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 March 31, ~~2022~~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 ~~139,328,843~~134,106,663 Class A shares, and ~~734,437,505~~724,779,682 Class B shares, with a par value of $0.01 per share, outstanding at April ~~22, 2022.~~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	10
	Note 5—~~Cash~~Marketable Securities and Non-Current Investments	12
	Note 6—Property, Plant and Equipment	15
	Note 7—Employee Benefit Plans	16
	Note 8—Goodwill and Intangible Assets	18
	Note 9—Debt and Financing Arrangements	1920
	Note 10—Leases	2123
	Note 11—Legal Proceedings and Contingencies	2526
	Note 12—Shareowners’ Equity	2627
	Note 13—Segment Information	2931
	Note 14—Earnings Per Share	3032
	Note 15—Derivative Instruments and Risk Management	3133
	Note 16—Income Taxes	3637
	Note 17—Transformation Strategy Costs	3738
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3839
	Overview	3839
	Supplemental Information - Items Affecting Comparability	4041
	Results of Operations - Segment Review	4243
	U.S. Domestic Package Operations	4344
	International Package Operations	4647
	Supply Chain Solutions Operations	4950
	Consolidated Operating Expenses	5152
	Other Income and (Expense)	5455
	Income Tax Expense	5556
	Liquidity and Capital Resources	5657
	Cash Flows From Operating Activities	5657
	Cash Flows From Investing Activities	58
	Cash Flows From Financing Activities	59
	Sources of Credit	60
	Contractual Commitments	60
	Legal Proceedings and Contingencies	60
	Collective Bargaining Agreements	60
	Recent Accounting Pronouncements	60
	~~Rate Adjustments~~	61
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6261
Item 4.	Controls and Procedures	6362
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	6463
Item 1A.	Risk Factors	6463
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6564
Item 6.	Exhibits	6665

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.)~~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 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, this report~~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

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


		March 31, 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	$	12,208	$	10,255	Cash and cash equivalents	$	6,190	$	5,602
Marketable securities	Marketable securities	337		338		Marketable securities	3,208		1,993
Accounts receivable	Accounts receivable	11,335		12,669		Accounts receivable	10,448		12,729
Less: Allowance for credit losses	Less: Allowance for credit losses	(136)		(128)		Less: Allowance for credit losses	(149)		(146)
Accounts receivable, net	Accounts receivable, net	11,199		12,541		Accounts receivable, net	10,299		12,583

Other current assets	Other current assets	1,857		1,800		Other current assets	2,028		2,039
Total Current Assets	Total Current Assets	25,601		24,934		Total Current Assets	21,725		22,217
Property, Plant and Equipment, Net	Property, Plant and Equipment, Net	33,595		33,475		Property, Plant and Equipment, Net	34,995		34,719
Operating Lease Right-Of-Use Assets	Operating Lease Right-Of-Use Assets	3,481		3,562		Operating Lease Right-Of-Use Assets	4,089		3,755
Goodwill	Goodwill	3,668		3,692		Goodwill	4,249		4,223
Intangible Assets, Net	Intangible Assets, Net	2,465		2,486		Intangible Assets, Net	2,811		2,796
Investments and Restricted Cash		22		26
Deferred Income Tax Assets	Deferred Income Tax Assets	173		176		Deferred Income Tax Assets	155		139
Other Non-Current Assets	Other Non-Current Assets	1,108		1,054		Other Non-Current Assets	4,165		3,275
Total Assets	Total Assets	$	70,113	$	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	$	2,141	$	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	579		580		Current maturities of operating leases	668		621
Accounts payable	Accounts payable	7,036		7,523		Accounts payable	6,302		7,515
Accrued wages and withholdings	Accrued wages and withholdings	3,418		3,819		Accrued wages and withholdings	3,012		4,049
Self-insurance reserves	Self-insurance reserves	1,025		1,048		Self-insurance reserves	1,069		1,069
Accrued group welfare and retirement plan contributions	Accrued group welfare and retirement plan contributions	922		1,038		Accrued group welfare and retirement plan contributions	1,196		1,078

Other current liabilities	Other current liabilities	1,721		1,430		Other current liabilities	1,683		1,467
Total Current Liabilities	Total Current Liabilities	16,842		17,569		Total Current Liabilities	16,262		18,140
Long-Term Debt and Finance Leases	Long-Term Debt and Finance Leases	19,740		19,784		Long-Term Debt and Finance Leases	19,856		17,321
Non-Current Operating Leases	Non-Current Operating Leases	2,970		3,033		Non-Current Operating Leases	3,539		3,238
Pension and Postretirement Benefit Obligations	Pension and Postretirement Benefit Obligations	8,203		8,047		Pension and Postretirement Benefit Obligations	4,602		4,807
Deferred Income Tax Liabilities	Deferred Income Tax Liabilities	3,356		3,125		Deferred Income Tax Liabilities	4,345		4,302
Other Non-Current Liabilities	Other Non-Current Liabilities	3,568		3,578		Other Non-Current Liabilities	3,532		3,513
Shareowners’ Equity:	Shareowners’ Equity:					Shareowners’ Equity:
Class A common stock (140 and 138 shares issued in 2022 and 2021)		2		2
Class B common stock (734 and 732 shares issued in 2022 and 2021)		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	1,231		1,343		Additional paid-in capital	—		—
Retained earnings	Retained earnings	17,433		16,179		Retained earnings	21,510		21,326
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,257)		(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 (0.3 shares in both 2022 and 2021)		(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	15,416		14,253		Total Equity for Controlling Interests	20,038		19,786
Noncontrolling interests	Noncontrolling interests	18		16		Noncontrolling interests	15		17
Total Shareowners’ Equity	Total Shareowners’ Equity	15,434		14,269		Total Shareowners’ Equity	20,053		19,803
Total Liabilities and Shareowners’ Equity	Total Liabilities and Shareowners’ Equity	$	70,113	$	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 March 31,						Three Months Ended March 31,
			2022		2021				2023		2022
Revenue	Revenue		$	24,378	$	22,908			$	22,925	$	24,378
Operating Expenses:	Operating Expenses:						Operating Expenses:
Compensation and benefits	Compensation and benefits		11,616		11,483		Compensation and benefits		11,462		11,601
Repairs and maintenance	Repairs and maintenance		626		619		Repairs and maintenance		725		701
Depreciation and amortization	Depreciation and amortization		764		722		Depreciation and amortization		834		764
Purchased transportation	Purchased transportation		4,600		4,243		Purchased transportation		3,543		4,607
Fuel	Fuel		1,220		807		Fuel		1,271		1,220
Other occupancy	Other occupancy		491		466		Other occupancy		551		501
Other expenses	Other expenses		1,810		1,803		Other expenses		1,998		1,733
Total Operating Expenses	Total Operating Expenses		21,127		20,143		Total Operating Expenses		20,384		21,127
Operating Profit	Operating Profit		3,251		2,765		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		315		3,616		Investment income and other		169		315
Interest expense	Interest expense		(174)		(177)		Interest expense		(188)		(174)
Total Other Income and (Expense)	Total Other Income and (Expense)		141		3,439		Total Other Income and (Expense)		(19)		141
Income Before Income Taxes	Income Before Income Taxes		3,392		6,204		Income Before Income Taxes		2,522		3,392
Income Tax Expense	Income Tax Expense		730		1,412		Income Tax Expense		627		730
Net Income	Net Income		$	2,662	$	4,792	Net Income		$	1,895	$	2,662
Basic Earnings Per Share	Basic Earnings Per Share		$	3.05	$	5.50	Basic Earnings Per Share		$	2.20	$	3.05
Diluted Earnings Per Share	Diluted Earnings Per Share		$	3.03	$	5.47	Diluted Earnings Per Share		$	2.19	$	3.03

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(In millions)

(unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021				2023		2022
Net Income	Net Income	$	2,662	$	4,792	Net Income		$	1,895	$	2,662
Change in foreign currency translation adjustment, net of tax	Change in foreign currency translation adjustment, net of tax	(40)		(82)		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	(6)		(4)		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	43		114		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	24		2,426		Change in unrecognized pension and postretirement benefit costs, net of tax		20		24
Comprehensive Income (Loss)	Comprehensive Income (Loss)	$	2,683	$	7,246	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)


		Three Months Ended March 31,					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	$	2,662	$	4,792	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	764		722		Depreciation and amortization	834		764
Pension and postretirement benefit (income) expense	Pension and postretirement benefit (income) expense	201		(3,024)		Pension and postretirement benefit (income) expense	243		201
Pension and postretirement benefit contributions	Pension and postretirement benefit contributions	(45)		(215)		Pension and postretirement benefit contributions	(1,277)		(45)
Self-insurance reserves	Self-insurance reserves	(45)		4		Self-insurance reserves	(20)		(45)
Deferred tax (benefit) expense	Deferred tax (benefit) expense	209		942		Deferred tax (benefit) expense	56		209
Stock compensation expense	Stock compensation expense	386		315		Stock compensation expense	126		386
Other (gains) losses	Other (gains) losses	44		57		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	1,227		435		Accounts receivable	2,254		1,227
Other assets	Other assets	7		363		Other assets	62		7
Accounts payable	Accounts payable	(743)		(261)		Accounts payable	(1,668)		(743)
Accrued wages and withholdings	Accrued wages and withholdings	(343)		199		Accrued wages and withholdings	(508)		(343)
Other liabilities	Other liabilities	173		180		Other liabilities	405		173
Other operating activities	Other operating activities	(17)		22		Other operating activities	(32)		(17)
Net cash from operating activities	Net cash from operating activities	4,480		4,531		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	(548)		(834)		Capital expenditures	(609)		(548)
Proceeds from disposal of businesses, property, plant and equipment	Proceeds from disposal of businesses, property, plant and equipment	—		10		Proceeds from disposal of businesses, property, plant and equipment	5		—
Purchases of marketable securities	Purchases of marketable securities	(68)		(78)		Purchases of marketable securities	(2,371)		(68)
Sales and maturities of marketable securities	Sales and maturities of marketable securities	60		134		Sales and maturities of marketable securities	1,179		60
Net change in finance receivables		5		11
Cash paid for business acquisitions, net of cash and cash equivalents acquired		1		(3)
Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	(34)		1
Other investing activities	Other investing activities	(22)		(6)		Other investing activities	17		(17)
Net cash used in investing activities	Net cash used in investing activities	(572)		(766)		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	—		697		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	(18)		(1,528)		Repayments of long-term borrowings	(65)		(18)
Purchases of common stock	Purchases of common stock	(254)		—		Purchases of common stock	(751)		(254)
Issuances of common stock	Issuances of common stock	67		78		Issuances of common stock	49		67
Dividends	Dividends	(1,284)		(858)		Dividends	(1,348)		(1,284)
Other financing activities	Other financing activities	(481)		(334)		Other financing activities	(384)		(481)
Net cash used in financing activities		(1,970)		(1,945)
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	15		1		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	1,953		1,821		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	$	12,208	$	7,731	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 March 31, ~~2022~~2023 and our results of operations and cash flows for the three months ended March 31, ~~2022~~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.

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 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 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 impact on our reported revenue, operating profit, net income, or 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 ~~approximate~~approximated fair value as of March 31, ~~2022~~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.

~~For interim unaudited, consolidated~~

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Supplier Finance Programs

As part of our working capital management, certain financial ~~statement purposes, we provide for accruals under~~institutions offer a Supply Chain Finance ("SCF") program to certain of our ~~various company-sponsored employee benefit plans for each three month period~~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 ~~one quarter~~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 ~~estimated annual expense.~~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 March 31, 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

Accounting pronouncements issued before, but not effective until after, March 31, ~~2022,~~2023, are not expected to have a material impact on our consolidated financial position, results of operations, cash flows or ~~cash flows.~~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. Additionally, we provide value-added logistics services to customers ~~both domestically and internationally,~~ through our global network of ~~company-owned and leased~~ distribution centers and field stocking locations.

~~Disaggregation of Revenue~~
Three Months Ended
March 31,
2022 2021
Revenue:
Next Day Air $ 2,594 $ 2,331
Deferred 1,420 1,260
Ground 11,110 10,419
     U.S. Domestic Package 15,124 14,010
Domestic 851 928
Export 3,778 3,493
Cargo & Other 247 186
    International Package 4,876 4,607
Forwarding 2,589 2,072
Logistics 1,251 1,104
Freight — 767
Other 538 348
    Supply Chain Solutions 4,378 4,291
Consolidated revenue $ 24,378 $ 22,908

We account for a contract when both parties have approved the contract and are committed to perform their obligations, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

~~Performance Obligations~~

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the basis of revenue recognition in accordance with GAAP. To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as a single contract, and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires judgment, and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

~~Within most of our contracts, the customer contracts with us to provide distinct services, such as transportation services.~~ The vast majority of our contracts with customers are for transportation services that include only one performance obligation; the transportation services themselves. However, if a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We frequently sell standard transportation services with observable standalone sales prices. In these instances, the observable standalone sales are used to determine the standalone selling price.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~Satisfaction of Performance Obligations~~

We generally recognize revenue over time, as we perform the services in the contract because of the continuous transfer of control to the customer. Our customers receive the benefit of our services as the goods are transported from one location to another. Further, if we were unable to complete delivery to the final location, another entity would not need to reperform the transportation service already performed.

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

~~Variable Consideration~~

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

~~Contract Modifications~~

Contracts are often modified to account for changes in the rates we charge our customers or to add additional distinct services. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Contract modifications that add additional distinct goods or services are treated as separate contracts. Contract modifications that do not add distinct goods or services typically change the price of existing services. These contract modifications are accounted for prospectively as the remaining performance obligations are distinct.

~~Payment Terms~~

Under the typical payment terms of our customer contracts, the customer pays at periodic intervals, which are generally seven days within our U.S. Domestic Package business, for shipments included on invoices received. Invoices are generated each week on the week-ending day, which is Saturday for the majority of our U.S. Domestic Package business, but could be another day depending on the business unit or the specific agreement with the customer. It is not customary business practice to extend payment terms past 90 days, and as such, we do not have a practice of including a significant financing component within our contracts with customers.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Principal vs. Agent Considerations~~

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

~~Accounts Receivable, Net~~

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

Our allowance for credit losses as of March 31, 2022 and December 31, 2021 was $136 and $128 million, respectively. Amounts for credit losses charged to expense, before recoveries, during the three months ended March 31, 2022 and 2021 were $54 and $41 million, respectively.Revenue


	Three Months Ended March 31,
	2023		2022
Revenue:
Next Day Air	$	2,461	$	2,594
Deferred	1,194		1,420
Ground	11,332		11,110
U.S. Domestic Package	14,987		15,124

Domestic	794		851
Export	3,552		3,778
Cargo & Other	197		247
International Package	4,543		4,876

Forwarding	1,514		2,589
Logistics	1,410		1,251
Other	471		538
Supply Chain Solutions	3,395		4,378

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.

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 $336~~ and ~~$304 million~~liabilities as of March 31, ~~2022~~2023 and December 31, ~~2021, respectively,~~2022 were as 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 ~~deferred revenue related~~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.

Amounts for credit losses charged to ~~in-transit packages~~expense, before recoveries, during each of ~~$359 and $314 million as of~~the three months ended March 31, 2023 and 2022, were $43 and ~~December 31, 2021,~~$54 million, respectively. ~~Contract assets 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 March 31, 2022 and December 31, 2021, respectively. Short-term contract liabilities are included within ~~Other current liabilities~~ in the consolidated balance sheets. Long-term contract liabilities related to advance payments from customers were $26 and $25 million as of March 31, 2022 and December 31, 2021, respectively. Long-term contract liabilities are included within ~~Other Non-Current Liabilities~~ ~~in the consolidated balance sheets.~~

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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 upon which they are earned.~~Units.

Our primary equity compensation programs are the UPS Management Incentive ~~Award program~~Program (the "MIP"), the UPS Long-Term Incentive Performance ~~Award program~~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 ~~Award~~ Program ~~("MIP")~~

RPUs issued under the MIP ~~vest~~prior to 2022 vested one year following the grant date based on continued employment with the Company ~~(except in the case of death, disability or retirement, in which case immediate vesting occurs). The grant value is~~and were expensed on a straight-line basis (less estimated forfeitures) over the requisite service ~~period (except in the case~~period. In cases of death, disability or retirement, RPUs vested and 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 ~~which case immediate expensing occurs).~~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, ~~award,~~ 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). The RPUs~~employees. Each RPU issued under the MIP ~~were~~was valued ~~for stock compensation expense purposes~~ 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 ~~Award~~ Program ~~("LTIP")~~

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 & ~~Poors~~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 ~~the~~each target ~~RPUs~~RPU awarded ~~were~~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 2.29 % 0.19 %
Expected volatility 31.90 % 30.70 %
Weighted-average fair value of RPUs granted $ 230.67 $ 168.05
Share payout 107.50 % 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. ~~In the first quarter of 2022,~~On March 22, 2023, we granted 0.1 million stock options at an exercise price of ~~$214.58, which was~~$185.54, the NYSE closing price on ~~the date of grant.~~that date.

The fair value of each option ~~grant~~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~~ ~~on the statements of consolidated income for the three months ended March 31, 2022 and 2021 was $386~~ ~~and $315 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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in millions):


		Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value			Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
March 31, 2022:
March 31, 2023:										March 31, 2023:
Current trading marketable securities:	Current trading marketable securities:									Current trading marketable securities:

Equity securities	Equity securities	$	2	$	—	$	—	$	2	Equity securities	$	6	$	—	$	—	$	6

Total trading marketable securities	Total trading marketable securities	2		—		—		2		Total trading marketable securities	6		—		—		6

Current available-for-sale securities:	Current available-for-sale securities:									Current available-for-sale securities:
U.S. government and agency debt securities	U.S. government and agency debt securities	203		—		(4)		199		U.S. government and agency debt securities	761		2		(4)		759
Mortgage and asset-backed debt securities	Mortgage and asset-backed debt securities	6		—		—		6		Mortgage and asset-backed debt securities	9		—		—		9
Corporate debt securities	Corporate debt securities	125		—		(3)		122		Corporate debt securities	2,279		3		(6)		2,276
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	3		—		—		3

Non-U.S. government debt securities	Non-U.S. government debt securities	3		—		—		3		Non-U.S. government debt securities	155		—		—		155

Total available-for-sale marketable securities	Total available-for-sale marketable securities	342		—		(7)		335		Total available-for-sale marketable securities	3,207		5		(10)		3,202

Total current marketable securities	Total current marketable securities	$	344	$	—	$	(7)	$	337	Total current marketable securities	$	3,213	$	5	$	(10)	$	3,208

		Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value			Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
December 31, 2021:
December 31, 2022:										December 31, 2022:
Current trading marketable securities:	Current trading marketable securities:									Current trading marketable securities:

Equity securities	Equity securities	$	2	$	—	$	—	$	2	Equity securities	$	2	$	—	$	—	$	2

Total trading marketable securities	Total trading marketable securities	2		—		—		2		Total trading marketable securities	2		—		—		2

Current available-for-sale securities:	Current available-for-sale securities:									Current available-for-sale securities:
U.S. government and agency debt securities	U.S. government and agency debt securities	199		2		(1)		200		U.S. government and agency debt securities	355		—		(8)		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	1,472		—		(6)		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

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

Total available-for-sale marketable securities	Total available-for-sale marketable securities	335		2		(1)		336		Total available-for-sale marketable securities	2,005		—		(14)		1,991

Total current marketable securities	Total current marketable securities	$	337	$	2	$	(1)	$	338	Total current marketable securities	$	2,007	$	—	$	(14)	$	1,993

Investment Impairments

We have concluded that no material impairment losses existed as of March 31, ~~2022.~~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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Maturity Information

The amortized cost and estimated fair value of marketable securities as of March 31, ~~2022~~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	$	34	$	34	Due in one year or less	$	1,727	$	1,726
Due after one year through three years	Due after one year through three years	307		300		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	1		1		Due after three years through five years	2		2
Due after five years	Due after five years	—		—		Due after five years	—		—
		342		335			3,207		3,202
Equity securities	Equity securities	2		2		Equity securities	6		6
		$	344	$	337		$	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 ~~$21 million~~$19 and ~~$23~~$18 million as of March 31, ~~2022~~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 related to the acquisition and disposition of certain assets of $1 million and $3 million as of March 31, 2022 and December 31, 2021, respectively. 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):~~
March 31, 2022 December 31, 2021 March 31, 2021
Cash and cash equivalents $ 12,208 $ 10,255 $ 7,731
Restricted cash — — —
Total cash, cash equivalents and restricted cash $ 12,208 $ 10,255 7,731

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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The following table presents information about our investments measured at fair value on a recurring basis as of March 31, ~~2022~~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
March 31, 2022:
March 31, 2023:										March 31, 2023:
Marketable Securities:	Marketable Securities:									Marketable Securities:
U.S. government and agency debt securities	U.S. government and agency debt securities	$	199	$	—	$	—	$	199	U.S. government and agency debt securities	$	759	$	—	$	—	$	759
Mortgage and asset-backed debt securities	Mortgage and asset-backed debt securities	—		6		—		6		Mortgage and asset-backed debt securities	—		9		—		9
Corporate debt securities	Corporate debt securities	—		122		—		122		Corporate debt securities	—		2,276		—		2,276
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	—		3		—		3
Equity securities	Equity securities	—		2		—		2		Equity securities	—		6		—		6
Non-U.S. government debt securities	Non-U.S. government debt securities	—		3		—		3		Non-U.S. government debt securities	—		155		—		155

Total marketable securities	Total marketable securities	199		138		—		337		Total marketable securities	759		2,449		—		3,208
Other non-current investments		21		—		—		21
Other non-current investments(1)										Other non-current investments(1)	—		19		—		19
Total	Total	$	220	$	138	$	—	$	358	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:
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:									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 ~~between~~into or out of Level ~~1 and Level 2~~3 during the three months ended March 31, ~~2022~~2023 or ~~2021.~~

2022.

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NOTE 6. PROPERTY, PLANT AND EQUIPMENT

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


		2022		2021			2023		2022
Vehicles	Vehicles	$	10,083	$	10,018	Vehicles	$	10,840	$	10,628
Aircraft	Aircraft	22,286		21,973		Aircraft	22,638		22,598
Land	Land	2,135		2,140		Land	2,143		2,140
Buildings	Buildings	5,865		5,802		Buildings	6,122		6,032
Building and leasehold improvements	Building and leasehold improvements	5,004		5,010		Building and leasehold improvements	5,142		5,067
Plant equipment	Plant equipment	15,715		15,650		Plant equipment	16,454		16,145
Technology equipment	Technology equipment	2,848		2,798		Technology equipment	2,445		2,411
Construction-in-progress	Construction-in-progress	1,474		1,418		Construction-in-progress	2,544		2,409
		65,410		64,809			68,328		67,430
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(31,815)		(31,334)		Less: Accumulated depreciation and amortization	(33,333)		(32,711)
Property, Plant and Equipment, Net	Property, Plant and Equipment, Net	$	33,595	$	33,475	Property, Plant and Equipment, Net	$	34,995	$	34,719

Property, plant and equipment purchased on account was ~~$511~~$626 and ~~$248~~$176 million as of March 31, ~~2022~~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. Additionally, we monitor all other property, plant and equipment categories for any indicators that the carrying value of the assets may not be recoverable. There were no material impairment charges during the three months ended March 31, 2023 or 2022. ~~We recorded impairment charges of $24 million during the three months ended March 31, 2021, due to the reevaluation of certain facility projects.~~

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NOTE 7. EMPLOYEE BENEFIT PLANS

Company-Sponsored Benefit Plans

Information about the net periodic benefit cost (income) ~~cost~~ for our company-sponsored pension and postretirement benefit plans for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 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 March 31:	Three Months Ended March 31:													Three Months Ended March 31:
Service cost	Service cost	$	506	$	553	$	8	$	7	$	18	$	19	Service cost	$	293	$	506	$	5	$	8	$	11	$	18
Interest cost	Interest cost	488		488		20		19		12		10		Interest cost	627		488		29		20		17		12
Expected return on assets	Expected return on assets	(820)		(846)		(1)		(2)		(20)		(17)		Expected return on assets	(742)		(820)		(3)		(1)		(21)		(20)

Amortization of prior service cost	Amortization of prior service cost	23		33		—		2		—		—		Amortization of prior service cost	27		23		—		—		—		—

Actuarial (gain) loss		—		(3,290)		—		—		—		—

Settlement and curtailment (gain) loss	Settlement and curtailment (gain) loss	—		—		—		—		(33)		—		Settlement and curtailment (gain) loss	—		—		—		—		—		(33)
Net periodic benefit (income) cost		$	197	$	(3,062)	$	27	$	26	$	(23)	$	12
Net periodic benefit cost (income)														Net periodic benefit cost (income)	$	205	$	197	$	31	$	27	$	7	$	(23)

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

During the 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 ~~pension~~ benefit obligations for this plan, ~~as of March 31, 2022, resulting~~which resulted in a curtailment gain of $33 million ($24 million after-tax). during the three-month period. The gain is included in Investment income and other in the ~~statements~~statement of consolidated ~~income for the quarter ended March 31, 2022.~~income.

During the first ~~three months~~quarter of ~~2022,~~2023, we contributed ~~$31~~$1.2 billion and ~~$14~~$74 million to our company-sponsored pension and U.S. postretirement medical benefit plans, respectively. We expect to contribute approximately ~~$2.0 billion~~$78 and ~~$264~~$44 million over the remainder of the year to our pension and U.S. postretirement medical benefit plans, respectively.

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 March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$828~~$819 and ~~$830~~$821 million, respectively, recorded in Other Non-Current Liabilities onin our consolidated balance sheets and $8 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022 recorded in Other current liabilities onin 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 4140 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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$849~~$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.

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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 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.

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.

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.

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. ~~On July 9, 2021, the PBGC issued interim final regulations implementing the SFA program established under the ARPA. On April 28, 2022, the~~The CSPF submitted an application tofor SFA that was approved in December 2022 and, in January 2023, the ~~PBGC for SFA. The PBGC has up to 120 days~~CSPF received $35.8 billion from the ~~date of submission to review~~PBGC.

We account for the ~~application.~~

~~The passage of the ARPA and the expected receipt of SFA by the CSPF currently 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"). This collective bargaining agreement becomes amendable September 1, ~~2023.~~2025.

We have approximately ~~1,700~~1,800 airline mechanics who are covered by a collective bargaining agreement with Teamsters Local 2727 which becomes amendable November 1, ~~2023.~~2026. In addition, approximately ~~3,300~~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

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NOTE 8. GOODWILL AND INTANGIBLE ASSETS

The following table indicates the allocation of goodwill as of March 31, ~~2022~~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 — — — —
Currency / Other — (7) (17) (24)
March 31, 2022: $ 847 $ 396 $ 2,425 $ 3,668

~~The change in~~


	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 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 was primarily~~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.

~~The following is a summary of intangible assets~~We complete our annual goodwill impairment evaluation as of ~~March 31,~~July 1st on a reporting unit basis. Our 2022 ~~and December 31, 2021 (in millions):~~
Gross Carrying
Amount Accumulated
Amortization Net Carrying
Value
March 31, 2022:
Capitalized software $ 4,950 $ (3,315) $ 1,635
Licenses 43 (18) 25
Franchise rights 118 (37) 81
Customer relationships 727 (423) 304
Trade name 67 (3) 64
Trademarks, patents and other 157 (5) 152
Amortizable intangible assets $ 6,062 $ (3,801) $ 2,261
Indefinite-lived intangible assets 204 — 204
Total Intangible Assets, Net $ 6,266 $ (3,801) $ 2,465
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 March 31, 2022, 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. Our annual impairment testing ~~of these assets~~ indicated that the fair value of ~~the trade name, which is~~goodwill associated with our ~~truckload brokerage business,~~Roadie reporting unit remained greater than its carrying value, ~~as of our July 1 testing date,~~ although this excess was less than 10 percent. The goodwill associated with our Roadie reporting unit as of March 31, 2023 was $241 million. There were no events or changes in circumstances during the first quarter of 2023 that would indicate the carrying amount of 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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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 March 31, 2023 or 2022. ~~We recorded $6 million in impairment charges for finite-lived intangible assets during the three months ended March 31, 2021.~~

1819

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NOTE 9. DEBT AND FINANCING ARRANGEMENTS

The carrying value of our outstanding debt obligations as of March 31, ~~2022~~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
Commercial paper				$	—					$	—			$	—

Fixed-rate senior notes:	Fixed-rate senior notes:															Fixed-rate senior notes:
2.450% senior notes		1,000				2022		1,002				1,010
2.350% senior notes		600				2022		600				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		498				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		996				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		994				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		368				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		400				2022		400				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	87				2031		86				89				5.500% notes	82			2031		82			79
5.125% notes	5.125% notes	596				2050		566				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	776				2023		774				791				0.375% senior notes	762			2023		761			745
1.625% senior notes	1.625% senior notes	776				2025		773				791				1.625% senior notes	762			2025		760			744
1.000% senior notes	1.000% senior notes	554				2028		551				564				1.000% senior notes	544			2028		542			531
1.500% senior notes	1.500% senior notes	554				2032		551				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	601				2024		600				585				2.125% senior notes	555			2024		553			553
Finance lease obligations	Finance lease obligations	448				2022-2062		448				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	3				2022-2025		3				5				Other debt	13			2023-2026		13			36
Total debt	Total debt	$	22,055					21,881				21,915				Total debt	$	22,377				22,188			19,662
Less: current maturities	Less: current maturities							(2,141)				(2,131)				Less: current maturities						(2,332)			(2,341)
Long-term debt	Long-term debt							$	19,740			$	19,784			Long-term debt						$	19,856		$	17,321

1920

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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 March 31, ~~2022,~~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 onin our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised.

Debt Repayments

During the 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 2.500% Senior Notes with a principal balance of $1.0 billion and our floating rate senior notes with a principal balance of $500 million matured and were repaid in full.

Debt Issuances

On 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, 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 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  $529 million. These notes bear interest at a rate equal to the compounded Secured Overnight Financing Rate ("SOFR") less 0.350% per year and 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 2two 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, ~~plus0.10%~~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 March 31, ~~2022~~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.

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 March 31, ~~2022~~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 & ~~Poors~~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 0no amounts outstanding under these facilities as of March 31, ~~2022.~~2023.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of March 31, ~~2022,~~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 March 31, ~~2022,~~2023, 10% of net tangible assets was equivalent to ~~$4.7~~$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.

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 ~~$23.3~~$21.9 and ~~$25.1~~$18.2 billion as of March 31, ~~2022~~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 ~~warehouses, office space,~~and warehouses), aircraft ~~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. The remaining lease terms vary from 1 month to 138 years.

Aircraft

In addition to the aircraft that we own, we have leases for 317 aircraft. Of these leased aircraft, 21 are classified as finance leases, 18 are classified as operating leases and the remaining 278 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, they 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 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 months ended March 31, ~~2022~~2023 and ~~2021~~2022 were as follows (in millions):


		2022		2021			2023		2022
Operating lease costs	Operating lease costs	$	183	$	175	Operating lease costs	$	207	$	183
Finance lease costs:	Finance lease costs:					Finance lease costs:
Amortization of assets	Amortization of assets	28		23		Amortization of assets	29		28
Interest on lease liabilities	Interest on lease liabilities	4		4		Interest on lease liabilities	4		4
Total finance lease costs	Total finance lease costs	32		27		Total finance lease costs	33		32
Variable lease costs	Variable lease costs	68		65		Variable lease costs	72		68
Short-term lease costs	Short-term lease costs	302		279		Short-term lease costs	277		302
Total lease costs(1)	Total lease costs(1)	$	585	$	546	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 months ended March 31, ~~2022 and 2021.~~2023 or 2022.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


		March 31, 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	$	3,481		$	3,562		Operating lease right-of-use assets	$	4,089		$	3,755

Current maturities of operating leases	Current maturities of operating leases	$	579		$	580		Current maturities of operating leases	$	668		$	621
Non-current operating leases	Non-current operating leases	2,970			3,033			Non-current operating leases	3,539			3,238
Total operating lease obligations	Total operating lease obligations	$	3,549		$	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	$	1,134		$	1,225		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	$	140		$	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	308			279			Long-term debt and finance leases	297			298
Total finance lease obligations	Total finance lease obligations	$	448		$	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	11.5			11.7			Operating leases	11.2			10.8
Finance leases	Finance leases	7.6			8.0			Finance leases	8.8			8.4

Weighted average discount rate:	Weighted average discount rate:							Weighted average discount rate:
Operating leases	Operating leases	1.95		%	1.94		%	Operating leases	2.73		%	2.32		%
Finance leases	Finance leases	2.71		%	2.79		%	Finance leases	3.28		%	3.17		%

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


		Three Months Ended March 31,					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	$	176	$	171	Operating cash flows from operating leases	$	212	$	176
Operating cash flows from finance leases	Operating cash flows from finance leases	1		1		Operating cash flows from finance leases	1		1
Financing cash flows from finance leases	Financing cash flows from finance leases	18		13		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	$	119	$	174	Operating leases	$	498	$	119
Finance leases	Finance leases	59		23		Finance leases	$	30	$	59

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


		Finance Leases		Operating Leases			Finance Leases		Operating Leases
2022		$	137	$	478
2023	2023	76		595		2023	$	73	$	576
2024	2024	52		497		2024	62		705
2025	2025	39		441		2025	48		632
2026	2026	33		395		2026	39		543
2027						2027	38		472
Thereafter	Thereafter	197		1,663		Thereafter	183		2,038
Total lease payments	Total lease payments	534		4,069		Total lease payments	443		4,966
Less: Imputed interest	Less: Imputed interest	(86)		(520)		Less: Imputed interest	(78)		(759)
Total lease obligations	Total lease obligations	448		3,549		Total lease obligations	365		4,207
Less: Current obligations	Less: Current obligations	(140)		(579)		Less: Current obligations	(68)		(668)
Long-term lease obligations	Long-term lease obligations	$	308	$	2,970	Long-term lease obligations	$	297	$	3,539

As of March 31, ~~2022,~~2023, we had ~~$347~~$771 million of additional leases which had not commenced. These leases will commence between ~~2022~~2023 and ~~2023~~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 October 2015, the Department of Justice ("DOJ") informed us of an industry-wide inquiry into the transportation of mail under the United States Postal Service International Commercial Air contracts. We cooperated with the DOJ in connection with its inquiry and, in the first quarter of 2022, resolved this matter for an immaterial amount.

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 has indicated that it is investigating potential recordkeeping violations of the Resource Conservation and Recovery Act at those facilities. We are cooperating with the EPA. An immaterial accrual with respect to this matter is included in our consolidated balance sheets. We do not believe that any loss from this matter would have a material impact on our operations or financial condition, although we are unable to predict what action, if any, might be taken in the future by the EPA as a result of this request.

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 2two 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 1one 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 March 31, ~~2022,~~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 March 31, ~~2022,~~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 months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in millions, except per share amounts):

2022 2021
Shares Dollars Shares Dollars
Class A Common Stock:
Balance at beginning of period 138 $ 2 147 $ 2
Common stock purchases — 0 — —
Stock award plans 4 0 4 —
Common stock issuances 1 0 1 —
Conversions of class A to class B common stock (3) 0 (4) —
Class A shares outstanding at end of period 140 $ 2 148 $ 2
Class B Common Stock:
Balance at beginning of period 732 $ 7 718 $ 7
Common stock purchases (1) 0 — —
Conversions of class A to class B common stock 3 0 4 —
Class B shares outstanding at end of period 734 $ 7 722 $ 7
Additional Paid-In Capital:
Balance at beginning of period $ 1,343 $ 865
Common stock purchases (260) —
Stock award plans (35) 30
Common stock issuances 183 154
Balance at end of period $ 1,231 $ 1,049
Retained Earnings:
Balance at beginning of period $ 16,179 $ 6,896
Net income attributable to controlling interests 2,662 4,792
Dividends ($1.52 and $1.02 per share) (1)
(1,406) (938)
Other (2) (2)
Balance at end of period $ 17,433 $ 10,748
Non-Controlling Interests:
Balance at beginning of period $ 16 $ 12
Change in non-controlling interest 2 —
Balance at end of period $ 18 $ 12
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $122 and $80 million as of March 31, 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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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 (the "2021 Authorization"). For the three months ended March 31, 2023 and 2022, we repurchased 0.5 and 1.2 million shares of class B common stock for $82 and $260 million, respectively, under this authorization.

•In January 2023, the Board of Directors terminated the 2021 Authorization and approved a new share repurchase authorization for $5.0 billion of class A and class B common ~~stock. During~~stock (the "2023 Authorization"). For the ~~first quarter of 2022,~~three months ended March 31, 2023, we repurchased ~~1.2~~3.6 million shares ~~of class B common stock~~ for ~~$260~~$668 million under ~~this program ($254 million in repurchases is reported on~~ the ~~statement of consolidated cash flows due to the timing of settlements).~~2023 Authorization. As of March 31, ~~2022,~~2023, we had ~~$4.2~~$4.3 billion ~~of our share~~available under this repurchase ~~authorization available.~~ authorization.

We anticipate our share repurchases will betotal approximately ~~$2.0~~$3.0 billion ~~for all of 2022.~~in 2023.

~~Share~~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.

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 months ended March 31, ~~2022~~2023 and ~~2021~~2022 was as follows (in millions):

Three Months Ended March 31: 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 $0 and $30) (40) (82)
Balance at end of period (1,202) (1,063)
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 $(2) and $0) (6) (1)
Reclassification to earnings (net of tax effect of $0 and $0) — (3)
Balance at end of period (7) 2
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 $23 and $39) 72 124
Reclassification to earnings (net of tax effect of $(9) and $(3)) (29) (10)
Balance at end of period 26 (109)
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 $1,544) 31 4,901
Reclassification to earnings (net of tax effect of $(3) and $(780)) (7) (2,475)
Balance at end of period (2,074) (3,489)
Accumulated other comprehensive income (loss) at end of period $ (3,257) $ (4,659)


Three Months Ended March 31:	2023		2022
Foreign currency translation gain (loss), net of tax:
Balance at beginning of period	$	(1,446)	$	(1,162)
Translation adjustment (net of tax effect of $(15) and $0)	115		(40)
Reclassification to earnings (net of tax effect of $0 and $0)	3		—
Balance at end of period	(1,328)		(1,202)
Unrealized gain (loss) on marketable securities, net of tax:
Balance at beginning of period	(11)		(1)
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)	2		—
Balance at end of period	(4)		(7)
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of period	167		(17)
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))	(51)		(29)
Balance at end of period	90		26
Unrecognized pension and postretirement benefit costs, net of tax:
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)	—		31
Reclassification to earnings (net of tax effect of $7 and $(3))	20		(7)
Balance at end of period	(239)		(2,074)
Accumulated other comprehensive income (loss) at end of period	$	(1,481)	$	(3,257)

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Detail of the gains (losses) reclassified from ~~AOCI~~accumulated other comprehensive income (loss) to the statements of consolidated income for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 is as follows (in millions):


		Amount Reclassified from AOCI				Affected Line Item in the Income Statement		Amount Reclassified from AOCI(1)				Affected Line Item in the Income Statement
Three Months Ended March 31:	Three Months Ended March 31:	2022		2021			Three Months Ended March 31:	2023		2022

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	$	—	$	3	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	—		3		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	(3)		(2)		Interest expense	Interest rate contracts	(1)		(3)		Interest expense
Foreign currency exchange contracts	Foreign currency exchange contracts	41		15		Revenue	Foreign currency exchange contracts	68		41		Revenue

Income tax (expense) benefit	Income tax (expense) benefit	(9)		(3)		Income tax expense	Income tax (expense) benefit	(16)		(9)		Income tax expense
Impact on net income	Impact on net income	29		10		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	(23)		(35)		Investment income and other	Prior service costs	(27)		(23)		Investment income and other

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	(3)		(780)		Income tax expense	Income tax (expense) benefit	7		(3)		Income tax expense
Impact on net income	Impact on net income	7		2,475		Net income	Impact on net income	(20)		7		Net income

Total amount reclassified for the period	Total amount reclassified for the period	$	36	$	2,488	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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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 months ended March 31, ~~2022~~2023 and ~~2021~~2022 was as follows (in millions):


		2022			2021				2023			2022
Three Months Ended March 31:	Three Months Ended March 31:	Shares	Dollars		Shares	Dollars		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		—			—		Reinvested dividends		—			—
Benefit payments	Benefit payments		(4)			(5)		Benefit payments		(4)			(4)
Balance at end of period	Balance at end of period		$	12		$	15	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	—	—		—	—		Reinvested dividends	—	—		—	—
Benefit payments	Benefit payments	—	4		—	5		Benefit payments	—	4		—	4
Balance at end of period	Balance at end of period	—	$	(12)	—	$	(15)	Balance at end of period	—	$	(9)	—	$	(12)

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. SEGMENT INFORMATION

We have 2two 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.~~industry. Other businesses within this segment include The UPS Store, UPS Capital, Roadie, and ~~Roadie. UPS Freight was included within this segment until its divestiture in the second quarter of 2021.~~Delivery Solutions.

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 first quarter.

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


		Three Months Ended March 31,			Three Months Ended March 31,
			2022			2021			2023		2022
Revenue:	Revenue:							Revenue:
U.S. Domestic Package	U.S. Domestic Package		$	15,124		$	14,010	U.S. Domestic Package	$	14,987	$	15,124
International Package	International Package		4,876			4,607		International Package	4,543		4,876
Supply Chain Solutions	Supply Chain Solutions		4,378			4,291		Supply Chain Solutions	3,395		4,378
Consolidated revenue	Consolidated revenue		$	24,378		$	22,908	Consolidated revenue	$	22,925	$	24,378
Operating Profit:	Operating Profit:							Operating Profit:
U.S. Domestic Package	U.S. Domestic Package		$	1,662		$	1,359	U.S. Domestic Package	$	1,466	$	1,662
International Package	International Package		1,116			1,085		International Package	828		1,116
Supply Chain Solutions	Supply Chain Solutions		473			321		Supply Chain Solutions	247		473
Consolidated operating profit	Consolidated operating profit		$	3,251		$	2,765	Consolidated operating profit	$	2,541	$	3,251

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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~~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 months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in millions, except per share amounts):


		Three Months Ended March 31,						Three Months Ended March 31,
			2022		2021				2023		2022
Numerator:	Numerator:
Net income attributable to common shareowners	Net income attributable to common shareowners		$	2,662	$	4,792	Net income attributable to common shareowners		$	1,895	$	2,662
Denominator:	Denominator:						Denominator:
Weighted average shares	Weighted average shares		871		867		Weighted average shares		858		871

Vested portion of restricted units	Vested portion of restricted units		3		5		Vested portion of restricted units		4		3
Denominator for basic earnings per share	Denominator for basic earnings per share		874		872		Denominator for basic earnings per share		862		874
Effect of dilutive securities:	Effect of dilutive securities:						Effect of dilutive securities:
Restricted units	Restricted units		4		3		Restricted units		2		4
Stock options	Stock options		1		1		Stock options		1		1
Denominator for diluted earnings per share	Denominator for diluted earnings per share		879		876		Denominator for diluted earnings per share		865		879
Basic earnings per share	Basic earnings per share		$	3.05	$	5.50	Basic earnings per share		$	2.20	$	3.05
Diluted earnings per share	Diluted earnings per share		$	3.03	$	5.47	Diluted earnings per share		$	2.19	$	3.03

Diluted earnings per share for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 excluded the effect of ~~0.1~~0.2 and ~~0.2~~0.1 million shares of common stock ~~respectively,~~ that may be issued upon the exercise of employee stock options because such effect would ~~have been~~be antidilutive.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 ~~March 31, 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.~~each counterparty.

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, we held cash collateral of ~~$253~~$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 March 31, ~~2022, we were required to post $2 million of cash collateral with our counterparties. As of~~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.

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.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Interest Rate Risk Management

Our indebtedness under our various financing arrangements creates interest rate risk. We use a combination of derivative instruments as part of our program to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing. Interest rate swaps allow us to maintain a target range of floating-rate debt within our capital structure. The notional amount, interest payment date and maturity date of the swaps match the terms of the associated debt being hedged.

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

March 31, 2022 December 31, 2021
Currency hedges:
Euro EUR 4,215 4,257
British Pound Sterling GBP 1,394 1,402
Canadian Dollar CAD 1,672 1,633
Hong Kong Dollar HKD 4,286 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 March 31, 2022 and December 31, 2021, we had no outstanding commodity hedge positions.~~

Our fixed to floating interest rate swaps are designated as a fair value hedge of our 2.450% fixed rate notes that mature in October 2022. These instruments utilize LIBOR as the reference rate to determine the floating interest rate to be paid. As these instruments will settle before the applicable U.S. Dollar LIBOR rate ceases to be published in June 2023, we have not evaluated the application of ASC Topic 848 to these instruments.

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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 March 31, ~~2022~~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		March 31, 2022			December 31, 2021			March 31, 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		$	128		$	100		$	109		$	82	Foreign currency exchange contracts			Other current assets	Level 2		$	143		$	174		$	135		$	171
Interest rate contracts		Other current assets	Level 2		3			11			3			11

Foreign currency exchange contracts	Foreign currency exchange contracts	Other non-current assets	Level 2		148			123			114			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				$	280		$	236		$	227		$	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		March 31, 2022			December 31, 2021			March 31, 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		$	19		$	—		$	1	Foreign currency exchange contracts			Other current liabilities	Level 2		$	8		$	3		$	—		$	—

Foreign currency exchange contracts	Foreign currency exchange contracts	Other non-current liabilities	Level 2		34			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		8			10			8			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				$	61		$	62		$	8		$	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; therefore, these derivatives are classified as Level 2. ~~As of March 31, 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.~~

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 March 31, ~~2022~~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
March 31, 2022 March 31, 2022 December 31, 2021 December 31, 2021
Long-term debt and finance leases $ 1,282 $ 8 $ 1,290 $ 16

The cumulative amount of fair value hedging losses remaining for any hedged assets and liabilities for which hedge accounting has been discontinued as of March 31, 2022 is $5 million. These amounts will be recognized over the next 8 years.

~~Table of Contents~~

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~


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 months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in millions):

Three Months Ended March 31,

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 $ — $ 8 $ — $ — $ 6 $ —
Derivatives designated as hedging instruments — (8) — — (6) —
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income — (3) — — (2) —
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income 41 — — 15 — —
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 $ 41 $ (3) $ — $ 15 $ (2) $ —


	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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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 for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 for those derivatives designated as cash flow hedges (in millions):

Three Months Ended March 31:
Derivative Instruments in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives
2022 2021
Interest rate contracts $ 3 $ 3
Foreign currency exchange contracts 92 160
Total $ 95 $ 163










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 March 31, ~~2022,~~2023, there were ~~$99~~$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 March 31, ~~2023.~~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.

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


Three Months Ended March 31:

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		$	46	$	124
Foreign currency denominated debt						Foreign currency denominated debt	$	(73)	$	46
Total	Total	$	46	$	124	Total	$	(73)	$	46

Income Statement Recognition of Non-Designated Derivative Instruments

~~Table~~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 ~~Contents~~derivative instruments appear in the statement of consolidated cash flows within the same categories as the cash flows of the hedged item.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Additionally, we maintain~~We may periodically terminate interest rate swaps and foreign currency exchange forward contracts ~~that are not designated as hedges. The~~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 valuation.~~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 ~~these~~interest rate swaps and foreign currency ~~exchange~~ forward contracts not designated as hedges for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in millions): were as follows:


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

Foreign currency exchange contracts	Foreign currency exchange contracts		Investment income and other			$	(28)			$	(6)		Foreign currency exchange contracts		Investment income and other			$	4			$	(28)

Total	Total			$	(28)			$	(6)	Total						$	4			$	(28)

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. INCOME TAXES

Our effective tax rate for the three months ended March 31, 2023 and 2022 was approximately 24.9% and 21.5% ~~compared with 22.8%~~, respectively. The year-over-year increase in ~~the same period of 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 2.4% for the quarter compared to 1.1% in the same period of 2021. Other items that impacted our effective tax rate in the first quarter of 2022 compared to 2021 included~~ unfavorable 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 ~~interest~~ deductions and the allocation of income and expense between tax jurisdictions. These changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of ~~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 quarter 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 quarter 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 $55 million in the first quarter of 2022 compared to $118 million in the same period of 2021. As a result, we recorded an income tax benefit of $12 million in the first quarter compared to $28 million in the same period of 2021. 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. The 2021 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.

We recorded a pre-tax valuation allowance against assets held for sale of $66 million during the first quarter of 2021, resulting in an additional income tax benefit of $16 million. This income tax benefit 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 quarter 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 quarter of 2022 compared to the first quarter of 2021.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. TRANSFORMATION STRATEGY COSTS

~~In 2018, we launched a multi-year,~~We are undertaking an enterprise-wide transformation ~~strategy impacting~~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 months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in millions):
Three Months Ended
March 31,
2022 2021
Transformation Strategy Costs:
Compensation and benefits $ 33 $ 76
Total other expenses 22 42
Total Transformation Strategy Costs $ 55 $ 118
Income Tax Benefit from Transformation Strategy Costs (12) (28)
After Tax Transformation Strategy Costs $ 43 $ 90


	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

~~During the first quarter, we continued executing~~We continue to execute ourCustomer First, People Led, Innovation Driven strategy by investing to ~~realize further improvements in revenue quality, reductions~~improve the customer experience and drive growth in our ~~cost~~targeted customer segments, including small- and medium-sized businesses ("SMBs") and healthcare. We seek to ~~serve and growth in operating profit. Within~~provide industry-leading service to our customers by combining our digital capabilities with our global integrated network.

During the ~~Customer First~~ ~~component~~quarter, we continued the expansion of our ~~strategy, we are continuing to leverage technology~~Digital Access Program and other technology-driven initiatives to make it faster and easier for ~~small- and medium-sized businesses (SMBs)~~SMBs to ~~ship~~do business with ~~us, including first-quarter expansion~~us. We expanded our global footprint of dedicated healthcare facilities, accelerated deployment of our ~~Digital Access Program within the U.S.~~smart package-smart facility technology and ~~internationally. Through our~~ ~~People Led~~ ~~strategic focus, we also realigned our executive leadership team~~continued to pursue initiatives to drive further productivity improvements and better serve our customers. ~~Under~~ ~~Innovation Driven, we continued to deploy additional automation to increase productivity,~~

Macroeconomic headwinds, including ~~the introduction of smart facility technology. We also transitioned the two data centers which drive our~~ global ~~integrated network to renewable energy sources during the quarter.~~

~~During the first quarter, several factors contributed~~inflation and a decline in U.S. manufacturing production, led to a challenging operating environment ~~which is expected to persist, including global inflation, a surge~~ in energy prices and upstream supply chain disruption. Additionally, the COVID-19 pandemic resulted in, and is expected to continue to result in, disruptions to our business, particularly in parts of Asia. In the first quarter ~~this drove a reduction~~of 2023. In the U.S., consumer spending continued to shift towards services and discretionary spending slowed. Internationally, exports out of Asia remained weak and inflationary pressures persisted in ~~the number of flights we operated within the region relative to our expectations and~~Europe. These factors negatively impacted demand for our ~~services. Following Russia's invasion of Ukraine~~services, resulting in ~~February, we suspended all commercial operations~~volume declines in our global small package operations. We anticipate these ~~countries, as well as in Belarus. Although these operations represent less than 1% of our consolidated revenues and the direct financial impact is not material to our business, we~~factors will continue to ~~monitor the evolving~~ impact ~~of the conflict on the broader economy. As a result of the aforementioned factors, we expect to continue to face certain pressures~~us throughout the remainder of ~~2022.~~2023. We may also be negatively impacted by the ongoing negotiation of our labor contract with the Teamsters. For additional information on the status of these negotiations, see note 7 to the accompanying unaudited financial statements.

~~In our U.S. Domestic Package reportable segment, volume decreased~~Notwithstanding the challenging macroeconomic environment in the first quarter, ~~driven by declines~~we managed our network with agility, focused on productivity, controlled cost and generated operating profit that was in ~~residential volume. These declines were driven by a shift towards spending on services~~line with our expectations. Additionally, we returned cash to shareowners through dividends and ~~a return~~share repurchases, and continued to ~~in-store shopping, as well as the impact of fiscal stimulus in the first quarter of 2021 that drove a surge in online consumer spending that did not repeat this year. Successful execution of~~make long-term investments to support our ~~strategy resulted in growth in revenue per piece, which more than offset the impact of volume declines for the quarter.~~strategy.

~~Our~~We have two reportable segments: U.S. Domestic Package and International Package, ~~reportable segment was also impacted by the external factors discussed above,~~which are together referred to as ~~well~~our global small package operations. Our remaining businesses are reported as lower e-commerce spending relative to the first quarter of 2021 when COVID-19 restrictions were in place in a number of countries, which resulted in a decrease in volume. This was offset by revenue per piece growth, driven by our continued focus on revenue quality as well as pricing changes which included fuel surcharge impacts. The growth in revenue per piece resulted in an increase in operating profit for the quarter.

~~Within~~ Supply Chain Solutions, revenue growth was impacted by the second quarter 2021 divestiture of UPS Freight. Operating profit and operating margin increased, as global market demand continued to outpace supply in our international air and ocean freight forwarding businesses. Our truckload brokerage business benefited from revenue quality initiatives and growth remained strong in our healthcare operations.Solutions.

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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 March 31, Change
2022 2021 $ %
Revenue (in millions) $ 24,378 $ 22,908 $ 1,470 6.4 %
Operating Expenses (in millions) 21,127 20,143 984 4.9 %
Operating Profit (in millions) $ 3,251 $ 2,765 $ 486 17.6 %
Operating Margin 13.3 % 12.1 %
Net Income (in millions) $ 2,662 $ 4,792 $ (2,130) (44.4) %
Basic Earnings Per Share $ 3.05 $ 5.50 $ (2.45) (44.5) %
Diluted Earnings Per Share $ 3.03 $ 5.47 $ (2.44) (44.6) %
Operating Days 64 63
Average Daily Package Volume (in thousands) 23,278 24,145 (3.6) %
Average Revenue Per Piece $ 13.26 $ 12.12 $ 1.14 9.4 %

•~~Revenue increased in all segments, driven by strong growth in small package revenue per piece and the impact of an additional operating day.~~



	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, with declines in both commercial and residential shipments, primarily as a result of the ~~first quarter, primarily due to business-to-consumer volume declines.~~macroeconomic conditions described herein.

•Operating expenses ~~increased,~~decreased, driven by ~~fuel and third-party~~a reduction in purchased transportation ~~costs.~~in Supply Chain Solutions.

•Operating profit ~~increased in all segments~~ and operating margin ~~increased in U.S. Domestic and Supply Chain Solutions.~~decreased, as revenue declines were greater than operating expense reductions.

•We reported net income of ~~$2.7~~$1.9 billion and diluted earnings per share of ~~$3.03 for the quarter.~~$2.19. Adjusted diluted earnings per share was ~~$3.05 for the quarter after adjusting for~~$2.20, which includes the after-tax impacts ~~of:~~

◦of transformation strategy costs and goodwill impairment charges of ~~$43~~$9 million, or ~~$0.05 per diluted share; partially offset by~~

◦~~a defined benefit plan curtailment gain of $24 million or $0.03~~$0.01 per diluted share.

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

~~The~~In our International Package segment, ~~experienced~~ revenue declines were driven by lower volume, unfavorable fluctuations in foreign currency exchange rates and declines in demand-related surcharges. These declines were partially offset by the impact of revenue ~~per piece growth, primarily due to~~quality initiatives and increased fuel ~~surcharges and pricing structure changes, coupled with favorable shifts in customer and product mix.~~revenue. Expense ~~increases~~decreases were primarily driven by favorable currency impacts and the impact of volume declines, partially offset by higher ~~jet~~ fuel prices.

In Supply Chain Solutions, revenue ~~growth was~~decreases were driven by volume and market rate declines in Forwarding ~~and Logistics. Forwarding revenue~~that were slightly offset by growth ~~was~~in Logistics, including the impact of the Bomi Group acquisition that occurred in the fourth quarter of 2022. Expenses decreased, driven by ~~market price increases, while Logistics continued to experience strong growth from healthcare operations. Expense decreased slightly in the first quarter, as higher~~lower transportation costs in ~~Forwarding and Logistics~~Forwarding. These were partially offset by ~~a reduction~~increases in ~~operating expenses due to the second quarter 2021 divestiture of UPS Freight.~~transportation and other costs within Logistics.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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 measures reported by other companies.

Adjusted amounts reflect the following (in millions):


		Three Months Ended March 31,						Three Months Ended March 31,
Non-GAAP Adjustments	Non-GAAP Adjustments		2022		2021		Non-GAAP Adjustments		2023		2022
Operating Expenses:	Operating Expenses:						Operating Expenses:
Transformation Strategy Costs	Transformation Strategy Costs		$	55	$	118	Transformation Strategy Costs		$	3	$	55
Asset Impairment Charges and Divestitures			—		66
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		$	55	$	184	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		$	22	$	(3,106)	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		$	(12)	$	(28)	Transformation Strategy Costs		$	—	$	(12)
Asset Impairment Charges and Divestitures			—		(16)
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		$	(3)	$	744	Total Adjustments to Income Tax (Benefit) Expense		$	(2)	$	(3)

Total Adjustments to Net Income	Total Adjustments to Net Income		$	19	$	(2,362)	Total Adjustments to Net Income		$	9	$	19

Transformation Charges, and ~~Other Charges,~~ Goodwill, ~~and~~ Asset Impairment ~~Charges,~~ and ~~Divestitures~~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, ~~and~~ asset impairment and divestiture charges. We believe excluding the impact of these charges better enables users of our financial statements to view and ~~divestitures.~~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 ~~asset~~goodwill 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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~Changes in~~ Foreign Currency Exchange ~~Rates~~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~~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~~Dollar revenue, revenue per piece and operating profit and the derived current period U.S. ~~dollar~~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 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).

~~These gains are included in~~ ~~Investment income and other~~ in the ~~statements of consolidated income.~~ 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 ~~for~~in the first quarter of ~~2022.~~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 required to make assumptions relating to our overall business and operating strategy, and the regulatory and market environment.

Our 2022 annual impairment testing of goodwill indicated that the fair value of our Roadie reporting unit remained greater than its carrying value, although this excess was less than 10 percent. The carrying value of goodwill associated with our Roadie reporting unit is $241 million. There were no events or changes in circumstances during the first quarter of 2023 that would indicate the carrying value of Roadie goodwill may be impaired as of the date of this report.

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 in 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 March 31,	Change						Three Months Ended March 31,						Change
			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		1,945			2,012						(3.3)	%	Next Day Air	1,737			1,945					(10.7)	%
Deferred	Deferred		1,509			1,513						(0.3)	%	Deferred	1,139			1,509					(24.5)	%
Ground	Ground		16,287			16,827						(3.2)	%	Ground	15,796			16,287					(3.0)	%
Total Average Daily Package Volume	Total Average Daily Package Volume		19,741			20,352						(3.0)	%	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		$	20.84		$	18.39			$	2.45	13.3	%	Next Day Air	$	22.14		$	20.84		$	1.30	6.2	%
Deferred	Deferred		14.70			13.22				1.48		11.2	%	Deferred	16.38			14.70			1.68		11.4	%
Ground	Ground		10.66			9.83				0.83		8.4	%	Ground	11.21			10.66			0.55		5.2	%
Total Average Revenue Per Piece	Total Average Revenue Per Piece		$	11.97		$	10.93			$	1.04	9.5	%	Total Average Revenue Per Piece	$	12.54		$	11.97		$	0.57	4.8	%
Operating Days in Period	Operating Days in Period		64			63								Operating Days in Period	64			64
Revenue (in millions):	Revenue (in millions):													Revenue (in millions):
Next Day Air	Next Day Air		$	2,594		$	2,331			$	263	11.3	%	Next Day Air	$	2,461		$	2,594		$	(133)	(5.1)	%
Deferred	Deferred		1,420			1,260				160		12.7	%	Deferred	1,194			1,420			(226)		(15.9)	%
Ground	Ground		11,110			10,419				691		6.6	%	Ground	11,332			11,110			222		2.0	%
Total Revenue	Total Revenue		$	15,124		$	14,010			$	1,114	8.0	%	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		$	13,462		$	12,651			$	811	6.4	%	Operating Expenses	$	13,521		$	13,462		$	59	0.4	%
Transformation and Other Charges			(43)			(104)				61		(58.7)	%
Transformation Strategy Costs														Transformation Strategy Costs	(22)			(43)			21		(48.8)	%
Adjusted Operating Expense	Adjusted Operating Expense		$	13,419		$	12,547			$	872	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		$	1,662		$	1,359			$	303	22.3	%	Operating Profit	$	1,466		$	1,662		$	(196)	(11.8)	%
Adjusted Operating Profit	Adjusted Operating Profit		$	1,705		$	1,463			$	242	16.5	%	Adjusted Operating Profit	$	1,488		$	1,705		$	(217)	(12.7)	%
Operating Margin	Operating Margin		11.0		%	9.7		%						Operating Margin	9.8		%	11.0		%
Adjusted Operating Margin	Adjusted Operating Margin		11.3		%	10.4		%						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:
First quarter 2022 vs. 2021 (1.5) % 5.2 % 4.3 % 8.0 %

~~Overall revenue also benefited from one additional operating day in the first quarter 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 both residential and commercial shipments as a 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 average daily volume throughout the remainder of the year.

Business-to-consumer shipments declined 5.5% in the first quarter, driven by ~~a 7.4% decline in residential shipments. The decline in residential volume was attributable to rising inflation depressing consumer demand, a~~the continued shift in consumer spending ~~away from e-commerce~~ towards services and ~~in-store shopping and the impact of fiscal stimulus~~a reduction in ~~the first quarter of 2021 that drove a surge~~discretionary spending. We experienced smaller declines in ~~online consumer spending in that period. Business-to-consumer shipments represented approximately 57.4% of average daily~~residential volume ~~for the quarter compared to 60.1% in 2021.~~

~~Business-to-business shipments increased 3.6% in the 2022 period, with growth primarily in~~from SMBs than from our ~~Ground commercial product~~large customers, which was ~~driven by growth~~partially due to additional volume generated through our Digital Access Program. Volume from ~~SMB customers as we continued to execute on~~ our ~~strategy. Overall, we anticipate that average daily volume growth in the first half of 2022 will be negative and then improve in the second half of the year.~~

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~~Within our Air products, we experienced shifts in~~largest customer ~~mix that resulted in overall declines in average daily volume. Deferred average daily volume remained relatively flat, while our Next Day Air average daily volume~~ declined as we continued to execute within ~~our~~ ~~Better Not Bigger~~ ~~strategic framework.~~

Within our Ground products, SurePost average daily volume decreased 10.5%, driven by a reduction in shipments from a number of large customers while Ground residential experienced volume declines in all customer segments. These declines were driven by lower consumer spending as discussed above. Ground commercial volume increased 4.1%, with growth from both large customers and SMBs.

~~Rates and Product Mix~~

Revenue per piece in both our Air and Ground products increased, driven by increases in base rates and fuel surcharges, as well as favorable changes in customer and product mix. Rates for Air and Ground products increased an average of 5.9% in December 2021, and our SurePost rates also increased at that time. In our Next Day Air and Deferred products, overall revenue per piece growth was slightly impacted by a reduction in average billable weight per piece.

~~Through continued execution of our strategy, we anticipate that revenue per piece will continue to grow faster than volume throughout the remainder of 2022.~~

~~Fuel Surcharges~~

We apply a fuel surcharge on our domestic air and ground services that is adjusted weekly. The air fuel surcharge is based on the U.S. Department of Energy's ("DOE") Gulf Coast spot price for a gallon of kerosene-type fuel, while the ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel price. Based on published rates, the average fuel surcharge rates for domestic Air and Ground products were as follows:
Three Months Ended March 31, % Point Change
2022 2021 2022 vs 2021
Next Day Air / Deferred 14.4 % 5.9 % 8.5 %
Ground 12.7 % 7.2 % 5.5 %

While fluctuations in fuel surcharges can be significant from period to period, fuel surcharges are only one of the many individual components of our market pricing strategy that impact our overall revenue and yield. Additional components include the mix of services sold, the base price and additional charges for these services and the pricing discounts offered.

Total domestic fuel surcharge revenue increased $601 million, driven by increases in fuel surcharges and pricing structure changes. We expect surcharges to remain elevated throughout the remainder of 2022.agreed-upon contract terms.

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Business-to-business shipments declined 5.4%, primarily as a result of declines across multiple industry sectors that are sensitive to the macroeconomic factors discussed above. We experienced an increase in returns volume in the first quarter.

Within our Air products, average daily volume decreased across all customer segments. These decreases were driven by customers making cost trade offs and taking advantage of enhanced speed in our ground network. Additionally, continued execution of the agreed-upon contract terms with our largest customer also contributed to the overall decline in air volume.

Ground residential and Ground commercial average daily volume decreases of 2.1% and 4.2%, respectively, were primarily attributable to declines from a number of our large customers due to the economic factors discussed above. Within Ground residential, we experienced growth from SMBs. SurePost volume from our larger customers increased as a result of the shift in volume from our Air products discussed above.

Rates and Product Mix

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

We anticipate moderate revenue per piece growth in 2023 which is expected to somewhat offset the expected decline in volume as we continue to 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.

Fuel surcharge revenue increased $206 million, driven by increases in price per gallon and increases in fuel 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 ~~excluding the year-over-year impact of transformation and other charges, increased, partly due to the impact of one additional operating day. Pickup~~increased. Our pickup and delivery costs and other indirect operating costs increased ~~$455~~$39 and $115 million, ~~and the~~respectively. These increases were partially offset by cost reductions of ~~operating~~$50 million in our integrated air and ground network ~~increased $279 million. Package~~and a $24 million decrease in package sorting costs ~~increased $80 million and other indirect~~in the first quarter of 2023. The overall increase in operating ~~costs increased $58 million. These increases were impacted by:~~expenses was primarily due to:

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

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

•~~Higher~~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, ~~due to contractual~~primarily resulting from incentive compensation program design changes. Contractual rate increases and cost of living ~~and market-rate~~ adjustments for our union ~~workforce. These increases~~workforce were ~~partially~~somewhat offset by ~~lower volumes, leading to~~ a ~~decrease~~reduction in ~~average daily~~direct union labor hours. ~~Management payroll also increased,~~

•Lower purchased transportation costs, primarily due to ~~wage rate adjustments~~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 ~~our part-time workforce~~the quarter mostly offset increases in jet fuel, diesel and ~~higher incentive compensation.~~gasoline prices. We expect fuel expense to continue to decline throughout the remainder of 2023.

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•~~Increases in workers' compensation and automobile liability expense were primarily driven by adverse claims development.~~

•
~~Reallocation of Ground with Freight Pricing product expense following the second quarter 2021 divestiture of UPS Freight, which resulted in $69 million of increased segment operating expenses.~~

Total cost per piece increased 6.1%, and adjusted cost per piece ~~excluding~~increased 6.4% in the ~~year-over-year impact of transformation and other charges, increased 8.0% and 8.5%, respectively.~~quarter, for the reasons described above. We anticipate that ~~overall costs and~~the cost per piece growth rate will ~~continue to increase throughout~~decline through the remainder of ~~2022~~2023 as ~~a result of market factors, including expected increases in the cost of labor~~we manage our costs, adjust our operating network, and ~~inflation,~~ as ~~well as upstream supply chain disruptions.~~efficiency initiatives are realized.

Operating Profit and Margin

As a result of the factors described above, operating profit ~~increased $303~~decreased $196 million in the first quarter, with operating margin ~~increasing 130~~decreasing 120 basis points to ~~11.0%~~9.8%. ~~Excluding the year-over-year impact of transformation and other charges,~~Adjusted operating profit decreased $217 million, with adjusted operating ~~profit increased $242 million, with adjusting operating~~ margin ~~increasing 90~~decreasing 140 basis points to ~~11.3%~~9.9%.

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International Package
Three Months Ended March 31, Change
2022 2021 $ %
Average Daily Package Volume (in thousands):
Domestic 1,806 2,010 (10.1) %
Export 1,731 1,783 (2.9) %
Total Average Daily Package Volume 3,537 3,793 (6.7) %
Average Revenue Per Piece:
Domestic $ 7.36 $ 7.33 $ 0.03 0.4 %
Export 34.10 31.10 3.00 9.6 %
Total Average Revenue Per Piece $ 20.45 $ 18.50 $ 1.95 10.5 %
Operating Days in Period 64 63
Revenue (in millions):
Domestic $ 851 $ 928 $ (77) (8.3) %
Export 3,778 3,493 285 8.2 %
Cargo and Other 247 186 61 32.8 %
Total Revenue $ 4,876 $ 4,607 $ 269 5.8 %
Operating Expenses (in millions):
Operating Expenses $ 3,760 $ 3,522 $ 238 6.8 %
Transformation and Other Charges (4) (6) 2 (33.3) %
Adjusted Operating Expenses $ 3,756 $ 3,516 $ 240 6.8 %
Operating Profit (in millions) and Operating Margin:
Operating Profit $ 1,116 $ 1,085 $ 31 2.9 %
Adjusted Operating Profit $ 1,120 $ 1,091 $ 29 2.7 %
Operating Margin 22.9 % 23.6 %
Adjusted Operating Margin 23.0 % 23.7 %
Currency Benefit / (Cost) – (in millions)*:
Revenue $ (143)
Operating Expenses 115
Operating Profit $ (28)
* Net of currency hedging; amount represents the change in currency translation compared to the prior year.


	Three Months Ended March 31,	Change
		2023			2022			$		%
Average Daily Package Volume (in thousands):
Domestic		1,635			1,806					(9.5)	%
Export		1,682			1,731					(2.8)	%
Total Average Daily Package Volume		3,317			3,537					(6.2)	%
Average Revenue Per Piece:
Domestic		$	7.59		$	7.36		$	0.23	3.1	%
Export		33.00			34.10			(1.10)		(3.2)	%
Total Average Revenue Per Piece		$	20.47		$	20.45		$	0.02	0.1	%
Operating Days in Period		64			64
Revenue (in millions):
Domestic		$	794		$	851		$	(57)	(6.7)	%
Export		3,552			3,778			(226)		(6.0)	%
Cargo and Other		197			247			(50)		(20.2)	%
Total Revenue		$	4,543		$	4,876		$	(333)	(6.8)	%
Operating Expenses (in millions):
Operating Expenses		$	3,715		$	3,760		$	(45)	(1.2)	%
Transformation Strategy Costs		22			(4)			26		N/A
Adjusted Operating Expenses		$	3,737		$	3,756		$	(19)	(0.5)	%
Operating Profit (in millions) and Operating Margin:
Operating Profit		$	828		$	1,116		$	(288)	(25.8)	%
Adjusted Operating Profit		$	806		$	1,120		$	(314)	(28.0)	%
Operating Margin		18.2		%	22.9		%
Adjusted Operating Margin		17.7		%	23.0		%
Currency Benefit / (Cost) – (in millions)*:
Revenue								$	(161)
Operating Expenses								110
Operating Profit								$	(51)
* 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			Volume		Rates / Product Mix		Fuel Surcharge		Currency		Total Revenue Change
Revenue Change Drivers:	Revenue Change Drivers:											Revenue Change Drivers:
First quarter 2022 vs. 2021		(5.0)	%	7.8	%	6.1	%	(3.1)	%	5.8	%
First quarter 2023 vs. 2022												First quarter 2023 vs. 2022	(6.2)	%	1.5	%	1.2	%	(3.3)	%	(6.8)	%

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Volume

~~In the first quarter, average~~Average daily volume decreased ~~for~~in both domestic and export products.Volume ~~declined~~ from both large customers and SMBs declined, primarily in the retail and technology sectors. Business-to-consumer volume decreased ~~20.7%. This decrease was attributable to~~7.7% as challenging global economic conditions, including rising interest rates, high inflation and geopolitical uncertainty, ~~and COVID-19 disruptions~~impacted consumer demand. These factors also impacted business-to-business volume, which decreased 5.6%. We anticipate declines in ~~Asia, as well as a reduction in consumer e-commerce spending relative to the first quarter of 2021 when COVID-19 restrictions were in place in a number of countries. Business-to-business~~average daily volume ~~increased 0.5% in the first quarter. We expect volume growth in the first half of the year to be negative, with improvement occurring in~~will moderate, but will persist into the second half of ~~the year.~~2023.

Export volume decreased in the ~~first~~ quarter, driven by ~~impacts from Europe~~declines in intra-Europe, Asia and ~~Asia. European~~U.S. trade lanes. Declines on the intra-Europe and U.S. export trade lanes were due to lower consumer spending as a result of the challenging macroeconomic conditions. Asia volume declines were highest on ~~intra-Europe trade lanes, driven by overall economic conditions. These declines were partially offset by growth on~~ the ~~Europe~~Asia to U.S. trade lane ~~driven by the United Kingdom~~as a result of rising inventory levels and Turkey. The decline in Asia export volume was primarily driven by COVID-19 disruptions, which resulted in fewer flights being operated during the first quarter and reduced business activity in certain areas within China during March.softening U.S. consumer demand.

Our premium ~~Express~~ products ~~experienced a slight~~saw volume decline 6.7%, primarily in ~~the quarter, primarily due to disruptions to~~ our ~~business~~Worldwide Express Saver product. Volume in ~~Asia related to COVID-19 shutdowns. Volume for~~ our non-premium ~~export~~ products decreased ~~2.3%~~1.1%, driven by ~~reductions~~declines in ~~our Worldwide Expedited~~Transborder Standard and Worldwide ~~Standard products.~~Expedited. The decline in our Worldwide ~~Standard product~~products was ~~due~~largely attributable to ~~the year-over-year impact of Brexit as customers continued to adjust their supply chains,~~softening import demand from U.S. consumers, while the decline in our ~~Worldwide Expedited product resulted from shifts in customer preferences.~~Transborder products was driven by the economic factors outlined above.

Domestic volume also declined in the first quarter, ~~particularly in~~primarily within Europe and Canada, ~~and the United Kingdom, due to~~as a ~~decrease in residential volume driven by the reduction in e-commerce from the comparative period, as~~result of economic conditions discussed above.

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.~~

Total revenue per piece increased ~~10.5% in~~slightly for the quarter, primarily due to ~~fuel surcharges and pricing structure changes as well as~~ favorable shifts in customer and product mix, fuel surcharges and base rate increases. These increases were 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. ~~Demand-related surcharges on certain export volume also contributed to the increase.~~ This ~~increase~~ was partially offset by unfavorable currency movements. Excluding the impact of currency, ~~revenue per piece increased 13.9%. We expect our overall revenue per piece to increase for 2022 as a result of our continuing revenue quality initiatives.~~

~~Export revenue per piece increased 9.6% in the quarter also for the reasons described above. Excluding the impact of currency, export revenue per piece increased 12.2%.~~

Domestic revenue per piece was also favorably impacted by the factors described above. However, this was offset by unfavorable currency movements, which resulted in domestic revenue per piece remaining relatively flat for the quarter. Excluding the impact of currency, domestic revenue per piece increased ~~6.8%~~10.2%.

Fuel Surcharges

The fuel surcharge ~~for~~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.

While fluctuations can be significant from period to period, fuel surcharges represent one of the many individual components of our market pricing strategy that impact our overall revenue and yield. Additional components include the mix of services sold, the base price, extra service charges and any pricing discounts offered. Total international fuel surcharge revenue increased ~~by $259~~$28 million in the ~~first~~ quarter, ~~driven by significant~~primarily due to increases in ~~fuel surcharge indices which~~price per gallon. These increases were slightly offset by unfavorable currency movements and volume declines. WeBased on the current commodity market outlook, we expect fuel ~~surcharges to continue to remain elevated throughout~~surcharge revenue will decline during the remainder of ~~2022.~~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 the first quarter. The costs of operating our integrated international air and ground network increased $295 million, primarily due to higher fuel prices, which we expect to persist through the remainder of 2022.

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

Pickup and delivery costs decreased $38 million, primarily due to volume declines in the first quarter discussed above. Other indirect costs also decreased year over year, while package sorting costs remained relatively flat.

~~Operating~~ Profit and Margin

As a result of the factors described above, operating profit ~~increased $31~~decreased $288 million for the first quarter, with operating margin decreasing 70470 basis points to ~~22.9%~~18.2%. ~~Excluding the year-over-year impact of transformation and other charges, adjusted~~Adjusted operating profit ~~increased $29~~decreased $314 million in the ~~first~~ quarter, while adjusted operating margin decreased 70530 basis points to ~~23.0%~~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 have, a material impact on us.

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Supply Chain Solutions


		Three Months Ended March 31,		Change						Three Months Ended March 31,						Change
				2022			2021				$		%			2023			2022			$		%
Revenue (in millions):	Revenue (in millions):														Revenue (in millions):
Forwarding	Forwarding			$	2,589		$	2,072			$	517	25.0	%	Forwarding	$	1,514		$	2,589		$	(1,075)	(41.5)	%
Logistics	Logistics			1,251			1,104				147		13.3	%	Logistics	1,410			1,251			159		12.7	%
Freight				—			767				(767)		(100.0)	%
Other	Other			538			348				190		54.6	%	Other	471			538			(67)		(12.5)	%
Total Revenue	Total Revenue			$	4,378		$	4,291			$	87	2.0	%	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			$	3,905		$	3,970			$	(65)	(1.6)	%	Operating Expenses	$	3,148		$	3,905		$	(757)	(19.4)	%
Transformation Strategy Costs	Transformation Strategy Costs			(8)			(8)				—		—	%	Transformation Strategy Costs	(3)			(8)			5		(62.5)	%
Asset Impairment Charges and Divestitures				—			(66)				66		(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:			$	3,897		$	3,896			$	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			$	473		$	321			$	152	47.4	%	Operating Profit	$	247		$	473		$	(226)	(47.8)	%
Adjusted Operating Profit	Adjusted Operating Profit			$	481		$	395			$	86	21.8	%	Adjusted Operating Profit	$	258		$	481		$	(223)	(46.4)	%
Operating Margin	Operating Margin			10.8		%	7.5		%						Operating Margin	7.3		%	10.8		%
Adjusted Operating Margin	Adjusted Operating Margin			11.0		%	9.2		%						Adjusted Operating Margin	7.6		%	11.0		%
Currency Benefit / (Cost) – (in millions)*:	Currency Benefit / (Cost) – (in millions)*:												Currency Benefit / (Cost) – (in millions)*:
Revenue	Revenue										$	(37)			Revenue							$	(50)
Operating Expenses	Operating Expenses										40				Operating Expenses							55
Operating Profit	Operating Profit										$	3			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 March 31, Change
2022 2021 $ %
Transformation Strategy Costs (in millions):
Forwarding $ 6 $ 5 $ 1 20.0 %
Logistics 1 2 (1) (50.0) %
Freight — 1 (1) (100.0) %
Other 1 — 1 N/A
Total Transformation Strategy Costs $ 8 $ 8 $ — — %

~~Revenue~~

Total revenue for Supply Chain Solutions increased $87 million, as strong revenue growth across many of our businesses was largely offset by a $767 million decrease in revenue attributable to the second quarter 2021 divestiture of UPS Freight.

Forwarding revenue increased in the first quarter. In our international air freight business, revenue growth was driven by ongoing demand-related surcharges and elevated market rates, slightly offset by a reduction in Asia export volume. We anticipate that rates may moderate during the year as capacity returns to the market. Ocean freight forwarding revenue increased as market rates remained elevated, while volume declined slightly. We expect ocean rates to moderate below 2021 peak levels later in 2022. Revenue in our truckload brokerage business increased $146 million, which was primarily driven by revenue quality initiatives, slightly offset by a reduction in volume of approximately 10%.


	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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Revenue

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

•International airfreight revenue decreased approximately $415 million as customer demand declined, particularly on Asia export lanes. This volume decline also resulted in a reduction in the rates we charge for services. We anticipate that lower demand, coupled with higher market capacity, will continue to pressure rates throughout the remainder of the year.

•Revenue in our truckload brokerage business decreased $403 million due to lower volume and a continued decline in market rates. 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 ocean freight forwarding. Market rates and volume declined, particularly on the Asia to U.S. lane, due to lower demand, an increase in inventory levels and additional capacity entering the market. We expect revenue to remain challenged in the rest of 2023 as capacity increases are expected to outweigh demand.

Within our Logistics ~~our~~businesses, healthcare ~~operations experienced strong business growth~~logistics revenue increased $98 million in the first quarter, 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 ~~slightly due to~~$55 million as a result of volume from new customers, rate increases, and a favorable shift in product characteristics, which were somewhat offset by lower volumes. Our other distribution operations experienced year-over-year revenue increases, driven by business growth, service expansion and higher demand for warehouse space.characteristics.

Revenue from the other businesses within Supply Chain Solutions ~~increased,~~decreased in the quarter, driven by a reduction of $85 million in transition services provided to the acquirer of UPS Freight ~~under certain transition services agreements, the acquisition of Roadie, Inc. and~~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 in UPS Capital.~~growth.

Operating Expenses

Total operating expenses inand total adjusted operating expenses for Supply Chain Solutions decreased ~~slightly~~ in the first quarter, which included a decrease of $784 million from the divestiture of UPS Freight. Operating expenses, excluding the year-over-year impact of transformation and other charges, were relatively unchanged.quarter.

Forwarding operating expenses ~~increased $392~~decreased $881 million. This primarily resulted from a reduction of approximately $845 million ~~driven by an increase~~ in purchased transportation ~~expense. This increase was primarily~~expense due to ~~higher fuel costs~~lower volumes and ~~capacity constraints driving higher~~market rates in ~~our~~truckload brokerage, international airfreight and ocean freight ~~forwarding and truckload brokerage businesses.~~forwarding. We expect these ~~rates~~conditions to ~~moderate during 2022.~~persist as we move through the year, which will reduce our purchased transportation costs.

Logistics operating expenses increased ~~$126~~$155 million in the first quarter, driven by the impact of the acquisition of Bomi Group and higher purchased transportation costs for mail services due to ~~business growth in our healthcare operations and carrier~~ rate increases and shifts in mail services. Business growth also resulted in higher compensation and benefits expense within our healthcare operations, while market wage pressures drove increased compensation costs in mail services. We anticipate that a tight labor market and inflation may result in higher compensation costs throughout the remainder of 2022.product characteristics.

~~Expense~~Expenses in the other businesses within Supply Chain Solutions ~~increased,~~decreased in the quarter, largely ~~due to transportation and other~~driven by a reduction in costs incurred ~~under the~~to procure transportation for, and provide transition services ~~agreements with~~to, the acquirer of UPS ~~Freight and additional third-party~~Freight. This was partially offset by increased transportation costs, ~~resulting from the acquisition of Roadie, Inc..~~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 $152~~decreased $226 million, ~~in the first quarter,~~ with operating margin ~~increasing 330~~decreasing 350 basis points to ~~10.8%~~7.3%. ~~Excluding the year-over-year impact of transformation and other charges,~~On an adjusted basis, operating profit ~~increased $86~~decreased $223 million, with ~~adjusted~~ operating margin ~~increasing 180~~decreasing 340 basis points to ~~11.0%~~7.6%.

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Consolidated Operating Expenses


		Three Months Ended March 31,		Change				Three Months Ended March 31,						Change
				2022		2021			$		%			2023		2022		$		%
Operating Expenses (in millions):	Operating Expenses (in millions):												Operating Expenses (in millions):
Compensation and benefits	Compensation and benefits			$	11,616	$	11,483		$	133	1.2	%	Compensation and benefits	$	11,462	$	11,601	$	(139)	(1.2)	%
Transformation and Other Charges				(33)		(76)			43		(56.6)	%
Transformation Strategy Costs													Transformation Strategy Costs	12		(33)		45		N/A
Adjusted Compensation and benefits	Adjusted Compensation and benefits			$	11,583	$	11,407		$	176	1.5	%	Adjusted Compensation and benefits	$	11,474	$	11,568	$	(94)	(0.8)	%

Repairs and maintenance	Repairs and maintenance			$	626	$	619		$	7	1.1	%	Repairs and maintenance	$	725	$	701	$	24	3.4	%
Depreciation and amortization	Depreciation and amortization			764		722			42		5.8	%	Depreciation and amortization	834		764		70		9.2	%
Purchased transportation	Purchased transportation			4,600		4,243			357		8.4	%	Purchased transportation	3,543		4,607		(1,064)		(23.1)	%
Fuel	Fuel			1,220		807			413		51.2	%	Fuel	1,271		1,220		51		4.2	%
Other occupancy	Other occupancy			491		466			25		5.4	%	Other occupancy	551		501		50		10.0	%
Other expenses	Other expenses			1,810		1,803			7		0.4	%	Other expenses	1,998		1,733		265		15.3	%
Total Other expenses	Total Other expenses			9,511		8,660			851		9.8	%	Total Other expenses	8,922		9,526		(604)		(6.3)	%
Transformation and Other Charges				(22)		(42)			20		(47.6)	%
Asset impairment charges and divestitures				—		(66)			66		(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			$	9,489	$	8,552		937		11.0	%	Adjusted Total Other expenses	$	8,899	$	9,504	$	(605)	(6.4)	%

Total Operating Expenses	Total Operating Expenses			$	21,127	$	20,143		$	984	4.9	%	Total Operating Expenses	$	20,384	$	21,127	$	(743)	(3.5)	%
Adjusted Total Operating Expenses	Adjusted Total Operating Expenses			$	21,072	$	19,959		$	1,113	5.6	%	Adjusted Total Operating Expenses	$	20,373	$	21,072	$	(699)	(3.3)	%

Currency (Benefit) / Cost - (in millions)*	Currency (Benefit) / Cost - (in millions)*								$	(155)			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 March 31,	Change								Three Months Ended March 31,	Change
			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		$	16	$	6	$	10	166.7	%				Compensation	$	5	$	16	$	(11)	(68.8)	%
Benefits	Benefits		17		70		(53)		(75.7)	%				Benefits	(17)		17		(34)		N/A

Other occupancy			—		1		(1)		(100.0)	%

Other expenses	Other expenses		22		41		(19)		(46.3)	%				Other expenses	15		22		(7)		(31.8)	%
Total Transformation Strategy Costs	Total Transformation Strategy Costs		$	55	$	118	$	(63)	(53.4)	%				Total Transformation Strategy Costs	$	3	$	55	$	(52)	(94.5)	%
Asset impairment charges and divestitures:
Goodwill and Asset Impairments, and Divestiture Charges													Goodwill and Asset Impairments, and Divestiture Charges
Other expenses	Other expenses		$	—	$	66	$	(66)	(100.0)	%				Other expenses	$	8	$	—	$	8	N/A
Total Adjustments to Operating Expenses	Total Adjustments to Operating Expenses		$	55	$	184	$	(129)	(70.1)	%				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 the year-over-year impact of transformation and other charges, increased~~decreased in the first ~~quarter.~~quarter of 2023 compared to the 2022 period. Compensation costs decreased $178 million, and decreased $168 million on an adjusted basis. The principal factors impacting the change were:

~~Total~~•Management compensation ~~costs increased $31~~decreased $206 million, ~~or 0.5%. Excluding the year- over-year impact of transformation~~driven by fourth quarter 2022 design changes to our incentive compensation programs and ~~other charges, adjusted total~~lower incentive compensation ~~costs increased $21 million.~~ accruals.

•U.S. Domestic direct labor costs increased ~~driven by~~$57 million due to contractual rate increases for our union workforce that occurred in ~~wage rates and~~August 2022, as well as cost of living adjustments ~~for our union workforce.~~driven by inflation and other market factors. These ~~wage~~ increases were ~~partially~~largely offset by a reduction in labor hours, primarily due to ~~a 3.0% reduction in volume. Management~~volume declines.

•The November 2022 acquisition of Bomi Group increased compensation ~~increased as a result of part-time management wage rate adjustments and additional incentive compensation. The increases were partially offset~~cost by ~~a decrease of $235 million as a result of the second quarter 2021 divestiture of UPS Freight.~~$15 million.

Benefits costs increased ~~$102~~$39 million ~~or 2.1%. Excluding the year-over-year impact of transformation~~ and ~~other charges,~~increased $74 million on an adjusted ~~benefits costs increased $155 million or 3.2%. The primary drivers were~~basis, primarily as ~~follows:~~

•~~Vacation, excused absence, payroll taxes and other costs increased $109 million, driven by salary and wage increases and~~ ~~growth in the overall size of the workforce.~~a result of:

•Health and welfare costs increased ~~$40~~$89 million for the quarter, driven by increased contributions to multiemployer plans as a result of ~~growth in the eligible workforce and contractual~~contractually-mandated rate ~~increases. This was partly~~increases, partially offset by ~~the impact of divesting UPS Freight, which decreased cost $49 million year over year.~~a reduction in eligible headcount.

•Workers' compensation ~~costs~~expense increased ~~$35~~$23 million, driven by ~~adverse~~an increase in current year claims, ~~developments.~~partially offset by a decrease in overall hours worked and favorable developments in reserves for prior years' claims.

•Pension and other postretirement benefits costs decreased $48 million for the quarter:

◦The cost of company-sponsored defined benefit plans decreased $110 million, driven by ~~$37 million. Lower service costs and~~ a reduction in ~~defined contributions~~service cost due to higher discount rates. The cessation of accruals for ~~company-sponsored plans were largely~~future service in the UPS Retirement Plan was offset by ~~higher~~the cost of replacement contributions to the UPS 401(k) Savings Plan.

◦An increase in expense for 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. The divestiture of UPS Freight decreased expense $36 million year over year.~~

~~Repairs and Maintenance~~

~~We incurred higher costs for aircraft engine maintenance in the first quarter of 2022 due to the timing of scheduled maintenance events. This increase~~increases was partially offset by a reduction in ~~routine~~eligible headcount.

Repairs and Maintenance

The increase in repairs and maintenance ~~for our~~expense during the quarter was primarily due to increases in the cost of materials and supplies, increased vehicle maintenance and an increase in routine repairs to buildings and facilities. We expect these increases will persist for the remainder of 2023.

Depreciation and Amortization

~~Depreciation~~We incurred higher depreciation and amortization expense ~~increased~~ as a result of additional ~~expenses arising from facility automation projects~~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 ~~intangible assets acquired as part of the Roadie, Inc. acquisition in the fourth quarter of 2021.~~our MD-11 aircraft.

Purchased Transportation

~~The overall increase in third-party~~Third-party transportation expense charged to us by air, ocean and ground carriers ~~was~~decreased for the quarter. The changes were primarily driven by:

•Supply Chain Solutions expense ~~increased $345~~decreased by $890 million for the quarter, driven by volume declines and lower market rates paid for services in our Forwarding businesses. This was partially offset by increases in our logistics operations due to business growth, third-party rate increases in our ~~air~~mail services business and ~~ocean freight and truckload brokerage businesses, as well as volume growth in our healthcare operations. The divestiture~~the acquisition of ~~UPS Freight resulted in a decrease of $187 million in expenses period over period,~~Bomi Group, which was ~~somewhat offset~~not present in the comparative period.

•U.S. Domestic expense decreased $99 million for the quarter, driven by ~~the cost~~a reduction in ground volume handled by third-party carriers as a result of ~~transportation procured under transitional arrangements with the acquirer of the business.~~our network optimization initiatives.

•International Package expense ~~increased $13~~decreased $75 million for the quarter, as ~~higher network costs~~market rate and fuel surcharge increases were ~~partially~~more than offset by the impact of lower volumes and favorable currency ~~movements, primarily in Europe.~~movements.

~~Fuel~~

~~The increase in fuel expense was primarily driven by higher prices for jet fuel, diesel and gasoline.~~

~~Other Occupancy~~

~~Other occupancy expense increased as a result of expenses from additional operating facilities coming into service and higher utilities costs.~~

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Fuel

The increase in fuel expense for the quarter was primarily driven by higher prices for jet fuel, diesel and 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 the quarter 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~~increased for the ~~year-over-year impact of transformation and other charges, increased~~quarter, primarily as a result of:

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

•An increase of $39 million in commissions paid for certain online shipments.

•Favorable changes in reserves for legal and tax contingencies in 2022 drove a year-over-year increase in expense of $29 million.

•Hosted software application fees and other technology costs increased ~~$31 million.~~$28 million in support of ongoing investments in our digital transformation.

•~~The cost~~Other increases for the quarter included employee-related expenses, advertising costs, facility security and self-insured automobile liability expense. These increases were partially offset by a reduction of ~~goods provided~~costs incurred under transitional service agreements to the acquirer of UPS ~~Freight was $28 million. There was no similar cost in the 2021 period.~~

•~~Auto liability insurance increased $22 million, driven by increases in the frequency and severity of claims.~~

•~~Other increases included airline operational expenses, third-party commissions, payment processing fees and an increase in our allowance for credit losses.~~

~~These increases were partially offset by favorable developments in certain legal and tax contingencies and a reduction in asset impairment charges.~~Freight.

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Other Income and (Expense)

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


		Three Months Ended March 31,	Change				Three Months Ended March 31,						Change
			2022		2021			$		%			2023		2022		$		%
Investment Income and Other	Investment Income and Other		$	315	$	3,616		$	(3,301)	(91.3)	%	Investment Income and Other	$	169	$	315	$	(146)	(46.3)	%
Defined Benefit Plan (Gains) and Losses			(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		$	282	$	326		$	(44)	(13.5)	%	Adjusted Investment Income and Other	$	169	$	282	$	(113)	(40.1)	%

Interest Expense	Interest Expense		(174)		(177)			3		(1.7)	%	Interest Expense	(188)		(174)		(14)		8.0	%
Total Other Income and (Expense)	Total Other Income and (Expense)		$	141	$	3,439		$	(3,298)	(95.9)	%	Total Other Income and (Expense)	$	(19)	$	141	$	(160)	(113.5)	%
Adjusted Other Income and (Expense)	Adjusted Other Income and (Expense)		$	108	$	149		$	(41)	(27.5)	%	Adjusted Other Income and (Expense)	$	(19)	$	108	$	(127)	(117.6)	%

Investment Income and Other

Investment income and other decreased ~~$3.3 billion.~~$146 million. We recognized ~~a $3.3 billion defined benefit plan mark-to-market gain in the first quarter of 2021 and~~ a $33 million defined benefit plan curtailment gain in the first quarter of 2022. Excluding the impact of ~~these~~this defined benefit plan ~~gains,~~gain, adjusted investment income and other decreased ~~$44~~$113 million, ~~primarily due to~~with decreases in other pension income partially offset by higher yields on invested balances and year-over-year changes in the fair value of certain non-current ~~investments, as well as a decrease in other pension income.~~ investments.

Other pension income decreased $232 million due ~~to the following:~~to:

•~~Expected~~Lower expected returns on pension assets ~~decreased~~ 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.

•P~~ension~~Higher pension interest cost ~~decreased~~ due to ~~a reduction in projected benefit obligations, partially offset by the impact of~~ higher discount rates and changes in demographic assumptions.

•~~Prior service cost decreased as the cost base from certain plan amendments became fully amortized during 2021.~~

~~Interest Expense~~

Interest expense ~~decreased~~increased due to ~~lower average outstanding~~the impact of higher effective interest rates on floating rate debt, as well as higher debt balances due to debt issuances in the first quarter of 2023, partially offset by ~~a reduction in the capitalization of~~higher capitalized interest.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Income Tax Expense

The following table sets forth our income tax expense and effective tax rate for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in millions):
Three Months Ended March 31, Change
2022 2021 $ %
Income Tax Expense $ 730 $ 1,412 $ (682) (48.3) %
Income Tax Impact of:
Transformation Strategy Costs 12 28 (16) (57.1) %
Asset Impairment Charges and Divestitures — 16 (16) (100.0) %
Defined Benefit Plan (Gains) and Losses (9) (788) 779 (98.9) %
Adjusted Income Tax Expense $ 733 $ 668 $ 65 9.7 %
Effective Tax Rate 21.5 % 22.8 %
Adjusted Effective Tax Rate 21.5 % 21.6 %


	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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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 March 31, ~~2022,~~2023, we had ~~$12.5~~$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):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Net income	Net income	$	2,662	$	4,792	Net income	$	1,895	$	2,662
Non-cash operating activities (a)	Non-cash operating activities (a)	1,559		(984)		Non-cash operating activities (a)	1,226		1,559
Pension and postretirement benefit plan contributions (company-sponsored plans)		(45)		(215)

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	(9)		85		Hedge margin receivables and payables	(159)		(9)
Income tax receivables and payables	Income tax receivables and payables	379		353		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	(49)		478		Changes in working capital and other non-current assets and liabilities	278		(49)
Other operating activities	Other operating activities	(17)		22		Other operating activities	(32)		(17)
Net cash from operating activities	Net cash from operating activities	$	4,480	$	4,531	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 ~~$51 million~~$2.1 billion in the first quarter, ~~and was~~ impacted ~~by the following:~~by:

•~~An increase in working capital, driven by the~~The timing of ~~payroll and other compensation-related items.~~

•~~A decrease in~~ contributions to our company-sponsored, defined benefit pension and ~~U.S.~~ postretirement medical ~~benefit~~ plans ~~which totaled $45 million~~that included $1.2 billion in discretionary contributions to our qualified U.S. pension plans. There were no discretionary contributions to these plans in the first quarter of ~~2022 compared to $215 million in 2021. The reduction was driven by the timing of contributions to our U.S. postretirement medical plan.~~2022.

•A decrease in our net hedge margin collateral position ~~of $94 million~~ due to changes in the fair value of derivative contracts used in our currency ~~and interest rate~~ 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 March 31, 2022 and 2021, suppliers sold them $509 and $343 million, respectively, of our outstanding payment obligations. Amounts due to suppliers that participate in the SCF program may be reflected in cash flows from operating activities or cash flows from investing activities in our consolidated statements of cash flows. The amounts settled through the SCF program were approximately $308 and $267 million for the three months ended March 31, 2022 and 2021, respectively.

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

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

~~RESULTS OF OPERATIONS~~

2020.

As of March 31, ~~2022,~~2023, approximately ~~$3.4~~$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):


		Three Months Ended March 31,							Three Months Ended March 31,
		2022			2021				2023			2022
Net cash used in investing activities	Net cash used in investing activities	$	(572)		$	(766)		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	$	(169)		$	(325)		Buildings, facilities and plant equipment	$	(368)		$	(169)
Aircraft and parts	Aircraft and parts	(206)			(239)			Aircraft and parts	(71)			(206)
Vehicles	Vehicles	(10)			(135)			Vehicles	(13)			(10)
Information technology	Information technology	(163)			(135)			Information technology	(157)			(163)
Total Capital Expenditures(1)	Total Capital Expenditures(1)	$	(548)		$	(834)		Total Capital Expenditures(1)	$	(609)		$	(548)

Capital Expenditures as a % of revenue	Capital Expenditures as a % of revenue	2.2		%	3.6		%	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	$	—		$	10		Proceeds from disposal of businesses, property, plant and equipment	$	5		$	—
Net change in finance receivables		$	5		$	11
Net (purchases), sales and maturities of marketable securities		$	(8)		$	56
Cash paid for business acquisitions, net of cash and cash equivalents acquired		$	1		$	(3)
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	$	(22)		$	(6)		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 ~~$5.5~~$5.3 billion in ~~2022,~~2023, of which approximately 6050 percent will be allocated to strategic expansion projects.

Total capital expenditures ~~decreased~~increased in the first quarter of ~~2022~~2023 compared to ~~2021:~~

•~~Spending~~the 2022 period, primarily due 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 disruption resulted in delays to certain projects.~~

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

•~~Vehicle expenditures decreased due to the timing~~Net purchases of ~~deliveries and payments.~~

•~~Information technology expenditures~~marketable securities increased due to ~~additional deployments of technology equipment.~~

~~The net change in finance receivables was primarily due~~a continued shift to reductions in outstanding balances within our finance portfolios. 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.longer duration investments.

Cash paid for ~~business~~ acquisitions in the first quarter of ~~2021~~2023 was related to the purchase of development areas for The UPS 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):


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Net cash used in financing activities		$	(1,970)	$	(1,945)
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	(254)		—		Cash paid to repurchase shares	(751)		(254)
Number of shares repurchased	Number of shares repurchased	1.2		—		Number of shares repurchased	(4.1)		(1.2)
Shares outstanding at period end	Shares outstanding at period end	874		870		Shares outstanding at period end	859		874
Dividends:	Dividends:					Dividends:
Dividends declared per share	Dividends declared per share	$	1.52	$	1.02	Dividends declared per share	$	1.62	$	1.52
Cash paid for dividends	Cash paid for dividends	$	(1,284)	$	(858)	Cash paid for dividends	$	(1,348)	$	(1,284)
Borrowings:	Borrowings:					Borrowings:
Net borrowings (repayments) of debt principal	Net borrowings (repayments) of debt principal	$	(18)	$	(831)	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	$	67	$	78	Cash received for common stock issuances	$	49	$	67
Other financing activities	Other financing activities	$	(481)	$	(334)	Other financing activities	$	(384)	$	(481)
Capitalization:	Capitalization:					Capitalization:
Total debt outstanding at period end	Total debt outstanding at period end	21,881		23,727		Total debt outstanding at period end	$	22,188	$	21,881
Total shareowners’ equity at period end	Total shareowners’ equity at period end	15,434		7,159		Total shareowners’ equity at period end	20,053		15,434
Total capitalization	Total capitalization	$	37,315	$	30,886	Total capitalization	$	42,241	$	37,315

We repurchased 4.1 and 1.2 million shares of class B common stock for $750 million and $260 million under our stock repurchase program during the three months ended March 31, 2023 and 2022, respectively ($~~254~~751 and $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 ~~did not repurchase any shares under this program during the three months ended March 31, 2021. We~~ anticipate our share repurchases will total approximately ~~$2.0~~$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.

~~In the first quarter of 2022, we declared a quarterly dividend of $1.52 per share.~~ 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.

~~There were no issuances~~Issuances of debt during the three months ended March 31, ~~2022. Repayments~~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 first quarter of ~~2022 were related to~~2022.

Repayments of debt in the first quarter of 2023 included scheduled principal payments on our finance lease ~~obligations.~~obligations and payment of amounts assumed in the Bomi Group acquisition. In the first quarter of ~~2021, issuances of debt consisted of borrowings under our commercial paper program. Repayments included fixed-rate senior notes totaling $1.5 billion, commercial paper and~~2022, we made scheduled principal payments on our finance lease obligations.

~~We have $2.0~~As of March 31, 2023, we had $2.3 billion of ~~fixed~~fixed- and ~~floating rate~~floating-rate senior notes ~~maturing~~outstanding that mature in ~~2022 that we currently expect to repay at maturity with cash from operations.~~2023. We repaid $1.5 billion of these senior notes in 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 March 31, 2022, we had no outstanding balances under~~UPS 401(k) Savings Plan and our ~~commercial paper programs.~~employee stock purchase plan in both the current and comparative period.

~~Cash flows from other~~Other financing activities ~~were driven by the~~includes cash used to repurchase of shares to satisfy tax withholding obligations on vested employee stock awards. Cash outflows for this purpose were ~~$479~~$363 and ~~$330~~$479 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~increase~~decrease was driven by changes in ~~payment amounts for certain awards.~~

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.required repurchase amounts.

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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.~~2022.

For additional information on the first quarter 2023 debt issuances, see note 9 to the 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.

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~~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):


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Currency Derivatives	Currency Derivatives	$	224	$	173	Currency Derivatives	$	293	$	398

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

		$	219	$	174		$	288	$	393

As of March 31, ~~2022~~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 March 31, ~~2022~~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 ~~remaining~~ fair value changes between December 31, ~~2021~~2022 and March 31, ~~2022~~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 March 31, ~~2022,~~2023, we held cash collateral of ~~$253~~$375 million and were not required to post cash collateral ~~of $2 million~~ 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 hereby incorporated 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 March 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees continue to work remotely. As previously disclosed, in recent periods we have enhanced our oversight and monitoring during the closing and reporting processes and 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

~~Except as set forth below, there~~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.~~2022. The ~~following risk factor corrects and supersedes~~occurrence of any of the ~~risk factor entitled “Global climate change presents challenges to~~risks described therein could materially affect us, including impacting our business, ~~which could materially adversely affect us,” and is being restated solely to correct an inadvertent typographical error contained in~~financial condition, results of operations, stock price or credit rating, as well as our reputation. These risks are not the ~~originally presented risk factor.~~

~~Global climate change presents challenges to our business which could materially adversely affect us.~~

The effects of climate change create financial and operational risks to our business, both directly and indirectly. We have made several public statements regarding our intended reduction of carbon emissions, including our goal to achieve carbon neutrality in our global operations by 2050, and our other short- and mid-term environmental sustainability goals. We may be required to expend significant additional resources to acquire assets or on remediation efforts to meet these goals, which could significantly increase our operational costs.only ones we face. We could also be ~~required~~materially adversely affected by other events, factors or uncertainties that are unknown to ~~write down the carrying value of assets, which could result in impairment charges.~~

~~Further, there can be no assurance of the extent to which any of our goals will be achieved,~~us, or that any future investments we make will meet investor expectations or any legal standards regarding sustainability performance. In particular, our ability to meet our goals depends in part on significant technological advancements with respect to the development and availability of reliable, affordable and sustainable alternative solutions, including aviation fuel and alternative fuel vehicles. Moreover, we may determine that it is in our best interests to prioritize other business, social, governance or sustainable investments over the achievement of our current goals based on economic, regulatory or social factors, business strategy or other factors. If we do not ~~meet these goals, then, in addition~~currently consider to regulatory and legal risks related to compliance, we could incur adverse publicity and reaction, which could adversely impact our reputation, and in turn adversely impact our results of operations. While we remain committed to being responsive to climate change and reducing our carbon footprint, there can be no assurance that our goals and strategic plans to achieve those goals will be successful, that the costs related to climate transition will not be higher than expected, that the necessary technological advancements will occur in the timeframe we expect, or at all, or that proposed regulation or deregulation related to climate change will not have a negative competitive impact, any one of which could have a material adverse effect on our capital expenditures, operating margins and results of operations.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 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
January 1 - January 31, 2022 0.3 $ 208.14 0.3 $ 4,427
February 1 - February 28, 2022 0.4 215.00 0.4 4,344
March 1 - March 31, 2022 0.5 211.52 0.5 $ 4,240
Total January 1 - March 31, 2022 1.2 $ 211.65 1.2


	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 approved a share repurchase authorization ~~for~~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 ~~1.2~~0.5 million shares of class B common stock for ~~$260~~$82 million 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 months ended March 31, ~~2022. As~~2023, we repurchased 3.6 million shares of ~~March 31, 2022, we had $4.2 billion available~~class B common stock for $668 million under this authorization.

We anticipate ~~our share repurchases will be~~repurchasing approximately ~~$2.0~~$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	—	~~Separation Agreement between~~Amended and Restated UPS ~~and Juan Perez, dated February 28, 2022~~401(k) Savings Plan, effective as of January 1, 2023 (incorporated by reference to Exhibit 10.2 to Form 10-K for the year ended December 31, 2022).*.

10.2	—	~~Separation Agreement between~~ Amended and Restated Restoration Savings Plan, effective as of January 1, 2023 (incorporated by reference to Exhibit 10.3 to Form 10-K for the year ended December 31, 2022).*

10.3	—	UPS Long-Term Incentive Performance Program Amended and ~~Scott Price, dated~~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 ~~March 1, 2022~~(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 March 31, ~~2022~~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 March 31, ~~2022~~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:

May ~~4, 2022~~3, 2023

By:

/S/s/ BRIAN O. NEWMAN

Brian O. Newman

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

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	March 31, 2022		December 31, 2021		March 31, 2021
Cash and cash equivalents	$	12,208	$	10,255	$	7,731
Restricted cash	—		—		—
Total cash, cash equivalents and restricted cash	$	12,208	$	10,255	7,731


	Three Months Ended March 31,			% Point Change
		2022		2021		2022 vs 2021
Next Day Air / Deferred		14.4	%	5.9	%	8.5	%
Ground		12.7	%	7.2	%	5.5	%