	Form of 4.250% Senior Notes due March 15, 2049 (incorporated by reference to Exhibit 4.2 to Form 8-K, filed on March 15, 2019).

4.35	—	Form of 2.200% Senior Notes due September 1, 2024 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on August 16, 2019).

4.36	—	Form of 2.500% Senior Notes due September 1, 2029 (incorporated by reference to Exhibit 4.2 to Form 8-K filed on August 16, 2019).

4.37	—	Form of 3.400% Senior Notes due September 1, 2049 (incorporated by reference to Exhibit 4.3 to Form 8-K filed on August 16, 2019).

4.38	—	Form of 3.900% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on March 25, 2020).

4.39	—	Form of 4.450% Senior Notes due 2030 (incorporated by reference to Exhibit 4.2 to Form 8-K filed on March 25, 2020).

4.40	—	Form of 5.200% Senior Notes due 2040 (incorporated by reference to Exhibit 4.3 to Form 8-K filed on March 25, 2020).

4.41	—	Form of 5.300% Senior Notes due 2050 (incorporated by reference to Exhibit 4.4 to Form 8-K filed on March 25, 2020).

4.42	—	Description of Securities.

10.1	—	UPS Retirement Plan Amendment and Restatement Effective January 1, 2014 (incorporated by reference to Exhibit 10.1 to Form 10-K for the year ended December 31, 2014).*

10.1(a)	—	Amendment No. 1 to UPS Retirement Plan, as Amended and Restated, effective as of June 30, 2016 (incorporated by reference to Exhibit 10.1 to Form 10-Q for the ~~Quarter Ended~~quarter ended June 30, 2016).*

138


~~10.1(a)~~10.1(b)			—	Amendment Four to the Amended and Restated UPS Retirement Plan effective June 23, 2017 (incorporated by reference to Exhibit 10.2 to Form 8-K, filed on June 27, 2017).*
~~10.2~~
10.2			—	UPS 401(k) Savings Plan, Amendment and Restatement effective as of ~~July~~January 1, ~~2016~~2017 (incorporated by reference to Exhibit ~~10.2~~10.1 to Form ~~10-Q for the Quarter Ended September 30, 2016).~~
~~10.2(a)~~	—	~~Amended and Restated UPS 401(k) Savings Plan effective January 1, 2017 (incorporated by references to Exhibit 10.1 to~~ 8-K, filed on June 27, 2017).*

10.3			—	~~Amended and Restated~~ UPS Restoration Savings Plan effective January 1, 2017 (incorporated by reference to Exhibit 10.3 to Form 8-K, filed on June 27, 2017).*

10.4			—	Amendment One to the Amended and Restated UPS Excess Coordinating Benefit Plan effective June 23, 2017 (incorporated by reference to Exhibit 10.4 to Form 8-K, filed on June 27, 2017).*

~~10.5~~10.4(a)			—	UPS Excess Coordinating Benefit Plan, as Amended and Restated, effective as of January 1, 2012 (incorporated by reference to Exhibit 10.5 to Form 10-K for the ~~2012 Annual Report on Form 10-K)~~year ended December 31, 2012).*

~~10.6~~10.5			—	United Parcel Service, Inc. 2012 Omnibus Incentive Compensation Plan (incorporated by reference to Annex IIA to the Definitive Proxy Statement, filed on March 12, 2012).*

~~10.6(a)~~10.5(a)			—	Form of Long-Term Incentive Performance Award Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2011).*

~~10.6(b)~~10.5(b)			—	Form of ~~Non-Management~~Non-Employee Director Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit ~~10.2~~10.1 to the Quarterly Report on Form 10-Q for the quarter ended ~~March 31, 2010)~~June 30, 2019).*

~~10.6(c)~~10.5(c)			—	UPS Management Incentive Program Terms and Conditions effective as of January 1, 2011 (incorporated by reference to Exhibit 10.10(3) to the ~~2010 Annual Report on~~ Form 10-K) for the year ended December 31, 2010).*

~~10.6(d)~~10.5(d)			—	UPS Stock Option Program Terms and Conditions effective as of January 1, 2012 (incorporated by reference to Exhibit 10.7(4) to the ~~2011 Annual Report on~~ Form ~~10-K)~~10-K for the year ended December 31, 2011).*

~~10.6(e)~~10.5(e)			—	UPS Long-Term Incentive Performance Program Terms and Conditions effective as of January 1, 2012 (incorporated by reference to Exhibit 10.7(5) to the ~~2011 Annual Report on~~ Form ~~10-K)~~10-K for the year ended December 31, 2011).*

~~10.7~~10.6			—	Form of UPS Deferred Compensation Plan as Amended and Restated effective January 1, 2012 (incorporated by reference to Exhibit ~~10.11~~10.6 to Form 10-K for the ~~2010 Annual Report on Form 10-K)~~year ended December 31, 2018).*

~~10.7(a)~~10.6(a)			—	Amendment No. 1 to ~~the~~Amended and Restated UPS Deferred Compensation Plan (incorporated by reference to Exhibit 10.7(1) to the ~~2012 Annual Report on~~ Form ~~10-K).~~

~~10.8~~	—	~~United Parcel Service, Inc. Nonqualified Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to~~10-K for the ~~registration statement on Form S-8 (No. 333-34054), filed on April 5, 2000)~~year ended December 31, 2012).*

~~10.9~~	—	~~Discounted Employee Stock Purchase Plan, as Amended and Restated, effective October 1, 2002.~~



~~10.9(a)~~10.7			—	~~Amendment No. 1 to the Discounted Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.12(1) to the 2005 Annual Report on Form 10-K).~~

~~10.9(b)~~	—	~~Amendment No. 2 to the Discounted Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.13(2) to the 2009 Annual Report on Form 10-K).~~

~~10.9(c)~~	—	~~Amendment No. 3 to the Discounted Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9(3) to the 2012 Annual Report on Form 10-K).~~

~~10.10~~	—	2015 Omnibus Incentive Compensation Plan (incorporated by reference to Annex A to the Definitive Proxy Statement filed on March 24, 2015).*

1110.8			—	~~Statement regarding Computation of per Share Earnings~~2018 Omnibus Incentive Compensation Plan (incorporated by reference to ~~note 14~~Annex A to ~~Part I, Item 8 “Financial Statements and Supplementary Data” of this Annual Report~~the Definitive Proxy Statement filed on ~~Form 10-K)~~March 16, 2018).*

~~†12~~10.8(a)			—	~~Ratio of Earnings~~UPS Management Incentive Program Amended and Restated Terms and Conditions effective November 8, 2018 (incorporated by reference to ~~Fixed Charges.~~Exhibit 10.8(a) to Form 10-K for the year ended December 31, 2018).*

~~†21~~10.8(b)			—	~~Subsidiaries of~~UPS Stock Option Program Amended and Restated Terms and Conditions effective November 8, 2018 (incorporated by reference to Exhibit 10.8(b) to Form 10-K for the ~~Registrant.~~year ended December 31, 2018).*

~~†23~~10.8(c)			—	UPS Long-Term Incentive Performance Program Amended and Restated Terms and Conditions effective as of November 8, 2018 (incorporated by reference to Exhibit 10.8(c) to Form 10-K for the year ended December 31, 2018).*

10.9			—	Employment offer letter agreement between the Company and Scott Price, dated November 28, 2017 (incorporated by reference to Exhibit 10.9 to Form 10-K for the year ended December 31, 2018).*

10.10			—	Form of Protective Covenant Agreement between the Company and Scott Price (incorporated by reference to Exhibit 10.10 to Form 10-K for the year ended December 31, 2018).*

10.11			—	Employment offer letter agreement between the Company and Kevin Warren, dated May 5, 2018 (incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended December 31, 2018).*

10.12			—	Form of Protective Covenant Agreement between the Company and Kevin Warren (incorporated by reference to Exhibit 10.12 to Form 10-K for the year ended December 31, 2018).*

10.13			—	Employment offer letter agreement between the Company and Brian Newman, dated August 7, 2019 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on August 13, 2019).*

10.14			—	Protective Covenant Agreement between the Company and Brian Newman, dated August 7, 2019 (incorporated by reference to Exhibit 10.2 to Form 8-K filed on August 13, 2019).*

139


10.15	—	UPS Long-Term Incentive Performance Program Amended and Restated Terms and Conditions effective as of February 13, 2020 (incorporated by reference to Exhibit 10.16 to Form 10-K for the year ended December 31, 2019). *.

10.16	—	Employment offer letter agreement between UPS and Carol B Tomé, dated March 11, 2020 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 13, 2020).*

10.17	—	Protective Covenant Agreement between UPS and Carol Tomé, dated March 11, 2020 (incorporated by reference to Exhibit 10.2 to Form 8-K filed on March 13, 2020).*

10.18	—	Transition Agreement between UPS and David P. Abney, dated March 11, 2020 (incorporated by reference to Exhibit 10.3 to Form 8-K filed on March 13, 2020).*

10.19	—	Form of Protective Covenant Agreement between UPS and each of Nando Cesarone, Kate Gutmann, Juan Perez and George Willis.*

10.20	—	Retention Arrangement Letter between UPS and Nando Cesarone, dated April 1 5 , 2020.*

10.21	—	Retention Arrangement Letter between UPS and Kate Gutmann, dated April 15, 2020.*

10.22	—	Retention Arrangement Letter between UPS and Juan Perez, dated April 14, 2020.*

10.23	—	Retention Arrangement Letter between UPS and George Willis, dated April 15, 2020.*

21	—	Subsidiaries.

23	—	Consent of Deloitte & Touche LLP.

†31.1	—	Certificate of the ~~Chief~~Principal Executive Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

†31.2	—	Certificate of the ~~Chief~~Principal Financial Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

†32.1	—	Certification of the ~~Chief~~Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†32.2	—	Certification of the ~~Chief~~Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†101	—	The following financial information from the Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2020, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.

104	—	Cover Page Interactive Data File - The cover page from this Annual Report on Form 10-K for the year ended December 31, 2020 is formatted in iXBRL (included as Exhibit 101).

__________________________



†(1)		~~Filed herewith.~~
⁽¹⁾	Filed in paper format.
*		Management contract or compensatory plan or arrangement.

140

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, United Parcel Service, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


UNITED PARCEL SERVICE, INC.
(REGISTRANT)

~~UNITED PARCEL SERVICE, INC.~~By:		/S/ CAROL B. TOMÉ
~~(REGISTRANT)~~		Carol B. Tomé

~~By:~~	/S~~/ DAVID P. ABNEY~~
	~~David P. Abney~~
	~~Chairman and~~ Chief Executive Officer (Principal Executive Officer)

Date: February ~~21, 2018~~22, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/S/ CAROL B. TOMÉ

Chief Executive Officer

February 22, 2021

Carol B. Tomé

(Principal Executive Officer)

~~Signature~~/S/ BRIAN O. NEWMAN

~~Title~~

~~Date~~

/S~~/ DAVID~~ ~~P. ABNEY~~

~~Chairman, Chief Executive Officer and Director (Principal Executive Officer)~~

~~February 21, 2018~~

~~David P. Abney~~

/S~~/ RODNEY~~ ~~C. ADKINS~~

~~Director~~

~~February 21, 2018~~

~~Rodney C. Adkins~~

/S~~/ MICHAEL~~ ~~J. BURNS~~

~~Director~~

~~February 21, 2018~~

~~Michael J. Burns~~

/S~~/ WILLIAM~~ ~~R. JOHNSON~~

~~Director~~

~~February 21, 2018~~

~~William R. Johnson~~

/S~~/ Dr. CANDACE~~ K~~ENDLE~~

~~Director~~

~~February 21, 2018~~

~~Candace Kendle~~

/S~~/ A~~NN ~~M. LIVERMORE~~

~~Director~~

~~February 21, 2018~~

~~Ann M. Livermore~~

/S~~/ RUDY~~ ~~H.P. MARKHAM~~

~~Director~~

~~February 21, 2018~~

~~Rudy H. P. Markham~~

/S~~/ FRANCK~~ ~~J. MOISON~~

~~Director~~

~~February 21, 2018~~

~~Franck J. Moison~~

/S~~/ RICHARD~~ ~~N. PERETZ~~

Senior Vice President, Chief Financial Officer and Treasurer

February ~~21, 2018~~22, 2021

~~Richard N. Peretz~~Brian O. Newman

~~(Principal~~(Principal Financial ~~and Accounting~~ Officer)

/S~~/ CLARK~~ ~~T. RANDT, J~~R.

S/ RODNEY C. ADKINS

Director

February ~~21, 2018~~22, 2021

Rodney C. Adkins

/S/ EVA C. BORATTO

Director

February 22, 2021

Eva C. Boratto

/S/ MICHAEL J. BURNS

Director

February 22, 2021

Michael J. Burns

/S/ WAYNE M. HEWETT

Director

February 22, 2021

Wayne M. Hewett

/S/ ANGELA HWANG

Director

February 22, 2021

Angela Hwang

/S/ KATE E. JOHNSON

Director

February 22, 2021

Kate E. Johnson

/S/ WILLIAM R. JOHNSON

Director

February 22, 2021

William R. Johnson

/S/ ANN M. LIVERMORE

Director

February 22, 2021

Ann M. Livermore

/S/ RUDY H.P. MARKHAM

Director

February 22, 2021

Rudy H.P. Markham

/S/ FRANCK J. MOISON

Director

February 22, 2021

Franck J. Moison

/S/ CLARK T. RANDT, JR.

Director

February 22, 2021

Clark T. Randt, Jr.

/S~~/ JOHN~~ ~~T. STANKEY~~

S/ CHRISTIANA SMITH SHI

Director

February ~~21, 2018~~22, 2021

~~John T. Stankey~~Christiana Smith Shi

/S~~/ CAROL~~ ~~B. TOMÉ~~

S/ RUSSELL STOKES

Director

February ~~21, 2018~~22, 2021

~~Carol B. Tomé~~Russell Stokes

/S/ K~~EVIN~~ KEVIN M. W~~ARSH~~

WARSH

Director

February ~~21, 2018~~22, 2021

Kevin M. Warsh

~~135~~141


Delaware		58-2480149
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

~~Delaware~~		~~58-2480149~~
~~(State or Other Jurisdiction of~~ ~~Incorporation or Organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~
~~55 Glenlake Parkway, N.E. Atlanta, Georgia~~	~~30328~~
~~(Address of Principal Executive Offices)~~	~~(Zip Code)~~



Title of Each Class		Trading Symbol		Name of Each Exchange on Which Registered
Class B common stock, par value $.01 per share		UPS		New York Stock Exchange
~~Floating-Rate~~0.375% Senior Notes due ~~2020~~2023		UPS23A		New York Stock Exchange
1.625% Senior Notes due 2025		UPS25		New York Stock Exchange
1% Senior Notes due 2028		UPS28		New York Stock Exchange
~~0.375% Senior Notes due 2023~~			~~New York Stock Exchange~~
1.500% Senior Notes due 2032	UPS32		New York Stock Exchange



x☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	PART I
Item 1.	Business	1
	Overview	1
	Strategy	12
	~~Reporting Segments and Products & Services~~Competitive Strengths	2
	~~Our People~~Products and Services; Reporting Segments	52
	~~Competition~~Human Capital	5
	~~Competitive Strengths~~Customers	6
	Competition	6
	Government Regulation	6
	Where You Can Find More Information	8
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	1617
	Operating Facilities	1617
	Fleet	1718
Item 3.	Legal Proceedings	1718
Item 4.	Mine Safety Disclosures	1718
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1819
	Shareowner Return Performance Graph	1920
Item 6.	Selected Financial Data	2021
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2122
	Overview	2122
	Supplemental Information - Items Affecting Comparability	2224
	U.S. Domestic Package Operations	2528
	International Package Operations	3031
	Supply Chain & Freight Operations	34
	Consolidated Operating Expenses	3836
	~~Investment~~Other Income and ~~Interest Expense~~(Expense)	4239
	Income Tax Expense	4340
	Liquidity and Capital Resources	4641
	Collective Bargaining Agreements	5247
	New Accounting Pronouncements	5247
	~~Critical Accounting Policies and Estimates~~Rate Adjustments	5348
	Critical Accounting Estimates	49
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	5954
Item 8.	Financial Statements and Supplementary Data	6156
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~126~~131
Item 9A.	Controls and Procedures	~~126~~131
Item 9B.	Other Information	~~128~~133
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~129~~134
Item 11.	Executive Compensation	~~130~~135
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~130~~135
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~130~~135
Item 14.	Principal ~~Accounting~~Accountant Fees and Services	~~130~~135
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	~~131~~136
Item 16.	Form 10-K Summary	~~131~~136


◦	~~We expanded UPS WorldWide Express to five new countries around the globe.~~


◦	~~UPS Express now reaches 124 countries with guaranteed mid-day delivery and 56 countries with guaranteed morning delivery with Express Plus.~~


◦	~~Express Saver reaches 220 countries and territories with guaranteed end-of-day delivery.~~


◦	~~Express Freight Midday is available from all 67 WorldWide Express Freight origin countries to 35 destination countries.~~



Description	Owned and Capital Leases	Short-term Leased or Chartered From Others	On Order	Under Option
Boeing 757-200F	75	—	—	—
Boeing 767-300ERF	59	—	—	—
Boeing 767-300BCF	2	—	1	—
Airbus A300-600F	52	—	—	—
Boeing MD-11F	37	—	—	—
Boeing 747-400F	11	—	—	—
Boeing 747-400BCF	2	—	—	—
Boeing 747-8F	3	—	11	14
Other	—	340	—	—
Total	241	340	12	14



	High		Low		Close		Dividends Declared
2017:
First Quarter	$	118.19	$	103.23	$	107.30	$	0.83
Second Quarter	$	111.55	$	102.12	$	110.59	$	0.83
Third Quarter	$	120.42	$	106.98	$	120.09	$	0.83
Fourth Quarter	$	125.16	$	111.30	$	119.15	$	0.83
2016:
First Quarter	$	106.10	$	88.70	$	105.47	$	0.78
Second Quarter	$	107.72	$	100.66	$	107.72	$	0.78
Third Quarter	$	111.50	$	106.86	$	109.36	$	0.78
Fourth Quarter	$	120.16	$	106.84	$	114.64	$	0.78



	Total Number of Shares Purchased₍₁₎	Total Number of Shares Purchased as Part of Publicly Announced Program	Average Price Paid Per Share		Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (as of month-end)
October 1—October 31	1.3	1.3	$	119.28	$	4,644
November 1—November 30	1.2	1.2	123.47		4,490
December 1—December 31	1.3	1.3	119.50		4,339
Total October 1—December 31	3.8	3.8	$	120.71


~~Item 1.~~	~~Business~~


~~Item 1A.~~	~~Risk Factors~~



	12/31/2012		12/31/2013		12/31/2014		12/31/2015		12/31/2016		12/31/2017
United Parcel Service, Inc.	$	100.00	$	146.54	$	159.23	$	148.89	$	182.70	$	195.75
Standard & Poor’s 500 Index	$	100.00	$	132.38	$	150.49	$	152.55	$	170.79	$	208.06
Dow Jones Transportation Average	$	100.00	$	141.38	$	176.83	$	147.19	$	179.37	$	213.49



	Volume		Rates / Product Mix		Fuel Surcharge		Total Revenue Change
Revenue Change Drivers:
2017/ 2016	3.8	%	1.7	%	0.9	%	6.4	%
2016/ 2015	4.6	%	0.2	%	(0.6	)%	4.2	%



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2017
Marketable securities:
U.S. government and agency debt securities	$	283	$	—	$	—	$	283
Mortgage and asset-backed debt securities	—		86		—		86
Corporate debt securities	—		276		—		276
Equity securities	—		2		—		2
Non-U.S. government debt securities	—		9		—		9
Carbon credit investments	93		—		—		93
Total marketable securities	376		373		—		749
Other non-current investments	19		—		6		25
Total	$	395	$	373	$	6	$	774

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2016
Marketable securities:
U.S. government and agency debt securities	$	312	$	—	$	—	$	312
Mortgage and asset-backed debt securities	—		91		—		91
Corporate debt securities	—		593		—		593
Equity securities	—		2		—		2
Non-U.S. government debt securities	—		3		—		3
Carbon credit investments	90		—		—		90
Total marketable securities	402		689		—		1,091
Other non-current investments	18		—		13		31
Total	$	420	$	689	$	13	$	1,122



	Marketable Securities		Other Investments			Total
Balance on January 1, 2016	$	—	$	32		$	32
Transfers into (out of) Level 3	—		—			—
Net realized and unrealized gains (losses):
Included in earnings (in investment income)	—		(19		)	(19		)
Included in accumulated other comprehensive income (pre-tax)	—		—			—
Purchases	—		—			—
Settlements	—		—			—
Balance on December 31, 2016	$	—	$	13		$	13
Transfers into (out of) Level 3	—		—			—
Net realized and unrealized gains (losses):
Included in earnings (in investment income)	—		(7		)	(7		)
Included in accumulated other comprehensive income (pre-tax)	—		—			—
Purchases	—		—			—
Settlements	—		—			—
Balance on December 31, 2017	$	—	$	6		$	6



	1% Increase		1% Decrease
Effect on total of service cost and interest cost	$	3	$	(3	)
Effect on postretirement benefit obligation	$	65	$	(71	)



	U.S. Pension Benefits						U.S. Postretirement Medical Benefits						International Pension Benefits
	2017			2016			2017			2016			2017			2016
Benefit Obligations:
Projected benefit obligation at beginning of year	$	41,069		$	36,846		$	2,730		$	2,673		$	1,425		$	1,219
Service cost	1,543			1,412			29			28			60			49
Interest cost	1,813			1,828			112			124			40			41
Gross benefits paid	(1,309		)	(1,885		)	(264		)	(264		)	(32		)	(28		)
Plan participants’ contributions	—			—			26			27			3			3
Plan amendments⁽¹⁾	—			285			—			15			—			—
Actuarial (gain)/loss	4,256			2,583			159			126			26			208
Foreign currency exchange rate changes	—			—			—			—			129			(67		)
Curtailments and settlements	(1,525		)	—			—			—			(3		)	(3		)
Other	—			—			—			1			3			3
Projected benefit obligation at end of year	$	45,847		$	41,069		$	2,792		$	2,730		$	1,651		$	1,425

⁽¹⁾ Resulting from a new labor contract with the Independent Pilots Association.

	U.S. Pension Benefits						U.S. Postretirement Medical Benefits						International Pension Benefits
	2017			2016			2017			2016			2017			2016
Fair Value of Plan Assets:
Fair value of plan assets at beginning of year	$	31,215		$	28,887		$	15		$	130		$	1,092		$	1,014
Actual return on plan assets	4,717			1,735			(2		)	3			96			108
Employer contributions	7,309			2,478			408			119			77			71
Plan participants’ contributions	—			—			26			27			3			3
Gross benefits paid	(1,309		)	(1,885		)	(264		)	(264		)	(32		)	(28		)
Foreign currency exchange rate changes	—			—			—			—			100			(73		)
Curtailments and settlements	—			—			—			—			(3		)	(3		)
Fair value of plan assets at end of year	$	41,932		$	31,215		$	183		$	15		$	1,333		$	1,092



	Total Assets⁽¹⁾		Level 1		Level 2		Level 3		Percentage of Plan Assets		Target Allocation
Asset Category (U.S. Plans):
Cash and cash equivalents⁽²⁾	$	5,725	$	5,292	$	433	$	—	13.6	%	0-5
Equity Securities:
U.S. Large Cap	5,924		3,121		2,803		—
U.S. Small Cap	591		421		170		—
Emerging Markets	2,101		1,669		432		—
Global Equity	2,817		2,400		417		—
International Equity	4,791		2,950		1,841		—
Total Equity Securities	16,224		10,561		5,663		—		38.5		35-55
Fixed Income Securities:
U.S. Government Securities	7,695		7,323		372		—
Corporate Bonds	3,865		—		3,857		8
Global Bonds	53		—		53		—
Municipal Bonds	21		—		21		—
Total Fixed Income Securities	11,634		7,323		4,303		8		27.6		25-35
Other Investments:
Hedge Funds	2,910		—		1,031		—		6.9		5-15
Private Equity	2,107		—		—		—		5.0		1-10
Private Debt	953		—		237		—		2.3		1-10
Real Estate	2,031		157		139		—		4.8		1-10
Structured Products⁽³⁾	172		—		172		—		0.4		0-5
Risk Parity Funds	359		—		—				0.9		1-10
Total U.S. Plan Assets	$	42,115	$	23,333	$	11,978	$	8	100.0	%
Asset Category (International Plans):
Cash and cash equivalents	$	78	$	43	$	35			5.8		0-10
Equity Securities:
Local Markets Equity	213		—		213
U.S. Equity	30		—		30
Emerging Markets	38		38		—
International / Global Equity	356		166		190
Total Equity Securities	637		204		433		—		47.7		30-60
Fixed Income Securities:
Local Government Bonds	103		25		78
Corporate Bonds	198		59		139
Total Fixed Income Securities	301		84		217		—		22.6		25-50
Other Investments:
Real Estate	124		—		79				9.3		5-10
Other	193		—		184				14.6		0-20
Total International Plan Assets	$	1,333	$	331	$	948	$	—	100.0	%
Total Plan Assets	$	43,448	$	23,664	$	12,926	$	8



	Corporate Bonds			Other			Total
Balance on January 1, 2016	$	6		$	49		$	55
Actual Return on Assets:
Assets Held at End of Year	—			—			—
Assets Sold During the Year	—			(49		)	(49		)
Purchases	—			—			—
Sales	(6		)	—			(6		)
Transfers Into (Out of) Level 3	—			—			—
Balance on December 31, 2016	$	—		$	—		$	—
Actual Return on Assets:
Assets Held at End of Year	—			—			—
Assets Sold During the Year	—			—			—
Purchases	9			—			9
Sales	(1		)	—			(1		)
Transfers Into (Out of) Level 3	—			—			—
Balance on December 31, 2017	$	8		$	—		$	8



	U.S. Pension Benefits		U.S. Postretirement Medical Benefits		International Pension Benefits
Prior service cost	$	193	$	7	$	1



	EIN / Pension Plan	Pension Protection Act Zone Status		FIP / RP Status Pending /	(in millions) UPS Contributions and Accruals						Surcharge
Pension Fund	Number	2017	2016	Implemented	2017		2016		2015		Imposed
Alaska Teamster-Employer Pension Plan	92-6003463-024	Red	Red	Yes/Implemented	$	5	$	5	$	5	No
Automotive Industries Pension Plan	94-1133245-001	Red	Red	Yes/Implemented	5		4		4		No
Central Pennsylvania Teamsters Defined Benefit Plan	23-6262789-001	Green	Green	No	40		38		36		No
Eastern Shore Teamsters Pension Fund	52-0904953-001	Green	Green	No	5		5		4		No
Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund	55-6021850-001	Red	Red	Yes/Implemented	12		11		11		No
Hagerstown Motor Carriers and Teamsters Pension Fund	52-6045424-001	Red	Red	Yes/Implemented	8		7		7		No
I.A.M. National Pension Fund / National Pension Plan	51-6031295-002	Green	Green	No	35		31		29		No
International Brotherhood of Teamsters Union Local No. 710 Pension Fund	36-2377656-001	Green	Green	No	118		107		106		No
Local 705, International Brotherhood of Teamsters Pension Plan	36-6492502-001	Yellow	Red	Yes/Implemented	93		88		91		No
Local 804 I.B.T. & Local 447 I.A.M.—UPS Multiemployer Retirement Plan	51-6117726-001	Yellow	Red	Yes/Implemented	110		103		97		No
Milwaukee Drivers Pension Trust Fund	39-6045229-001	Green	Green	No	38		36		35		No
New England Teamsters & Trucking Industry Pension Fund	04-6372430-001	Red	Red	Yes/Implemented	114		114		110		No
New York State Teamsters Conference Pension and Retirement Fund	16-6063585-074	Red	Red	Yes/Implemented	100		91		86		No
Teamster Pension Fund of Philadelphia and Vicinity	23-1511735-001	Yellow	Yellow	Yes/Implemented	60		56		53		No
Teamsters Joint Council No. 83 of Virginia Pension Fund	54-6097996-001	Green	Yellow	No	64		61		57		No
Teamsters Local 639—Employers Pension Trust	53-0237142-001	Green	Green	No	55		51		48		No
Teamsters Negotiated Pension Plan	43-6196083-001	Green	Green	No	32		31		30		No
Truck Drivers and Helpers Local Union No. 355 Retirement Pension Plan	52-6043608-001	Green	Yellow	No	20		19		17		No
United Parcel Service, Inc.—Local 177, I.B.T. Multiemployer Retirement Plan	13-1426500-419	Red	Red	Yes/Implemented	88		83		83		No
Western Conference of Teamsters Pension Plan	91-6145047-001	Green	Green	No	772		694		646		No
Western Pennsylvania Teamsters and Employers Pension Fund	25-6029946-001	Red	Red	Yes/Implemented	30		28		26		No
All Other Multiemployer Pension Plans					66		56		42
				Total Contributions	$	1,870	$	1,719	$	1,623



Year	Capital Leases			Operating Leases		Debt Principal		Purchase Commitments ⁽¹⁾
2018	$	81		$	398	$	3,960	$	3,789
2019	79			305		1,009		2,462
2020	69			239		1,024		2,428
2021	49			186		2,551		1,926
2022	45			138		2,000		323
After 2022	500			371		13,342		13
Total	823			$	1,637	$	23,886	$	10,941
Less: imputed interest	(323		)
Present value of minimum capitalized lease payments	500
Less: current portion	(51		)
Long-term capitalized lease obligations	$	449



	Shares (in thousands)		Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Nonvested at January 1, 2017	11,475		$	94.32
Vested	(5,100	)	90.71
Granted	3,927		105.62
Reinvested Dividends	332		N/A
Forfeited / Expired	(163	)	99.70
Nonvested at December 31, 2017	10,471		$	99.16	1.38	$	1,248
Restricted Units Expected to Vest	10,325		$	99.20	1.38	$	1,230



	Tax			Interest			Penalties
Balance at January 1, 2015	$	172		$	42		$	3
Additions for tax positions of the current year	24			—			—
Additions for tax positions of prior years	45			21			3
Reductions for tax positions of prior years for:
Changes based on facts and circumstances	(85		)	(8		)	—
Settlements during the period	(6		)	(2		)	—
Lapses of applicable statute of limitations	(2		)	—			—
Balance at December 31, 2015	148			53			6
Additions for tax positions of the current year	17			—			—
Additions for tax positions of prior years	20			10			—
Reductions for tax positions of prior years for:
Changes based on facts and circumstances	(41		)	(13		)	—
Settlements during the period	—			—			—
Lapses of applicable statute of limitations	—			—			—
Balance at December 31, 2016	144			50			6
Additions for tax positions of the current year	16			—			—
Additions for tax positions of prior years	33			14			3
Reductions for tax positions of prior years for:
Changes based on facts and circumstances	(24		)	(18		)	—
Settlements during the period	(6		)	(3		)	—
Lapses of applicable statute of limitations	(3		)	—			—
Balance at December 31, 2017	$	160		$	43		$	9



		Gross Amounts Presented in Consolidated Balance Sheets				Net Amounts if Right of Offset had been Applied
Asset Derivatives	Balance Sheet Location	2017		2016		2017		2016
Derivatives Designated As Hedges:
Foreign exchange contracts	Other current assets	$	2	$	176	$	—	$	176
Interest rate contracts	Other current assets	1		—		1		—
Foreign exchange contracts	Other non-current assets	1		131		—		126
Interest rate contracts	Other non-current assets	59		137		43		119
Derivatives Not Designated As Hedges:
Foreign exchange contracts	Other current assets	18		1		17		1
Interest rate contracts	Other non-current assets	26		42		26		40
Total Asset Derivatives		$	107	$	487	$	87	$	462



Derivative Instruments in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income						Hedged Items in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
Derivative Instruments in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income	2017			2016			Hedged Items in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income	2017		2016
Interest rate contracts	Interest Expense	$	(84	)	$	(71	)	Fixed-Rate Debt and Capital Leases	Interest Expense	$	84	$	71



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2017
Assets:
Foreign Exchange Contracts	$	—	$	21	$	—	$	21
Interest Rate Contracts	—		86		—		86
Total	$	—	$	107	$	—	$	107
Liabilities:
Foreign Exchange Contracts	$	—	$	288	$	—	$	288
Investment Market Price Contracts	—		16		—		16
Interest Rate Contracts	—		28		—		28
Total	$	—	$	332	$	—	$	332

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2016
Assets:
Foreign Exchange Contracts	$	—	$	308	$	—	$	308
Interest Rate Contracts	—		179		—		179
Total	$	—	$	487	$	—	$	487
Liabilities:
Foreign Exchange Contracts	$	—	$	6	$	—	$	6
Investment Market Price Contracts	—		10		—		10
Interest Rate Contracts	—		29		—		29
Total	$	—	$	45	$	—	$	45