United States

Securities and Exchange Commission

Washington, D.C. 20549

_____________________________________

Form 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023 or


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-15451

_____________________________________

United Parcel Service, Inc.

(Exact name of registrant as specified in its charter)

Delaware

58-2480149

(State or Other Jurisdiction of
Incorporation or Organization)

(IRS Employer
Identification No.)

55 Glenlake Parkway N.E. ,

Atlanta,

Georgia

30328

(Address of Principal Executive Offices)

(Zip Code)

(404) 828-6000

(Registrant’s telephone number, including area code)

____________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Class B common stock, par value $0.01 per share

UPS

New York Stock Exchange

0.375% Senior Notes due 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

1.500% Senior Notes due 2032

UPS32

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

There were ~~135,097,238~~134,106,663 Class A shares, and ~~729,820,920~~724,779,682 Class B shares, with a par value of $0.01 per share, outstanding at ~~October 21, 2022.~~April 24, 2023.

Table of Contents

TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION
	Cautionary Statement About Forward-Looking Statements	1
Item 1.	Financial Statements	2
	Consolidated Balance Sheets	2
	Statements of Consolidated Income	3
	Statements of Consolidated Comprehensive Income (Loss)	3
	Statements of Consolidated Cash Flows	4
	Notes to Unaudited, Consolidated Financial Statements	5
	Note 1—Basis of Presentation and Accounting Policies	5
	Note 2—Recent Accounting Pronouncements	67
	Note 3—Revenue Recognition	78
	Note 4—Stock-Based Compensation	910
	Note 5—~~Cash~~Marketable Securities and Non-Current Investments	1112
	Note 6—Property, Plant and Equipment	1415
	Note 7—Employee Benefit Plans	1516
	Note 8—Goodwill and Intangible Assets	18
	Note 9—Debt and Financing Arrangements	20
	Note 10—Leases	23
	Note 11—Legal Proceedings and Contingencies	2726
	Note 12—Shareowners’ Equity	2827
	Note 13—Segment Information	3431
	Note 14—Earnings Per Share	3532
	Note 15—Derivative Instruments and Risk Management	3633
	Note 16—Income Taxes	4237
	Note 17—Transformation Strategy Costs	4338
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4439
	Overview	4439
	Supplemental Information - Items Affecting Comparability	4641
	Results of Operations - Segment Review	4843
	U.S. Domestic Package Operations	4944
	International Package Operations	5247
	Supply Chain Solutions Operations	5550
	Consolidated Operating Expenses	5752
	Other Income and (Expense)	6055
	Income Tax Expense	6156
	Liquidity and Capital Resources	6257
	Cash Flows From Operating Activities	6257
	Cash Flows From Investing Activities	6458
	Cash Flows From Financing Activities	6559
	Sources of Credit	6660
	Contractual Commitments	6660
	Legal Proceedings and Contingencies	6660
	Collective Bargaining Agreements	6660
	Recent Accounting Pronouncements	66
	~~Rate Adjustments~~	6760
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6861
Item 4.	Controls and Procedures	6962
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	7063
Item 1A.	Risk Factors	7063
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7164
Item 6.	Exhibits	7265

Table of Contents

PART I. FINANCIAL INFORMATION

Cautionary Statement About Forward-Looking Statements

This report, our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and our other filings with the Securities and Exchange Commission contain and in the future may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than those of current or historical fact, and all statements accompanied by terms such as “will,” “believe,” “project,” “expect,” “estimate,” “assume,” “intend,” “anticipate,” “target,” ~~“plan”~~“plan,” and similar terms, are intended to be forward-looking statements. Forward-looking statements are made subject to the safe harbor provisions of the federal securities laws pursuant to Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

From time to time, we also include written or oral forward-looking statements in other publicly disclosed materials. Such statements may relate to our intent, belief, forecasts of, or current expectations about our strategic direction, prospects, future results, or future events; they do not relate strictly to historical or current facts. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any forward-looking statements because such statements speak only as of the date when made and the future, by its very nature, cannot be predicted with certainty.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or anticipated results. These risks and uncertainties include, but are not limited ~~to:~~to, the impact of: continued uncertainties related to the ~~impact of the~~ COVID-19 ~~pandemic on our business and operations, financial performance and liquidity, our customers and suppliers, and on the global economy;~~pandemic; changes in general economic conditions, in the ~~United States ("~~U.S.") or internationally; industry evolution and significant ~~competition on a local, regional, national and international basis;~~competition; changes in our relationships with any of our significant customers; ~~changes in the regulatory environment in the U.S.~~our ability to attract and retain qualified employees; strikes, work stoppages or ~~internationally; increased or more complex physical or data security requirements; legal, regulatory or market responses to global climate change;~~slowdowns by our employees; results of negotiations and ratifications of labor contracts; strikes, work stoppages or slowdowns by our employees; the effects of changing prices of energy, including gasoline, diesel and jet fuel, and interruptions in supplies of these commodities; changes in exchange rates or interest rates; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; our ability to maintain our brand ~~image; our ability to attract~~image and ~~retain qualified employees; breaches in~~corporate reputation; increased or more complex physical security requirements; a significant data ~~security; disruptions to the Internet~~breach or ~~our~~information technology ~~infrastructure;~~system disruption; global climate change; interruptions in or impacts on our business from natural or man-made events or disasters including terrorist attacks, epidemics or pandemics; exposure to changing economic, political and social developments in international markets; our ability to realize the anticipated benefits from acquisitions, dispositions, joint ventures or strategic alliances; changing prices of energy, including gasoline, diesel and jet fuel, or interruptions in supplies of these commodities; changes in exchange rates or interest rates; our ability to accurately forecast our future capital investment needs; ~~exposure~~significant expenses and funding obligations relating to ~~changing economic, political~~employee health, retiree health and/or pension benefits; our ability to manage insurance and ~~social developments in international and emerging markets;~~claims expenses; changes in business strategy, government regulations, or economic or market conditions that may result in ~~impairment~~impairments of our assets; ~~increases in our expenses or funding obligations relating to employee health, retiree health and/or pension benefits;~~ potential additional U.S. or international tax liabilities; increasingly stringent laws and regulations, including relating to climate change; potential claims or litigation related to labor and employment, personal injury, property damage, business practices, environmental liability and other matters; our ability to realize the anticipated benefits from acquisitions, dispositions, joint ventures or strategic alliances; our ability to realize the anticipated benefits from our transformation initiatives; cyclical and seasonal fluctuations in our operating results; our ability to manage insurance and claims expenses; and other risks ~~described~~discussed in our filings with the Securities and Exchange Commission from time to time, including our Annual Report on Form 10-K for the year ended December ~~31, 2021, our Quarterly Report on Form 10-Q for the quarter ended March~~ 31, 2022, and subsequently filed reports. You should consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements. We do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations, or the occurrence of unanticipated events after the date of those statements, except as required by law.

Table of Contents

Item 1. Financial Statements

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021~~2022 (in millions)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	11,045	$	10,255	Cash and cash equivalents	$	6,190	$	5,602
Marketable securities	Marketable securities	331		338		Marketable securities	3,208		1,993
Accounts receivable	Accounts receivable	11,118		12,669		Accounts receivable	10,448		12,729
Less: Allowance for credit losses	Less: Allowance for credit losses	(143)		(128)		Less: Allowance for credit losses	(149)		(146)
Accounts receivable, net	Accounts receivable, net	10,975		12,541		Accounts receivable, net	10,299		12,583

Other current assets	Other current assets	2,247		1,800		Other current assets	2,028		2,039
Total Current Assets	Total Current Assets	24,598		24,934		Total Current Assets	21,725		22,217
Property, Plant and Equipment, Net	Property, Plant and Equipment, Net	33,625		33,475		Property, Plant and Equipment, Net	34,995		34,719
Operating Lease Right-Of-Use Assets	Operating Lease Right-Of-Use Assets	3,417		3,562		Operating Lease Right-Of-Use Assets	4,089		3,755
Goodwill	Goodwill	3,624		3,692		Goodwill	4,249		4,223
Intangible Assets, Net	Intangible Assets, Net	2,439		2,486		Intangible Assets, Net	2,811		2,796
Investments and Restricted Cash		20		26
Deferred Income Tax Assets	Deferred Income Tax Assets	143		176		Deferred Income Tax Assets	155		139
Other Non-Current Assets	Other Non-Current Assets	1,678		1,054		Other Non-Current Assets	4,165		3,275
Total Assets	Total Assets	$	69,544	$	69,405	Total Assets	$	72,189	$	71,124
LIABILITIES AND SHAREOWNERS’ EQUITY	LIABILITIES AND SHAREOWNERS’ EQUITY					LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Current maturities of long-term debt, commercial paper and finance leases	Current maturities of long-term debt, commercial paper and finance leases	$	2,581	$	2,131	Current maturities of long-term debt, commercial paper and finance leases	$	2,332	$	2,341
Current maturities of operating leases	Current maturities of operating leases	560		580		Current maturities of operating leases	668		621
Accounts payable	Accounts payable	6,731		7,523		Accounts payable	6,302		7,515
Accrued wages and withholdings	Accrued wages and withholdings	3,643		3,819		Accrued wages and withholdings	3,012		4,049
Self-insurance reserves	Self-insurance reserves	1,081		1,048		Self-insurance reserves	1,069		1,069
Accrued group welfare and retirement plan contributions	Accrued group welfare and retirement plan contributions	1,006		1,038		Accrued group welfare and retirement plan contributions	1,196		1,078
Hedge margin liabilities		1,031		260

Other current liabilities	Other current liabilities	1,046		1,170		Other current liabilities	1,683		1,467
Total Current Liabilities	Total Current Liabilities	17,679		17,569		Total Current Liabilities	16,262		18,140
Long-Term Debt and Finance Leases	Long-Term Debt and Finance Leases	17,769		19,784		Long-Term Debt and Finance Leases	19,856		17,321
Non-Current Operating Leases	Non-Current Operating Leases	2,960		3,033		Non-Current Operating Leases	3,539		3,238
Pension and Postretirement Benefit Obligations	Pension and Postretirement Benefit Obligations	6,747		8,047		Pension and Postretirement Benefit Obligations	4,602		4,807
Deferred Income Tax Liabilities	Deferred Income Tax Liabilities	3,761		3,125		Deferred Income Tax Liabilities	4,345		4,302
Other Non-Current Liabilities	Other Non-Current Liabilities	3,640		3,578		Other Non-Current Liabilities	3,532		3,513
Shareowners’ Equity:	Shareowners’ Equity:					Shareowners’ Equity:
Class A common stock (135 and 138 shares issued in 2022 and 2021, respectively)		2		2
Class B common stock (730 and 732 shares issued in 2022 and 2021, respectively)		7		7
Class A common stock (135 and 134 shares issued in 2023 and 2022, respectively)						Class A common stock (135 and 134 shares issued in 2023 and 2022, respectively)	2		2
Class B common stock (724 and 725 shares issued in 2023 and 2022, respectively)						Class B common stock (724 and 725 shares issued in 2023 and 2022, respectively)	7		7
Additional paid-in capital	Additional paid-in capital	—		1,343		Additional paid-in capital	—		—
Retained earnings	Retained earnings	20,177		16,179		Retained earnings	21,510		21,326
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,218)		(3,278)		Accumulated other comprehensive loss	(1,481)		(1,549)
Deferred compensation obligations	Deferred compensation obligations	12		16		Deferred compensation obligations	9		13
Less: Treasury stock (0.2 and 0.3 shares in 2022 and 2021, respectively)		(12)		(16)
Less: Treasury stock (0.2 shares in both 2023 and 2022)						Less: Treasury stock (0.2 shares in both 2023 and 2022)	(9)		(13)
Total Equity for Controlling Interests	Total Equity for Controlling Interests	16,968		14,253		Total Equity for Controlling Interests	20,038		19,786
Noncontrolling interests	Noncontrolling interests	20		16		Noncontrolling interests	15		17
Total Shareowners’ Equity	Total Shareowners’ Equity	16,988		14,269		Total Shareowners’ Equity	20,053		19,803
Total Liabilities and Shareowners’ Equity	Total Liabilities and Shareowners’ Equity	$	69,544	$	69,405	Total Liabilities and Shareowners’ Equity	$	72,189	$	71,124

See notes to unaudited, consolidated financial statements.

Table of Contents

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

(In millions, except per share amounts)

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Revenue	Revenue	$	24,161	$	23,184	$	73,305	$	69,516	Revenue		$	22,925	$	24,378
Operating Expenses:	Operating Expenses:									Operating Expenses:
Compensation and benefits	Compensation and benefits	11,506		11,148		34,480		33,958		Compensation and benefits		11,462		11,601
Repairs and maintenance	Repairs and maintenance	639		619		1,908		1,837		Repairs and maintenance		725		701
Depreciation and amortization	Depreciation and amortization	774		738		2,300		2,199		Depreciation and amortization		834		764
Purchased transportation	Purchased transportation	4,173		4,638		13,158		13,327		Purchased transportation		3,543		4,607
Fuel	Fuel	1,530		950		4,447		2,672		Fuel		1,271		1,220
Other occupancy	Other occupancy	427		384		1,338		1,252		Other occupancy		551		501
Other expenses	Other expenses	1,999		1,811		5,775		5,352		Other expenses		1,998		1,733
Total Operating Expenses	Total Operating Expenses	21,048		20,288		63,406		60,597		Total Operating Expenses		20,384		21,127
Operating Profit	Operating Profit	3,113		2,896		9,899		8,919		Operating Profit		2,541		3,251
Other Income and (Expense):	Other Income and (Expense):									Other Income and (Expense):
Investment income and other	Investment income and other	333		274		981		4,235		Investment income and other		169		315
Interest expense	Interest expense	(177)		(177)		(522)		(521)		Interest expense		(188)		(174)
Total Other Income and (Expense)	Total Other Income and (Expense)	156		97		459		3,714		Total Other Income and (Expense)		(19)		141
Income Before Income Taxes	Income Before Income Taxes	3,269		2,993		10,358		12,633		Income Before Income Taxes		2,522		3,392
Income Tax Expense	Income Tax Expense	685		664		2,263		2,836		Income Tax Expense		627		730
Net Income	Net Income	$	2,584	$	2,329	$	8,095	$	9,797	Net Income		$	1,895	$	2,662
Basic Earnings Per Share	Basic Earnings Per Share	$	2.97	$	2.66	$	9.27	$	11.21	Basic Earnings Per Share		$	2.20	$	3.05
Diluted Earnings Per Share	Diluted Earnings Per Share	$	2.96	$	2.65	$	9.24	$	11.16	Diluted Earnings Per Share		$	2.19	$	3.03

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(In millions)

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Net Income	Net Income	$	2,584	$	2,329	$	8,095	$	9,797	Net Income		$	1,895	$	2,662
Change in foreign currency translation adjustment, net of tax	Change in foreign currency translation adjustment, net of tax	(263)		(106)		(548)		(140)		Change in foreign currency translation adjustment, net of tax		118		(40)
Change in unrealized gain (loss) on marketable securities, net of tax	Change in unrealized gain (loss) on marketable securities, net of tax	(3)		—		(10)		(5)		Change in unrealized gain (loss) on marketable securities, net of tax		7		(6)
Change in unrealized gain (loss) on cash flow hedges, net of tax	Change in unrealized gain (loss) on cash flow hedges, net of tax	281		112		558		180		Change in unrealized gain (loss) on cash flow hedges, net of tax		(77)		43
Change in unrecognized pension and postretirement benefit costs, net of tax	Change in unrecognized pension and postretirement benefit costs, net of tax	18		29		60		4,049		Change in unrecognized pension and postretirement benefit costs, net of tax		20		24
Comprehensive Income (Loss)	Comprehensive Income (Loss)	$	2,617	$	2,364	$	8,155	$	13,881	Comprehensive Income (Loss)		$	1,963	$	2,683

See notes to unaudited, consolidated financial statements.

Table of Contents

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(In millions)

(unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income	Net income	$	8,095	$	9,797	Net income	$	1,895	$	2,662
Adjustments to reconcile net income to net cash from operating activities:	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	Depreciation and amortization	2,300		2,199		Depreciation and amortization	834		764
Pension and postretirement benefit (income) expense	Pension and postretirement benefit (income) expense	666		(2,656)		Pension and postretirement benefit (income) expense	243		201
Pension and postretirement benefit contributions	Pension and postretirement benefit contributions	(2,106)		(331)		Pension and postretirement benefit contributions	(1,277)		(45)
Self-insurance reserves	Self-insurance reserves	182		122		Self-insurance reserves	(20)		(45)
Deferred tax (benefit) expense	Deferred tax (benefit) expense	466		1,271		Deferred tax (benefit) expense	56		209
Stock compensation expense	Stock compensation expense	850		700		Stock compensation expense	126		386
Other (gains) losses	Other (gains) losses	(25)		33		Other (gains) losses	(13)		44
Changes in assets and liabilities, net of effects of business 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	Accounts receivable	1,022		(21)		Accounts receivable	2,254		1,227
Other assets	Other assets	(98)		256		Other assets	62		7
Accounts payable	Accounts payable	(952)		20		Accounts payable	(1,668)		(743)
Accrued wages and withholdings	Accrued wages and withholdings	(59)		306		Accrued wages and withholdings	(508)		(343)
Other liabilities	Other liabilities	481		65		Other liabilities	405		173
Other operating activities	Other operating activities	(50)		—		Other operating activities	(32)		(17)
Net cash from operating activities	Net cash from operating activities	10,772		11,761		Net cash from operating activities	2,357		4,480
Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Capital expenditures	Capital expenditures	(2,278)		(2,570)		Capital expenditures	(609)		(548)
Proceeds from disposal of businesses, property, plant and equipment	Proceeds from disposal of businesses, property, plant and equipment	12		870		Proceeds from disposal of businesses, property, plant and equipment	5		—
Purchases of marketable securities	Purchases of marketable securities	(195)		(197)		Purchases of marketable securities	(2,371)		(68)
Sales and maturities of marketable securities	Sales and maturities of marketable securities	193		257		Sales and maturities of marketable securities	1,179		60
Net change in finance receivables		23		28
Cash paid for business acquisitions, net of cash and cash equivalents acquired		(106)		(12)
Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	(34)		1
Other investing activities	Other investing activities	(57)		24		Other investing activities	17		(17)
Net cash used in investing activities	Net cash used in investing activities	(2,408)		(1,600)		Net cash used in investing activities	(1,813)		(572)
Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:
Net change in short-term debt	Net change in short-term debt	—		—		Net change in short-term debt	—		—
Proceeds from long-term borrowings	Proceeds from long-term borrowings	—		—		Proceeds from long-term borrowings	2,503		—
Repayments of long-term borrowings	Repayments of long-term borrowings	(1,124)		(2,613)		Repayments of long-term borrowings	(65)		(18)
Purchases of common stock	Purchases of common stock	(2,194)		(500)		Purchases of common stock	(751)		(254)
Issuances of common stock	Issuances of common stock	198		196		Issuances of common stock	49		67
Dividends	Dividends	(3,842)		(2,578)		Dividends	(1,348)		(1,284)
Other financing activities	Other financing activities	(513)		(361)		Other financing activities	(384)		(481)
Net cash used in financing activities		(7,475)		(5,856)
Net cash from/(used in) financing activities						Net cash from/(used in) financing activities	4		(1,970)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(99)		(3)		Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	40		15
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	790		4,302		Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	588		1,953
Cash, Cash Equivalents and Restricted Cash:	Cash, Cash Equivalents and Restricted Cash:					Cash, Cash Equivalents and Restricted Cash:
Beginning of period	Beginning of period	10,255		5,910		Beginning of period	5,602		10,255
End of period	End of period	$	11,045	$	10,212	End of period	$	6,190	$	12,208

See notes to unaudited, consolidated financial statements.

Table of Contents

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Principles of Consolidation

The accompanying interim unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These interim unaudited, consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly our financial position as of ~~September 30, 2022,~~March 31, 2023 and our results of operations ~~for the three~~ and ~~nine months ended September 30, 2022 and 2021, and our~~ cash flows for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. The results reported in these interim unaudited, consolidated financial statements should not be regarded as indicative of results that may be expected for any other period or the entire year. The interim unaudited, consolidated financial statements should be read in conjunction with the audited, consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

~~Certain prior year amounts~~During the first quarter of 2023, we reclassified certain operating expenses to better align with the manner in which we manage our operations. Substantially all of these costs were previously classified within operating expenses as Other expenses and have now been ~~reclassified~~classified within operating expenses as Repairs and maintenance in the statements of consolidated income. The remaining line items within operating expenses impacted by this reclassification were inconsequential. As a result, the statements of consolidated income for the three months ended March 31, 2023 and 2022 give effect to ~~conform to the current year presentation. These reclassifications~~this reclassification by decreasing Other expenses by $88 and $77 million, respectively, and increasing Repairs and maintenance by $83 and $75 million, respectively. The reclassification had no ~~material~~ impact on our ~~financial position~~reported revenue, operating profit, net income, or ~~results of operations.~~any internal performance measure on which management is compensated.

Fair Value of Financial Instruments

The carrying amounts of our cash and cash equivalents, accounts receivable, finance receivables and accounts payable approximated fair value as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. The fair values of our ~~investment~~marketable securities are disclosed in note 5, our recognized multiemployer pension withdrawal liabilities in note 7, our short- and long-term debt in note 9 and our derivative instruments in note 15. We apply a fair value hierarchy (Levels 1, 2 and 3) when measuring and reporting items at fair value. Fair values are based on listed market prices (Level 1), 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 (Level 2). If listed market prices or other relevant factors are not available, inputs are developed from unobservable data reflecting our own assumptions and include situations where there is little or no market activity for the asset or liability (Level 3). We utilized Level 1 inputs in the fair value hierarchy to determine the fair value of our cash and cash equivalents, and Level 2 inputs to determine the fair value of our accounts receivable, finance receivables and accounts payable.

Use of Estimates

The preparation of the accompanying interim unaudited, consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of these financial statements, as well as the reported amounts of revenues and expenses during the reporting period.

Although our estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. As a result, our accounting estimates and assumptions may change significantly over time.

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Supplier Finance Programs

As part of our working capital management, certain financial institutions offer a Supply Chain Finance ("SCF") program to certain of our suppliers. We agree to commercial terms with our suppliers, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program. Suppliers issue invoices to us based on the agreed-upon contractual terms. If they participate in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, to sell to the financial institutions. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms. No guarantees are provided by us under the SCF program. We have no economic interest in a supplier’s decision to participate, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program.

Amounts due to our suppliers that participate in the SCF program are included in Accounts payable in our consolidated balance sheets. We have been informed by the participating financial institutions that as of March 31, 2023 and December 31, 2022, suppliers sold them $628 and $806 million, respectively, of our outstanding payment obligations.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

In September 2022, the Financial Accounting Standards Board issued an Accounting Standards Update ("ASU") to enhance the disclosure of supplier finance programs. This ASU did not affect the recognition, measurement or financial statement presentation of obligations covered by supplier finance programs. We adopted the requirements of this ASU as of January 1, 2023 and have included required disclosures within note 1.

Other accounting pronouncements adopted during the periods covered by the unaudited, consolidated financial statements did not have a material impact on our consolidated financial position, results of operations or cash flows. For accounting standards adopted in the period ended September 30, 2021, refer to note 1 to our audited, consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

Accounting Standards Issued But Not Yet Effective

~~In September 2022, the Financial~~ Accounting Standards Board issued an Accounting Standards Update ("ASU") to enhance the disclosure of supplier finance programs. The update will be effective for us in the first quarter of 2023. We are evaluating the impact of its adoption on our consolidated financial statements and internal control over financial reporting environment, but do not expect this ASU to have a material impact on our consolidated financial position, results of operations, cash flows or internal controls.

~~Other accounting~~ pronouncements issued before, but not effective until after, ~~September 30, 2022,~~March 31, 2023, are not expected to have a material impact on our consolidated financial position, results of operations, cash flows or internal controls.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. 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”) ~~domestically or internationally.~~. These services may be carried out by or arranged by us and generally occur over a short period of time. ~~We also~~Additionally, we provide value-added logistics services to customers ~~both domestically and internationally,~~ through our global network of distribution centers and field stocking locations.

The vast majority of our contracts with customers are for transportation services that include only one performance ~~obligation:~~obligation; the transportation services themselves. We generally recognize revenue over time, ~~as we perform~~based on the extent of progress towards completion of the services in the contract because of the continuous transfer of control to the customer. Our remaining performance obligations are primarily comprised of transportation services started but not completed as of the reporting date and we expect to complete these remaining performance obligations within a short period of time.contract. All of our major businesses act as a principal in their revenue arrangements and as such, we report revenue and the associated purchased transportation costs on a gross basis within our statements of consolidated income.

Disaggregation of Revenue


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Revenue:	Revenue:									Revenue:
Next Day Air	Next Day Air	$	2,673	$	2,415	$	7,923	$	7,202	Next Day Air	$	2,461	$	2,594
Deferred	Deferred	1,311		1,304		4,123		3,877		Deferred	1,194		1,420
Ground	Ground	11,390		10,489		33,911		31,541		Ground	11,332		11,110
U.S. Domestic Package	U.S. Domestic Package	15,374		14,208		45,957		42,620		U.S. Domestic Package	14,987		15,124

Domestic	Domestic	785		852		2,465		2,716		Domestic	794		851
Export	Export	3,747		3,641		11,501		10,808		Export	3,552		3,778
Cargo & Other	Cargo & Other	267		227		782		620		Cargo & Other	197		247
International Package	International Package	4,799		4,720		14,748		14,144		International Package	4,543		4,876

Forwarding	Forwarding	2,162		2,625		7,140		7,006		Forwarding	1,514		2,589
Logistics	Logistics	1,302		1,158		3,843		3,424		Logistics	1,410		1,251
Freight		—		—		—		1,064
Other	Other	524		473		1,617		1,258		Other	471		538
Supply Chain Solutions	Supply Chain Solutions	3,988		4,256		12,600		12,752		Supply Chain Solutions	3,395		4,378

Consolidated revenue	Consolidated revenue	$	24,161	$	23,184	$	73,305	$	69,516	Consolidated revenue	$	22,925	$	24,378

Contract Assets and Liabilities

Contract assets include billed and unbilled amounts resulting from in-transit ~~packages,~~shipments, as we have an unconditional right to payment only ~~once all performance obligations~~when services have been completed (i.e. ~~packages~~shipments have been delivered) ~~and our right to payment is not solely based on the passage of time.~~. Amounts ~~may~~do not exceed their net realizable value. Contract assets are generally classified as current and the full balance is converted each quarter based on the short-term nature of the transactions.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Contract liabilities consist of advance payments and billings in excess of revenue as well as deferred revenue. Advance payments and billings in excess of revenue represent payments received from our customers that will be earned over the contract term. Deferred revenue represents the amount ~~of consideration~~ due from customers related to in-transit shipments that has not yet been recognized as revenue based on our selected measure of progress. We classify advance payments and billings in excess of revenue as either current or long-term, depending on the period over which the ~~advance payment~~amount will be earned. We classify deferred revenue as current ~~based on the timing of when we expect to recognize revenue, 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.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Contract assets ~~related to in-transit packages were $328~~ and ~~$304 million~~liabilities as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, respectively, net of deferred revenue related to in-transit packages of $346 and $314 million~~2022 were as ~~of September 30, 2022 and December 31, 2021, respectively, and are included within~~ ~~Other current assets~~ in the consolidated balance sheets. Short-term contract liabilities related to advance payments from customers were $10 and $27 million as of September 30, 2022 and December 31, 2021, respectively, and are included within ~~Other current liabilities~~ in the consolidated balance sheets. Long-term contract liabilities related to advance payments from customers were $26 and $25 million as of September 30, 2022 and December 31, 2021, respectively, and are included within ~~Other Non-Current Liabilities~~ ~~in the consolidated balance sheets.~~follows (in millions):


	Balance Sheet Location	March 31, 2023		December 31, 2022
Contract Assets:
Revenue related to in-transit packages	Other current assets	$	267	$	308

Contract Liabilities:
Short-term advance payments from customers	Other current liabilities	$	10	$	11
Long-term advance payments from customers	Other non-current liabilities	$	25	$	26

Accounts Receivable, Net

Accounts receivable, net, include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. Losses on accounts receivable are recognized when reasonable and supportable forecasts affect the expected collectability. This requires us to make our best estimate of the current expected losses inherent in our accounts receivable at each balance sheet date. This estimate requires consideration of historical loss experience, adjusted for current conditions, forward looking indicators, trends in customer payment frequency and judgments about the probable effects of relevant observable data, including present and future economic conditions and the financial health of specific customers and market sectors. Our risk management process includes standards and policies for reviewing major account exposures and concentrations of risk.

~~Our allowance for credit losses as of September 30, 2022 and December 31, 2021 was $143 and $128 million, respectively.~~ Amounts for credit losses charged to expense, before recoveries, during each of the three months ended ~~September 30,~~March 31, 2023 and 2022, were $43 and ~~2021 were $48 million and for the nine months ended September 30, 2022 and 2021, were $154 and $128~~$54 million, respectively.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. STOCK-BASED COMPENSATION

We issue share-based awards under various incentive compensation plans, including non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units ("RSUs") and restricted performance shares and performance units ("RPUs", collectively with RSUs, "Restricted Units"). Upon vesting, Restricted Units result in the issuance of the equivalent number of UPS class A common shares after required tax withholdings. Dividends accrued on Restricted Units are reinvested in additional Restricted Units at each dividend payable date and are subject to the same vesting and forfeiture conditions as the underlying Restricted Units.

Our primary equity compensation programs are the UPS Management Incentive Program (the "MIP"), the UPS Long-Term Incentive Performance Program (the "LTIP") and the UPS Stock Option program. We also maintain an employee stock purchase plan which allows eligible employees to purchase shares of UPS class A common stock at a discount. ~~Our matching contributions to our primary employee defined contribution savings plan are made~~

Pre-tax compensation expense for share-based awards recognized in ~~shares~~Compensation and benefits in the statements of ~~UPS class A common stock.~~consolidated income for the three months ended March 31, 2023 and 2022 was $126 and $386 million, respectively.

Management Incentive Program

RPUs issued under the MIP ~~vest~~prior to 2022 vested one year following the grant date based on continued employment with the Company and ~~are~~were expensed on a straight-line basis (less estimated forfeitures) over the requisite service period. In cases of death, disability or retirement, RPUs ~~vest~~vested and ~~are~~were expensed immediately.

On November 2, 2022, the Compensation and Human Capital Committee of the UPS Board of Directors (the "Compensation Committee") amended and restated the terms and conditions of the MIP effective January 1, 2023, such that awards earned will be fully electable in the form of cash or unrestricted shares of class A common stock. The terms and conditions governing the 2022 MIP were also amended and restated to fully vest RPUs to be issued in connection therewith as of December 31, 2022. As a result, the award was classified as a compensation obligation and recorded in Accrued wages and withholdings on the consolidated balance sheet at that date.

Based on the ~~date of~~ Compensation ~~Committee~~Committee's approval of the ~~2021~~2022 MIP, we determined the award measurement ~~dates~~date to be February ~~9, 2022 (for~~8, 2023 for U.S.-based employees and executive ~~management)~~management, and March ~~21, 2022 (for~~20, 2023 for international ~~employees).~~employees. Each RPU issued under the MIP was valued using the closing New York Stock Exchange ("NYSE") prices of ~~$225.07~~$186.36 and ~~$218.56~~$183.49 on those dates. The compensation obligation recognized as of December 31, 2022 was relieved and the issuance of RPUs was recorded as Additional Paid-in Capital on the measurement date.

Long-Term Incentive Performance Program

RPUs issued under the LTIP vest at the end of a three-year performance period, assuming continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurs on a prorated basis). The actual number of RPUs earned is based on achievement of the performance targets established on the grant date.

The performance targets are equally weighted between adjusted earnings per share and ~~adjusted~~ cumulative free cash flow. The actual number of RPUs earned is subject to adjustment based on total shareholder return relative to the Standard & Poor's 500 Index ("S&P 500"). We determine the grant date fair value of the RPUs using a Monte Carlo model and recognize compensation expense (less estimated forfeitures) ratably over the vesting period, based on the number of awards expected to be earned.

Based on the ~~date of~~ Compensation ~~Committee~~Committee's approval of the ~~2022~~2023 LTIP award performance targets, we determined March ~~23, 2022~~22, 2023 to be the award measurement date and each target RPU awarded was valued at ~~$230.67.~~

~~The weighted-average assumptions used and the weighted-average fair values of the LTIP awards granted in 2022 and 2021 are as follows:~~
2022 2021
Risk-free interest rate 2.33 % 0.19 %
Expected volatility 31.91 % 30.70 %
Weighted-average fair value of RPUs granted $ 228.72 $ 168.05
Share payout 107.41 % 102.39 %

~~There is no expected dividend yield as units earn dividend equivalents.~~

$200.01.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The weighted-average assumptions used and the weighted-average fair values of the LTIP awards granted in 2023 and 2022 are as follows:


	2023			2022
Risk-free interest rate	3.81		%	2.35		%
Expected volatility	30.30		%	31.92		%
Weighted-average fair value of RPUs granted	$	200.01		$	227.00
Share payout	107.80		%	107.37		%

There is no expected dividend yield as units earn dividend equivalents.

Non-Qualified Stock Options

We grant non-qualified stock options to a limited group of eligible senior management employees under the UPS Stock Option program. Stock option awards vest over a five-year period with approximately 20% of the award vesting at each anniversary of the grant date (except in the case of death, disability or retirement, in which case immediate vesting occurs). The option grants expire 10 years after the date of the grant. On March ~~23, 2022,~~22, 2023, we granted 0.1 million stock options at an exercise price of ~~$214.58,~~$185.54, the NYSE closing price on that date.

The fair value of each option granted is estimated using ~~the~~a Black-Scholes option pricing model. The weighted-average assumptions used and the weighted-average fair values of options granted in ~~2022~~2023 and ~~2021~~2022 are as follows:
2022 2021
Expected dividend yield 2.35 % 3.31 %
Risk-free interest rate 2.39 % 0.84 %
Expected life (in years) 7.5 7.5
Expected volatility 25.04 % 23.15 %
Weighted-average fair value of options granted $ 48.45 $ 23.71

~~Pre-tax compensation expense for share-based awards recognized in~~ ~~Compensation and benefits~~ in the statements of consolidated income for the three months ended September 30, 2022 and 2021 was $233 and $179 million, respectively, and for the nine months ended September 30, 2022 and 2021 was $850 ~~and $700 million, respectively.~~


	2023			2022
Expected dividend yield	3.54		%	2.35		%
Risk-free interest rate	3.70		%	2.39		%
Expected life (in years)	5.93			7.5
Expected volatility	28.31		%	25.04		%
Weighted-average fair value of options granted	$	41.08		$	48.45

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. ~~CASH~~MARKETABLE SECURITIES AND NON-CURRENT INVESTMENTS

The following is a summary of marketable securities classified as trading and available-for-sale as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (in millions):
Cost Unrealized
Gains Unrealized
Losses Estimated
Fair Value
September 30, 2022:
Current trading marketable securities:
Equity securities $ 2 $ — $ — $ 2
Total trading marketable securities 2 — — 2
Current available-for-sale securities:
U.S. government and agency debt securities 222 — (8) 214
Mortgage and asset-backed debt securities 10 — — 10
Corporate debt securities 105 — (4) 101
U.S. state and local municipal debt securities 4 — — 4
Non-U.S. government debt securities — — — —
Total available-for-sale marketable securities 341 — (12) 329
Total current marketable securities $ 343 $ — $ (12) $ 331
Cost Unrealized
Gains Unrealized
Losses Estimated
Fair Value
December 31, 2021:
Current trading marketable securities:
Equity securities $ 2 $ — $ — $ 2
Total trading marketable securities 2 — — 2
Current available-for-sale securities:
U.S. government and agency debt securities 199 2 (1) 200
Mortgage and asset-backed debt securities 7 — — 7
Corporate debt securities 121 — — 121
U.S. state and local municipal debt securities 5 — — 5
Non-U.S. government debt securities 3 — — 3
Total available-for-sale marketable securities 335 2 (1) 336
Total current marketable securities $ 337 $ 2 $ (1) $ 338


	Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
March 31, 2023:
Current trading marketable securities:




Equity securities	$	6	$	—	$	—	$	6



Total trading marketable securities	6		—		—		6

Current available-for-sale securities:
U.S. government and agency debt securities	761		2		(4)		759
Mortgage and asset-backed debt securities	9		—		—		9
Corporate debt securities	2,279		3		(6)		2,276
U.S. state and local municipal debt securities	3		—		—		3

Non-U.S. government debt securities	155		—		—		155


Total available-for-sale marketable securities	3,207		5		(10)		3,202

Total current marketable securities	$	3,213	$	5	$	(10)	$	3,208

	Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
December 31, 2022:
Current trading marketable securities:




Equity securities	$	2	$	—	$	—	$	2



Total trading marketable securities	2		—		—		2

Current available-for-sale securities:
U.S. government and agency debt securities	355		—		(8)		347
Mortgage and asset-backed debt securities	9		—		—		9
Corporate debt securities	1,472		—		(6)		1,466
U.S. state and local municipal debt securities	4		—		—		4

Non-U.S. government debt securities	165		—		—		165


Total available-for-sale marketable securities	2,005		—		(14)		1,991

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

Investment Impairments

We have concluded that no material impairment losses existed as of ~~September 30, 2022.~~March 31, 2023. In making this determination, we considered the financial condition and prospects of each issuer, the magnitude of the losses compared with the 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.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Maturity Information

The amortized cost and estimated fair value of marketable securities as of ~~September 30, 2022~~March 31, 2023 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			Cost		Estimated Fair Value
Due in one year or less	Due in one year or less	$	16	$	15	Due in one year or less	$	1,727	$	1,726
Due after one year through three years	Due after one year through three years	325		314		Due after one year through three years	1,478		1,474
Due after three years through five years	Due after three years through five years	—		—		Due after three years through five years	2		2
Due after five years	Due after five years	—		—		Due after five years	—		—
		341		329			3,207		3,202
Equity securities	Equity securities	2		2		Equity securities	6		6
		$	343	$	331		$	3,213	$	3,208

Non-Current Investments

We hold non-current investments that are reported within Other Non-Current Assets in our consolidated balance sheets. Cash paid for these investments is included in Other investing activities in our statements of consolidated cash flows.

•Equity method investments: As of March 31, 2023 and ~~Restricted Cash~~December 31, 2022, equity securities accounted for under the equity method had a carrying value of $257 and $256 million, respectively.

•Other equity securities: Certain equity securities that do not have readily determinable fair values are reported in accordance with the measurement alternative in ASC Topic 321 Investments - Equity Securities. As of March 31, 2023 and December 31, 2022, we held equity securities accounted for using the measurement alternative of $33 and $31 million, respectively.

•Other investments: We hold an investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan. The investment had a fair market value of ~~$18~~$19 and ~~$23~~$18 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. ~~Changes in fair value are recognized in~~ ~~Investment income and other~~ in the statements of consolidated income. Additionally, we held cash in escrow of $2 and $3 million as of September 30, 2022 and December 31, 2021, respectively, related to the acquisition and disposition of certain assets. These amounts are classified as ~~Investments and 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):~~
September 30, 2022 December 31,
2021 September 30, 2021 December 31,
2020
Cash and cash equivalents $ 11,045 $ 10,255 $ 10,212 $ 5,910
Restricted cash — — — —
Total cash, cash equivalents and restricted cash $ 11,045 $ 10,255 $ 10,212 $ 5,910

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 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.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information about our investments measured at fair value on a recurring basis as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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)		Balance			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
September 30, 2022:
Marketable securities:
March 31, 2023:										March 31, 2023:
Marketable Securities:										Marketable Securities:
U.S. government and agency debt securities	U.S. government and agency debt securities	$	214	$	—	$	—	$	214	U.S. government and agency debt securities	$	759	$	—	$	—	$	759
Mortgage and asset-backed debt securities	Mortgage and asset-backed debt securities	—		10		—		10		Mortgage and asset-backed debt securities	—		9		—		9
Corporate debt securities	Corporate debt securities	—		101		—		101		Corporate debt securities	—		2,276		—		2,276
U.S. state and local municipal debt securities	U.S. state and local municipal debt securities	—		4		—		4		U.S. state and local municipal debt securities	—		3		—		3
Equity securities	Equity securities	—		2		—		2		Equity securities	—		6		—		6
Non-U.S. government debt securities	Non-U.S. government debt securities	—		—		—		—		Non-U.S. government debt securities	—		155		—		155

Total marketable securities	Total marketable securities	214		117		—		331		Total marketable securities	759		2,449		—		3,208
Other non-current investments		18		—		—		18
Other non-current investments(1)										Other non-current investments(1)	—		19		—		19
Total	Total	$	232	$	117	$	—	$	349	Total	$	759	$	2,468	$	—	$	3,227

(1) Represents a variable life insurance policy funding benefits for the UPS Excess Coordinating Benefit Plan.


December 31, 2021:
Marketable securities:
December 31, 2022:										December 31, 2022:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Marketable Securities:										Marketable Securities:
U.S. government and agency debt securities	U.S. government and agency debt securities	$	200	$	—	$	—	$	200	U.S. government and agency debt securities	$	279	$	68	$	—	$	347
Mortgage and asset-backed debt securities	Mortgage and asset-backed debt securities	—		7		—		7		Mortgage and asset-backed debt securities	—		9		—		9
Corporate debt securities	Corporate debt securities	—		121		—		121		Corporate debt securities	—		1,466		—		1,466
U.S. state and local municipal debt securities	U.S. state and local municipal debt securities	—		5		—		5		U.S. state and local municipal debt securities	—		4		—		4
Equity securities	Equity securities	—		2		—		2		Equity securities	—		2		—		2

Non-U.S. government debt securities	Non-U.S. government debt securities	—		3		—		3		Non-U.S. government debt securities	—		165		—		165

Total marketable securities	Total marketable securities	200		138		—		338		Total marketable securities	279		1,714		—		1,993
Other non-current investments		23		—		—		23
Other non-current investments(1)										Other non-current investments(1)	—		18		—		18
Total	Total	$	223	$	138	$	—	$	361	Total	$	279	$	1,732	$	—	$	2,011


(1) Represents a variable life insurance policy funding benefits for the UPS Excess Coordinating Benefit Plan.

There were no transfers of investments into or out of Level 3 during the three months ended March 31, 2023 or 2022.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 consisted of the following (in millions):


		2022		2021			2023		2022
Vehicles	Vehicles	$	10,284	$	10,018	Vehicles	$	10,840	$	10,628
Aircraft	Aircraft	22,569		21,973		Aircraft	22,638		22,598
Land	Land	2,093		2,140		Land	2,143		2,140
Buildings	Buildings	5,793		5,802		Buildings	6,122		6,032
Building and leasehold improvements	Building and leasehold improvements	5,022		5,010		Building and leasehold improvements	5,142		5,067
Plant equipment	Plant equipment	15,849		15,650		Plant equipment	16,454		16,145
Technology equipment	Technology equipment	2,887		2,798		Technology equipment	2,445		2,411
Construction-in-progress	Construction-in-progress	1,651		1,418		Construction-in-progress	2,544		2,409
		66,148		64,809			68,328		67,430
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(32,523)		(31,334)		Less: Accumulated depreciation and amortization	(33,333)		(32,711)
Property, Plant and Equipment, Net	Property, Plant and Equipment, Net	$	33,625	$	33,475	Property, Plant and Equipment, Net	$	34,995	$	34,719

Property, plant and equipment purchased on account was ~~$601~~$626 and ~~$248~~$176 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aviation fuel prices and other factors. We monitor all other property, plant and equipment for any indicators that the carrying value of the assets may not be recoverable. There were no material impairment charges ~~for the three and nine months ended September 30, 2022, or for~~during the three months ended ~~September 30, 2021. We recorded impairment charges of $30 million for the nine months ended September 30, 2021, due to the reevaluation of certain facility projects.~~March 31, 2023 or 2022.

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NOTE 7. EMPLOYEE BENEFIT PLANS

Company-Sponsored Benefit Plans

Information about the net periodic benefit cost (income) for our company-sponsored pension and postretirement benefit plans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ is as follows (in millions):


		U.S. Pension Benefits				U.S. Postretirement Medical Benefits				International Pension Benefits					U.S. Pension Benefits				U.S. Postretirement Medical Benefits				International Pension Benefits
		2022		2021		2022		2021		2022		2021			2023		2022		2023		2022		2023		2022
Three Months Ended September 30:
Three Months Ended March 31:														Three Months Ended March 31:
Service cost	Service cost	$	506	$	442	$	7	$	7	$	17	$	19	Service cost	$	293	$	506	$	5	$	8	$	11	$	18
Interest cost	Interest cost	488		490		21		21		11		9		Interest cost	627		488		29		20		17		12
Expected return on assets	Expected return on assets	(820)		(825)		(1)		(1)		(19)		(17)		Expected return on assets	(742)		(820)		(3)		(1)		(21)		(20)

Amortization of prior service cost	Amortization of prior service cost	23		36		—		2		—		—		Amortization of prior service cost	27		23		—		—		—		—

Net periodic benefit cost		$	197	$	143	$	27	$	29	$	9	$	11
Settlement and curtailment (gain) loss														Settlement and curtailment (gain) loss	—		—		—		—		—		(33)
Net periodic benefit cost (income)														Net periodic benefit cost (income)	$	205	$	197	$	31	$	27	$	7	$	(23)

		U.S. Pension Benefits				U.S. Postretirement Medical Benefits				International Pension Benefits
		2022		2021		2022		2021		2022		2021
Nine Months Ended September 30:
Service cost		$	1,518	$	1,456	$	22	$	21	$	52	$	57
Interest cost		1,463		1,459		62		60		34		29
Expected return on assets		(2,460)		(2,502)		(3)		(4)		(59)		(51)
Amortization of prior service cost		69		103		—		5		1		1
Actuarial (gain) loss		—		(3,290)		—		—		—		—
Settlement and curtailment (gain) loss		—		—		—		—		(33)		—
Net periodic benefit (income) cost		$	590	$	(2,774)	$	81	$	82	$	(5)	$	36

The components of net periodic benefit cost (income) other than current service cost are presented within Investment income and other in the statements of consolidated income.

During the ~~nine months ended September 30,~~first quarter of 2022, we amended the UPS Canada Ltd. Retirement Plan to cease future benefit accruals effective December 31, 2023. We remeasured plan assets and benefit obligations for this plan, which resulted in a curtailment gain of $33 million ($24 million ~~after tax)~~after-tax) during the ~~nine month~~three-month period. The gain is included in Investment income and other in the statement of consolidated income.

During the ~~nine months ended September 30, 2021,~~first quarter of 2023, we ~~divested our UPS Freight business, which triggered an interim remeasurement of the plan assets~~contributed $1.2 billion and benefit obligations of the UPS Pension Plan, UPS Retirement Plan and UPS Retired Employee Health Care Plan as of this date. The interim remeasurement resulted in an actuarial gain of $2.1 billion, reflecting updated actuarial assumptions and was recorded in other comprehensive income within the equity section of the consolidated balance sheet. An actuarial gain of $69$74 million ($52 million after tax) for a prior service credit related to the divested group and a $66 million loss ($50 million after tax) for certain plan amendments to the UPS Pension Plan were immediately recognized within ~~Other expenses~~ ~~in the statement of consolidated income for the nine months ended September 30, 2021.~~

During the nine months ended September 30, 2021, we remeasured the UPS/IBT Full Time Employee Pension Plan following the enactment into law of the American Rescue Plan Act, which is discussed below. The interim remeasurement resulted in a pre-tax mark-to-market gain of $3.3 billion ($2.5 billion after tax) during the nine month period. The gain was included within ~~Investment income and other~~ ~~in the statement of consolidated income for the nine months ended September 30, 2021.~~

~~Contributions~~ to our company-sponsored pension and U.S. postretirement medical benefit plans, ~~for the first nine months of 2022 were $1.972 billion and $134 million,~~ respectively. We expect to contribute approximately ~~$43~~$78 and ~~$144~~$44 million over the remainder of the year to our pension and U.S. postretirement medical benefit plans, respectively.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Multiemployer Benefit Plans

We contribute to a number of multiemployer defined benefit 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 on annual contribution rates will remain in effect throughout the terms of the existing collective bargaining agreements.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had ~~$824~~$819 and ~~$830~~$821 million, respectively, recorded in Other Non-Current Liabilities in our consolidated balance sheets and $8 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 recorded in Other current liabilities in our consolidated balance sheets associated with our previous withdrawal from the New England Teamsters and Trucking Industry Pension Fund. This liability is payable in equal monthly installments over a remaining term of approximately 40 years. Based on the borrowing rates currently available to us for long-term financing of a similar maturity, the fair value of this withdrawal liability as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was ~~$668~~$710 and ~~$963~~$686 million, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

UPS was a contributing employer to the Central States Pension Fund (“CSPF”) until 2007 at which time UPS withdrew from the ~~CSPF and paid a $6.1 billion withdrawal liability to satisfy our allocable share of unfunded vested benefits.~~CSPF. Under a collective bargaining agreement with the International Brotherhood of Teamsters (“IBT”), UPS agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 (“the UPS Transfer Group”) in the event that benefits are ~~lawfully~~ reduced by the CSPF ~~in the future~~ consistent with the terms of our withdrawal agreement with the CSPF. Under this ~~withdrawal~~ agreement, benefits to the UPS Transfer Group cannot be reduced without our consent and can only be reduced in accordance with ~~applicable~~ law. ~~The financial crisis of 2008 created~~Subsequent to our withdrawal, the CSPF incurred extensive asset losses atand indicated that it was projected to become insolvent. In such event, the CSPF ~~contributing to the plan’s projected insolvency, at which time~~ benefits would be reduced to the legally permitted Pension Benefit Guaranty Corporation ("PBGC") limits, triggering the ~~coordination of~~coordinating benefits provision in the collective bargaining agreement.

In 2014, Congress passed the Multiemployer Pension Reform Act (“MPRA”). This change in law for the first time permitted multiemployer pension plans to reduce benefit payments to retirees, subject to specific guidelines in the statute and government approval. In 2015, the CSPF submitted a proposed pension benefit reduction plan to the U.S. Department

Table of the Treasury (“Treasury”). In 2016, Treasury rejected the proposed plan submitted by the CSPF. In light of its financial difficulties, the CSPF had stated that it believed a legislative solution to its funded status would be necessary or that it would become insolvent in 2025, at which time benefits would be reduced to the applicable PBGC benefit levels.Contents

We account for the potential obligation to pay coordinating benefits to the UPS Transfer Group under ASC 715, 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 and at interim periods when a significant event occurs. ASC 715 does not permit anticipation of changes in law when developing a best estimate.UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

At the December 31, 2020 measurement date, we developed our best estimate for the potential obligation to pay coordinating benefits to the UPS Transfer Group using a deterministic cash flow projection that reflected estimated CSPF cash flows and investment earnings, the lack of legislative action having been taken, the expectation of payment of guaranteed benefits by the PBGC and the lack of a benefit reduction plan under MPRA having been filed by the CSPF. As a result, our best estimate at that time of the obligation for coordinating benefits that may have been required to be directly provided by the UPS/IBT Plan to the UPS Transfer Group was $5.5 billion.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In March 2021, the American Rescue Plan Act (“ARPA”) was enacted into law. The ARPA contains provisions that allow for qualifying ~~financially distressed~~ multiemployer pension plans to apply for special financial assistance ("SFA") from the PBGC, which will be funded by ~~Treasury.~~the U.S. government. Following SFA approval, ~~of an application,~~ a qualifying multiemployer pension plan will receive a lump sum payment to enable it to continue paying unreduced pension benefits through 2051. The multiemployer plan is not obligated to repay the SFA. The ARPA is intended to prevent both the PBGC and certain financially distressed multiemployer pension plans, including the CSPF, from becoming insolvent through 2051. The CSPF ~~has~~ submitted an application for SFA tothat was approved in December 2022 and, in January 2023, the CSPF received $35.8 billion from the PBGC. ~~The application remains under review.~~

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~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~The passage of~~We account for the ~~ARPA and the expected receipt of SFA by the CSPF suspends our~~potential obligation to ~~provide additional~~pay coordinating benefits ~~to the UPS Transfer Group through 2051. These matters also triggered a plan remeasurement~~ under ASC ~~715. Accordingly, we remeasured the plan assets and~~Topic 715, which requires us to provide a best estimate of various actuarial assumptions in measuring our pension benefit obligation at the December 31st measurement date. As of December 31, 2022, our best estimate of coordinating benefits that may be required to be paid by the UPS/IBT Plan as of March 31, 2021 resulting in an actuarial gain of $6.4 billion, reflecting a reduction of the liability for coordinating benefits of $5.1 billion and a gain from other updated actuarial assumptions of $1.3 billion.after SFA funds have been exhausted was immaterial.

The ~~future~~ value of ~~this~~our estimate for future coordinating benefits will continue to be influenced by a number of factors, including interpretations of the ARPA, future legislative actions, actuarial assumptions and the ability of the ~~PBGC~~CSPF to sustain its long-term commitments. Actual events may result in a change in our best estimate of the projected benefit obligation. We will continue to assess the impact of these uncertainties in accordance with ASC Topic 715.

Collective Bargaining Agreements

We have approximately ~~327,000~~330,000 employees in the U.S. employed under a national master agreement and various supplemental agreements with local unions affiliated with the ~~IBT.~~Teamsters. These agreements run through July 31, 2023. We have begun negotiating successor agreements with the Teamsters. We are negotiating in good faith in an effort to reach an agreement that is in the best interests of our employees, the Teamsters and UPS; however, no assurances of our ability to do so, or the timing or terms thereof, can be provided. Customers may reduce their business or stop doing business with us if they believe that such actions or threatened actions may adversely affect our ability to provide services. We may permanently lose customers if we are unable to provide uninterrupted service, and this could materially adversely affect us. The terms of future collective bargaining agreements also may affect our competitive position and results of operations. Furthermore, our actions or responses to any such negotiations, labor disputes, strikes or work stoppages could negatively impact how our brand is perceived and our corporate reputation and have adverse effects on our business, including our results of operations.

We have approximately ~~3,200~~10,000 employees in Canada employed under a collective bargaining agreement with the

Teamsters which runs through July 31, 2025.

We have approximately 3,500 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association ("IPA") ~~that~~. This collective bargaining agreement becomes amendable September 1, 2023. In the second quarter of 2022, we reached a tentative agreement on a two-year contract extension with the IPA. On August 12, 2022, the IPA ratified the two-year contract extension. Terms of the agreement become effective September 1, 2023 and continue in effect through September 1, 2025. ~~The economic provisions in the agreement include pay increases and enhanced pension benefits on substantially similar terms.~~

We have approximately ~~1,700~~1,800 airline mechanics who are covered by a collective bargaining agreement with Teamsters Local ~~2727. On October 17, 2022, the mechanics ratified a contract extension that will make the contract~~2727 which becomes amendable on November 1, 2026. ~~The provisions in the extension agreement include pay increases, with most other terms unchanged. Approximately 3,300~~In addition, approximately 3,100 of our auto and maintenance mechanics who are not employed under agreements with the ~~IBT~~Teamsters are employed under collective bargaining agreements with the International Association of Machinists and Aerospace Workers (“IAM”). The collective bargaining agreement with the IAM runs through July 31, 2024.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. GOODWILL AND INTANGIBLE ASSETS

The following table indicates the allocation of goodwill as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (in millions):
U.S. Domestic
Package International
Package Supply Chain Solutions Consolidated
December 31, 2021: $ 847 $ 403 $ 2,442 $ 3,692
Acquired — — 64 64
Currency / Other — (32) (100) (132)
September 30, 2022: $ 847 $ 371 $ 2,406 $ 3,624

~~The~~


	U.S. Domestic Package		International Package		Supply Chain Solutions		Consolidated
December 31, 2022:	$	847	$	492	$	2,884	$	4,223
Acquired	—		—		9		9
Impairments	—		—		(8)		(8)
Currency / Other	—		6		19		25
March 31, 2023:	$	847	$	498	$	2,904	$	4,249

During the three months ended March 31, 2023, we recorded goodwill ~~balances~~adjustments of $9 million relating to our November 2022 acquisition of Bomi Group. Certain areas, including our estimates of tax positions for ~~both International Package and~~Bomi Group, remain preliminary as of March 31, 2023.

Additionally, we recorded an immaterial impairment charge related to the closure of a trade management services business within Supply Chain ~~Solutions decreased~~Solutions. The remaining movements are due to the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances. In May 2022, we acquired Delivery Solutions, a digital platform that optimizes customer deliveries across multiple networks. The acquisition was funded with cash from operations and was not material to our consolidated financial position or results of operations. The goodwill associated with the acquisition is included within Supply Chain Solutions.

We ~~test~~complete our annual goodwill ~~and other indefinite-lived intangible assets for~~ impairment ~~annually at~~evaluation as of July 1st ~~and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying amount may be impaired.~~on a reporting unit basis. Our 2022 annual impairment testing indicated that the fair value of goodwill associated with our ~~recently-acquired~~ Roadie reporting unit remained greater than its carrying value, ~~as of our July 1st testing date,~~ although this excess was less than 10 percent.

The ~~following is a summary of intangible assets~~goodwill associated with our Roadie reporting unit as of ~~September 30, 2022 and December~~March 31, ~~2021 (in millions):~~
Gross Carrying
Amount Accumulated
Amortization Net Carrying
Value
September 30, 2022:
Capitalized software $ 5,068 $ (3,427) $ 1,641
Licenses 49 (26) 23
Franchise rights 141 (37) 104
Customer relationships 704 (444) 260
Trade name 67 (7) 60
Trademarks, patents and other 169 (22) 147
Amortizable intangible assets $ 6,198 $ (3,963) $ 2,235
Indefinite-lived intangible assets 204 — 204
Total Intangible Assets, Net $ 6,402 $ (3,963) $ 2,439
December 31, 2021:
Capitalized software $ 4,910 $ (3,275) $ 1,635
Licenses 58 (27) 31
Franchise rights 119 (37) 82
Customer relationships 733 (408) 325
Trade name 67 (1) 66
Trademarks, patents and other 158 (15) 143
Amortizable intangible assets $ 6,045 $ (3,763) $ 2,282
Indefinite-lived intangible assets 204 — 204
Total Intangible Assets, Net $ 6,249 $ (3,763) $ 2,486

As of September 30, 2022 and December 31, 2021, we had a trade name with a carrying value of $200 million and licenses with a current carrying value of $4 million, which are deemed to be indefinite-lived intangible assets and are included in the table above.2023 was $241 million. There were no events or changes in circumstances during the ~~nine months ended September 30, 2022~~first quarter of 2023 that would indicate the carrying amount of ~~our indefinite-lived intangible assets~~Roadie goodwill may be impaired as of the date of this report.

For each of our reporting units and our indefinite-lived trade name, we continue to monitor the combined impact of macroeconomic conditions and business performance on our estimates of fair value.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of intangible assets as of March 31, 2023 and December 31, 2022 (in millions):



	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
March 31, 2023:
Capitalized software	$	5,300	$	(3,598)	$	1,702
Licenses	55		(34)		21
Franchise rights	261		(39)		222
Customer relationships	880		(474)		406
Trade name	126		(10)		116
Trademarks, patents and other	177		(37)		140
Amortizable intangible assets	$	6,799	$	(4,192)	$	2,607
Indefinite-lived intangible assets	204		—		204
Total Intangible Assets, Net	$	7,003	$	(4,192)	$	2,811
December 31, 2022:
Capitalized software	$	5,186	$	(3,500)	$	1,686
Licenses	55		(30)		25
Franchise rights	226		(37)		189
Customer relationships	872		(453)		419
Trade name	125		(8)		117
Trademarks, patents and other	183		(27)		156
Amortizable intangible assets	$	6,647	$	(4,055)	$	2,592
Indefinite-lived intangible assets	204		—		204
Total Intangible Assets, Net	$	6,851	$	(4,055)	$	2,796

A trade name and licenses with carrying values of $200 and $4 million, respectively, as of March 31, 2023 are deemed to be indefinite-lived intangible assets, and therefore are not amortized. There were no events or changes in circumstances during the three months ended March 31, 2023 that would indicate the carrying amount of our indefinite-lived intangible assets may be impaired as of the date of this report.

Impairment tests for finite-lived intangible assets are performed when a triggering event occurs that may indicate that the carrying value of the intangible asset may not be recoverable. There were no impairment charges for finite-lived intangible assets during the three months ended ~~September 30, 2022~~March 31, 2023 or ~~2021. There were no impairment charges for finite-lived intangible assets during the nine months ended September 30,~~ 2022. ~~We recorded $7 million in impairment charges on finite-lived intangible assets during the nine months ended September 30, 2021.~~

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. DEBT AND FINANCING ARRANGEMENTS

The carrying value of our outstanding debt obligations as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 consists of the following (in millions):


		Principal Amount					Carrying Value						Principal Amount					Carrying Value
				Maturity		2022			2021						Maturity		2023			2022

Fixed-rate senior notes:	Fixed-rate senior notes:													Fixed-rate senior notes:
2.450% senior notes		1,000			2022		1,000			1,010
2.350% senior notes		—			2022		—			600
2.500% senior notes	2.500% senior notes	1,000			2023		999			998		2.500% senior notes	$	1,000		2023		$	1,000		$	999
2.800% senior notes	2.800% senior notes	500			2024		499			498		2.800% senior notes	500			2024		499			499
2.200% senior notes	2.200% senior notes	400			2024		399			399		2.200% senior notes	400			2024		399			399
3.900% senior notes	3.900% senior notes	1,000			2025		997			996		3.900% senior notes	1,000			2025		998			997
2.400% senior notes	2.400% senior notes	500			2026		499			498		2.400% senior notes	500			2026		499			499
3.050% senior notes	3.050% senior notes	1,000			2027		995			994		3.050% senior notes	1,000			2027		995			995
3.400% senior notes	3.400% senior notes	750			2029		746			746		3.400% senior notes	750			2029		747			747
2.500% senior notes	2.500% senior notes	400			2029		397			397		2.500% senior notes	400			2029		398			397
4.450% senior notes	4.450% senior notes	750			2030		744			744		4.450% senior notes	750			2030		745			744
4.875% senior notes												4.875% senior notes	900			2033		894			—
6.200% senior notes	6.200% senior notes	1,500			2038		1,484			1,484		6.200% senior notes	1,500			2038		1,485			1,485
5.200% senior notes	5.200% senior notes	500			2040		494			494		5.200% senior notes	500			2040		494			494
4.875% senior notes	4.875% senior notes	500			2040		491			491		4.875% senior notes	500			2040		491			491
3.625% senior notes	3.625% senior notes	375			2042		369			368		3.625% senior notes	375			2042		369			369
3.400% senior notes	3.400% senior notes	500			2046		492			492		3.400% senior notes	500			2046		492			492
3.750% senior notes	3.750% senior notes	1,150			2047		1,137			1,137		3.750% senior notes	1,150			2047		1,137			1,137
4.250% senior notes	4.250% senior notes	750			2049		743			743		4.250% senior notes	750			2049		743			743
3.400% senior notes	3.400% senior notes	700			2049		688			688		3.400% senior notes	700			2049		688			688
5.300% senior notes	5.300% senior notes	1,250			2050		1,231			1,231		5.300% senior notes	1,250			2050		1,231			1,231
5.050% senior notes												5.050% senior notes	1,100			2053		1,083			—
Floating-rate senior notes:	Floating-rate senior notes:											Floating-rate senior notes:
Floating-rate senior notes		—			2022		—			400
Floating-rate senior notes	Floating-rate senior notes	500			2023		500			500		Floating-rate senior notes	500			2023		500			500
Floating-rate senior notes	Floating-rate senior notes	1,039			2049-2067		1,027			1,027		Floating-rate senior notes	1,566			2049-2073		1,548			1,027
Debentures:	Debentures:											Debentures:

7.620% debentures	7.620% debentures	276			2030		280			280		7.620% debentures	276			2030		280			280
Pound Sterling notes:	Pound Sterling notes:											Pound Sterling notes:
5.500% notes	5.500% notes	74			2031		73			89		5.500% notes	82			2031		82			79
5.125% notes	5.125% notes	504			2050		479			583		5.125% notes	563			2050		535			521
Euro senior notes:	Euro senior notes:											Euro senior notes:
0.375% senior notes	0.375% senior notes	684			2023		683			791		0.375% senior notes	762			2023		761			745
1.625% senior notes	1.625% senior notes	684			2025		682			791		1.625% senior notes	762			2025		760			744
1.000% senior notes	1.000% senior notes	488			2028		486			564		1.000% senior notes	544			2028		542			531
1.500% senior notes	1.500% senior notes	488			2032		486			564		1.500% senior notes	544			2032		542			530

Canadian senior notes:	Canadian senior notes:											Canadian senior notes:
2.125% senior notes	2.125% senior notes	547			2024		547			585		2.125% senior notes	555			2024		553			553
Finance lease obligations	Finance lease obligations	379			2022-2046		379			408		Finance lease obligations	365			2023-2046		365			390
Facility notes and bonds	Facility notes and bonds	320			2029-2045		320			320		Facility notes and bonds	320			2029-2045		320			320
Other debt	Other debt	4			2022-2025		4			5		Other debt	13			2023-2026		13			36
Total debt	Total debt	$	20,512				20,350			21,915		Total debt	$	22,377				22,188			19,662
Less: current maturities	Less: current maturities						(2,581)			(2,131)		Less: current maturities						(2,332)			(2,341)
Long-term debt	Long-term debt						$	17,769		$	19,784	Long-term debt						$	19,856		$	17,321

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Commercial Paper

We are authorized to borrow up to $10.0 billion under a U.S. commercial paper program and €5.0 billion (in a variety of currencies) under a European commercial paper program. As of ~~September 30, 2022,~~March 31, 2023, we had no outstanding balances under our commercial paper programs. The amount of commercial paper outstanding under these programs in 2023 is expected to fluctuate.

Debt Classification

We have classified certain floating-rate senior notes that are redeemable at the option of the note holder as long-term liabilities in our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised.

Debt Repayments

During the ~~second~~first quarter of 2023, we repaid approximately $16 million of foreign currency-denominated debt assumed in the Bomi Group acquisition.

On April 1, 2023, our ~~2.350% senior notes~~2.500% Senior Notes with a principal balance of ~~$600 million~~$1.0 billion and our floating rate senior notes with a principal balance of ~~$400~~$500 million matured and were repaid in full.

Debt Issuances

On ~~October~~February 23, 2023 we issued two series of notes in the principal amounts of $900 million and $1.1 billion. These notes bear interest at 4.875% and 5.050%, respectively, and mature on March 3, ~~2022,~~2033 and March 3, 2053, respectively. Interest on the notes is payable semi-annually, beginning September 2023. Each series of notes is callable at our ~~2.450%~~option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of scheduled payments of principal and interest, plus accrued and unpaid interest.

On March 7, 2023 we issued floating rate senior notes with a principal balance of  ~~$1.0 billion matured~~$529 million. These notes bear interest at a rate equal to the compounded Secured Overnight Financing Rate ("SOFR") less 0.350% per year and ~~were repaid in full.~~mature on March 15, 2073. These notes are callable at various times after 30 years at a stated percentage of par value and are redeemable at the option of the note holders at various times after one year at a stated percentage of par value.

Reference Rate Reform

Our floating-rate senior notes ~~with maturities ranging from~~that mature between 2049 ~~through~~and 2067 bear interest at rates that reference the London Interbank Offer Rate ("LIBOR") for U.S. Dollars. As part of a broader program of reference rate reform, it is expected that U.S. Dollar LIBOR rates will cease to be published after June 2023. We are currently working to transition these notes to an alternative reference rate, and we anticipate that the ~~Secured Overnight Financing Rate ("SOFR")~~SOFR will be adopted in accordance with recommendations of the Alternative Reference Rates Committee.

Sources of Credit

We maintain two credit agreements with a consortium of banks. The first of these agreements provides revolving credit facilities of $1.0 billion, and expires on December ~~6, 2022.~~5, 2023. Amounts outstanding under this agreement bear interest at a periodic fixed rate equal to the term SOFR rate, plus 0.10% per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of ~~September 30, 2022~~March 31, 2023 was ~~0.875%~~0.70%. Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (2) the Federal Funds effective rate plus 0.50%; or (3) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00%, may be used at our discretion. ~~We expect to renew this credit agreement in the fourth quarter of 2022 on substantially similar terms.~~

The second agreement provides revolving credit facilities of $2.0 billion, and expires on December 7, 2026. Amounts outstanding under this facility bear interest at a periodic fixed rate equal to the term SOFR rate plus 0.10% per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of ~~September 30, 2022~~March 31, 2023 was 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) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00%, plus an applicable margin, may be used at our discretion.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

If the credit ratings established by Standard & Poor's and Moody's differ, the higher rating will be used, except in cases where the lower rating is two or more levels lower. In these circumstances, the rating one step below the higher rating will be used. We are also able to request advances under these facilities based on competitive bids for the applicable interest rate.

There were no amounts outstanding under these facilities as of ~~September 30, 2022.~~March 31, 2023.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of ~~September 30, 2022,~~March 31, 2023, 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 ~~September 30, 2022,~~March 31, 2023, 10% of net tangible assets was equivalent to ~~$4.6~~$4.9 billion and we had 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.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Fair Value of Debt

Based on the borrowing rates currently available to us for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately ~~$18.9~~$21.9 and ~~$25.1~~$18.2 billion as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of all of our debt instruments.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. LEASES

We have finance and operating leases for real estate (primarily package centers, airport facilities and warehouses), aircraft and 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.

We recognize a right-of-use ("ROU") asset and lease obligation for all leases greater than twelve months. 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.

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. Our remaining lease terms vary from 1 month to 138 years.

Aircraft

In addition to the aircraft that we own, we have leases for 310 aircraft. Of these leased aircraft, 17 are classified as finance leases, 18 are classified as operating leases and the remaining 275 are classified as short-term leases. A majority of the obligations associated with the aircraft classified as finance leases have been legally defeased. A majority of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline.

~~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~~A majority of our long-term aircraft operating leases ~~contain charges for common area maintenance or other expenses that~~ are ~~updated based on landlord estimates. Due~~operated by a third party to ~~this variability, the cash flows associated with these charges~~handle package and cargo volume in geographic regions where, due to government regulations, we 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, these also reduce the initial lease obligation.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

From time to time, we enter into leases with the intention of purchasing the underlying 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.restricted from operating an airline.

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~~equipment leases ~~for trailers~~ to increase capacity during periods of high ~~demand, which are typically only used for 90-120 days during the year.~~demand. These leases are treated as short-term as the cumulative right of use is less than 12 months over the term of the contract.

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~~right of use lease asset and associated lease obligation.

The components of lease expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021 are~~were as follows (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022
Operating lease costs	Operating lease costs	$	179	$	183	$	546	$	537	Operating lease costs	$	207	$	183
Finance lease costs:	Finance lease costs:									Finance lease costs:
Amortization of assets	Amortization of assets	28		24		84		70		Amortization of assets	29		28
Interest on lease liabilities	Interest on lease liabilities	3		4		10		11		Interest on lease liabilities	4		4
Total finance lease costs	Total finance lease costs	31		28		94		81		Total finance lease costs	33		32
Variable lease costs	Variable lease costs	62		51		194		178		Variable lease costs	72		68
Short-term lease costs	Short-term lease costs	319		305		944		835		Short-term lease costs	277		302
Total lease costs		$	591	$	567	$	1,778	$	1,631
Total lease costs(1)										Total lease costs(1)	$	589	$	585

(1) This table excludes sublease income as it was not material to the three months ended March 31, 2023 or 2022.										(1) This table excludes sublease income as it was not material to the three months ended March 31, 2023 or 2022.

In addition to the lease costs disclosed in the table above, we monitor all lease categories for any indicators that the carrying value of the assets may not be recoverable. There were no material impairments recognized during the three ~~or nine~~ months ended ~~September 30, 2022~~March 31, 2023 or ~~2021.~~2022.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Supplemental information related to leases and location within our consolidated balance sheets is as follows (in millions, except lease term and discount rate):


		September 30, 2022			December 31, 2021				March 31, 2023			December 31, 2022
Operating Leases:	Operating Leases:							Operating Leases:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	3,417		$	3,562		Operating lease right-of-use assets	$	4,089		$	3,755

Current maturities of operating leases	Current maturities of operating leases	$	560		$	580		Current maturities of operating leases	$	668		$	621
Non-current operating leases	Non-current operating leases	2,960			3,033			Non-current operating leases	3,539			3,238
Total operating lease obligations	Total operating lease obligations	$	3,520		$	3,613		Total operating lease obligations	$	4,207		$	3,859

Finance Leases:	Finance Leases:							Finance Leases:
Property, plant and equipment, net	Property, plant and equipment, net	$	947		$	1,125		Property, plant and equipment, net	$	869		$	959

Current maturities of long-term debt, commercial paper and finance leases	Current maturities of long-term debt, commercial paper and finance leases	$	79		$	129		Current maturities of long-term debt, commercial paper and finance leases	$	68		$	92
Long-term debt and finance leases	Long-term debt and finance leases	300			279			Long-term debt and finance leases	297			298
Total finance lease obligations	Total finance lease obligations	$	379		$	408		Total finance lease obligations	$	365		$	390

Weighted average remaining lease term (in years):	Weighted average remaining lease term (in years):							Weighted average remaining lease term (in years):
Operating leases	Operating leases	11.0			11.7			Operating leases	11.2			10.8
Finance leases	Finance leases	8.8			8.0			Finance leases	8.8			8.4

Weighted average discount rate:	Weighted average discount rate:							Weighted average discount rate:
Operating leases	Operating leases	2.21		%	1.94		%	Operating leases	2.73		%	2.32		%
Finance leases	Finance leases	3.03		%	2.79		%	Finance leases	3.28		%	3.17		%

Supplemental cash flow information related to leases is as follows (in millions):


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash paid for amounts included in measurement of obligations:	Cash paid for amounts included in measurement of obligations:					Cash paid for amounts included in measurement of obligations:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	523	$	538	Operating cash flows from operating leases	$	212	$	176
Operating cash flows from finance leases	Operating cash flows from finance leases	3		8		Operating cash flows from finance leases	1		1
Financing cash flows from finance leases	Financing cash flows from finance leases	123		48		Financing cash flows from finance leases	48		18

Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:					Right-of-use assets obtained in exchange for lease obligations:
Operating leases	Operating leases	$	588	$	953	Operating leases	$	498	$	119
Finance leases	Finance leases	98		252		Finance leases	$	30	$	59

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Maturities of lease obligations as of ~~September 30, 2022 are~~March 31, 2023 were as follows (in millions):


		Finance Leases		Operating Leases			Finance Leases		Operating Leases
2022		$	31	$	136
2023	2023	83		644		2023	$	73	$	576
2024	2024	56		544		2024	62		705
2025	2025	42		484		2025	48		632
2026	2026	35		437		2026	39		543
2027						2027	38		472
Thereafter	Thereafter	212		1,800		Thereafter	183		2,038
Total lease payments	Total lease payments	459		4,045		Total lease payments	443		4,966
Less: Imputed interest	Less: Imputed interest	(80)		(525)		Less: Imputed interest	(78)		(759)
Total lease obligations	Total lease obligations	379		3,520		Total lease obligations	365		4,207
Less: Current obligations	Less: Current obligations	(79)		(560)		Less: Current obligations	(68)		(668)
Long-term lease obligations	Long-term lease obligations	$	300	$	2,960	Long-term lease obligations	$	297	$	3,539

As of ~~September 30, 2022,~~March 31, 2023, we had ~~$1.2 billion~~$771 million of additional leases which had not commenced. These leases will commence between ~~2022~~2023 and 2024 when we are granted access to the property, such as when leasehold improvements are completed by the lessor or a certificate of occupancy is obtained.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. LEGAL PROCEEDINGS AND CONTINGENCIES

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

Although there can be no assurances as to the ultimate outcome, we have generally denied, or believe we have meritorious defenses and will deny, liability in all pending matters, including (except as otherwise noted herein) the matters described below, and we intend to vigorously defend each matter. We accrue amounts associated with legal proceedings when and to the extent a loss becomes probable and can be reasonably estimated. The actual costs of resolving legal proceedings may be substantially higher or lower than the amounts accrued on those claims.

For matters as to which we are not able to estimate a possible loss or range of losses, we are not able to determine whether any such loss will have a material impact on our operations or financial condition. For these matters, we have described the reasons that we are unable to estimate a possible loss or range of losses.

Judicial Proceedings

We are a defendant in a number of lawsuits filed in state and federal courts containing various class action allegations under state wage-and-hour laws. At this time, we do not believe that any loss associated with any such matter will have a material impact on our operations or financial condition. One of these matters, Hughes v. UPS Supply Chain Solutions, Inc. and United Parcel Service, Inc. had previously been certified as a class action in Kentucky state court. In the second quarter of 2019, the court granted our motion for judgment on the pleadings related to the wage-and-hour claims. The plaintiffs' appeal of this decision was ~~denied; however, in~~denied. However, they were granted a discretionary review by the ~~second~~Kentucky Supreme Court. In the first quarter of ~~2022~~2023, the ~~plaintiffs were granted discretionary review of these claims by~~Kentucky Supreme Court ruled in our favor. Plaintiffs have filed a motion for rehearing before the Kentucky Supreme Court.

Other Matters

In August 2016, Spain’s National Markets and Competition Commission ("CNMC") announced an investigation into 10 companies in the commercial delivery and parcel industry, including UPS, related to alleged nonaggression agreements to allocate customers. In May 2017, we received a Statement of Objections issued by the CNMC. In July 2017, we received a Proposed Decision from the CNMC. OnIn March 8, 2018, the CNMC adopted a final decision, finding an infringement and imposing an immaterial fine on UPS. We appealed the ~~decision and, in September 2018, obtained~~decision. In December 2022, a ~~suspension of~~trial court ruled against us. We have filed an appeal before the ~~implementation of the decision (including payment of the fine). The appeal is pending.~~Spanish Supreme Court. We do not believe that any loss from this matter would have a material impact on our operations or financial condition. We are vigorously defending ourselves and believe that we have a number of meritorious legal defenses. There are also unresolved questions of law ~~and fact~~ that could be important to the ultimate resolution of this matter.

In November 2021, the Environmental Protection Agency (the "EPA") sent us an information request related to hazardous waste regulatory compliance at certain of our facilities. The EPA indicated that it was investigating potential recordkeeping violations of the Resource Conservation and Recovery Act at those facilities. We cooperated with the EPA and resolved this matter for an immaterial amount.

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

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. SHAREOWNERS' EQUITY

Capital Stock, Additional Paid-In Capital, Retained Earnings and Non-Controlling Minority Interests

We are authorized to issue two classes of common stock, which are distinguished from each other primarily by their respective voting rights. Class A shares of UPS are entitled to 10 votes per share, whereas class B shares are entitled to one vote per share. Class A shares are primarily held by UPS employees and retirees, as well as trusts and descendants of the Company's founders, and these shares are fully convertible into class B shares at any time. Class B shares are publicly traded on the NYSE under the symbol “UPS”. Class A and B shares both have a $0.01 par value, and as of ~~September 30, 2022,~~March 31, 2023, there were 4.6 billion class A shares and 5.6 billion class B shares authorized to be issued. Additionally, there are 200 million preferred shares authorized to be issued, with a par value of $0.01 per share. As of ~~September 30, 2022,~~March 31, 2023, no preferred shares had been issued.

The following is a rollforward of our common stock, additional paid-in capital, retained earnings and non-controlling minority interests accounts for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in millions, except per share amounts):
Three Months Ended September 30: 2022 2021
Shares Dollars Shares Dollars
Class A Common Stock
Balance at beginning of period 138 $ 2 144 $ 2
Stock award plans (1) — (1) —
Common stock issuances 1 — 1 —
Conversions of class A to class B common stock (3) — (3) —
Class A shares issued at end of period 135 $ 2 141 $ 2
Class B Common Stock
Balance at beginning of period 732 $ 7 728 $ 7
Common stock purchases (5) — (3) —
Conversions of class A to class B common stock 3 — 3 —
Class B shares issued at end of period 730 $ 7 728 $ 7
Additional Paid-In Capital
Balance at beginning of period $ 573 $ 1,329
Common stock purchases (903) (500)
Stock award plans 233 176
Common stock issuances 97 83
Balance at end of period $ — $ 1,088
Retained Earnings
Balance at beginning of period $ 18,958 $ 12,531
Net income attributable to common shareowners 2,584 2,329
Dividends ($1.52 and $1.02 per share) (1)
(1,316) (887)
Common stock purchases (48) —
Other (1) —
Balance at end of period $ 20,177 $ 13,973
Non-Controlling Minority Interest
Balance at beginning of period $ 21 $ 17
Change in non-controlling minority interest (1) (1)
Balance at end of period $ 20 $ 16
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $41 and $27 million as of September 30, 2022 and 2021, respectively, that were settled in shares of class A common stock.


Three Months Ended March 31:	2023			2022
	Shares	Dollars		Shares	Dollars
Class A Common Stock:
Balance at beginning of period	134	$	2	138	$	2
Stock award plans	3	—		4	—
Common stock issuances	1	—		1	—
Conversions of class A to class B common stock	(3)	—		(3)	—
Class A shares outstanding at end of period	135	$	2	140	$	2
Class B Common Stock:
Balance at beginning of period	725	$	7	732	$	7
Common stock purchases	(4)	—		(1)	—
Conversions of class A to class B common stock	3	—		3	—
Class B shares outstanding at end of period	724	$	7	734	$	7
Additional Paid-In Capital:
Balance at beginning of period		$	—		$	1,343
Stock award plans		345			(35)
Common stock purchases		(492)			(260)
Common stock issuances		147			183
Balance at end of period		$	—		$	1,231
Retained Earnings:
Balance at beginning of period		$	21,326		$	16,179
Net income attributable to controlling interests		1,895			2,662
Dividends ($1.62 and $1.52 per share) (1)		(1,453)			(1,406)
Common stock purchases		(258)			—
Other		—			(2)
Balance at end of period		$	21,510		$	17,433
Non-Controlling Interests:
Balance at beginning of period		$	17		$	16
Change in non-controlling interest		(2)			2
Balance at end of period		$	15		$	18
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $105 and $122 million as of March 31, 2023 and 2022, respectively, that were settled in shares of class A common stock.

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Nine Months Ended September 30: 2022 2021
Shares Dollars Shares Dollars
Class A Common Stock:
Balance at beginning of period 138 $ 2 147 $ 2
Stock award plans 5 — 5 —
Common stock issuances 2 — 2 —
Conversions of class A to class B common stock (10) — (13) —
Class A shares outstanding at end of period 135 $ 2 141 $ 2
Class B Common Stock:
Balance at beginning of period 732 $ 7 718 $ 7
Common stock purchases (12) — (3) —
Conversions of class A to class B common stock 10 — 13 —
Class B shares outstanding at end of period 730 $ 7 728 $ 7
Additional Paid-In Capital:
Balance at beginning of period $ 1,343 $ 865
Common stock purchases (2,146) (500)
Stock award plans 410 399
Common stock issuances 393 324
Balance at end of period $ — $ 1,088
Retained Earnings:
Balance at beginning of period $ 16,179 $ 6,896
Net income attributable to controlling interests 8,095 9,797
Dividends ($4.56 and $3.06 per share) (1)
(4,049) (2,718)
Common stock purchases (48) —
Other — (2)
Balance at end of period $ 20,177 $ 13,973
Non-Controlling Interests:
Balance at beginning of period $ 16 $ 12
Change in non-controlling interest 4 4
Balance at end of period $ 20 $ 16
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $207 and $140 million as of September 30, 2022 and 2021, respectively, that were settled in shares of class A common stock.
We repurchased 4.1 and 1.2 million shares of class B common stock for $750 and $260 million during the three months ended March 31, 2023 and 2022, respectively. Repurchases of $751 and $254 million, respectively, are reported on the statements of consolidated cash flows due to the timing of settlements. These repurchases were completed as follows:

•In August 2021, the Board of Directors authorized the company to repurchase up to $5.0 billion of class A and class B common ~~stock. We~~stock (the "2021 Authorization"). For the three months ended March 31, 2023 and 2022, we repurchased ~~4.9~~0.5 and ~~11.6~~1.2 million shares of class B common stock for ~~$951~~$82 and $260 million, ~~and $2.2 billion~~respectively, under this ~~program during~~authorization.

•In January 2023, the ~~three~~Board of Directors terminated the 2021 Authorization and ~~nine months ended September 30, 2022, respectively. We repurchased 2.6 million shares~~approved a new share repurchase authorization for $5.0 billion of class A and class B common stock (the "2023 Authorization"). For the three months ended March 31, 2023, we repurchased 3.6 million shares for ~~$500~~$668 million under ~~this program during~~ the ~~three and nine months ended September 30, 2021.~~2023 Authorization. As of ~~September 30, 2022,~~March 31, 2023, we had ~~$2.3~~$4.3 billion available under this repurchase authorization.

We anticipate our share repurchases will total ~~at least~~approximately $3.0 billion ~~for all of 2022.~~in 2023.

Future share repurchases may be in the form of accelerated share repurchase programs, open market purchases or other methods we deem appropriate. The timing of share repurchases will depend upon market conditions. Unless terminated earlier by the Board of Directors, this program will expire when we have purchased all shares authorized for repurchase under the program.

Movements in additional paid-in capital in respect of stock award plans comprise accruals for unvested awards, offset by adjustments for awards that vest during the period.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Accumulated Other Comprehensive Income (Loss)

We recognize activity in other comprehensive income for foreign currency translation adjustments, unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized pension and postretirement benefit costs. The activity in accumulated other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was as follows (in millions):


Three Months Ended September 30:		2022		2021
Foreign Currency Translation Gain (Loss), Net of Tax:
Three Months Ended March 31:						Three Months Ended March 31:	2023		2022
Foreign currency translation gain (loss), net of tax:						Foreign currency translation gain (loss), net of tax:
Balance at beginning of period	Balance at beginning of period	$	(1,447)	$	(1,015)	Balance at beginning of period	$	(1,446)	$	(1,162)
Translation adjustment (net of tax effect of $4 and $8)		(263)		(106)
Balance at end of period		(1,710)		(1,121)
Unrealized Gain (Loss) on Marketable Securities, Net of Tax:
Balance at beginning of period		(8)		1
Current period changes in fair value (net of tax effect of $(1) and $0)		(4)		—
Translation adjustment (net of tax effect of $(15) and $0)						Translation adjustment (net of tax effect of $(15) and $0)	115		(40)
Reclassification to earnings (net of tax effect of $0 and $0)	Reclassification to earnings (net of tax effect of $0 and $0)	1		—		Reclassification to earnings (net of tax effect of $0 and $0)	3		—
Balance at end of period	Balance at end of period	(11)		1		Balance at end of period	(1,328)		(1,202)
Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax:
Unrealized gain (loss) on marketable securities, net of tax:						Unrealized gain (loss) on marketable securities, net of tax:
Balance at beginning of period	Balance at beginning of period	260		(155)		Balance at beginning of period	(11)		(1)
Current period changes in fair value (net of tax effect of $110 and $40)		350		126
Reclassification to earnings (net of tax effect of $(21) and $(5))		(69)		(14)
Current period changes in fair value (net of tax effect of $1 and $(2))						Current period changes in fair value (net of tax effect of $1 and $(2))	5		(6)
Reclassification to earnings (net of tax effect of $1 and $0)						Reclassification to earnings (net of tax effect of $1 and $0)	2		—
Balance at end of period	Balance at end of period	541		(43)		Balance at end of period	(4)		(7)
Unrecognized Pension and Postretirement Benefit Costs, Net of Tax:
Unrealized gain (loss) on cash flow hedges, net of tax:						Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of period	Balance at beginning of period	(2,056)		(1,895)		Balance at beginning of period	167		(17)

Reclassification to earnings (net of tax effect of $5 and $9)		18		29
Current period changes in fair value (net of tax effect of $(8) and $23)						Current period changes in fair value (net of tax effect of $(8) and $23)	(26)		72
Reclassification to earnings (net of tax effect of $(16) and $(9))						Reclassification to earnings (net of tax effect of $(16) and $(9))	(51)		(29)
Balance at end of period						Balance at end of period	90		26
Unrecognized pension and postretirement benefit costs, net of tax:						Unrecognized pension and postretirement benefit costs, net of tax:
Balance at beginning of period						Balance at beginning of period	(259)		(2,098)
Net actuarial gain (loss) resulting from remeasurements of plan assets and liabilities (net of tax effect of $0 and $11)						Net actuarial gain (loss) resulting from remeasurements of plan assets and liabilities (net of tax effect of $0 and $11)	—		31
Reclassification to earnings (net of tax effect of $7 and $(3))						Reclassification to earnings (net of tax effect of $7 and $(3))	20		(7)
Balance at end of period	Balance at end of period	(2,038)		(1,866)		Balance at end of period	(239)		(2,074)
Accumulated other comprehensive income (loss) at end of period	Accumulated other comprehensive income (loss) at end of period	$	(3,218)	$	(3,029)	Accumulated other comprehensive income (loss) at end of period	$	(1,481)	$	(3,257)

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Nine Months Ended September 30: 2022 2021
Foreign currency translation gain (loss), net of tax:
Balance at beginning of period $ (1,162) $ (981)
Translation adjustment (net of tax effect of $11 and $37) (548) (140)
Balance at end of period (1,710) (1,121)
Unrealized gain (loss) on marketable securities, net of tax:
Balance at beginning of period (1) 6
Current period changes in fair value (net of tax effect of $(3) and $0) (11) (1)
Reclassification to earnings (net of tax effect of $0 and $0) 1 (4)
Balance at end of period (11) 1
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of period (17) (223)
Current period changes in fair value (net of tax effect of $222 and $65) 705 207
Reclassification to earnings (net of tax effect of $(46) and $(9)) (147) (27)
Balance at end of period 541 (43)
Unrecognized pension and postretirement benefit costs, net of tax:
Balance at beginning of period (2,098) (5,915)
Net actuarial gain (loss) resulting from remeasurements of plan assets and liabilities (net of tax effect of $11 and $2,039) 31 6,470
Reclassification to earnings (net of tax effect of $8 and $(763)) 29 (2,421)
Balance at end of period (2,038) (1,866)
Accumulated other comprehensive income (loss) at end of period $ (3,218) $ (3,029)

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Detail of the gains (losses) reclassified from ~~AOCI~~accumulated other comprehensive income (loss) to the statements of consolidated income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ is as follows (in millions):
Amount Reclassified from AOCI Affected Line Item in the Income Statement
Three Months Ended September 30: 2022 2021
Unrealized Gain (Loss) on Marketable Securities:
Realized gain (loss) on sale of securities $ (1) $ — Investment income and other
Income tax (expense) benefit — — Income tax expense
Impact on net income (1) — Net income
Unrealized Gain (Loss) on Cash Flow Hedges:
Interest rate contracts (4) (3) Interest expense
Foreign currency exchange contracts 94 22 Revenue
Income tax (expense) benefit (21) (5) Income tax expense
Impact on net income 69 14 Net income
Unrecognized Pension and Postretirement Benefit Costs:
Prior service costs (23) (38) Investment income and other
Income tax (expense) benefit 5 9 Income tax expense
Impact on net income (18) (29) Net income
Total amount reclassified for the period $ 50 $ (15) Net income


		Amount Reclassified from AOCI				Affected Line Item in the Income Statement		Amount Reclassified from AOCI(1)				Affected Line Item in the Income Statement
Nine Months Ended September 30:		2022		2021

Three Months Ended March 31:							Three Months Ended March 31:	2023		2022		Affected Line Item in the Income Statement
Unrealized Gain (Loss) on Foreign Currency Translation:							Unrealized Gain (Loss) on Foreign Currency Translation:
Realized gain (loss) on business wind-down							Realized gain (loss) on business wind-down	$	(3)	$	—	Other expenses
Income tax (expense) benefit							Income tax (expense) benefit	—		—		Income tax expense
Impact on net income							Impact on net income	(3)		—		Net income
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	Realized gain (loss) on sale of securities	$	(1)	$	4	Investment income and other	Realized gain (loss) on sale of securities	(3)		—		Investment income and other
Income tax (expense) benefit	Income tax (expense) benefit	—		—		Income tax expense	Income tax (expense) benefit	1		—		Income tax expense
Impact on net income	Impact on net income	(1)		4		Net income	Impact on net income	(2)		—		Net income
Unrealized gain (loss) on cash flow hedges:	Unrealized gain (loss) on cash flow hedges:						Unrealized gain (loss) on cash flow hedges:
Interest rate contracts	Interest rate contracts	(9)		(8)		Interest expense	Interest rate contracts	(1)		(3)		Interest expense
Foreign currency exchange contracts	Foreign currency exchange contracts	202		44		Revenue	Foreign currency exchange contracts	68		41		Revenue

Income tax (expense) benefit	Income tax (expense) benefit	(46)		(9)		Income tax expense	Income tax (expense) benefit	(16)		(9)		Income tax expense
Impact on net income	Impact on net income	147		27		Net income	Impact on net income	51		29		Net income
Unrecognized pension and postretirement benefit costs:	Unrecognized pension and postretirement benefit costs:						Unrecognized pension and postretirement benefit costs:
Prior service costs	Prior service costs	(70)		(109)		Investment income and other	Prior service costs	(27)		(23)		Investment income and other
Prior service credit for divested business		—		69		Other expenses
Plan amendments for divested business		—		(66)		Other expenses
Remeasurement of benefit obligation		—		3,290		Investment income and other

Curtailment of benefit obligation	Curtailment of benefit obligation	33		—		Investment income and other	Curtailment of benefit obligation	—		33		Investment income and other
Income tax (expense) benefit	Income tax (expense) benefit	8		(763)		Income tax expense	Income tax (expense) benefit	7		(3)		Income tax expense
Impact on net income	Impact on net income	(29)		2,421		Net income	Impact on net income	(20)		7		Net income

Total amount reclassified for the period	Total amount reclassified for the period	$	117	$	2,452	Net income	Total amount reclassified for the period	$	26	$	36	Net income

(1) Accumulated other comprehensive income (loss)							(1) Accumulated other comprehensive income (loss)

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Deferred Compensation Obligations and Treasury Stock

We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer the gains on stock option exercises by deferring the shares received upon exercise into a rabbi trust. The shares held in this trust are classified as treasury stock, and the liability to participating employees is classified as Deferred compensation obligations ~~in the S~~within ~~hareowners’~~Shareowners’ Equity ~~section of~~in 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 three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was as follows (in millions):
2022 2021
Three Months Ended September 30: Shares Dollars Shares Dollars
Deferred Compensation Obligations:
Balance at beginning of period $ 12 $ 16
Reinvested dividends — —
Benefit payments — —
Balance at end of period $ 12 $ 16
Treasury Stock:
Balance at beginning of period — $ (12) — $ (16)
Reinvested dividends — — — —
Benefit payments — — — —
Balance at end of period — $ (12) — $ (16)


		2022			2021				2023			2022
Nine Months Ended September 30:		Shares	Dollars		Shares	Dollars
Three Months Ended March 31:								Three Months Ended March 31:	Shares	Dollars		Shares	Dollars
Deferred Compensation Obligations:	Deferred Compensation Obligations:							Deferred Compensation Obligations:
Balance at beginning of period	Balance at beginning of period		$	16		$	20	Balance at beginning of period		$	13		$	16
Reinvested dividends	Reinvested dividends		1			1		Reinvested dividends		—			—
Benefit payments	Benefit payments		(5)			(5)		Benefit payments		(4)			(4)
Balance at end of period	Balance at end of period		$	12		$	16	Balance at end of period		$	9		$	12
Treasury Stock:	Treasury Stock:							Treasury Stock:
Balance at beginning of period	Balance at beginning of period	—	$	(16)	—	$	(20)	Balance at beginning of period	—	$	(13)	—	$	(16)
Reinvested dividends	Reinvested dividends	—	(1)		—	(1)		Reinvested dividends	—	—		—	—
Benefit payments	Benefit payments	—	5		—	5		Benefit payments	—	4		—	4
Balance at end of period	Balance at end of period	—	$	(12)	—	$	(16)	Balance at end of period	—	$	(9)	—	$	(12)

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. SEGMENT INFORMATION

We have two reportable segments: U.S. Domestic Package and International Package, which are together referred to as our global small package operations. Our remaining businesses are reported as Supply Chain Solutions. Global small package operations represent our most significant business and are broken down into regional operations around the world. Regional operations managers are responsible for both domestic and export products within their geographic area. Supply Chain Solutions comprises the results of non-reportable operating segments that do not meet the quantitative and qualitative criteria of a reportable segment as defined under ASC Topic 280 – Segment Reporting.

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 our operations in Europe, Asia, ~~Americas and~~ the Indian ~~Sub-Continent,~~sub-continent, the Middle East, Africa, Canada and ~~Africa.~~Latin America.

Supply Chain Solutions

Supply Chain Solutions includes our Forwarding, Logistics, Coyote, Marken, UPS Mail Innovations and other businesses. Our Forwarding, Logistics and UPS Mail Innovations ~~units~~businesses provide services in more than 200 countries and territories worldwide and include international air and ocean freight forwarding, customs brokerage, distribution and post-sales services, healthcare logistics, mail and consulting services. Coyote offers truckload brokerage services primarily in the United States. Marken ~~is a global provider of~~provides supply chain solutions to the ~~healthcare and~~ life sciences ~~industry, specializing in clinical trials logistics. Our other~~industry. Other businesses within this segment include The UPS Store, UPS Capital, Roadie, and Delivery Solutions. ~~UPS Freight was included within Supply Chain Solutions until its divestiture in the second quarter of 2021.~~

In evaluating financial performance, we focus on operating profit as a segment’s measure of profit or loss. Operating profit is before investment income (expense) and other, interest expense and income tax expense. Certain expenses are allocated between the segments using activity-based costing methods. These activity-based costing methods ~~that~~ require us to make estimates that impact the amount of each expense category that is attributed to each segment. Changes in these estimates ~~would~~ directly impact the amount of expense allocated to each segment, and therefore the operating profit of each reporting segment. WeOur allocation methodologies are refined periodically, ~~refine our allocation methodologies~~as necessary, to reflect changes in our ~~business.~~businesses. There were no significant changes to our allocation methodologies in the ~~third quarter or year-to-date periods.~~first quarter.

Results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are as follows (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Revenue:	Revenue:									Revenue:
U.S. Domestic Package	U.S. Domestic Package	$	15,374	$	14,208	$	45,957	$	42,620	U.S. Domestic Package	$	14,987	$	15,124
International Package	International Package	4,799		4,720		14,748		14,144		International Package	4,543		4,876
Supply Chain Solutions	Supply Chain Solutions	3,988		4,256		12,600		12,752		Supply Chain Solutions	3,395		4,378
Consolidated revenue	Consolidated revenue	$	24,161	$	23,184	$	73,305	$	69,516	Consolidated revenue	$	22,925	$	24,378
Operating Profit:	Operating Profit:									Operating Profit:
U.S. Domestic Package	U.S. Domestic Package	$	1,666	$	1,407	$	5,157	$	4,333	U.S. Domestic Package	$	1,466	$	1,662
International Package	International Package	997		1,051		3,306		3,320		International Package	828		1,116
Supply Chain Solutions	Supply Chain Solutions	450		438		1,436		1,266		Supply Chain Solutions	247		473
Consolidated operating profit	Consolidated operating profit	$	3,113	$	2,896	$	9,899	$	8,919	Consolidated operating profit	$	2,541	$	3,251

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NOTE 14. 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 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in millions, except per share amounts):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Numerator:	Numerator:									Numerator:
Net income attributable to common shareowners	Net income attributable to common shareowners	$	2,584	$	2,329	$	8,095	$	9,797	Net income attributable to common shareowners		$	1,895	$	2,662
Denominator:	Denominator:									Denominator:
Weighted average shares	Weighted average shares	867		870		870		869		Weighted average shares		858		871

Vested portion of restricted units	Vested portion of restricted units	3		5		3		5		Vested portion of restricted units		4		3
Denominator for basic earnings per share	Denominator for basic earnings per share	870		875		873		874		Denominator for basic earnings per share		862		874
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Restricted units	Restricted units	2		3		2		3		Restricted units		2		4
Stock options	Stock options	—		1		1		1		Stock options		1		1
Denominator for diluted earnings per share	Denominator for diluted earnings per share	872		879		876		878		Denominator for diluted earnings per share		865		879
Basic earnings per share	Basic earnings per share	$	2.97	$	2.66	$	9.27	$	11.21	Basic earnings per share		$	2.20	$	3.05
Diluted earnings per share	Diluted earnings per share	$	2.96	$	2.65	$	9.24	$	11.16	Diluted earnings per share		$	2.19	$	3.03

Diluted earnings per share for the three months ended ~~September 30,~~March 31, 2023 and 2022 excluded the effect of 0.2 and 0.1 million shares of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive. ~~There were no antidilutive shares for the three months ended September 30, 2021. Antidilutive shares for the nine months ended September 30, 2022 and 2021 were 0.1 million.~~

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NOTE 15. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT

Risk Management Policies

Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations and we actively monitor these exposures. ToWhere deemed appropriate, to manage the impact of these exposures on earnings and/or cash flows, we may enter into a variety of derivative financial instruments. Our objective is to 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 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, we~~agreements. We seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit ~~guidelines and by monitoring counterparties to prevent concentrations of~~guidelines. We may further manage credit risk ~~with any single counterparty.~~

Asthrough the use of ~~September 30, 2022 and December 31, 2021, we had agreements with all of our active counterparties (covering all of our derivative positions) which contained early termination rights and/or~~ zero threshold bilateral collateral provisions and/or early termination rights utilizing master netting arrangements, whereby cash is ~~required~~exchanged based on the net fair value of derivatives associated with those counterparties. Since September 30, 2022, we have entered into foreign currency forward contracts in respect of certain foreign currency-denominated debt in notional amounts of 750 million Canadian Dollars, 1.2 billion Euro and 66 million Pounds Sterling that are not covered by the zero threshold bilateral collateral provisions.each counterparty.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we held cash collateral of ~~$1.0 billion~~$375 and ~~$260~~$534 million, respectively, under these agreements. This collateral is included in Cash and cash equivalents in the consolidated balance sheets and ~~our use of it~~ is ~~not restricted.~~unrestricted. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, no 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. Alternatively, we could 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. We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default.

Types of Hedges

Commodity Risk Management

Currently, the fuel surcharges that we apply toin our domestic and international package ~~services~~businesses 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 services.

Foreign Currency Risk Management

To protect against the reduction in value of forecasted foreign currency cash flows from our international package business, we maintain a foreign currency cash flow hedging program. Our most significant foreign currency exposures relate to the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We ~~hedge portions of our forecasted revenue denominated in foreign currencies with forward contracts. We normally~~generally 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.~~revenue.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

We also hedge portions of our anticipated cash settlements of ~~intercompany transactions~~principal and interest ~~payments~~ on certain ~~debt subject to~~ foreign currency ~~remeasurement using foreign currency forward contracts.~~denominated debt. We ~~normally~~generally designate and account for these contracts as cash flow hedges of forecasted foreign currency denominated ~~transactions; therefore, the resulting gains and losses from these hedges are recognized as a component of~~ ~~Investment income and other~~ ~~when the underlying transactions are subject to currency remeasurement.~~transactions.

We hedge our net investment in certain foreign operations with foreign ~~currency-denominated~~currency denominated debt instruments. The use of foreign-denominated debt as the hedging instrument allows the debt to be remeasured to foreign currency translation adjustment within other comprehensive income to offset the translation risk from those investments. Balances in the foreign currency translation adjustment account remain until the sale or substantially complete liquidation of the foreign entity, upon which we recognize these balances as a component of ~~Investment income and other~~ ~~in the statements of consolidated income.~~

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.

We have designated and account for the majority of our interest rate swaps that convert fixed-rate interest payments into floating-rate interest payments as fair value hedges of the associated debt instruments. 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 these interest rate swaps are recorded to other comprehensive income.~~

We may periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings by using forward starting interest rate swaps, interest rate locks or similar derivatives. 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~~

~~As of September 30, 2022 and December 31, 2021, the notional amounts of our outstanding derivative positions were as follows (in millions):~~

September 30, 2022 December 31,
2021
Currency hedges:
Euro EUR 4,175 4,257
British Pound Sterling GBP 912 1,402
Canadian Dollar CAD 1,631 1,633
Hong Kong Dollar HKD 4,342 4,033
Interest rate hedges:
Fixed to Floating Interest Rate Swaps USD 1,000 1,000
Floating to Fixed Interest Rate Swaps USD 28 28

~~As of September 30, 2022 and December 31, 2021, we had no outstanding commodity hedge positions.~~

~~Our fixed to floating interest rate swaps were designated as a fair value hedge of our 2.450% fixed rate notes that matured in October 2022.~~

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Outstanding Positions

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


		March 31, 2023	December 31, 2022
Currency hedges:
Euro	EUR	3,880	4,115
British Pound Sterling	GBP	776	856
Canadian Dollar	CAD	1,515	1,598
Hong Kong Dollar	HKD	4,552	4,261






Interest rate hedges:

Floating to Fixed Interest Rate Swaps	USD	28	28

As of March 31, 2023 and December 31, 2022, we had no outstanding commodity hedge positions.

Balance Sheet Recognition

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

We have master netting arrangements with substantially all of our counterparties giving us the right of offset for our derivative positions. However, we have not elected to offset the fair value positions of our derivative contracts recorded in the consolidated balance sheets. The columns labeled Net Amounts if Right of Offset had been Applied indicate the potential net fair value positions by type of contract and location in the consolidated balance sheets had we elected to apply the right of offset as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (in millions):


			Fair Value Hierarchy Level		Gross Amounts Presented in Consolidated Balance Sheets						Net Amounts if Right of Offset had been Applied									Fair Value Hierarchy Level		Gross Amounts Presented in Consolidated Balance Sheets						Net Amounts if Right of Offset had been Applied
Asset Derivatives	Asset Derivatives	Balance Sheet Location		September 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021	Asset Derivatives			Balance Sheet Location				March 31, 2023			December 31, 2022			March 31, 2023			December 31, 2022
Derivatives designated as hedges:	Derivatives designated as hedges:																	Derivatives designated as hedges:
Foreign currency exchange contracts	Foreign currency exchange contracts	Other current assets	Level 2		$	336		$	100		$	336		$	82	Foreign currency exchange contracts			Other current assets	Level 2		$	143		$	174		$	135		$	171
Interest rate contracts		Other current assets	Level 2		—			11			—			11

Foreign currency exchange contracts	Foreign currency exchange contracts	Other non-current assets	Level 2		558			123			555			90		Foreign currency exchange contracts			Other non-current assets	Level 2		188			250			159			226

Derivatives not designated as hedges:	Derivatives not designated as hedges:															Derivatives not designated as hedges:
Foreign currency exchange contracts	Foreign currency exchange contracts	Other current assets	Level 2		1			2			1			2		Foreign currency exchange contracts			Other current assets	Level 2		—			1			—			1

Total Asset Derivatives	Total Asset Derivatives				$	895		$	236		$	892		$	185	Total Asset Derivatives						$	331		$	425		$	294		$	398


			Fair Value Hierarchy Level		Gross Amounts Presented in Consolidated Balance Sheets						Net Amounts if Right of Offset had been Applied									Fair Value Hierarchy Level		Gross Amounts Presented in Consolidated Balance Sheets						Net Amounts if Right of Offset had been Applied
Liability Derivatives	Liability Derivatives	Balance Sheet Location		September 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021	Liability Derivatives			Balance Sheet Location				March 31, 2023			December 31, 2022			March 31, 2023			December 31, 2022
Derivatives designated as hedges:	Derivatives designated as hedges:																	Derivatives designated as hedges:
Foreign currency exchange contracts	Foreign currency exchange contracts	Other current liabilities	Level 2		$	—		$	19		$	—		$	1	Foreign currency exchange contracts			Other current liabilities	Level 2		$	8		$	3		$	—		$	—
Interest rate contracts		Other current liabilities	Level 2		—			—			—			—

Foreign currency exchange contracts	Foreign currency exchange contracts	Other non-current liabilities	Level 2		3			33			—			—		Foreign currency exchange contracts			Other non-current liabilities	Level 2		29			24			—			—
Interest rate contracts	Interest rate contracts	Other non-current liabilities	Level 2		5			10			5			10		Interest rate contracts			Other non-current liabilities	Level 2		5			5			5			5

Derivatives not designated as hedges:																Derivatives not designated as hedges:
Foreign currency exchange contracts																Foreign currency exchange contracts			Other current liabilities	Level 2		1			—			1			—

Total Liability Derivatives	Total Liability Derivatives				$	8		$	62		$	5		$	11	Total Liability Derivatives						$	43		$	32		$	6		$	5

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Our foreign currency exchange rate, interest rate and investment market price derivatives are largely comprised of over-the-counter derivatives, which are primarily valued using pricing models that rely on market observable inputs such as yield curves, foreign currency exchange rates and investment forward ~~prices. These~~prices; therefore, these derivatives are classified as Level 2. ~~As of September 30, 2022 and December 31, 2021, we did not have any derivatives that were classified as Level 1 or Level 3 within the fair value hierarchy.~~

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

~~NOTES TO UNAUDITED 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (in millions):
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included Carrying Amount
of Hedged Liabilities Cumulative Amount
of Fair Value Hedge
Adjustments Carrying Amount
of Hedged Liabilities Cumulative Amount
of Fair Value Hedge
Adjustments
September 30, 2022 September 30, 2022 December 31, 2021 December 31, 2021
Current maturities of long-term debt, commercial paper and finance leases $ 1,000 $ — $ 1,010 $ 11
Long-term debt and finance leases $ 280 $ 5 $ 280 $ 5

The cumulative amount of fair value hedging losses remaining for any hedged assets and liabilities for which hedge accounting has been discontinued as of September 30, 2022 is $5 million. These amounts will be recognized over the next 8 years.


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
	March 31, 2023		March 31, 2023		December 31, 2022		December 31, 2022

Long-term debt and finance leases	$	280	$	5	$	280	$	5

Income Statement and AOCI Recognition of Designated Hedges

The following table indicates the amount of gains ~~and~~ (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 three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in millions):

Three Months Ended September 30,
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships 2022 2021
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 $ — $ (1) $ — $ — $ 4 $ —
Derivatives designated as hedging instruments — 1 — — (4) —
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income — (4) — — (3) —
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income 94 — — 22 — —
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 $ 94 $ (4) $ — $ 22 $ (3) $ —


	Three Months Ended March 31,
	2023						2022
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 (loss) on fair value hedging relationships:
Interest Rate Contracts:
Hedged items	$	—	$	—	$	—	$	—	$	8	$	—
Derivatives designated as hedging instruments	—		—		—		—		(8)		—
Gain (loss) on cash flow hedging relationships:
Interest Rate Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income	—		(1)		—		—		(3)		—
Foreign Currency Exchange Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income	68		—		—		41		—		—
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	$	68	$	(1)	$	—	$	41	$	(3)	$	—

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended September 30,

2022 2021
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 $ — $ 10 $ — $ — $ 14 $ —
Derivatives designated as hedging instruments — (10) — — (14) —
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income — (9) — — (8) —
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income 202 — — 44 — —
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 $ 202 $ (9) $ — $ 44 $ (8) $ —

The following table indicates the amount of gains ~~and~~ (losses) that have been recognized in AOCI for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ for those derivatives designated as cash flow hedges (in millions):

Three Months Ended September 30:
Derivative Instruments in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives
2022 2021
Interest rate contracts $ 1 $ 1
Foreign currency exchange contracts 459 165
Total $ 460 $ 166
Nine Months Ended September 30:
Derivative Instruments in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives
2022 2021
Interest rate contracts $ 5 $ 1
Foreign currency exchange contracts 922 271
Total $ 927 $ 272










Three Months Ended March 31:
Derivative Instruments in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives
	2023		2022
Interest rate contracts	$	—	$	3
Foreign currency exchange contracts	(34)		92

Total	$	(34)	$	95

As of ~~September 30, 2022,~~March 31, 2023, there were ~~$330~~$130 million of ~~unrealized~~ pre-tax gains related to cash flow hedges deferred in AOCI that are expected to be reclassified to income over the ~~12 month~~12-month period ending ~~September 30, 2023.~~March 31, 2024. The actual amounts that will be reclassified to income over the next 12 months will vary from this amount as a result of changes in market conditions. The maximum term over which we are hedging exposures to the variability of cash flows is approximately 109 years.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

The following table indicates the amount of gains ~~and~~ (losses) that have been recognized in AOCI within foreign currency translation adjustment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ for those instruments designated as net investment hedges (in millions):


Three Months Ended September 30:

Three Months Ended March 31:						Three Months Ended March 31:
Non-derivative Instruments in Net Investment Hedging Relationships	Non-derivative Instruments in Net Investment Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Debt				Non-derivative Instruments in Net Investment Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Debt
		2022		2021			2023		2022
Foreign denominated debt		$	209	$	90
Foreign currency denominated debt						Foreign currency denominated debt	$	(73)	$	46
Total	Total	$	209	$	90	Total	$	(73)	$	46

Nine Months Ended September 30:
Non-derivative Instruments in Net Investment Hedging Relationships		Amount of Gain (Loss) Recognized in AOCI on Debt
		2022		2021
Foreign denominated debt		$	436	$	167
Total		$	436	$	167

Income Statement Recognition of Non-Designated Derivative Instruments

~~Additionally, we maintain~~Derivative instruments that are not designated as hedges are recorded at fair value with unrealized gains and losses reported in earnings each period. Cash flows from the settlement of derivative instruments appear in the statement of consolidated cash flows within the same categories as the cash flows of the hedged item.

We may periodically terminate interest rate swaps and foreign currency exchange forward contracts ~~that are not designated as hedges. These~~or enter into offsetting swap and foreign currency ~~exchange forward contracts are intended to provide an economic offset to foreign currency remeasurement and settlement risk for certain assets and liabilities in our consolidated balance sheets.~~

~~We also periodically terminate foreign currency exchange forward contracts by entering into offsetting foreign currency exchange~~ positions with different counterparties. As part of this process, we de-designate our original ~~foreign currency exchange contracts. These transactions provide an economic offset that effectively eliminates the effects of changes in market value.~~hedge relationship.

~~The following is a summary of the amounts~~Amounts recorded in the statements of consolidated income related to fair value changes and settlements of interest rate swaps and foreign currency ~~exchange~~ forward contracts not designated as hedges for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in millions): were as follows:


Derivative Instruments Not Designated in Hedging Relationships	Derivative Instruments Not Designated in Hedging Relationships	Location of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income					Derivative Instruments Not Designated in Hedging Relationships		Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
			2022			2021				2023		2022
Three Months Ended September 30:

Three Months Ended March 31:									Three Months Ended March 31:

Foreign currency exchange contracts	Foreign currency exchange contracts	Investment income and other		$	(45)		$	(21)	Foreign currency exchange contracts		Investment income and other	$	4	$	(28)

Total	Total			$	(45)		$	(21)	Total			$	4	$	(28)

Nine Months Ended September 30:

Foreign currency exchange contracts		Investment income and other		$	(131)		$	(24)

Total				$	(131)		$	(24)

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. INCOME TAXES

Our effective tax rate ~~decreased to 21.0%~~for the three months ended March 31, 2023 and 2022 was approximately 24.9% and 21.5%, respectively. The year-over-year increase in ~~the third quarter from 22.2% in the same period of 2021 (21.8% year to date compared to 22.4% in 2021). The recognition in income~~our effective tax ofrate was driven by lower excess tax benefits related to share-based compensation, reduced our effective rate by 0.8% year to date compared to 0.6% in the same period of 2021 (there was no significant impact in the third quarter of 2022 or 2021). Other items that impacted our effective tax rate in the third quarter compared to 2021 included favorableunfavorable changes in jurisdictional earnings mix and uncertain tax ~~positions and favorable changes in our jurisdictional earnings mix.~~positions.

~~As discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, we~~We have recognized liabilities for uncertain tax positions and we reevaluate these uncertain tax positions on a quarterly basis. 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 tax benefits could significantly increase or decrease within the next twelve months, however, an estimate of the range of reasonably possible outcomes cannot be made. Items that may cause changes to unrecognized tax benefits include the allowance or disallowance of deductions, the timing of deductions and the allocation of income and expense between tax jurisdictions. ~~Any~~These changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of ~~statutes~~the statute of limitations, or other unforeseen circumstances. Over the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits may decrease by up to $180 million.

In the first nine months of 2022, we recognized an immaterial income tax expense related to a pre-tax curtailment gain of $33 million on the UPS Canada Ltd. Retirement Plan. This income tax expense was generated at a higher average tax rate than the U.S. federal statutory tax rate because it included the effect of foreign taxes.

In the first nine months of 2021, we recognized an income tax expense of $788 million related to a pre-tax mark-to-market gain of $3.3 billion on the UPS/IBT Full-Time Employee Pension Plan. This income tax expense was generated at a higher average tax rate than the U.S. federal statutory tax rate because it included the effect of U.S. state and local taxes.

As discussed in note 17, we recognized pre-tax transformation strategy costs of $36 million in the third quarter of 2022 compared to $74 million in the same period of 2021 ($132 million year to date compared to $308 million in the prior year). As a result, we recorded an income tax benefit of $9 million in the third quarter compared to $20 million in the same period of 2021 ($31 million year to date compared to $76 million in the prior year). The income tax benefit was generated at a higher average tax rate than the U.S. federal statutory tax rate, primarily due to the effect of U.S. state and local taxes and foreign taxes.

During the first nine months of 2021, we recorded a net pre-tax gain of $35 million related to the divestiture of UPS Freight, resulting in a net income tax expense of $8 million. This income tax expense was generated at a higher average tax rate than the U.S. federal statutory tax rate due to the effect of U.S. state and local taxes.

Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations, which was effective through December 31, 2021. During the first nine months of 2022, the tax incentive was renegotiated and extended. The tax incentive is conditioned upon our meeting specific employment and investment thresholds, which we expect to meet. The impact of the tax incentive did not significantly change our effective tax rate for the first nine months of 2022 compared to 2021.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. TRANSFORMATION STRATEGY COSTS

~~Our strategy includes a multi-year,~~We are undertaking an enterprise-wide transformation of our organization. The program includes ~~investments,~~initiatives, as well as changes in processes and technology, that impact global direct and indirect operating costs.

The table below presents transformation strategy costs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in millions):
Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Transformation Strategy Costs:
Compensation and benefits $ 15 $ 33 $ 71 $ 164
Total other expenses 21 41 61 144
Total Transformation Strategy Costs $ 36 $ 74 $ 132 $ 308
Income Tax Benefit from Transformation Strategy Costs (9) (20) (31) (76)
After-Tax Transformation Strategy Costs $ 27 $ 54 $ 101 $ 232


	Three Months Ended March 31,
	2023		2022
Transformation Strategy Costs:
Compensation and benefits	$	(12)	$	33
Total other expenses	15		22
Total Transformation Strategy Costs	$	3	$	55

Income Tax Benefit from Transformation Strategy Costs	—		(12)
After-Tax Transformation Strategy Costs	$	3	$	43

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.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

~~Building on the strong foundation created by~~We continue to execute our~~Better not Bigger~~ ~~strategic approach, we are moving to the next phase of our strategic framework. Within our~~ ~~Better and Bolder~~ approach we are moving faster to enhance customer engagement by combining our physical network with digital capabilities, while at the same time increasing further efficiencies and remaining disciplined with capital allocation.

~~Within the~~ Customer First, People Led, Innovation Driven~~component of our~~ strategy ~~we continue to leverage technology~~by investing to improve the customer ~~experience. We are growing~~experience and drive growth in our ~~Digital Access Program, which makes it faster and easier for~~targeted customer segments, including small- and medium-sized businesses ("SMBs") and healthcare. We seek to ~~ship~~provide industry-leading service to our customers by combining our digital capabilities with our global integrated network.

During the quarter, we continued the expansion of our Digital Access Program and other technology-driven initiatives to make it faster and easier for SMBs to do business with us. ~~Through~~We expanded our ~~People Led~~ ~~strategic focus, we are working~~global footprint of dedicated healthcare facilities, accelerated deployment of our smart package-smart facility technology and continued to ~~improve our employee value proposition by increasing flexibility and simplifying our hiring process. Under our~~ ~~Innovation Driven~~ ~~strategic pillar, we continue to deploy automated solutions and smart package technology~~pursue initiatives to drive further productivity improvements ~~enable additional network agility~~ and better serve our customers.

~~To accelerate our growth~~Macroeconomic headwinds, including global inflation and a decline in complex healthcare logistics, during the third quarter we entered into an agreement to acquire Bomi Group, which we expect to close during the fourth quarter. This acquisition will expand our healthcare footprint and bring additional expertise in cold chain logistics.

~~For the quarter, a number of external factors continued to contribute~~U.S. manufacturing production, led to a challenging operating environment ~~including global inflation and rising interest rates, wage and labor market pressures, volatile energy prices, geopolitical uncertainties, and foreign currency exchange rates relative to~~in the first quarter of 2023. In the U.S. ~~Dollar. Additionally, areas within Asia~~, consumer spending continued to ~~experience lockdowns~~shift towards services and ~~other restrictions that impacted manufacturing~~discretionary spending slowed. Internationally, exports out of Asia remained weak and ~~supply chains.~~inflationary pressures persisted in Europe. These factors ~~resulted in disruptions to certain parts of our business,~~ negatively impacted demand for our services, ~~and contributed to increases~~resulting in ~~certain of~~volume declines in our ~~operating costs.~~global small package operations. We ~~expect~~anticipate these factors will continue to impact us ~~and result in continued uncertainty for~~throughout the remainder of ~~the year and into~~ 2023. In the face of this uncertain macroeconomic environment, we continue to operate within our strategic framework, maximizing the agility of our global integrated network by making adjustments to match changes in volume levels and delivering excellent service to our customers.

Volume declined in our U.S. Domestic Package segment for both the quarter and year to date, driven by a decline in residential volume from certain large customers, reflecting the continued execution within our strategic framework. This decline was partially offset by growth from SMBs and volume from new customers. Revenue per piece growth more than offset the decline in volume for both the quarter and year to date. Broader economic factors, particularly labor market pressures and fuel prices, contributed to an increase in operating costs, however, successful execution of our strategy resulted in increased operating profit and operating margin in both the current year periods.

~~Within our International Package segment, volume~~We may also declined for both the quarter and year to date primarily due to the factors discussed above, although the rate of decline slowed in the third quarter relative to the first half of the year. Revenue increased for both current year periods as revenue per piece growth more than offset the volume declines. Operating profit wasbe negatively impacted by the ~~strengthening~~ongoing negotiation of our labor contract with the ~~U.S. Dollar against European currencies, for both~~Teamsters. For additional information on the ~~quarter and year to date.~~

Within Supply Chain Solutions, revenue declined for the quarter as volumes and market rates decreased in our Forwarding businesses. Operating profit and operating margin increased for the quarter, primarily due to growth in Logistics and improved revenue quality in our truckload brokerage business. Year to date, revenue decreased primarily duestatus of these negotiations, see note 7 to the ~~divestiture of UPS Freight~~accompanying unaudited financial statements.

Notwithstanding the challenging macroeconomic environment in the ~~second~~first quarter, ~~of 2021. Operating~~we managed our network with agility, focused on productivity, controlled cost and generated operating profit ~~and operating margin increased, driven by improved results~~that was in line with our ~~Forwarding and Logistics businesses.~~

~~Our strategic execution strengthened our balance sheet and continued to result in the generation of strong~~expectations. Additionally, we returned cash ~~flows for the year, which we are reinvesting in the business and returning~~ to shareowners through dividends and share ~~repurchases.~~repurchases, and continued to make long-term investments to support our strategy.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Highlights of our consolidated results, which are discussed in more detail below, include:
Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2022 2021 $ % 2022 2021 $ %
Revenue (in millions) $ 24,161 $ 23,184 $ 977 4.2 % $ 73,305 $ 69,516 $ 3,789 5.5 %
Operating Expenses (in millions) 21,048 20,288 760 3.7 % 63,406 60,597 2,809 4.6 %
Operating Profit (in millions) $ 3,113 $ 2,896 $ 217 7.5 % $ 9,899 $ 8,919 $ 980 11.0 %
Operating Margin 12.9 % 12.5 % 13.5 % 12.8 %
Net Income (in millions) $ 2,584 $ 2,329 $ 255 10.9 % $ 8,095 $ 9,797 $ (1,702) (17.4) %
Basic Earnings Per Share $ 2.97 $ 2.66 $ 0.31 11.7 % $ 9.27 $ 11.21 $ (1.94) (17.3) %
Diluted Earnings Per Share $ 2.96 $ 2.65 $ 0.31 11.7 % $ 9.24 $ 11.16 $ (1.92) (17.2) %
Operating Days 64 64 192 191
Average Daily Package Volume (in thousands) 22,900 23,381 (2.1) % 23,083 23,920 (3.5) %
Average Revenue Per Piece $ 13.58 $ 12.50 $ 1.08 8.6 % $ 13.52 $ 12.29 $ 1.23 10.0 %

•Revenue increased in both our U.S. Domestic Package and International Package segments in both the three- and nine-month periods, with strong revenue per piece growth in our global small package operations.



	Three Months Ended March 31,						Change
	2023			2022			$		%
Revenue (in millions)	$	22,925		$	24,378		$	(1,453)	(6.0)	%
Operating Expenses (in millions)	20,384			21,127			(743)		(3.5)	%
Operating Profit (in millions)	$	2,541		$	3,251		$	(710)	(21.8)	%
Operating Margin	11.1		%	13.3		%
Net Income (in millions)	$	1,895		$	2,662		$	(767)	(28.8)	%
Basic Earnings Per Share	$	2.20		$	3.05		$	(0.85)	(27.9)	%
Diluted Earnings Per Share	$	2.19		$	3.03		$	(0.84)	(27.7)	%

Operating Days	64			64
Average Daily Package Volume (in thousands)	21,989			23,278					(5.5)	%
Average Revenue Per Piece	$	13.74		$	13.26		$	0.48	3.6	%

•Average daily package volume and revenue in our global small package operations decreased, ~~for~~with declines in both commercial and residential shipments, primarily as a result of the ~~quarter and year to date, primarily due to business-to-consumer volume declines.~~macroeconomic conditions described herein.

•Operating expenses ~~increased for both the quarter and year to date,~~decreased, driven ~~primarily~~ by ~~higher compensation and benefits and fuel prices.~~a reduction in purchased transportation in Supply Chain Solutions.

•Operating profit and operating margin ~~increased in our U.S Domestic Package segment and Supply Chain Solutions businesses for both the quarter and year to date. Operating profit and~~decreased, as revenue declines were greater than operating ~~margin decreased slightly in our International Package segment for both periods.~~expense reductions.

•~~Net~~We reported net income ~~was $2.6~~of $1.9 billion and diluted earnings per share ~~was $2.96 for the third quarter ($8.1 billion and $9.24 per share year to date).~~of $2.19. Adjusted diluted earnings per share was ~~$2.99 for the third quarter ($9.33 per share year to date) after adjusting for~~$2.20, which includes the after-tax impacts ~~of:~~

◦of transformation strategy costs and goodwill impairment charges of ~~$27~~$9 million, or ~~$0.03~~$0.01 per diluted ~~share, for the third quarter ($101 million and $0.12 per diluted share year to date); and~~

◦~~a first-quarter defined benefit plan curtailment gain of $24 million, or $0.03 per diluted share that impacted the year-to-date period.~~share.

In the U.S. Domestic Package segment, revenue ~~increased for the quarter~~declines were driven by lower volume. These were somewhat offset by revenue per piece growth due to improvements in revenue quality and ~~year to date,~~customer mix, together with higher fuel revenue as a result of increases in price per gallon and pricing initiatives. Expenses increased primarily due to higher ~~fuel~~wages and benefits costs for our union employees, partially offset by lower management compensation expense, increased productivity and declines in purchased transportation costs.

In our International Package segment, revenue declines were driven by ~~increases~~lower volume, unfavorable fluctuations in ~~both the price per gallon~~foreign currency exchange rates and declines in ~~fuel surcharge rates as part of our pricing strategy. Revenue quality and favorable shifts in customer mix also contributed to the increase.~~demand-related surcharges. These ~~increases~~declines were partially offset by ~~lower revenue from volume declines. Expenses increased for~~ the ~~quarter and year to date due to higher compensation and benefits costs and higher fuel prices, slightly offset by productivity improvements.~~

~~In the International Package segment, revenue increased for the quarter and year to date, driven by higher fuel revenue,~~impact of revenue quality ~~actions~~initiatives and ~~favorable shifts in customer and product mix. This increase was partially offset by negative impacts from lower volumes and unfavorable currency movements.~~increased fuel revenue. Expense ~~increases~~decreases were primarily driven by favorable currency impacts and the impact of volume declines, partially offset by higher fuel ~~prices, somewhat offset by favorable currency impacts.~~prices.

In Supply Chain Solutions, revenue ~~decreased for the quarter~~decreases were driven by volume and ~~year to date. For the quarter, volume~~market rate declines in Forwarding that were ~~partially~~slightly offset by growth in ~~our~~ Logistics, ~~businesses, driven by healthcare. Year to date, revenue increases~~including the impact of the Bomi Group acquisition that occurred in ~~Forwarding and Logistics were offset by a reduction in revenue due to~~ the ~~second~~fourth quarter ~~2021 divestiture~~ of ~~UPS Freight.~~2022. Expenses decreased, ~~for the quarter and year to date,~~ driven by lower transportation costs in ~~Forwarding and a reduction in operating expenses due to the divestiture of UPS Freight,~~Forwarding. These were partially offset by ~~higher operating~~increases in transportation and other costs inwithin Logistics.

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Supplemental Information - Items Affecting Comparability

We supplement the reporting of our financial information determined under generally accepted accounting principles in the United States ("GAAP") with certain non-GAAP financial measures. These include: "adjusted" compensation and benefits; operating expenses; operating profit; operating margin; other income and (expense); income before income taxes; income tax expense; effective tax rate; net income; and earnings per share. Adjusted financial measures may exclude the impact of period-over-period exchange rate changes and hedging activities, defined benefit plan gains and losses, transformation and other charges, goodwill and asset impairment charges, and divestitures, as described below.

We believe that these non-GAAP measures provide additional meaningful information to assist users of our financial statements in more fully understanding our financial results and assessing our ongoing performance, because they exclude items that may not be indicative of, or are unrelated to, our underlying operations, and may provide a useful baseline for analyzing trends in our underlying businesses. These non-GAAP measures are used internally by management for business unit operating performance analysis, business unit resource allocation and in connection with incentive compensation award determinations.

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

Adjusted amounts reflect the following (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Non-GAAP Adjustments	Non-GAAP Adjustments	2022		2021		2022		2021		Non-GAAP Adjustments		2023		2022
Operating Expenses:	Operating Expenses:									Operating Expenses:
Transformation Strategy Costs	Transformation Strategy Costs	$	36	$	74	$	132	$	308	Transformation Strategy Costs		$	3	$	55
Asset Impairment and Divestiture Charges		—		—		—		(35)
Goodwill and Asset Impairments, and Divestiture Charges										Goodwill and Asset Impairments, and Divestiture Charges		8		—
Total Adjustments to Operating Expenses	Total Adjustments to Operating Expenses	$	36	$	74	$	132	$	273	Total Adjustments to Operating Expenses		$	11	$	55

Other Income and (Expense):	Other Income and (Expense):									Other Income and (Expense):
Defined Benefit Plan (Gains) and Losses		$	—	$	—	$	(33)	$	(3,290)
Defined Benefit Plan (Gains) Losses										Defined Benefit Plan (Gains) Losses		$	—	$	(33)
Total Adjustments to Other Income and (Expense)	Total Adjustments to Other Income and (Expense)	$	—	$	—	$	(33)	$	(3,290)	Total Adjustments to Other Income and (Expense)		$	—	$	(33)

Total Adjustments to Income Before Income Taxes	Total Adjustments to Income Before Income Taxes	$	36	$	74	$	99	$	(3,017)	Total Adjustments to Income Before Income Taxes		$	11	$	22

Income Tax (Benefit) Expense:	Income Tax (Benefit) Expense:									Income Tax (Benefit) Expense:
Transformation Strategy Costs	Transformation Strategy Costs	$	(9)	$	(20)	$	(31)	$	(76)	Transformation Strategy Costs		$	—	$	(12)
Asset Impairment and Divestiture Charges		—		—		—		8
Defined Benefit Plan (Gains) and Losses		—		—		9		788
Goodwill and Asset Impairments, and Divestiture Charges										Goodwill and Asset Impairments, and Divestiture Charges		(2)		—
Defined Benefit Plan (Gains) Losses										Defined Benefit Plan (Gains) Losses		—		9
Total Adjustments to Income Tax (Benefit) Expense	Total Adjustments to Income Tax (Benefit) Expense	$	(9)	$	(20)	$	(22)	$	720	Total Adjustments to Income Tax (Benefit) Expense		$	(2)	$	(3)

Total Adjustments to Net Income	Total Adjustments to Net Income	$	27	$	54	$	77	$	(2,297)	Total Adjustments to Net Income		$	9	$	19

Transformation Charges, and Goodwill, Asset Impairment and Divestiture Charges

We supplement the presentation of our operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of charges related to transformation activities, and goodwill, asset impairment and divestiture charges. We believe excluding the impact of these charges better enables users of our financial statements to view and evaluate underlying business performance from the perspective of management. We do not consider these costs when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards. For more information regarding transformation activities, see note 17 to the unaudited, consolidated financial statements. For more information regarding goodwill ~~and asset~~ impairment charges, ~~and divestitures,~~ see note 48 to our ~~audited,~~unaudited, consolidated financial ~~statements in our Annual Report on Form 10-K for the year ended December 31, 2021.~~statements.

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Foreign Currency Exchange Rate Changes and Hedging Activities

We ~~also~~ supplement the reporting of revenue, revenue per piece and operating profit with adjusted 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 International Package and Supply Chain Solutions on this currency-neutral basis.

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

Defined Benefit Plan Gains and Losses

We incur certain employment-related expenses associated with pension and postretirement medical benefits. These pension and postretirement medical benefits 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 of any of our plans.

We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor (defined as 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation), as well as gains and losses resulting from plan ~~amendments,~~curtailments and settlements, for our pension and postretirement defined benefit plans immediately as part of Investment income and other in the statements of consolidated income. We supplement the presentation of our income before income taxes, net income and earnings per share with adjusted measures that exclude the impact of these gains and losses and the related income tax effects. We believe excluding these defined benefit plan gains and losses provides important supplemental information by removing the volatility associated with plan amendments and short-term changes in market interest rates, equity values and similar factors.

During the first quarter of 2022, we amended the UPS Canada Ltd. Retirement Plan to cease future benefit accruals effective December 31, 2023. As a result, we remeasured the plan's assets and benefit ~~obligations as of March 31, 2022,~~obligation resulting in a curtailment gain of~~$33~~ $33 million ($24 million after-tax).

~~During~~ in the first quarter of 2021, we remeasured the UPS/IBT Full Time Employee Pension Plan following enactment into law of the American Rescue Plan Act and recognized a pre-tax mark-to-market gain outside of the 10% corridor of $3.3 billion ($2.5 billion after-tax).three months ended March 31, 2022.

For additional information, refer to note 7 to the unaudited, consolidated financial statements.

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Results of Operations - Segment Review

The results and discussions that follow are reflective of how management monitors and evaluates the performance of our segments as defined in note 13 to the unaudited, consolidated financial statements.

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 directly impact the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses. There were no significant changes to our allocation methodologies in the ~~third~~first quarter ~~or year-to-date periods.~~of 2023.

We test goodwill and other indefinite-lived intangible assets for impairment annually at July 1st and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying amount may be impaired.

Testing goodwill and other indefinite-lived intangible assets for impairment requires that we make a number of significant assumptions, including assumptions related to future revenues, costs, capital expenditures, working capital and our cost of capital. We are also ~~are~~ required to make assumptions relating to our overall business and operating strategy, and the regulatory and market environment. Changes in any of these assumptions could significantly impact the fair value of any one of our reporting units. The projections that we use in our valuation model are updated annually and will change over time based on the historical performance and changing business conditions for each of our reporting units.

Our 2022 annual impairment testing of goodwill indicated that the fair value of our ~~recently-acquired~~ Roadie reporting unit remained greater than its carrying value, although this excess was less than 10 percent. The ~~extent to which fair value exceeds carrying value is impacted by changes in the cost of capital, and our ability to successfully integrate and grow the acquired business. The~~ carrying value of goodwill associated with our Roadie reporting unit is $241 million.

There were no events or changes in circumstances during the ~~third~~first quarter of ~~2022~~2023 that would indicate the carrying ~~amount~~value of ~~our~~Roadie goodwill ~~or indefinite-lived intangible assets~~ may be impaired as of the date of this report. ~~However, future~~

Future actual results, transactions or other events, or changes in estimates or assumptions, whether due to unexpected impacts on our business, our transformation activities, or the continuing evaluation of our business portfolio, could result in an impairment charge toin one or more of our reporting units or to our indefinite-lived intangible assets in a future period.

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U.S. Domestic Package


		Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change					Three Months Ended March 31,						Change
		2022			2021			$		%		2022			2021			$		%			2023			2022			$		%
Average Daily Package Volume (in thousands):	Average Daily Package Volume (in thousands):																					Average Daily Package Volume (in thousands):
Next Day Air	Next Day Air	1,932			1,949					(0.9)	%	1,929			2,010					(4.0)	%	Next Day Air	1,737			1,945					(10.7)	%
Deferred	Deferred	1,341			1,501					(10.7)	%	1,417			1,532					(7.5)	%	Deferred	1,139			1,509					(24.5)	%
Ground	Ground	16,266			16,385					(0.7)	%	16,309			16,689					(2.3)	%	Ground	15,796			16,287					(3.0)	%
Total Average Daily Package Volume	Total Average Daily Package Volume	19,539			19,835					(1.5)	%	19,655			20,231					(2.8)	%	Total Average Daily Package Volume	18,672			19,741					(5.4)	%
Average Revenue Per Piece:	Average Revenue Per Piece:																					Average Revenue Per Piece:
Next Day Air	Next Day Air	$	21.62		$	19.36		$	2.26	11.7	%	$	21.39		$	18.76		$	2.63	14.0	%	Next Day Air	$	22.14		$	20.84		$	1.30	6.2	%
Deferred	Deferred	15.28			13.57			1.71		12.6	%	15.15			13.25			1.90		14.3	%	Deferred	16.38			14.70			1.68		11.4	%
Ground	Ground	10.94			10.00			0.94		9.4	%	10.83			9.89			0.94		9.5	%	Ground	11.21			10.66			0.55		5.2	%
Total Average Revenue Per Piece	Total Average Revenue Per Piece	$	12.29		$	11.19		$	1.10	9.8	%	$	12.18		$	11.03		$	1.15	10.4	%	Total Average Revenue Per Piece	$	12.54		$	11.97		$	0.57	4.8	%
Operating Days in Period	Operating Days in Period	64			64							192			191							Operating Days in Period	64			64
Revenue (in millions):	Revenue (in millions):																					Revenue (in millions):
Next Day Air	Next Day Air	$	2,673		$	2,415		$	258	10.7	%	$	7,923		$	7,202		$	721	10.0	%	Next Day Air	$	2,461		$	2,594		$	(133)	(5.1)	%
Deferred	Deferred	1,311			1,304			7		0.5	%	4,123			3,877			246		6.3	%	Deferred	1,194			1,420			(226)		(15.9)	%
Ground	Ground	11,390			10,489			901		8.6	%	33,911			31,541			2,370		7.5	%	Ground	11,332			11,110			222		2.0	%
Total Revenue	Total Revenue	$	15,374		$	14,208		$	1,166	8.2	%	$	45,957		$	42,620		$	3,337	7.8	%	Total Revenue	$	14,987		$	15,124		$	(137)	(0.9)	%
Operating Expenses (in millions):	Operating Expenses (in millions):																					Operating Expenses (in millions):
Operating Expenses	Operating Expenses	$	13,708		$	12,801		$	907	7.1	%	$	40,800		$	38,287		$	2,513	6.6	%	Operating Expenses	$	13,521		$	13,462		$	59	0.4	%
Transformation and Other Charges		(20)			(7)			(13)		185.7	%	(89)			(219)			130		(59.4)	%
Transformation Strategy Costs																						Transformation Strategy Costs	(22)			(43)			21		(48.8)	%
Adjusted Operating Expense	Adjusted Operating Expense	$	13,688		$	12,794		$	894	7.0	%	$	40,711		$	38,068		$	2,643	6.9	%	Adjusted Operating Expense	$	13,499		$	13,419		$	80	0.6	%
Operating Profit (in millions) and Operating Margin:	Operating Profit (in millions) and Operating Margin:																					Operating Profit (in millions) and Operating Margin:
Operating Profit	Operating Profit	$	1,666		$	1,407		$	259	18.4	%	$	5,157		$	4,333		$	824	19.0	%	Operating Profit	$	1,466		$	1,662		$	(196)	(11.8)	%
Adjusted Operating Profit	Adjusted Operating Profit	$	1,686		$	1,414		$	272	19.2	%	$	5,246		$	4,552		$	694	15.2	%	Adjusted Operating Profit	$	1,488		$	1,705		$	(217)	(12.7)	%
Operating Margin	Operating Margin	10.8		%	9.9		%					11.2		%	10.2		%					Operating Margin	9.8		%	11.0		%
Adjusted Operating Margin	Adjusted Operating Margin	11.0		%	10.0		%					11.4		%	10.7		%					Adjusted Operating Margin	9.9		%	11.3		%

Revenue

The change in revenue was due to the following factors:
Volume Rates /
Product Mix Fuel
Surcharge Total Revenue
Change
Revenue Change Drivers:
Third quarter 2022 vs. 2021 (1.4) % 3.8 % 5.8 % 8.2 %
Year to date 2022 vs. 2021 (2.3) % 4.6 % 5.5 % 7.8 %

~~Year to date, revenue also benefited from one additional operating day in the first half of 2022.~~


	Volume		Rates / Product Mix		Fuel Surcharge		Total Revenue Change
Revenue Change Drivers:
First quarter 2023 vs. 2022	(5.4)	%	3.1	%	1.4	%	(0.9)	%

Volume

Average daily volume decreased, with reductions in ~~the third quarter~~both residential and ~~year to date, driven by~~commercial shipments as a ~~2.2%~~result of challenging macroeconomic conditions, including high inflation, declines in U.S. manufacturing production and changes in consumer spending. We anticipate a continued decline in residential shipments (down 6.0% year to date). The decline in residential shipments was primarily attributable to terms of contracts with certain large customers, reflecting the continued execution within our strategic framework. This decline was partially offset by growth from SMBs and, during the third quarter, volume from new customers. Business-to-consumer shipments for the quarter and year to date represented approximately 57.2% and 57.3% of average daily volume ~~respectively, compared~~throughout the remainder of the year.

Business-to-consumer shipments declined 5.5% in the first quarter, driven by the continued shift in consumer spending towards services and a reduction in discretionary spending. We experienced smaller declines in residential volume from SMBs than from our large customers, which was partially due to ~~57.6% and 59.2%, respectively, in 2021.~~additional volume generated through our Digital Access Program. Volume from our largest customer declined as we continued to execute within agreed-upon contract terms.

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Business-to-business shipments ~~decreased 0.5% for~~declined 5.4%, primarily as a result of declines across multiple industry sectors that are sensitive to the ~~quarter but increased 1.8% year to date. For the quarter, the decline was driven by lower manufacturing volume, partially offset by~~macroeconomic factors discussed above. We experienced an increase in ~~retail returns. Year to date, growth was driven by our Ground commercial product as discussed below. Overall, we anticipate average daily~~returns volume ~~growth will be negative~~ in the ~~fourth~~first quarter.

Within our Air products, average daily volume decreased ~~for the quarter~~across all customer segments. These decreases were driven by customers making cost trade offs and ~~year to date due to terms~~taking advantage of ~~contracts with certain large customers reflecting the~~enhanced speed in our ground network. Additionally, continued execution ~~within~~of the agreed-upon contract terms with our ~~strategic framework, as well as changes~~largest customer also contributed to the overall decline in ~~customer behavior.~~air volume.

~~Within our~~ Ground ~~products,~~residential and Ground commercial average daily volume ~~decreased for both~~decreases of 2.1% and 4.2%, respectively, were primarily attributable to declines from a number of our large customers due to the ~~quarter and year to date, as declines in~~economic factors discussed above. Within Ground residential, we experienced growth from SMBs. SurePost volume ~~outpaced gains~~from our larger customers increased as a result of the shift in ~~Ground commercial volume. Ground residential average daily~~ volume ~~decreased 4.3% for the quarter (down 6.6% year to date), driven by contract terms with certain large customers~~from our Air products discussed above. During the third quarter, the decline in Ground residential volume was partially offset by an increase in SurePost shipments from both new and existing large retail customers. Year to date, Ground residential and SurePost average daily volumes were negatively impacted by a continuing shift in consumer spending back towards services and in-store shopping. Ground commercial volume increased 0.3% and 2.4% for the quarter and year to date, respectively, driven by heightened returns volume in the quarter and growth from SMBs in the year-to-date period.

Rates and Product Mix

Revenue per piece in our Air and Ground products increased ~~for both~~in the ~~third~~ quarter, ~~and year to date, driven by~~resulting from base rate increases and ~~other~~additional pricing actions, ~~and~~as well as favorable changes in customer mix. AThese increases were partially offset by the shift in product mix ~~slightly offset these increases for the third quarter.~~discussed above. Rates for Air and Ground products increased an average of ~~5.9%~~6.9% in December ~~2021.~~2022. In our Next Day Air and Deferred products, revenue per piece growth ~~for the quarter and year to date~~ was ~~slightly~~ negatively impacted by a reduction in average billable weight per piece.

We anticipate ~~continued~~moderate revenue per piece growth in 2023 which is expected to somewhat offset the ~~fourth quarter of 2022, but expect that it will moderate compared~~expected decline in volume as we continue to ~~the first nine months of the year.~~focus on revenue quality.

Fuel Surcharges

We apply a fuel surcharge on our domestic air and ground services that adjusts weekly. Our air fuel surcharge is based on the U.S. Department of Energy's ("DOE") Gulf Coast spot price for a gallon of kerosene-type fuel, and our ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel price.

~~Total domestic fuel~~Fuel surcharge revenue increased ~~$823~~$206 million, ~~in the third quarter (up $2.4 billion year to date),~~ driven by increases in price per gallon and increases in fuel ~~surcharge rates~~surcharges as part of our pricing initiatives, partially offset by the impact of lower volume. We expect a reduction in fuel surcharge through the remainder of 2023 based on the current commodity market outlook and as we wrap fuel pricing initiatives that were introduced last year.

Operating Expenses

Operating expenses and adjusted operating expenses increased. Our pickup and delivery costs and other indirect operating costs increased $39 and $115 million, respectively. These increases were partially offset by cost reductions of $50 million in our integrated air and ground network and a $24 million decrease in package sorting costs in the first quarter of 2023. The overall increase in operating expenses was primarily due to:

•Higher employee benefits expense for our union workforce, due to contractual rate increases for contributions to multiemployer benefit plans, as well as increases in workers' compensation and auto liability expenses that were driven by claims experience. Service costs for our company-sponsored pension and postretirement plans decreased, primarily attributable to higher discount rates used to measure the projected benefit obligations of these plans.

•Additional facilities coming into service, coupled with inflationary pressures, contributed to cost increases in repairs and maintenance and facility operating costs.

These increases were partially offset by:

•Lower compensation expense, primarily resulting from incentive compensation program design changes. Contractual rate increases and cost of living adjustments for our union workforce were somewhat offset by a reduction in direct union labor hours.

•Lower purchased transportation costs, primarily due to a reduction in ground volume handled by third-party carriers, and the impact of continued productivity initiatives as we executed within our strategy.

Fuel expense remained relatively flat, as the impact of lower volume for the quarter mostly offset increases in jet fuel, diesel and gasoline prices. We expect fuel ~~surcharge revenue~~expense to ~~stabilize at current levels in~~continue to decline throughout the ~~fourth quarter.~~remainder of 2023.

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~~Operating Expenses~~

Operating expenses, and operating expenses excluding the year-over-year impact of transformation and other charges, increased for both the quarter and year to date. The increase for the year-to-date period includes the impact of one additional operating day. The cost of operating our integrated air and ground network increased $222 million (up $846 million year to date) and pickup and delivery costs increased $459 million (up $1.2 billion year to date). Other indirect operating costs increased $167 million (up $401 million year to date) and package sorting costs increased $46 million (up $148 million year to date). These increases included the following:

•~~Higher fuel costs, primarily attributable to increases in the price of jet fuel, diesel and gasoline, which we expect to stabilize in the fourth quarter.~~

•Increases in employee benefits expense for our union workforce, driven by contractual rate increases for contributions to multiemployer benefit plans and higher year-over-year service cost for our company-sponsored pension plans.

•Higher compensation expense due to contractual rate increases, and cost of living and market-rate adjustments for our union workforce, which we expect to persist in the fourth quarter. Management payroll increased due to salary growth and higher incentive-based compensation accruals. These increases were partially offset by lower expenses resulting from a decrease in average daily union labor hours.

•~~Inflationary pressures that contributed to cost increases in repairs and maintenance and facility operating costs.~~

~~These increases were partially offset by declines in purchased transportation costs as we execute within our strategy.~~

Total cost per piece increased ~~8.7% for the third quarter (up 9.1% year to date). Excluding the impact of transformation~~6.1%, and ~~other charges,~~ adjusted cost per piece increased ~~8.6% for~~6.4% in the ~~third~~ quarter, ~~and 9.5% year to date,~~ for the reasons described above. We anticipate that the cost per piece growth rate will ~~moderate in~~decline through the ~~fourth quarter and remain below the revenue per piece growth rate~~remainder of 2023 as we ~~expect~~manage our ~~productivity~~costs, adjust our operating network, and as efficiency initiatives ~~to continue to help offset rising compensation and benefit costs due to the annual contractual rate increases.~~are realized.

Operating Profit and Margin

As a result of the factors described above, operating profit ~~increased $259~~decreased $196 million in the ~~third~~first quarter, ~~(up $824 million year to date),~~ with operating margin ~~increasing 90~~decreasing 120 basis points to ~~10.8% (up 100 basis points to 11.2% year to date)~~9.8%. ~~Excluding the year-over-year impact of transformation and other charges, adjusted~~Adjusted operating profit ~~increased $272~~decreased $217 million, ~~for the quarter (up $694 million year to date),~~ with adjusted operating margin ~~increasing 100~~decreasing 140 basis points to ~~11.0% (up 70 basis points to 11.4% year to date)~~9.9%.

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RESULTS OF OPERATIONS

International Package


		Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change					Three Months Ended March 31,	Change
		2022			2021			$		%		2022			2021			$		%				2023			2022			$		%
Average Daily Package Volume (in thousands):	Average Daily Package Volume (in thousands):																					Average Daily Package Volume (in thousands):
Domestic	Domestic	1,677			1,851					(9.4)	%	1,729			1,943					(11.0)	%	Domestic		1,635			1,806					(9.5)	%
Export	Export	1,684			1,695					(0.6)	%	1,699			1,746					(2.7)	%	Export		1,682			1,731					(2.8)	%
Total Average Daily Package Volume	Total Average Daily Package Volume	3,361			3,546					(5.2)	%	3,428			3,689					(7.1)	%	Total Average Daily Package Volume		3,317			3,537					(6.2)	%
Average Revenue Per Piece:	Average Revenue Per Piece:																					Average Revenue Per Piece:
Domestic	Domestic	$	7.31		$	7.19		$	0.12	1.7	%	$	7.43		$	7.32		$	0.11	1.5	%	Domestic		$	7.59		$	7.36		$	0.23	3.1	%
Export	Export	34.77			33.56			1.21		3.6	%	35.26			32.41			2.85		8.8	%	Export		33.00			34.10			(1.10)		(3.2)	%
Total Average Revenue Per Piece	Total Average Revenue Per Piece	$	21.07		$	19.80		$	1.27	6.4	%	$	21.22		$	19.19		$	2.03	10.6	%	Total Average Revenue Per Piece		$	20.47		$	20.45		$	0.02	0.1	%
Operating Days in Period	Operating Days in Period	64			64							192			191							Operating Days in Period		64			64
Revenue (in millions):	Revenue (in millions):																					Revenue (in millions):
Domestic	Domestic	$	785		$	852		$	(67)	(7.9)	%	$	2,465		$	2,716		$	(251)	(9.2)	%	Domestic		$	794		$	851		$	(57)	(6.7)	%
Export	Export	3,747			3,641			106		2.9	%	11,501			10,808			693		6.4	%	Export		3,552			3,778			(226)		(6.0)	%
Cargo and Other	Cargo and Other	267			227			40		17.6	%	782			620			162		26.1	%	Cargo and Other		197			247			(50)		(20.2)	%
Total Revenue	Total Revenue	$	4,799		$	4,720		$	79	1.7	%	$	14,748		$	14,144		$	604	4.3	%	Total Revenue		$	4,543		$	4,876		$	(333)	(6.8)	%
Operating Expenses (in millions):	Operating Expenses (in millions):																					Operating Expenses (in millions):
Operating Expenses	Operating Expenses	$	3,802		$	3,669		$	133	3.6	%	$	11,442		$	10,824		$	618	5.7	%	Operating Expenses		$	3,715		$	3,760		$	(45)	(1.2)	%
Transformation and Other Charges		(7)			(57)			50		(87.7)	%	(22)			(69)			47		(68.1)	%
Transformation Strategy Costs																						Transformation Strategy Costs		22			(4)			26		N/A
Adjusted Operating Expenses	Adjusted Operating Expenses	$	3,795		$	3,612		$	183	5.1	%	$	11,420		$	10,755		$	665	6.2	%	Adjusted Operating Expenses		$	3,737		$	3,756		$	(19)	(0.5)	%
Operating Profit (in millions) and Operating Margin:	Operating Profit (in millions) and Operating Margin:																					Operating Profit (in millions) and Operating Margin:
Operating Profit	Operating Profit	$	997		$	1,051		$	(54)	(5.1)	%	$	3,306		$	3,320		$	(14)	(0.4)	%	Operating Profit		$	828		$	1,116		$	(288)	(25.8)	%
Adjusted Operating Profit	Adjusted Operating Profit	$	1,004		$	1,108		$	(104)	(9.4)	%	$	3,328		$	3,389		$	(61)	(1.8)	%	Adjusted Operating Profit		$	806		$	1,120		$	(314)	(28.0)	%
Operating Margin	Operating Margin	20.8		%	22.3		%					22.4		%	23.5		%					Operating Margin		18.2		%	22.9		%
Adjusted Operating Margin	Adjusted Operating Margin	20.9		%	23.5		%					22.6		%	24.0		%					Adjusted Operating Margin		17.7		%	23.0		%
Currency Benefit / (Cost) – (in millions)*:	Currency Benefit / (Cost) – (in millions)*:																					Currency Benefit / (Cost) – (in millions)*:
Revenue	Revenue							$	(335)									$	(739)			Revenue								$	(161)
Operating Expenses	Operating Expenses							253										569				Operating Expenses								110
Operating Profit	Operating Profit							$	(82)									$	(170)			Operating Profit								$	(51)
* Net of currency hedging; amount represents the change in currency translation compared to the prior year.	* Net of currency hedging; amount represents the change in currency translation compared to the prior year.																					* Net of currency hedging; amount represents the change in currency translation compared to the prior year.

Revenue

The change in revenue was due to the following:
Volume Rates /
Product Mix Fuel
Surcharge Currency Total Revenue
Change
Revenue Change Drivers:
Third quarter 2022 vs. 2021 (5.7) % 6.8 % 7.7 % (7.1) % 1.7 %
Year to date 2022 vs. 2021 (6.7) % 8.1 % 8.1 % (5.2) % 4.3 %

~~Year to date, revenue also benefited from one additional operating day in the first half of 2022.~~


	Volume		Rates / Product Mix		Fuel Surcharge		Currency		Total Revenue Change
Revenue Change Drivers:
First quarter 2023 vs. 2022	(6.2)	%	1.5	%	1.2	%	(3.3)	%	(6.8)	%

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Volume

Average daily volume decreased ~~for the third quarter and year to date for~~in both domestic and export products.Volume from both large customers and SMBs declined, primarily in the retail and technology sectors. Business-to-consumer volume decreased ~~10.6% for the quarter (down 18.4% year to date),~~7.7% as challenging global economic conditions, including rising ~~inflation,~~interest rates, high ~~energy costs, lockdowns in parts of Asia~~inflation and geopolitical uncertainty, impacted consumer demand. These factors also impacted business-to-business volume, which decreased ~~2.9% for the quarter (down 1.7% year to date)~~5.6%. We ~~expect year-over-year~~anticipate declines in average daily volume ~~to be lower~~will moderate, but will persist into the second half of 2023.

Export volume decreased in the ~~fourth~~ quarter, ~~although~~driven by declines in intra-Europe, Asia and U.S. trade lanes. Declines on the ~~rate~~intra-Europe and U.S. export trade lanes were due to lower consumer spending as a result of ~~decline should moderate.~~

~~For~~ the ~~quarter, Export~~challenging macroeconomic conditions. Asia volume declines were ~~driven by reductions in U.S. exports and the Asia to U.S. trade lane. U.S. exports were negatively impacted by the strength of the U.S. Dollar and lower volumes from large customers. Declines~~highest on the Asia to U.S. trade lane ~~were driven by disruptions resulting from lockdowns in China~~as a result of rising inventory levels and ~~lower customer~~softening U.S. consumer demand. These declines were partly offset by growth in the intra-Europe trade lanes as supply chain disruptions eased. Year to date, declines were primarily from the intra-Europe and the Asia to U.S. trade lanes. The intra-Europe declines were driven by overall economic conditions, while the decline in the Asia to U.S. trade lane was primarily driven by the factors impacting the quarterly period.

Our premium ~~Express~~ products ~~experienced a slight~~saw volume decline ~~for both the quarter and year to date,~~6.7%, primarily ~~driven by lower volume from certain large customers~~ in our Worldwide Express Saver ~~product due to the economic factors discussed above.~~

product. Volume ~~for~~in our non-premium ~~export~~ products ~~increased 1.8% for the quarter,~~decreased 1.1%, driven by ~~growth~~declines in ~~our~~ Transborder Standard ~~product within Europe for the reasons discussed above. This growth was slightly offset for the quarter by declines~~and Worldwide Expedited. The decline in our Worldwide products ~~which also drove a 1.7%~~was largely attributable to softening import demand from U.S. consumers, while the decline in ~~volume year to date. These declines were~~our Transborder products was driven by ~~an overall reduction in consumer demand.~~the economic factors outlined above.

Domestic volume also declined ~~for~~in the first quarter, primarily within Europe and ~~year to date, with third-quarter declines primarily in Europe~~Canada, as a result of ~~the~~ economic conditions discussed above. ~~Year to date, both Europe and Canada experienced declines in domestic volume, driven by lower residential deliveries as a result of reduced demand.~~

Rates and Product Mix

In December ~~2021,~~2022, we implemented an average ~~5.9%~~6.9% 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 market. ~~Additionally, we continue to apply demand-related surcharges on certain lanes, although we expect these to decrease year over year in the fourth quarter.~~

Total revenue per piece increased ~~6.4%~~slightly for the quarter, ~~(up 10.6% year to date),~~ primarily due to ~~fuel surcharges and~~ favorable shifts in customer and product ~~mix.~~mix, fuel surcharges and base rate increases. These increases were ~~somewhat~~mostly offset by unfavorable currency movements and declines in demand-related surcharges. Excluding the impact of currency, revenue per piece increased 3.8%. For the remainder of the year, we expect overall revenue per piece to decrease relative to prior year periods as trends in fuel and demand-related surcharges are expected to continue to be unfavorable.

Export revenue per piece decreased 3.2%, driven by declines in our Worldwide products and unfavorable currency movements. Excluding the impact of currency, export revenue per piece decreased 0.4%.

Domestic revenue per piece increased 3.1%, primarily due to rate increases and favorable shifts in customer mix. This was partially offset by unfavorable currency movements. Excluding the impact of currency, ~~revenue per piece increased 14.1% for the quarter (up 16.3% year to date). We expect overall revenue per piece to decrease slightly for the fourth quarter.~~

Export revenue per piece increased 3.6% for the quarter (up 8.8% year to date) for the reasons described above. Excluding the impact of currency, export revenue per piece increased 9.4% for the quarter (up 13.1% year to date).

Domestic revenue per piece remained relatively flat for the quarter and year to date, as unfavorable currency movements offset growth from the factors described above. Excluding the impact of currency, domestic revenue per piece increased ~~16.7% for the quarter (up 12.2% year to date)~~10.2%.

Fuel Surcharges

The fuel surcharge we apply to 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.

Total international fuel surcharge revenue increased ~~by $298~~$28 million ~~for~~in the ~~third~~ quarter, ~~(up $1.0 billion year~~primarily due to ~~date), driven primarily by~~ increases in price per ~~gallon as well as changes in fuel surcharge rates as part of our pricing strategy.~~gallon. These increases were slightly offset by unfavorable currency movements and volume declines. WeBased on the current commodity market outlook, we expect fuel ~~surcharges~~surcharge revenue will ~~stabilize at current levels~~decline during the ~~fourth~~remainder of the year.

Operating Expenses

Operating expenses, and adjusted operating expenses, decreased in the first quarter. The principal drivers were:

•Pickup and delivery costs decreased $21 million and other indirect costs decreased $22 million as inflationary pressures were more than offset by favorable currency movements and the impact of volume declines.

•The costs of operating our integrated international air and ground network increased $26 million, primarily due to higher fuel prices, which we expect to decline through the remainder of the year.

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Operating ~~Expenses~~

Operating expenses, and operating expenses excluding the year-over-year impact of transformation and other charges, increased in both the third quarter and year to date. The increase for the year-to-date period includes the impact of one additional operating day. The costs of operating our integrated international air and ground network increased $343 million for the quarter (up $1.1 billion year to date), primarily due to higher fuel prices, which we expect to persist during the remainder of 2022.

Pickup and delivery costs decreased $86 million for the quarter (down $237 million year to date), other indirect costs decreased $67 million for the quarter (down $171 million year to date) and package sorting costs decreased slightly for the quarter and year to date as inflationary pressures were more than offset by favorable currency movements and volume declines. We expect inflationary pressures will persist for the remainder of the year.

Substantially all of our operations in Russia, Belarus and Ukraine remain suspended, which actions have not had a material impact on us. We are continuing to monitor the evolving impact of Russia’s invasion of Ukraine on the global economy and evaluating our long-term strategy in the region.

~~Operating~~ Profit and Margin

As a result of the factors described above, operating profit decreased ~~$54~~$288 million for the ~~third~~first quarter, ~~(down $14 million year to date),~~ with operating margin decreasing ~~150~~470 basis points to ~~20.8% (down 110 basis points to 22.4% year to date)~~18.2%. ~~Excluding the year-over-year impact of transformation and other charges, adjusted~~Adjusted operating profit decreased ~~$104~~$314 million in the quarter, ~~(down $61 million year to date),~~ while adjusted operating margin decreased ~~260~~530 basis points to ~~20.9% (down 140 basis points~~17.7%.

Substantially all of our operations in Russia and Belarus were suspended in March 2022 and, during the first quarter of 2023, we commenced liquidation of our Small Package and Forwarding and Logistics subsidiaries. Substantially all of our operations in Ukraine remain indefinitely suspended. These actions have not had, and are not expected to ~~22.6% year to date).~~have, a material impact on us.

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RESULTS OF OPERATIONS

Supply Chain Solutions


		Three Months Ended September 30,						Change				Nine Months Ended September 30,						Change					Three Months Ended March 31,						Change
		2022			2021			$		%		2022			2021			$		%			2023			2022			$		%
Revenue (in millions):	Revenue (in millions):																					Revenue (in millions):
Forwarding	Forwarding	$	2,162		$	2,625		$	(463)	(17.6)	%	$	7,140		$	7,006		$	134	1.9	%	Forwarding	$	1,514		$	2,589		$	(1,075)	(41.5)	%
Logistics	Logistics	1,302			1,158			144		12.4	%	3,843			3,424			419		12.2	%	Logistics	1,410			1,251			159		12.7	%
Freight		—			—			—		—	%	—			1,064			(1,064)		(100.0)	%
Other	Other	524			473			51		10.8	%	1,617			1,258			359		28.5	%	Other	471			538			(67)		(12.5)	%
Total Revenue	Total Revenue	$	3,988		$	4,256		$	(268)	(6.3)	%	$	12,600		$	12,752		$	(152)	(1.2)	%	Total Revenue	$	3,395		$	4,378		$	(983)	(22.5)	%
Operating Expenses (in millions):	Operating Expenses (in millions):																					Operating Expenses (in millions):
Operating Expenses	Operating Expenses	$	3,538		$	3,818		$	(280)	(7.3)	%	$	11,164		$	11,486		$	(322)	(2.8)	%	Operating Expenses	$	3,148		$	3,905		$	(757)	(19.4)	%
Transformation Strategy Costs	Transformation Strategy Costs	(9)			(10)			1		(10.0)	%	(21)			(20)			(1)		5.0	%	Transformation Strategy Costs	(3)			(8)			5		(62.5)	%
Asset Impairment and Divestiture Charges		—			—			—		—	%	—			35			(35)		(100.0)	%
Goodwill and Asset Impairments, and Divestiture Charges																						Goodwill and Asset Impairments, and Divestiture Charges	(8)			—			(8)		N/A
Adjusted Operating Expenses:	Adjusted Operating Expenses:	$	3,529		$	3,808		$	(279)	(7.3)	%	$	11,143		$	11,501		$	(358)	(3.1)	%	Adjusted Operating Expenses:	$	3,137		$	3,897		$	(760)	(19.5)	%
Operating Profit (in millions) and Operating Margin:	Operating Profit (in millions) and Operating Margin:																					Operating Profit (in millions) and Operating Margin:
Operating Profit	Operating Profit	$	450		$	438		$	12	2.7	%	$	1,436		$	1,266		$	170	13.4	%	Operating Profit	$	247		$	473		$	(226)	(47.8)	%
Adjusted Operating Profit	Adjusted Operating Profit	$	459		$	448		$	11	2.5	%	$	1,457		$	1,251		$	206	16.5	%	Adjusted Operating Profit	$	258		$	481		$	(223)	(46.4)	%
Operating Margin	Operating Margin	11.3		%	10.3		%					11.4		%	9.9		%					Operating Margin	7.3		%	10.8		%
Adjusted Operating Margin	Adjusted Operating Margin	11.5		%	10.5		%					11.6		%	9.8		%					Adjusted Operating Margin	7.6		%	11.0		%
Currency Benefit / (Cost) – (in millions)*:	Currency Benefit / (Cost) – (in millions)*:																					Currency Benefit / (Cost) – (in millions)*:
Revenue	Revenue							$	(92)									$	(191)			Revenue							$	(50)
Operating Expenses	Operating Expenses							99										216				Operating Expenses							55
Operating Profit	Operating Profit							$	7									$	25			Operating Profit							$	5
* Amount represents the change in currency translation compared to the prior year.	* Amount represents the change in currency translation compared to the prior year.																					* Amount represents the change in currency translation compared to the prior year.

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2022 2021 $ % 2022 2021 $ %
Transformation Strategy Costs (in millions):
Forwarding $ 1 $ — $ 1 N/A $ 9 6 $ 3 50.0 %
Logistics 7 — 7 N/A 9 3 6 200.0 %
Freight — — — N/A — 1 (1) (100.0) %
Other 1 10 (9) (90.0) % 3 10 (7) (70.0) %
Total Transformation Strategy Costs $ 9 $ 10 $ (1) (10.0) % $ 21 $ 20 $ 1 5.0 %

~~Revenue~~

Total revenue for Supply Chain Solutions decreased $268 million in the third quarter (down $152 million year to date) as lower revenue in forwarding and truckload brokerage more than offset growth across many of our other businesses. Year to date, growth in Supply Chain Solutions was offset by the impact of divesting UPS Freight in the second quarter of 2021.


	Three Months Ended March 31,				Change
	2023		2022		$		%
Adjustments to Operating Expenses (in millions):
Transformation Strategy Costs
Forwarding	$	1	$	6	$	(5)	(83.3)	%
Logistics	2		1		1		100.0	%
Other	—		1		(1)		(100.0)	%
Total Transformation Strategy Costs	$	3	$	8	$	(5)	(62.5)	%
Goodwill and Asset Impairments, and Divestiture Charges
Forwarding	$	8	$	—	$	8	N/A
Logistics	—		—		—		N/A
Other	—		—		—		N/A
Total Goodwill and Asset Impairments, and Divestitures Charges	$	8	$	—	$	8	N/A
Total Adjustments to Operating Expenses	$	11	$	8	$	3	37.5	%

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RESULTS OF OPERATIONS

Revenue

Total revenue in Supply Chain Solutions decreased in the first quarter. This was driven by declines in our Forwarding ~~revenue decreased for the third quarter but~~business as challenging economic conditions drove declines in customer activity, while increased ~~year~~capacity led to ~~date:~~lower market rates.

•International airfreight revenue decreased approximately $415 million as customer demand declined, particularly on Asia export lanes. This volume ~~and revenue declined~~decline also resulted in a reduction in the ~~third quarter, driven by the impact of lockdowns in Asia, lower customer demand and the market~~ rates we charge for services. ~~Year-to-date volume also declined but was fully offset by the impact of elevated market rates and demand-related surcharges in the first quarter.~~

•~~Ocean freight forwarding revenue decreased in the third quarter but increased year to date. For the quarter, the declines were driven by~~We anticipate that lower ~~volume, particularly on the Asia to U.S. lane, and lower market rates. Year to date, these declines were fully offset by elevated market rates driven by~~demand, coupled with higher market capacity, ~~constraints in~~will continue to pressure rates throughout the ~~first half~~remainder of ~~2022.~~the year.

•Revenue in our truckload brokerage business ~~declined for the quarter and remained relatively flat year~~decreased $403 million due to ~~date. The decline in the third quarter was driven by~~ lower ~~volumes~~volume and a ~~reduction~~continued decline in market rates. ~~Year~~We remained focused on our revenue quality initiatives and experienced volume growth from SMBs during the quarter, which partially offset the decline.

•The remaining reduction in revenue was attributable to ~~date,~~ocean freight forwarding. Market rates and volume ~~declines were largely offset by increases~~declined, particularly on the Asia to U.S. lane, due to lower demand, an increase in ~~rates as we executed within our strategic framework.~~

inventory levels and additional capacity entering the market. We expect ~~that~~revenue to remain challenged in the ~~market rates we charge for services within all our Forwarding businesses will remain lower during the fourth quarter.~~rest of 2023 as capacity increases are expected to outweigh demand.

Within our Logistics ~~our~~businesses, healthcare ~~operations experienced strong~~logistics revenue ~~growth for both~~increased $98 million in the first quarter, ~~and year to date,~~primarily driven by ~~pharmaceuticals,~~the impact of the 2022 acquisition of Bomi Group with additional growth from our clinical trials ~~and lab customers.~~business. Revenue in ~~our~~ mail services ~~business~~ increased ~~for both the quarter and year to date, driven by~~$55 million as a result of volume from new customers, rate increases, and a favorable shift in product characteristics and, during the third quarter, volume from new customers. These increases were slightly offset by volume declines in both periods. Our other distribution operations experienced revenue growth for both the quarter and year to date, driven by customer expansion, revenue quality initiatives and strong demand for warehousing services. We expect growth to continue within our Logistics businesses in the fourth quarter.characteristics.

Revenue from the other businesses within Supply Chain Solutions ~~increased for both~~decreased in the quarter, ~~and year to date,~~ driven by ~~rate increases and additional volume from service contracts with the U.S. Postal Service, and from the acquisition~~a reduction of ~~Roadie~~$85 million in ~~the fourth quarter of 2021. Additionally, revenue for~~transition services provided to the acquirer of UPS Freight ~~under certain transition services agreements increased for the year-to-date period.~~as we begin to wind down these arrangements. This was partially offset by year-over-year revenue increases from our digital businesses, driven by business growth.

Operating Expenses

Total operating expenses inand total adjusted operating expenses for Supply Chain Solutions ~~and operating expenses excluding the year-over-year impact of transformation and other charges,~~ decreased ~~for the quarter and year to date. This included a decrease of $952 million~~ in the ~~year-to-date period due to the divestiture of UPS Freight in the second quarter of 2021.~~quarter.

Forwarding operating expenses decreased ~~$462 million for the quarter (down $120 million year to date). Declines in the third quarter were driven by~~$881 million. This primarily resulted from a reduction of approximately $845 million in purchased transportation expense ~~resulting from~~due to lower volumes and market rates in truckload brokerage, international airfreight and ocean freight forwarding. ~~Year~~We expect these conditions to ~~date, these decreases were partially offset by elevated rates in all~~persist as we move through the year, which will reduce our ~~forwarding businesses during the first of half of 2022.~~purchased transportation costs.

Logistics operating expenses increased ~~$124~~$155 million ~~for~~in the first quarter, ~~(up $359 million year to date) primarily resulting from increases in compensation~~driven by the impact of the acquisition of Bomi Group and ~~benefits expenses and third-party~~higher purchased transportation costs ~~as a result of business growth~~for mail services due to rate increases and ~~inflationary pressures.~~shifts in product characteristics.

Expenses in the other businesses within Supply Chain Solutions ~~increased for~~decreased in the quarter, ~~and year to date,~~ largely driven by ~~increased volume from the U.S. Postal Service and the acquisition of Roadie. Transportation and other~~a reduction in costs incurred ~~in providing~~to procure transportation for, and provide transition services to, the acquirer of UPS ~~Freight~~Freight. This was partially offset by increased ~~year to date.~~transportation costs, as well as higher compensation and benefits, incurred by our digital businesses.

Operating Profit and Margin

As a result of the factors described above, total operating profit ~~increased $12~~decreased $226 million, ~~for the quarter (up $170 million year to date),~~ with operating margin ~~increasing 100~~decreasing 350 basis points to ~~11.3% (up 150~~7.3%. On an adjusted basis, operating profit decreased $223 million, with operating margin decreasing 340 basis points to 11.4% year to date). Excluding the year-over-year impact of transformation and other charges, adjusted operating profit increased $11 million for the quarter (up $206 million year to date), with adjusted operating margin increasing 100 basis points to 11.5% (up 180 basis points to 11.6% year to date)7.6%.

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Consolidated Operating Expenses


		Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change					Three Months Ended March 31,				Change
		2022		2021		$		%		2022		2021		$		%			2023		2022		$		%
Operating Expenses (in millions):	Operating Expenses (in millions):																	Operating Expenses (in millions):
Compensation and benefits	Compensation and benefits	$	11,506	$	11,148	$	358	3.2	%	$	34,480	$	33,958	$	522	1.5	%	Compensation and benefits	$	11,462	$	11,601	$	(139)	(1.2)	%
Transformation and Other Charges		(15)		(33)		18		(54.5)	%	(71)		(164)		93		(56.7)	%
Transformation Strategy Costs																		Transformation Strategy Costs	12		(33)		45		N/A
Adjusted Compensation and benefits	Adjusted Compensation and benefits	$	11,491	$	11,115	$	376	3.4	%	$	34,409	$	33,794	$	615	1.8	%	Adjusted Compensation and benefits	$	11,474	$	11,568	$	(94)	(0.8)	%

Repairs and maintenance	Repairs and maintenance	$	639	$	619	$	20	3.2	%	$	1,908	$	1,837	$	71	3.9	%	Repairs and maintenance	$	725	$	701	$	24	3.4	%
Depreciation and amortization	Depreciation and amortization	774		738		36		4.9	%	2,300		2,199		101		4.6	%	Depreciation and amortization	834		764		70		9.2	%
Purchased transportation	Purchased transportation	4,173		4,638		(465)		(10.0)	%	13,158		13,327		(169)		(1.3)	%	Purchased transportation	3,543		4,607		(1,064)		(23.1)	%
Fuel	Fuel	1,530		950		580		61.1	%	4,447		2,672		1,775		66.4	%	Fuel	1,271		1,220		51		4.2	%
Other occupancy	Other occupancy	427		384		43		11.2	%	1,338		1,252		86		6.9	%	Other occupancy	551		501		50		10.0	%
Other expenses	Other expenses	1,999		1,811		188		10.4	%	5,775		5,352		423		7.9	%	Other expenses	1,998		1,733		265		15.3	%
Total Other expenses	Total Other expenses	9,542		9,140		402		4.4	%	28,926		26,639		2,287		8.6	%	Total Other expenses	8,922		9,526		(604)		(6.3)	%
Transformation and Other Charges		(21)		(41)		20		(48.8)	%	(61)		(144)		83		(57.6)	%
Asset Impairment and Divestiture Charges		—		—		—		N/A		—		35		(35)		(100.0)	%
Transformation Strategy Costs																		Transformation Strategy Costs	(15)		(22)		7		(31.8)	%
Goodwill and Asset Impairments, and Divestiture Charges																		Goodwill and Asset Impairments, and Divestiture Charges	(8)		—		(8)		N/A
Adjusted Total Other expenses	Adjusted Total Other expenses	$	9,521	$	9,099	$	422	4.6	%	$	28,865	$	26,530	2,335		8.8	%	Adjusted Total Other expenses	$	8,899	$	9,504	$	(605)	(6.4)	%

Total Operating Expenses	Total Operating Expenses	$	21,048	$	20,288	$	760	3.7	%	$	63,406	$	60,597	$	2,809	4.6	%	Total Operating Expenses	$	20,384	$	21,127	$	(743)	(3.5)	%
Adjusted Total Operating Expenses	Adjusted Total Operating Expenses	$	21,012	$	20,214	$	798	3.9	%	$	63,274	$	60,324	$	2,950	4.9	%	Adjusted Total Operating Expenses	$	20,373	$	21,072	$	(699)	(3.3)	%

Currency (Benefit) / Cost - (in millions)*	Currency (Benefit) / Cost - (in millions)*					$	(352)							$	(785)			Currency (Benefit) / Cost - (in millions)*					$	(165)
* Amount represents the change in currency translation compared to the prior year.	* Amount represents the change in currency translation compared to the prior year.																	* Amount represents the change in currency translation compared to the prior year.


		Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change				Three Months Ended March 31,						Change
		2022		2021		$		%		2022		2021		$		%								2023			2022			$		%
Adjustments to Operating Expenses (in millions):	Adjustments to Operating Expenses (in millions):																					Adjustments to Operating Expenses (in millions):
Transformation Strategy Costs:
Transformation Strategy Costs																			Transformation Strategy Costs
Compensation	Compensation	$	7	$	9	$	(2)	(22.2)	%	$	31	$	23	$	8	34.8	%					Compensation		$	5		$	16		$	(11)	(68.8)	%
Benefits	Benefits	8		24		(16)		(66.7)	%	40		141		(101)		(71.6)	%					Benefits		(17)			17			(34)		N/A

Other occupancy		—		—		—		N/A		—		3		(3)		(100.0)	%

Other expenses	Other expenses	21		41		(20)		(48.8)	%	61		141		(80)		(56.7)	%					Other expenses		15			22			(7)		(31.8)	%
Total Transformation Strategy Costs	Total Transformation Strategy Costs	$	36	$	74	$	(38)	(51.4)	%	$	132	$	308	$	(176)	(57.1)	%					Total Transformation Strategy Costs		$	3		$	55		$	(52)	(94.5)	%
Asset Impairment and Divestiture Charges:
Other gains		$	—	$	—	$	—	N/A		$	—	$	(35)	$	35	(100.0)	%
Goodwill and Asset Impairments, and Divestiture Charges																			Goodwill and Asset Impairments, and Divestiture Charges
Other expenses																			Other expenses	$	8		$	—		$	8		N/A
Total Adjustments to Operating Expenses	Total Adjustments to Operating Expenses	$	36	$	74	$	(38)	(51.4)	%	$	132	$	273	$	(141)	(51.6)	%					Total Adjustments to Operating Expenses		$	11		$	55		$	(44)	(80.0)	%

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Compensation and Benefits

Total compensation and benefits and adjusted total compensation and benefits ~~excluding~~decreased in the ~~year-over-year impact~~first quarter of ~~transformation and other charges, increased for~~2023 compared to the ~~quarter and year to date.~~

~~Total compensation~~2022 period. Compensation costs ~~and total compensation costs excluding transformation and other charges, increased~~ ~~$177~~decreased $178 million, and decreased $168 million on an adjusted basis. The principal factors impacting the change were:

•~~$179~~Management compensation decreased $206 million, ~~respectively, for the quarter. For the year-to-date period, total~~driven by fourth quarter 2022 design changes to our incentive compensation ~~costs~~programs and ~~total~~lower incentive compensation ~~costs excluding transformation and other charges, increased~~accruals.

~~$107~~ ~~million and~~ ~~$99~~ ~~million, respectively.~~ •U.S. Domestic direct labor costs increased $57 million due to contractual rate increases for ~~both the quarter and year to date, driven by increases~~our union workforce that occurred in ~~wage rates and~~August 2022, as well as cost of living adjustments ~~for our union workforce, as well as~~ ~~additional headcount~~ ~~in our line-haul operations.~~driven by inflation and other market factors. These increases were ~~partially~~largely offset by a reduction in labor hours, primarily due to ~~decreases in~~ volume ~~and productivity improvements. Management~~declines.

•The November 2022 acquisition of Bomi Group increased compensation ~~increased for both the quarter and year to date due to increases in part-time management wages and headcount, and higher incentive compensation, partially offset~~cost by ~~a reduction in commissions. The divestiture of UPS Freight in the second quarter of 2021 reduced compensation costs for the year-to-date period by $328~~$15 million.

Benefits costs increased ~~$181~~$39 million ~~for the quarter (up~~ ~~$415~~ and increased $74 million ~~year to date). Excluding the year-over-year impact of transformation and other charges,~~on an adjusted ~~benefits costs increased~~ ~~$197~~ ~~million for the quarter (up~~ ~~$516~~ ~~million year to date). The primary drivers were:~~basis, primarily as a result of:

•Health and welfare costs increased ~~$38~~$89 million for the quarter, ~~(up $137 million year to date),~~ driven by increased contributions to multiemployer plans as a result of ~~contractual~~contractually-mandated rate increases, partially offset by a reduction in eligible headcount.

•Workers' compensation expense increased $23 million, driven by an increase in current year claims, partially offset by a decrease in overall hours worked and favorable developments in reserves for ~~company-sponsored plans. For the year-to-date period, the divestiture of UPS Freight reduced expense by $65 million.~~prior years' claims.

•Pension and other postretirement benefits costs ~~increased by $85~~decreased $48 million for the ~~quarter (up $105~~quarter:

◦The cost of company-sponsored defined benefit plans decreased $110 million, ~~year to date),~~driven by a reduction in service cost due to higher discount rates. The cessation of accruals for future service ~~costs~~in the UPS Retirement Plan was offset by the cost of replacement contributions to the UPS 401(k) Savings Plan.

◦An increase in expense for ~~company-sponsored plans and increased contributions~~the UPS 401(k) Savings Plan of $22 million resulted from demographic changes.

◦Contributions to multiemployer plans increased $39 million as ~~a result~~the impact of contractually-mandated contribution ~~increases. Year to date, the divestiture of UPS Freight reduced expense~~increases was partially offset by ~~$46 million.~~

•~~Vacation, excused absence, payroll taxes and other costs increased $63 million for the quarter (up $194 million year to date), primarily due to wage~~ ~~growth.~~a reduction in eligible headcount.

Repairs and Maintenance

~~Expense increased for both~~The increase in repairs and maintenance expense during the quarter ~~and year to date,~~was primarily due to ~~an increase in planned building maintenance as well as~~ increases in the cost of materials and ~~supplies.~~supplies, increased vehicle maintenance and an increase in routine repairs to buildings and facilities. We ~~also incurred higher costs~~expect these increases will persist for ~~aircraft engine and airframe maintenance in both~~ the ~~quarter and year-to-date periods due to the timing~~remainder of ~~scheduled maintenance events.~~2023.

Depreciation and Amortization

~~Depreciation~~We incurred higher depreciation and amortization expense ~~increased~~ as a result of ~~facility automation and expansion projects~~additional facilities coming into service, ~~investments~~growth in ~~internally developed software~~the size of our vehicle and aircraft fleets and the ~~amortization~~reduction in estimated residual value of ~~acquired intangible assets.~~our MD-11 aircraft.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers decreased for ~~both~~ the ~~quarter and year-to-date periods.~~quarter. The changes were primarily driven by:

•Supply Chain Solutions expense decreased by ~~$387~~$890 million for the quarter, ~~resulting from~~driven by volume declines and lower market rates paid for services in our ~~international air and ocean freight and truckload brokerage~~Forwarding businesses. This was partially offset by increases in our logistics operations ~~including healthcare, driven by~~due to business growth. Year to date, Supply Chain Solutions expense decreased by $62 million. The divestiture of UPS Freight resulted in a decrease of $260 million that was partially offset by an increase of $198 milliongrowth, third-party rate increases in our ~~forwarding businesses due to elevated market rates~~mail services business and the acquisition of Bomi Group, which was not present in the ~~first half of the year.~~

•International Package expense decreased by $51 million for the third quarter (down $39 million year to date), as fuel surcharge increases were more than offset by favorable currency movements and lower volumes.comparative period.

•U.S. Domestic expense decreased ~~$27~~$99 million for the ~~third~~ quarter, ~~(down $68 million year to date),~~ driven by a reduction in ground volume handled by third-party carriers ~~and~~as a result of our network optimization initiatives.

•International Package expense decreased $75 million for the quarter, as market rate and fuel surcharge increases were more than offset by the impact of lower volumes and favorable currency movements.

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Fuel

The increase in fuel expense for ~~both~~ the quarter ~~and year-to-date periods~~ was primarily driven by higher prices for jet fuel, diesel and ~~gasoline.~~gasoline, partially offset by the impact of lower volume. Market prices and the manner in which we purchase fuel influence our costs. The majority of our fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential. While many of the indices are correlated, each index may respond differently to changes in underlying prices, which in turn can drive variability in our costs.

Other Occupancy

Other occupancy expense increased for ~~both~~ the quarter ~~and year to date~~ as a result of additional operating facilities coming into service, higher utilities costs and increases in rental rates. We expect inflation may continue to adversely impact these costs for the remainder of the year.

Other Expenses

Other expenses and adjusted other expenses ~~excluding the year-over-year impact of transformation and other charges,~~ increased for ~~both~~ the quarter, ~~and year to date,~~ primarily as a result of:

•Outsourcing and professional fees increased $60 million due to increased utilization of third-party services to support our strategic initiatives.

•An increase of ~~$45~~$39 million ~~for the quarter ($115 million increase year to date)~~ in commissions paid for certain online shipments.

•AnFavorable changes in reserves for legal and tax contingencies in 2022 drove a year-over-year increase in expense of ~~$38 million for the quarter ($61 million increase year to date) in self-insured automobile liability expense, driven by increases in the frequency and severity of claims.~~$29 million.

•Hosted software application fees and other technology costs increased ~~$26~~$28 million ~~in the quarter (up $78 million year to date),~~ in support of ongoing investments in our digital transformation.

•~~Professional fees increased $34 million in the quarter (up $57 million year to date) as a result of an increase in services provided to various business units.~~

Other increases for the quarter ~~and year to date~~ included employee-related expenses, ~~payment processing fees~~advertising costs, facility security and ~~costs to lease and purchase additional vehicles for our network.~~self-insured automobile liability expense. These increases were partially offset by ~~favorable developments in certain legal and tax contingencies,~~ a reduction ~~in asset impairment charges and a reduction in customer claims.~~of costs incurred under transitional service agreements to the acquirer of UPS Freight.

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Other Income and (Expense)

The following table sets forth investment income and other and interest expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in millions):


		Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change					Three Months Ended March 31,				Change
		2022		2021		$		%		2022		2021		$		%			2023		2022		$		%
Investment Income and Other	Investment Income and Other	$	333	$	274	$	59	21.5	%	$	981	$	4,235	$	(3,254)	(76.8)	%	Investment Income and Other	$	169	$	315	$	(146)	(46.3)	%
Defined Benefit Plan (Gains) and Losses		—		—		—		N/A		(33)		(3,290)		3,257		(99.0)	%
Defined Benefit Plan (Gains) Losses																		Defined Benefit Plan (Gains) Losses	—		(33)		33		(100.0)	%
Adjusted Investment Income and Other	Adjusted Investment Income and Other	$	333	$	274	$	59	21.5	%	$	948	$	945	$	3	0.3	%	Adjusted Investment Income and Other	$	169	$	282	$	(113)	(40.1)	%

Interest Expense	Interest Expense	(177)		(177)		—		0.0	%	(522)		(521)		(1)		0.2	%	Interest Expense	(188)		(174)		(14)		8.0	%
Total Other Income and (Expense)	Total Other Income and (Expense)	$	156	$	97	$	59	60.8	%	$	459	$	3,714	$	(3,255)	(87.6)	%	Total Other Income and (Expense)	$	(19)	$	141	$	(160)	(113.5)	%
Adjusted Other Income and (Expense)	Adjusted Other Income and (Expense)	$	156	$	97	$	59	60.8	%	$	426	$	424	$	2	0.5	%	Adjusted Other Income and (Expense)	$	(19)	$	108	$	(127)	(117.6)	%

Investment Income and Other

Investment income and other ~~increased $59~~decreased $146 million. We recognized a $33 million ~~for~~defined benefit plan curtailment gain in the first quarter ~~driven~~of 2022. Excluding the impact of this defined benefit plan gain, adjusted investment income and other decreased $113 million, with decreases in other pension income partially offset by higher yields on ~~higher average~~ invested balances and year-over-year changes in the fair value of certain non-current ~~investments and an increase in other pension income partially offset by foreign currency losses.~~

Year to date, investment income and other decreased $3.3 billion due to year-over-year changes in defined benefit plan adjustments. We recognized a curtailment gain of $33 million dollars in 2022, compared to a $3.3 billion mark-to-market gain in 2021. Excluding the impact of these defined benefit plan gains, adjusted investment income and other increased $3 million, driven by higher yields on higher average invested balances and year-to-date foreign currency gains, that were largely offset by changes in the fair value of certain non-current investments and a decrease in other pension income.investments.

Other pension income ~~increased $12~~decreased $232 million ~~for the quarter (down $7 million year to date)~~ due ~~to the following:~~to:

•Lower expected returns on pension assets ~~for the quarter and year-to-date periods~~ as a result of a ~~reduction~~smaller asset base due to losses in 2022, partially offset by an increase in our rate of return ~~assumption, partially offset by a higher asset base due to contributions and positive asset returns in 2021.~~assumption.

•~~Pension~~Higher pension interest cost ~~was flat for the quarter,~~ due to ~~an increase in projected benefit obligations~~higher discount rates and changes in demographic ~~assumptions that were offset by the impact of lower discount rates.~~ assumptions.

Interest ~~cost~~expense increased ~~year to date,~~ due to the impact of ~~interim remeasurements of certain plans in 2021 on pension benefit obligations and discount rates.~~

•~~Prior service cost decreased for the quarter and year-to-date periods as the cost base from certain plan amendments became fully amortized during 2021.~~

~~Interest Expense~~

~~Interest expense was flat for both the quarter and year-to-date periods as~~ higher effective interest rates on floating rate debt, ~~were largely~~as well as higher debt balances due to debt issuances in the first quarter of 2023, partially offset by ~~lower average outstanding debt balances. Foreign currency exchange rates also favorably impacted interest expense on foreign currency-denominated debt.~~higher capitalized interest.

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Income Tax Expense

The following table sets forth our income tax expense and effective tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in millions):
Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
2022 2021 $ % 2022 2021 $ %
Income Tax Expense $ 685 $ 664 $ 21 3.2 % $ 2,263 $ 2,836 $ (573) (20.2) %
Income Tax Impact of:
Transformation Strategy Costs 9 20 (11) (55.0) % 31 76 (45) (59.2) %
Asset Impairment and Divestiture Charges — — — N/A — (8) 8 (100.0) %
Defined Benefit Plan (Gains) and Losses — — — N/A (9) (788) 779 (98.9) %
Adjusted Income Tax Expense $ 694 $ 684 $ 10 1.5 % $ 2,285 $ 2,116 $ 169 8.0 %
Effective Tax Rate 21.0 % 22.2 % 21.8 % 22.4 %
Adjusted Effective Tax Rate 21.0 % 22.3 % 21.9 % 22.0 %


	Three Months Ended March 31,						Change
	2023			2022			$		%
Income Tax Expense	$	627		$	730		$	(103)	(14.1)	%
Income Tax Impact of:
Transformation Strategy Costs	—			12			(12)		(100.0)	%
Goodwill and Asset Impairments, and Divestiture Charges	2			—			2		N/A
Defined Benefit Plan (Gains) Losses	—			(9)			9		(100.0)	%
Adjusted Income Tax Expense	$	629		$	733		$	(104)	(14.2)	%




Effective Tax Rate	24.9		%	21.5		%
Adjusted Effective Tax Rate	24.8		%	21.5		%

For additional information on our income tax expense and effective tax rate, see note 16 to the unaudited, consolidated financial statements.

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Liquidity and Capital Resources

We deploy a disciplined and balanced approach to capital allocation, including returns to shareowners through dividends and share repurchases. As of ~~September 30, 2022,~~March 31, 2023, we had ~~$11.4~~$9.4 billion in cash, cash equivalents and marketable securities. We believe that these positions, expected cash from operations, access to commercial paper programs and capital markets and other available liquidity options will be adequate to fund our material short- and long-term cash requirements, including our business operations, planned capital expenditures and pension contributions, transformation strategy costs, debt obligations and planned shareowner returns. We regularly evaluate opportunities to optimize our capital structure, including through issuances of debt to refinance existing debt and to fund operations. ~~We deploy a disciplined and balanced approach to capital allocation, including returns to shareowners through dividends and share repurchases.~~

Cash Flows From Operating Activities

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


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Net income	Net income	$	8,095	$	9,797	Net income	$	1,895	$	2,662
Non-cash operating activities (a)	Non-cash operating activities (a)	4,439		1,669		Non-cash operating activities (a)	1,226		1,559
Pension and postretirement benefit plan contributions (company-sponsored plans)		(2,106)		(331)

Pension and postretirement medical benefit plan contributions (company-sponsored plans)						Pension and postretirement medical benefit plan contributions (company-sponsored plans)	(1,277)		(45)
Hedge margin receivables and payables	Hedge margin receivables and payables	771		136		Hedge margin receivables and payables	(159)		(9)
Income tax receivables and payables	Income tax receivables and payables	(38)		235		Income tax receivables and payables	426		379
Changes in working capital and other non-current assets and liabilities	Changes in working capital and other non-current assets and liabilities	(339)		255		Changes in working capital and other non-current assets and liabilities	278		(49)
Other operating activities	Other operating activities	(50)		—		Other operating activities	(32)		(17)
Net cash from operating activities	Net cash from operating activities	$	10,772	$	11,761	Net cash from operating activities	$	2,357	$	4,480

___________________

(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 lease assets, pension and postretirement medical benefit plan (income) expense, stock compensation expense, changes in casualty self-insurance reserves, goodwill and other asset impairment charges and other non-cash items.

Net cash from operating activities decreased ~~$989 million for~~$2.1 billion in the ~~2022 period, primarily due to:~~first quarter, impacted by:

•~~Higher~~The timing of contributions to our company-sponsored, defined benefit pension and ~~U.S.~~ postretirement medical ~~benefit~~ plans ~~driven by $1.9~~that included $1.2 billion in discretionary contributions to our qualified U.S. pension plans. There were no discretionary contributions to these plans in ~~2021.~~

•~~An unfavorable change in working capital, driven by~~ the ~~timing~~first quarter of ~~payroll and other compensation items and vendor payments, as well as the settlement of duties and taxes on behalf of our customers.~~2022.

•A ~~reduction in income taxes payable due to the timing of tax payments relative to accruals.~~

~~These impacts were partially offset by an increase~~decrease in our net hedge margin collateral position due to ~~favorable~~ changes in the fair value of derivative contracts used in our currency hedging programs.

~~As part of our ongoing efforts to improve our~~•Our working capital ~~efficiency, certain financial institutions offer a Supply Chain Finance ("SCF") program to certain~~primarily benefited from an improvement in collections partially offset by an increase in vendor payments. Working capital was also impacted by the timing of ~~our suppliers. We agree to commercial terms with our suppliers, including prices, quantities~~payroll and ~~payment terms, regardless of whether the supplier elects to participate~~other compensation-related payments. Additionally, in the ~~SCF program. Suppliers issue invoices to us based on~~first quarter of 2023, we paid the agreed-upon contractual terms. If they participate in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, to sell to the financial institutions. Our suppliers’ voluntary inclusionremaining $323 million of ~~invoices in the SCF program has no bearing on our payment terms. No guarantees are provided by us~~employer payroll taxes that were deferred under the ~~SCF program. We have no economic interest~~Coronavirus Aid, Recovery and Economic Security (CARES) Act in ~~a supplier’s decision to participate, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program.~~

~~Amounts due to our suppliers that participate in the SCF program are included in~~ ~~Accounts payable~~ in our consolidated balance sheets. We have been informed by the participating financial institutions that as of September 30, 2022 and 2021, suppliers sold them $690 and $462 million, respectively, of our outstanding payment obligations. Amounts due to suppliers that participate in the SCF program may be reflected incash flows from operating activities or cash flows from investing activities in our consolidated statements of cash flows. The amounts settled through the SCF program were approximately $1.3 billion and $953 million for the nine months ended September 30, 2022 and 2021, respectively.

~~Table of Contents~~

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

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

~~RESULTS OF OPERATIONS~~

2020.

As of ~~September 30, 2022,~~March 31, 2023, approximately ~~$3.3~~$2.5 billion of our total worldwide holdings of cash, cash equivalents and marketable securities were held by foreign subsidiaries. The amount of cash, cash equivalents and marketable securities held by our U.S. and foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts and disbursements in the normal course of business. 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. 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. We did not have any restricted cash as of March 31, 2023 or 2022.

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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 from investing activities were as follows (in millions):


		Nine Months Ended September 30,							Three Months Ended March 31,
		2022			2021				2023			2022
Net cash used in investing activities	Net cash used in investing activities	$	(2,408)		$	(1,600)		Net cash used in investing activities	$	(1,813)		$	(572)

Capital Expenditures:	Capital Expenditures:							Capital Expenditures:
Buildings, facilities and plant equipment	Buildings, facilities and plant equipment	$	(937)		$	(1,089)		Buildings, facilities and plant equipment	$	(368)		$	(169)
Aircraft and parts	Aircraft and parts	(468)			(706)			Aircraft and parts	(71)			(206)
Vehicles	Vehicles	(382)			(379)			Vehicles	(13)			(10)
Information technology	Information technology	(491)			(396)			Information technology	(157)			(163)
Total Capital Expenditures(1)	Total Capital Expenditures(1)	$	(2,278)		$	(2,570)		Total Capital Expenditures(1)	$	(609)		$	(548)

Capital Expenditures as a % of revenue	Capital Expenditures as a % of revenue	3.1		%	3.7		%	Capital Expenditures as a % of revenue	2.7		%	2.2		%

Other Investing Activities:	Other Investing Activities:							Other Investing Activities:
Proceeds from disposal of businesses, property, plant and equipment	Proceeds from disposal of businesses, property, plant and equipment	$	12		$	870		Proceeds from disposal of businesses, property, plant and equipment	$	5		$	—
Net change in finance receivables		$	23		$	28
Net (purchases), sales and maturities of marketable securities		$	(2)		$	60
Cash paid for business acquisitions, net of cash and cash equivalents acquired		$	(106)		$	(12)
Net (purchases)/sales and maturities of marketable securities								Net (purchases)/sales and maturities of marketable securities	$	(1,192)		$	(8)
Acquisitions, net of cash acquired								Acquisitions, net of cash acquired	$	(34)		$	1
Other investing activities	Other investing activities	$	(57)		$	24		Other investing activities	$	17		$	(17)

(1) In addition to capital expenditures of $609 and $548 million for the three months ended March 31, 2023 and 2022, respectively, there were principal repayments of finance lease obligations of $48 and $18 million, respectively. These are included in cash flows from financing activities.

We have commitments for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement of existing capacity and anticipated future growth. 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 investments in technology initiatives and enhanced network capabilities, including over $1$1.0 billion of projects to support our environmental sustainability ~~goals in 2022.~~goals. It also provides for the maintenance of buildings, facilities and ~~plant~~ equipment and replacement of certain aircraft within our fleet. We currently expect that our capital expenditures will total approximately ~~$5.0~~$5.3 billion in ~~2022,~~2023, of which approximately 50 percent will be allocated to strategic expansion projects. ~~Our strategic decision to lease rather than purchase certain facilities drove a reduction in our expected capital expenditures.~~

Total capital expenditures ~~decreased for~~increased in the first quarter of 2023 compared to the 2022 period, primarily due ~~to:~~

•~~Spending~~to increased spending on buildings, facilities and plant equipment for facility maintenance and capacity expansion projects. This was partially offset by a decrease in ~~our global small package business decreased as supply chain disruptions resulted in delays in certain projects.~~

•~~Aircraft~~ expenditures ~~decreased due to fewer payments~~ associated with the delivery of ~~aircraft, slightly offset by increases in contract deposits on open aircraft orders.~~aircraft.

•~~Information technology expenditures~~Net purchases of marketable securities increased due to ~~additional deployments of technology equipment and capitalized software projects.~~a continued shift to longer duration investments.

~~Proceeds from disposal of businesses, property, plant and equipment decreased, driven by the divestiture of UPS Freight~~Cash paid for ~~cash proceeds of $848 million~~acquisitions in the ~~second~~first quarter of ~~2021.~~

~~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.~~

~~The increase in cash paid for business acquisitions in 2022~~2023 was ~~primarily due~~related to the ~~acquisition of Delivery Solutions and the~~ purchase of ~~additional~~ development areas for The UPS ~~Store relative to the 2021 period.~~Store. Other investing activities were impacted by changes in our non-current investments, purchase contract deposits and various other immaterial items.

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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 from financing activities were as follows (amounts in millions, except per share data):


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Net cash used in financing activities		$	(7,475)	$	(5,856)
Net cash from/(used in) financing activities						Net cash from/(used in) financing activities	$	4	$	(1,970)
Share Repurchases:	Share Repurchases:					Share Repurchases:
Cash paid to repurchase shares	Cash paid to repurchase shares	(2,194)		(500)		Cash paid to repurchase shares	(751)		(254)
Number of shares repurchased	Number of shares repurchased	(11.6)		(2.6)		Number of shares repurchased	(4.1)		(1.2)
Shares outstanding at period end	Shares outstanding at period end	865		869		Shares outstanding at period end	859		874
Dividends:	Dividends:					Dividends:
Dividends declared per share	Dividends declared per share	$	4.56	$	3.06	Dividends declared per share	$	1.62	$	1.52
Cash paid for dividends	Cash paid for dividends	$	(3,842)	$	(2,578)	Cash paid for dividends	$	(1,348)	$	(1,284)
Borrowings:	Borrowings:					Borrowings:
Net borrowings (repayments) of debt principal	Net borrowings (repayments) of debt principal	$	(1,124)	$	(2,613)	Net borrowings (repayments) of debt principal	$	2,438	$	(18)
Other Financing Activities:	Other Financing Activities:					Other Financing Activities:
Cash received for common stock issuances	Cash received for common stock issuances	$	198	$	196	Cash received for common stock issuances	$	49	$	67
Other financing activities	Other financing activities	$	(513)	$	(361)	Other financing activities	$	(384)	$	(481)
Capitalization:	Capitalization:					Capitalization:
Total debt outstanding at period end	Total debt outstanding at period end	20,350		22,106		Total debt outstanding at period end	$	22,188	$	21,881
Total shareowners’ equity at period end	Total shareowners’ equity at period end	16,988		12,057		Total shareowners’ equity at period end	20,053		15,434
Total capitalization	Total capitalization	$	37,338	$	34,163	Total capitalization	$	42,241	$	37,315

We repurchased ~~11.6~~4.1 and ~~2.6~~1.2 million shares of class B common stock for ~~$2.2 billion~~$750 million and ~~$500~~$260 million under our stock repurchase program during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, respectively ($751 and ~~2021, respectively.~~$254 million in repurchases for 2023 and 2022, respectively, are reported on the statements of consolidated cash flows due to the timing of settlements). We anticipate our share repurchases will total ~~at least~~approximately $3.0 billion ~~for all of 2022.~~in 2023. For additional information on our share repurchase activities, see note 12 to the unaudited, consolidated financial statements.

~~We increased our quarterly cash dividend to $1.52 per share in 2022, compared to $1.02 in 2021.~~ The declaration of dividends is subject to the discretion of the Board and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors. In the first quarter of 2023, we increased our quarterly cash dividend from $1.52 to $1.62 per share.

Issuances of debt during the three months ended March 31, 2023 consisted of fixed and floating rate senior notes of varying maturities totaling $2.5 billion. We expect to use substantially all of the proceeds from these debt issuances to repay outstanding debt at maturity in 2023. There were no issuances of debt ~~during~~in the ~~nine months ended September 30,~~first quarter of 2022.

Repayments of debt in the first quarter of 2023 included ~~our $600 million 2.350% senior notes, our $400 million floating rate senior notes and~~ scheduled principal payments on our finance lease ~~obligations.~~obligations and payment of amounts assumed in the Bomi Group acquisition. In the ~~prior year-to-date period, issuances~~first quarter of ~~debt consisted of borrowings under our commercial paper program. Repayments of debt included $2.6 billion of fixed and floating rate senior notes, commercial paper and~~2022, we made scheduled principal payments on our finance lease obligations.

As of ~~September 30, 2022,~~March 31, 2023, we had ~~$1.0~~$2.3 billion of ~~fixed rate~~fixed- and floating-rate senior notes outstanding that ~~matured this year.~~mature in 2023. We repaid $1.5 billion of these senior notes ~~at maturity~~ in ~~October 2022 with cash from operations.~~April 2023. We consider the overall fixed and floating interest rate mix of our portfolio and the related overall cost of borrowing when planning for future issuances and non-scheduled repayments of debt.

The ~~amount of commercial paper outstanding fluctuates throughout~~variation in cash received from common stock issuances resulted from activity within the ~~year based on daily liquidity needs. As of September 30, 2022~~UPS 401(k) Savings Plan and ~~2021, we had no outstanding balances under~~ our ~~commercial paper programs.~~employee stock purchase plan in both the current and comparative period.

~~Cash flows from other~~Other financing activities ~~were largely attributable~~includes cash used to ~~the~~ repurchase of shares to satisfy tax withholding obligations on vested employee stock awards. Cash outflows for this purpose were ~~$514~~$363 and ~~$357~~$479 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The ~~increase~~decrease was driven by changes in required repurchase amounts.

Except as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, we do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Except as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, we do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.

Sources of Credit

See note 9 to the unaudited, consolidated financial statements for a discussion of our available credit and the financial covenants that we are subject to as part of our credit agreements.

Contractual Commitments

There have been no material changes to the contractual commitments described in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2021, except as described below.~~2022.

~~Purchase commitments represent contractual agreements~~For additional information on the first quarter 2023 debt issuances, see note 9 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. We also have commitments related to pending business acquisitions and investments.

~~The following table summarizes~~ the ~~expected cash outflows to satisfy our total purchase commitments, inclusive of these changes, as of September 30, 2022 (in millions):~~

Commitment Type 2022 2023 2024 2025 2026 After 2026 Total
Purchase Commitments(1)
$ 2,513 $ 2,405 $ 1,285 $ 959 $ 237 $ 68 $ 7,467
Total $ 2,513 $ 2,405 $ 1,285 $ 959 $ 237 $ 68 $ 7,467

~~(1)Purchase commitments for 2022 include amounts related to pending business acquisitions and investments.~~unaudited, consolidated financial statements.

Legal Proceedings and Contingencies

See note 7 and note 11 to the unaudited, consolidated financial statements for a discussion of judicial proceedings and other matters arising from the conduct of our business activities, and note 16 for a discussion of income tax related matters.

Collective Bargaining Agreements

Status of Collective Bargaining Agreements

See note 7 to the unaudited, consolidated financial statements for a discussion of the status of our collective bargaining agreements.

Multiemployer Benefit Plans

See note 7 to the unaudited, consolidated financial statements for a discussion of our participation in multiemployer benefit plans.

Recent Accounting Pronouncements

Adoption of New Accounting Standards

See note 2 to the unaudited, consolidated financial statements for a discussion of recently adopted accounting standards.

Accounting Standards Issued But Not Yet Effective

See note 2 to the unaudited, consolidated financial statements for a discussion of accounting standards issued, but not yet effective.

~~Table of Contents~~

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

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

~~RESULTS OF OPERATIONS~~

~~Rate Adjustments~~

~~From time to time we adjust published rates applicable to our services. These rates, when published, are made available on our website at~~ ~~www.ups.com~~. We provide the address to our internet site solely for information. We do not intend for this address to be an active link or to otherwise incorporate the contents of any website into this or any other report we file with the Securities and Exchange Commission.

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Item 3.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 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 and interest rate forward contracts, options and swaps. A discussion of our accounting policies for derivative instruments and further disclosures are provided in note 15 to the unaudited, consolidated financial statements.

The total net fair value asset (liability) of our derivative financial instruments is summarized in the following table (in millions):


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Currency Derivatives	Currency Derivatives	$	892	$	173	Currency Derivatives	$	293	$	398

Interest Rate Derivatives	Interest Rate Derivatives	(5)		1		Interest Rate Derivatives	(5)		(5)

		$	887	$	174		$	288	$	393

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had no outstanding commodity hedge positions.

The information concerning market risk in Item 7A under the caption "Quantitative and Qualitative Disclosures about Market Risk" of our Annual Report on Form 10-K for the year ended December 31, 2022 is incorporated herein by reference.

Our market risks, hedging strategies and financial instrument positions as of ~~September 30, 2022~~March 31, 2023 have not materially changed from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. In ~~2022,~~the first quarter of 2023, we entered into ~~several~~ foreign currency exchange forward contracts on the Euro, British Pound Sterling, Canadian Dollar and Hong Kong Dollar, and had forward contracts expire. The fair value changes between December 31, ~~2021~~2022 and ~~September 30, 2022~~March 31, 2023 in the preceding table are primarily due to interest rate and foreign currency exchange rate fluctuations between those dates.

The foreign currency exchange forward contracts, swaps and options previously discussed contain an element of risk that the counterparties may be unable to meet the terms of the agreements; however, we seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines and by monitoring counterparty credit risk to prevent concentrations of credit risk with any single counterparty.

We have agreements with all of our active counterparties (covering all 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. Events such as a 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. As of ~~September 30, 2022,~~March 31, 2023, we held cash collateral of ~~$1.0 billion~~$375 million and were not required to post cash collateral with our counterparties under these agreements.

We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default.

The information concerning market risk in Item 7A under the caption “Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2021 is incorporated herein by reference.

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Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our Principal Executive Officer and Principal Financial and Accounting Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")). Based upon, and as of the date of, the evaluation, our Principal Executive Officer and Principal Financial and Accounting 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 our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2022~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ~~We continue to monitor and assess the effects of remote work on our internal controls to minimize the impact on their design and operating effectiveness.~~

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

For a discussion of material legal proceedings affecting the Company, see note 11 to the unaudited, consolidated financial statements included in this report.

Item 1A.Risk Factors

There have been no material changes to the risk factors described in Part 1, Item 1A in our Annual Report on Form 10-K for the year ended December ~~31, 2021 and Part II, Item 1A in our Quarterly Report on Form 10-Q for the quarter ended March~~ 31, 2022. The occurrence of any of the risks described therein could materially affect us, including impacting our business, financial condition, results of operations, stock price or credit rating, as well as our reputation. These risks are not the only ones we face. We could also be materially adversely affected by other events, factors or uncertainties that are unknown to us, or that we do not currently consider to be material.

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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c) A summary of repurchases of our class A and class B common stock during the ~~third~~first quarter of ~~2022~~2023 is as follows (in millions, except per share amounts):

Total Number of Shares Purchased (1)
Average Price Paid Per Share Total Number of Shares Purchased as Part of a Publicly Announced Program Approximate Dollar Value of Shares that May Yet be Purchased Under the Program
July 1 - July 31, 2022 0.9 $ 183.23 0.9 $ 3,096
August 1 - August 31, 2022 3.2 200.08 3.2 2,454
September 1 - September 30, 2022 0.8 190.94 0.8 $ 2,306
Total July 1 - September 30, 2022 4.9 $ 195.59 4.9


	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program	Approximate Dollar Value of Shares that May Yet be Purchased Under the Program
January 1 - January 31, 2023	0.5	$	178.40	0.5	$	4,985
February 1 - February 28, 2023	3.3	182.69		3.3	4,393
March 1 - March 31, 2023	0.3	182.69		0.3	$	4,332
Total January 1 - March 31, 2023	4.1	$	182.12	4.1

___________________

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

We repurchased 4.1 million shares of class B common stock for $750 million during the three months ended March 31, 2023. These repurchases were completed as follows:

•In August 2021, the Board of Directors ~~authorized the company to~~approved a share repurchase ~~up to~~authorization of $5.0 billion of class A and class B common ~~stock. We~~stock (the "2021 Authorization"). During the three months ended March 31, 2023, we repurchased ~~4.9 and 11.6~~0.5 million shares of class B common stock for ~~$951~~$82 million ~~and $2.2 billion~~ under this ~~program during~~authorization.

•In January 2023, the Board of Directors terminated the 2021 Authorization and approved a new share repurchase authorization of $5.0 billion for class A and class B common stock. During the three ~~and nine~~ months ended ~~September 30, 2022, respectively. As~~March 31, 2023, we repurchased 3.6 million shares of ~~September 30, 2022, we had $2.3 billion available~~class B common stock for $668 million under this ~~repurchase~~ authorization.

We anticipate ~~our share repurchases will total at least~~repurchasing approximately $3.0 billion ~~for all of 2022.~~in shares in 2023.

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

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Item 6. Exhibits



3.1	—	Restated Certificate of Incorporation of United Parcel Service, Inc. (incorporated by reference to Exhibit 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).

4.01	—	Form of Floating Rate Senior Notes due 2073 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on March 7, 2023).

4.02	—	Form of 4.875% Senior Notes due 2033 (incorporated by reference to Exhibit 4.1 to Form 8-K, filed on February 27, 2023).

4.03	—	Form of 5.050% Senior Notes due 2053 (incorporated by reference to Exhibit 4.2 to Form 8-K, filed on February 27, 2023).

10.1	—	~~Indenture dated~~Amended and Restated UPS 401(k) Savings Plan, effective as of ~~September 30, 2022, between UPS and U.S. Bank Trust Company, National~~ ~~Association, as Trustee (incorporated~~January 1, 2023 (incorporated by reference to Exhibit ~~4.4~~10.2 to F ~~orm S-3 (File No.333-267664), filed on September 30, 2022.~~Form 10-K for the year ended December 31, 2022).*

10.2	—	~~Indenture dated~~Amended and Restated Restoration Savings Plan, effective as of ~~September 30, 2022, between UPS and Truist Bank, as Trustee~~January 1, 2023 (incorporated by reference to Exhibit ~~4.5~~10.3 to Form ~~S-3 (File No.333-267664), filed on September 30, 2022.~~10-K for the year ended December 31, 2022).*

10.3	—	UPS Long-Term Incentive Performance Program Amended and Restated Terms and Conditions, effective as of March 22, 2023.*

10.4	—	UPS Management Incentive Program Amended and Restated Terms and Conditions, effective January 1, 2023 (incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended December 31, 2022).*

31.1	—	Certification of the Principal Executive Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	—	Certification of the Principal Financial and Accounting 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 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 Principal Financial and Accounting 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 unaudited financial information from this Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2022~~March 31, 2023 is formatted in Inline XBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Statements of Consolidated Income, (iii) the Statements of Consolidated Comprehensive Income (Loss), (iv) the Statements of Consolidated Cash Flows, and (v) the Notes to the Consolidated Financial Statements.

104	—	Cover Page Interactive Data File - The cover page from this Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2022~~March 31, 2023 is formatted in Inline XBRL (included as Exhibit 101).

__________________________


*			Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNITED PARCEL SERVICE, INC.
(Registrant)

Date:

~~November 2, 2022~~May 3, 2023

By:

/s/ BRIAN O. NEWMAN

Brian O. Newman

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

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	September 30, 2022		December 31, 2021		September 30, 2021		December 31, 2020
Cash and cash equivalents	$	11,045	$	10,255	$	10,212	$	5,910
Restricted cash	—		—		—		—
Total cash, cash equivalents and restricted cash	$	11,045	$	10,255	$	10,212	$	5,910


Commitment Type	2022		2023		2024		2025		2026		After 2026		Total
Purchase Commitments(1)	$	2,513	$	2,405	$	1,285	$	959	$	237	$	68	$	7,467
Total	$	2,513	$	2,405	$	1,285	$	959	$	237	$	68	$	7,467