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 June 30, ~~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 ~~136,813,849~~131,174,099 Class A shares, and ~~731,854,184~~723,275,790 Class B shares, with a par value of $0.01 per share, outstanding at July ~~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	910
	Note 5—~~Cash~~Marketable Securities and Non-Current Investments	1112
	Note 6—Property, Plant and Equipment	1415
	Note 7—Employee Benefit Plans	1516
	Note 8—Goodwill and Intangible Assets	18
	Note 9—Debt and Financing Arrangements	1920
	Note 10—Leases	2123
	Note 11—Legal Proceedings and Contingencies	2526
	Note 12—Shareowners’ Equity	2627
	Note 13—Segment Information	3233
	Note 14—Earnings Per Share	3334
	Note 15—Derivative Instruments and Risk Management	3435
	Note 16—Income Taxes	40
	Note 17—Transformation Strategy Costs	41
	Note 18—Subsequent Events	42
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4243
	Overview	4243
	Supplemental Information - Items Affecting Comparability	4445
	Results of Operations - Segment Review	4647
	U.S. Domestic Package Operations	4748
	International Package Operations	5051
	Supply Chain Solutions Operations	5354
	Consolidated Operating Expenses	5556
	Other Income and (Expense)	5859
	Income Tax Expense	5960
	Liquidity and Capital Resources	6061
	Cash Flows From Operating Activities	6061
	Cash Flows From Investing Activities	62
	Cash Flows From Financing Activities	63
	Sources of Credit	64
	Contractual Commitments	64
	Legal Proceedings and Contingencies	64
	Collective Bargaining Agreements	64
	Recent Accounting Pronouncements	64
	~~Rate Adjustments~~	65
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6665
Item 4.	Controls and Procedures	6766
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	6867
Item 1A.	Risk Factors	6867
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 5.	Other Information	69
Item 6.	Exhibits	70

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

From time to time, we expect to participate in analyst and investor conferences. Materials provided or displayed at those conferences, such as slides and presentations, may be posted on our investor relations website at www.investors.ups.com under the heading "Presentations" when made available. These presentations may contain new material nonpublic information about our company and you are encouraged to monitor this site for any new posts, as we may use this mechanism as a public announcement.

Table of Contents

Item 1. Financial Statements

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	11,735	$	10,255	Cash and cash equivalents	$	4,812	$	5,602
Marketable securities	Marketable securities	336		338		Marketable securities	3,071		1,993
Accounts receivable	Accounts receivable	11,541		12,669		Accounts receivable	9,738		12,729
Less: Allowance for credit losses	Less: Allowance for credit losses	(145)		(128)		Less: Allowance for credit losses	(151)		(146)
Accounts receivable, net	Accounts receivable, net	11,396		12,541		Accounts receivable, net	9,587		12,583

Other current assets	Other current assets	2,104		1,800		Other current assets	1,969		2,039
Total Current Assets	Total Current Assets	25,571		24,934		Total Current Assets	19,439		22,217
Property, Plant and Equipment, Net	Property, Plant and Equipment, Net	33,487		33,475		Property, Plant and Equipment, Net	35,501		34,719
Operating Lease Right-Of-Use Assets	Operating Lease Right-Of-Use Assets	3,436		3,562		Operating Lease Right-Of-Use Assets	4,219		3,755
Goodwill	Goodwill	3,675		3,692		Goodwill	4,250		4,223
Intangible Assets, Net	Intangible Assets, Net	2,476		2,486		Intangible Assets, Net	2,890		2,796
Investments and Restricted Cash		21		26
Deferred Income Tax Assets	Deferred Income Tax Assets	158		176		Deferred Income Tax Assets	137		139
Other Non-Current Assets	Other Non-Current Assets	1,265		1,054		Other Non-Current Assets	3,911		3,275
Total Assets	Total Assets	$	70,089	$	69,405	Total Assets	$	70,347	$	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	$	2,579	$	2,131	Current maturities of long-term debt, commercial paper and finance leases	$	1,412	$	2,341
Current maturities of operating leases	Current maturities of operating leases	562		580		Current maturities of operating leases	673		621
Accounts payable	Accounts payable	7,168		7,523		Accounts payable	6,085		7,515
Accrued wages and withholdings	Accrued wages and withholdings	3,376		3,819		Accrued wages and withholdings	2,962		4,049
Self-insurance reserves	Self-insurance reserves	1,079		1,048		Self-insurance reserves	1,101		1,069
Accrued group welfare and retirement plan contributions	Accrued group welfare and retirement plan contributions	945		1,038		Accrued group welfare and retirement plan contributions	1,200		1,078

Other current liabilities	Other current liabilities	1,628		1,430		Other current liabilities	1,253		1,467
Total Current Liabilities	Total Current Liabilities	17,337		17,569		Total Current Liabilities	14,686		18,140
Long-Term Debt and Finance Leases	Long-Term Debt and Finance Leases	17,997		19,784		Long-Term Debt and Finance Leases	19,351		17,321
Non-Current Operating Leases	Non-Current Operating Leases	2,962		3,033		Non-Current Operating Leases	3,680		3,238
Pension and Postretirement Benefit Obligations	Pension and Postretirement Benefit Obligations	8,343		8,047		Pension and Postretirement Benefit Obligations	4,635		4,807
Deferred Income Tax Liabilities	Deferred Income Tax Liabilities	3,577		3,125		Deferred Income Tax Liabilities	4,421		4,302
Other Non-Current Liabilities	Other Non-Current Liabilities	3,563		3,578		Other Non-Current Liabilities	3,537		3,513
Shareowners’ Equity:	Shareowners’ Equity:					Shareowners’ Equity:
Class A common stock (138 shares issued in 2022 and 2021)		2		2
Class B common stock (732 shares issued in 2022 and 2021)		7		7
Class A common stock (132 and 134 shares issued in 2023 and 2022, respectively)						Class A common stock (132 and 134 shares issued in 2023 and 2022, respectively)	2		2
Class B common stock (723 and 725 shares issued in 2023 and 2022, respectively)						Class B common stock (723 and 725 shares issued in 2023 and 2022, respectively)	7		7
Additional paid-in capital	Additional paid-in capital	573		1,343		Additional paid-in capital	—		—
Retained earnings	Retained earnings	18,958		16,179		Retained earnings	21,584		21,326
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,251)		(3,278)		Accumulated other comprehensive loss	(1,574)		(1,549)
Deferred compensation obligations	Deferred compensation obligations	12		16		Deferred compensation obligations	9		13
Less: Treasury stock (0.2 shares in 2022 and 0.3 shares in 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	16,289		14,253		Total Equity for Controlling Interests	20,019		19,786
Noncontrolling interests	Noncontrolling interests	21		16		Noncontrolling interests	18		17
Total Shareowners’ Equity	Total Shareowners’ Equity	16,310		14,269		Total Shareowners’ Equity	20,037		19,803
Total Liabilities and Shareowners’ Equity	Total Liabilities and Shareowners’ Equity	$	70,089	$	69,405	Total Liabilities and Shareowners’ Equity	$	70,347	$	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 June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenue	Revenue	$	24,766	$	23,424	$	49,144	$	46,332	Revenue	$	22,055	$	24,766	$	44,980	$	49,144
Operating Expenses:	Operating Expenses:									Operating Expenses:
Compensation and benefits	Compensation and benefits	11,358		11,327		22,974		22,810		Compensation and benefits	11,197		11,344		22,659		22,945
Repairs and maintenance	Repairs and maintenance	643		599		1,269		1,218		Repairs and maintenance	682		727		1,407		1,428
Depreciation and amortization	Depreciation and amortization	762		739		1,526		1,461		Depreciation and amortization	828		762		1,662		1,526
Purchased transportation	Purchased transportation	4,385		4,446		8,985		8,689		Purchased transportation	3,173		4,390		6,716		8,997
Fuel	Fuel	1,697		915		2,917		1,722		Fuel	1,090		1,697		2,361		2,917
Other occupancy	Other occupancy	420		402		911		868		Other occupancy	458		422		1,009		923
Other expenses	Other expenses	1,966		1,738		3,776		3,541		Other expenses	1,847		1,889		3,845		3,622
Total Operating Expenses	Total Operating Expenses	21,231		20,166		42,358		40,309		Total Operating Expenses	19,275		21,231		39,659		42,358
Operating Profit	Operating Profit	3,535		3,258		6,786		6,023		Operating Profit	2,780		3,535		5,321		6,786
Other Income and (Expense):	Other Income and (Expense):									Other Income and (Expense):
Investment income and other	Investment income and other	333		345		648		3,961		Investment income and other	131		333		300		648
Interest expense	Interest expense	(171)		(167)		(345)		(344)		Interest expense	(191)		(171)		(379)		(345)
Total Other Income and (Expense)	Total Other Income and (Expense)	162		178		303		3,617		Total Other Income and (Expense)	(60)		162		(79)		303
Income Before Income Taxes	Income Before Income Taxes	3,697		3,436		7,089		9,640		Income Before Income Taxes	2,720		3,697		5,242		7,089
Income Tax Expense	Income Tax Expense	848		760		1,578		2,172		Income Tax Expense	639		848		1,266		1,578
Net Income	Net Income	$	2,849	$	2,676	$	5,511	$	7,468	Net Income	$	2,081	$	2,849	$	3,976	$	5,511
Basic Earnings Per Share	Basic Earnings Per Share	$	3.26	$	3.06	$	6.31	$	8.54	Basic Earnings Per Share	$	2.42	$	3.26	$	4.62	$	6.31
Diluted Earnings Per Share	Diluted Earnings Per Share	$	3.25	$	3.05	$	6.28	$	8.51	Diluted Earnings Per Share	$	2.42	$	3.25	$	4.61	$	6.28

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(In millions)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net Income	Net Income	$	2,849	$	2,676	$	5,511	$	7,468	Net Income	$	2,081	$	2,849	$	3,976	$	5,511
Change in foreign currency translation adjustment, net of tax	Change in foreign currency translation adjustment, net of tax	(245)		48		(285)		(34)		Change in foreign currency translation adjustment, net of tax	(18)		(245)		100		(285)
Change in unrealized gain (loss) on marketable securities, net of tax	Change in unrealized gain (loss) on marketable securities, net of tax	(1)		(1)		(7)		(5)		Change in unrealized gain (loss) on marketable securities, net of tax	(16)		(1)		(9)		(7)
Change in unrealized gain (loss) on cash flow hedges, net of tax	Change in unrealized gain (loss) on cash flow hedges, net of tax	234		(46)		277		68		Change in unrealized gain (loss) on cash flow hedges, net of tax	(80)		234		(157)		277
Change in unrecognized pension and postretirement benefit costs, net of tax	Change in unrecognized pension and postretirement benefit costs, net of tax	18		1,594		42		4,020		Change in unrecognized pension and postretirement benefit costs, net of tax	21		18		41		42
Comprehensive Income (Loss)	Comprehensive Income (Loss)	$	2,855	$	4,271	$	5,538	$	11,517	Comprehensive Income (Loss)	$	1,988	$	2,855	$	3,951	$	5,538

See notes to unaudited, consolidated financial statements.

Table of Contents

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(In millions)

(unaudited)


		Six Months Ended June 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income	Net income	$	5,511	$	7,468	Net income	$	3,976	$	5,511
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	1,526		1,461		Depreciation and amortization	1,662		1,526
Pension and postretirement benefit (income) expense	Pension and postretirement benefit (income) expense	433		(2,839)		Pension and postretirement benefit (income) expense	486		433
Pension and postretirement benefit contributions	Pension and postretirement benefit contributions	(123)		(276)		Pension and postretirement benefit contributions	(1,328)		(123)
Self-insurance reserves	Self-insurance reserves	112		130		Self-insurance reserves	64		112
Deferred tax (benefit) expense	Deferred tax (benefit) expense	360		1,127		Deferred tax (benefit) expense	168		360
Stock compensation expense	Stock compensation expense	617		521		Stock compensation expense	165		617
Other (gains) losses	Other (gains) losses	11		—		Other (gains) losses	(19)		11
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	820		439		Accounts receivable	2,898		820
Other assets	Other assets	(62)		169		Other assets	187		(62)
Accounts payable	Accounts payable	(508)		56		Accounts payable	(1,921)		(508)
Accrued wages and withholdings	Accrued wages and withholdings	(348)		227		Accrued wages and withholdings	(535)		(348)
Other liabilities	Other liabilities	22		(27)		Other liabilities	(132)		22
Other operating activities	Other operating activities	(78)		(2)		Other operating activities	(77)		(78)
Net cash from operating activities	Net cash from operating activities	8,293		8,454		Net cash from operating activities	5,594		8,293
Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Capital expenditures	Capital expenditures	(1,388)		(1,670)		Capital expenditures	(1,820)		(1,388)
Proceeds from disposal of businesses, property, plant and equipment	Proceeds from disposal of businesses, property, plant and equipment	9		863		Proceeds from disposal of businesses, property, plant and equipment	50		9
Purchases of marketable securities	Purchases of marketable securities	(132)		(141)		Purchases of marketable securities	(2,970)		(132)
Sales and maturities of marketable securities	Sales and maturities of marketable securities	130		214		Sales and maturities of marketable securities	1,903		130
Net change in finance receivables		7		16
Cash paid for business acquisitions, net of cash and cash equivalents acquired		(99)		(5)
Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	(34)		(99)
Other investing activities	Other investing activities	(26)		(11)		Other investing activities	12		(19)
Net cash used in investing activities	Net cash used in investing activities	(1,499)		(734)		Net cash used in investing activities	(2,859)		(1,499)
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	—		498		Net change in short-term debt	—		—
Proceeds from long-term borrowings	Proceeds from long-term borrowings	—		—		Proceeds from long-term borrowings	2,503		—
Repayments of long-term borrowings	Repayments of long-term borrowings	(1,105)		(2,599)		Repayments of long-term borrowings	(1,596)		(1,105)
Purchases of common stock	Purchases of common stock	(1,242)		—		Purchases of common stock	(1,498)		(1,242)
Issuances of common stock	Issuances of common stock	136		141		Issuances of common stock	119		136
Dividends	Dividends	(2,567)		(1,718)		Dividends	(2,693)		(2,567)
Other financing activities	Other financing activities	(508)		(360)		Other financing activities	(417)		(508)
Net cash used in financing activities	Net cash used in financing activities	(5,286)		(4,038)		Net cash used in financing activities	(3,582)		(5,286)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(28)		16		Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	57		(28)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	1,480		3,698		Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	(790)		1,480
Cash, Cash Equivalents and Restricted Cash:	Cash, Cash Equivalents and Restricted Cash:					Cash, Cash Equivalents and Restricted Cash:
Beginning of period	Beginning of period	10,255		5,910		Beginning of period	5,602		10,255
End of period	End of period	$	11,735	$	9,608	End of period	$	4,812	$	11,735

See notes to unaudited, consolidated financial statements.

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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 June 30, ~~2022,~~2023, our results of operations for the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, and our cash flows for the six months ended June 30, ~~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.

In the first six months 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 give effect to this reclassification as follows:

•For the three and six months ended June 30, 2023: decreasing Other expenses by $92 and $180 million, and increasing Repairs and maintenance by $93 and $176 million, respectively.

•For the three and six months ended June 30, 2022: decreasing Other expenses by $77 and $154 million, and increasing Repairs and maintenance by $84 and $159 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 June 30, ~~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.

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Supplier Finance Programs

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

Amounts due to our suppliers that participate in the SCF program are included in Accounts payable in our consolidated balance sheets. We have been informed by the participating financial institutions that as of June 30, 2023 and December 31, 2022, suppliers sold them $807 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 June 30, 2021, refer to note 1 to our audited, consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

Accounting Standards Issued But Not Yet Effective

Accounting pronouncements issued before, but not effective until after, June 30, ~~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”~~services") ~~domestically or internationally.~~. These services may be carried out by or arranged by us and generally occur over a short period of time. ~~We also~~Additionally, we provide value-added logistics services to customers ~~both domestically and internationally,~~ through our global network of distribution centers and field stocking locations.

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

Disaggregation of Revenue


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenue:	Revenue:									Revenue:
Next Day Air	Next Day Air	$	2,656	$	2,456	$	5,250	$	4,787	Next Day Air	$	2,407	$	2,656	$	4,868	$	5,250
Deferred	Deferred	1,392		1,313		2,812		2,573		Deferred	1,169		1,392		2,363		2,812
Ground	Ground	11,411		10,633		22,521		21,052		Ground	10,820		11,411		22,152		22,521
U.S. Domestic Package	U.S. Domestic Package	15,459		14,402		30,583		28,412		U.S. Domestic Package	14,396		15,459		29,383		30,583

Domestic	Domestic	829		936		1,680		1,864		Domestic	763		829		1,557		1,680
Export	Export	3,976		3,674		7,754		7,167		Export	3,468		3,976		7,020		7,754
Cargo & Other	Cargo & Other	268		207		515		393		Cargo & Other	184		268		381		515
International Package	International Package	5,073		4,817		9,949		9,424		International Package	4,415		5,073		8,958		9,949

Forwarding	Forwarding	2,389		2,309		4,978		4,381		Forwarding	1,376		2,389		2,890		4,978
Logistics	Logistics	1,290		1,162		2,541		2,266		Logistics	1,431		1,290		2,841		2,541
Freight		—		297		—		1,064
Other	Other	555		437		1,093		785		Other	437		555		908		1,093
Supply Chain Solutions	Supply Chain Solutions	4,234		4,205		8,612		8,496		Supply Chain Solutions	3,244		4,234		6,639		8,612

Consolidated revenue	Consolidated revenue	$	24,766	$	23,424	$	49,144	$	46,332	Consolidated revenue	$	22,055	$	24,766	$	44,980	$	49,144

Contract Assets and Liabilities

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

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Contract liabilities consist of advance payments and billings in excess of revenue as well as deferred revenue. Advance payments and billings in excess of revenue represent payments received from our customers that will be earned over the contract term. Deferred revenue represents the amount ~~of consideration~~ due from customers related to in-transit shipments that has not yet been recognized as revenue based on our selected measure of progress. We classify advance payments and billings in excess of revenue as either current or long-term, depending on the period over which the ~~advance payment~~amount will be earned. We classify deferred revenue as current ~~based on the timing of when we expect to recognize revenue, which typically occurs within a short window after period-end. The full balance of deferred revenue is converted each quarter~~ based on the short-term nature of the transactions. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that deferred revenue balance.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Contract assets ~~related to in-transit packages were $350~~ and ~~$304 million~~liabilities as of June 30, ~~2022~~2023 and December 31, ~~2021, respectively, net of deferred revenue related to in-transit packages of $339 and $314 million~~2022 were as ~~of June 30, 2022 and December 31, 2021, respectively, and are included within~~ ~~Other current assets~~ in the consolidated balance sheets. Short-term contract liabilities related to advance payments from customers were $10 and $27 million as of June 30, 2022 and December 31, 2021, respectively, and are included within ~~Other current liabilities~~ in the consolidated balance sheets. Long-term contract liabilities related to advance payments from customers were $26 and $25 million as of June 30, 2022 and December 31, 2021, respectively, and are included within ~~Other Non-Current Liabilities~~ ~~in the consolidated balance sheets.~~follows (in millions):


	Balance Sheet Location	June 30, 2023		December 31, 2022
Contract Assets:
Revenue related to in-transit packages	Other current assets	$	252	$	308

Contract Liabilities:
Short-term advance payments from customers	Other current liabilities	$	12	$	11
Long-term advance payments from customers	Other non-current liabilities	$	25	$	26

Accounts Receivable, Net

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

Our allowance for credit losses as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$145~~$151 and ~~$128~~$146 million, respectively. Amounts for credit losses charged to expense, before recoveries, during each of the three months ended June 30, 2023 and 2022, were $41 and ~~2021 were~~ $52 ~~and $39~~ million, respectively, and for the six months ended June 30, 2023 and 2022, were $83 and ~~2021, were~~ $106 ~~and $80~~ million, respectively.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. STOCK-BASED COMPENSATION

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

Our primary equity compensation programs are the UPS ~~Management Incentive Award 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~~

On November 2, 2022, we amended and restated the terms and conditions of the UPS Management Incentive Program (the "MIP") effective January 1, 2023, to ~~our primary employee defined contribution savings plan are made~~provide that awards under the MIP will be fully electable in the form of cash or unrestricted shares of ~~UPS~~ class A common stock.

Pre-tax compensation expense for share-based awards recognized in Compensation and benefits in the statements of consolidated income for the three months ended June 30, 2023 and 2022 was $39 and $231 million, respectively, and for the six months ended June 30, 2023 and 2022 was $165 and $617 million, respectively.

Management Incentive ~~Award~~ Program

RPUs issued under the MIP ~~vest~~prior to 2022 vested one year following the grant date ~~based on~~subject to 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.

RPUs issued under the MIP in ~~which case immediate expensing occurs).~~

2022 vested on 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~~Compensation and Human Capital Committee of ~~Compensation Committee~~the UPS Board of Directors (the "Compensation Committee") 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 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

RPUs issued under the LTIP vest at the end of a three-year performance period, ~~assuming~~subject to 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		%
Fair value of RPUs granted	$	199.95		$	227.00
Share payout	107.80		%	107.37		%

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

Non-Qualified Stock Options

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

The fair value of each option ~~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 June 30, 2022 and 2021 was $231 and $206 million, respectively, and for the six months ended June 30, 2022 and 2021 was $617~~ ~~and $521 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			7.50
Expected volatility	28.31		%	25.04		%
Fair value of options granted	$	41.08		$	48.45

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The following is a summary of marketable securities classified as trading and available-for-sale as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in millions):
Cost Unrealized
Gains Unrealized
Losses Estimated
Fair Value
June 30, 2022:
Current trading marketable securities:
Equity securities $ 2 $ — $ — $ 2
Total trading marketable securities 2 — — 2
Current available-for-sale securities:
U.S. government and agency debt securities 200 — (5) 195
Mortgage and asset-backed debt securities 12 — — 12
Corporate debt securities 125 — (3) 122
U.S. state and local municipal debt securities 5 — — 5
Non-U.S. government debt securities — — — —
Total available-for-sale marketable securities 342 — (8) 334
Total current marketable securities $ 344 $ — $ (8) $ 336
Cost Unrealized
Gains Unrealized
Losses Estimated
Fair Value
December 31, 2021:
Current trading marketable securities:
Equity securities $ 2 $ — $ — $ 2
Total trading marketable securities 2 — — 2
Current available-for-sale securities:
U.S. government and agency debt securities 199 2 (1) 200
Mortgage and asset-backed debt securities 7 — — 7
Corporate debt securities 121 — — 121
U.S. state and local municipal debt securities 5 — — 5
Non-U.S. government debt securities 3 — — 3
Total available-for-sale marketable securities 335 2 (1) 336
Total current marketable securities $ 337 $ 2 $ (1) $ 338


	Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
June 30, 2023:
Current trading marketable securities:




Equity securities	$	6	$	—	$	—	$	6



Total trading marketable securities	6		—		—		6

Current available-for-sale securities:
U.S. government and agency debt securities	975		—		(11)		964
Mortgage and asset-backed debt securities	8		—		—		8
Corporate debt securities	2,059		—		(15)		2,044
U.S. state and local municipal debt securities	3		—		—		3

Non-U.S. government debt securities	46		—		—		46


Total available-for-sale marketable securities	3,091		—		(26)		3,065

Total current marketable securities	$	3,097	$	—	$	(26)	$	3,071

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




Equity securities	$	2	$	—	$	—	$	2



Total trading marketable securities	2		—		—		2

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

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


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

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

Investment Impairments

We have concluded that no material impairment losses existed as of June 30, ~~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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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Maturity Information

The amortized cost and estimated fair value of marketable securities as of June 30, ~~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	$	30	$	29	Due in one year or less	$	1,596	$	1,591
Due after one year through three years	Due after one year through three years	312		305		Due after one year through three years	1,489		1,468
Due after three years through five years	Due after three years through five years	—		—		Due after three years through five years	6		6
Due after five years	Due after five years	—		—		Due after five years	—		—
		342		334			3,091		3,065
Equity securities	Equity securities	2		2		Equity securities	6		6
		$	344	$	336		$	3,097	$	3,071

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 June 30, 2023 and ~~Restricted Cash~~December 31, 2022, equity securities accounted for under the equity method had a carrying value of $252 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 June 30, 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 $19 and ~~$23~~$18 million as of June 30, ~~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 $2 and $3 million as of June 30, 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):~~
June 30, 2022 December 31, 2021 June 30, 2021
Cash and cash equivalents $ 11,735 $ 10,255 $ 9,608
Restricted cash — — —
Total cash, cash equivalents and restricted cash $ 11,735 $ 10,255 9,608

Fair Value Measurements

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

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information about our investments measured at fair value on a recurring basis as of June 30, ~~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
June 30, 2022:
Marketable securities:
June 30, 2023:										June 30, 2023:
Marketable Securities:										Marketable Securities:
U.S. government and agency debt securities	U.S. government and agency debt securities	$	195	$	—	$	—	$	195	U.S. government and agency debt securities	$	964	$	—	$	—	$	964
Mortgage and asset-backed debt securities	Mortgage and asset-backed debt securities	—		12		—		12		Mortgage and asset-backed debt securities	—		8		—		8
Corporate debt securities	Corporate debt securities	—		122		—		122		Corporate debt securities	—		2,044		—		2,044
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	—		—		—		—		Non-U.S. government debt securities	—		46		—		46

Total marketable securities	Total marketable securities	195		141		—		336		Total marketable securities	964		2,107		—		3,071
Other non-current investments		19		—		—		19
Other non-current investments(1)										Other non-current investments(1)	—		19		—		19
Total	Total	$	214	$	141	$	—	$	355	Total	$	964	$	2,126	$	—	$	3,090

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


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

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

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


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

There were no transfers of investments ~~between~~into or out of Level ~~1 and Level 2~~3 during the six months ended June 30, ~~2022~~2023 or ~~2021.~~

2022.

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NOTE 6. PROPERTY, PLANT AND EQUIPMENT

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


		2022		2021			2023		2022
Vehicles	Vehicles	$	10,181	$	10,018	Vehicles	$	11,098	$	10,628
Aircraft	Aircraft	22,507		21,973		Aircraft	22,828		22,598
Land	Land	2,106		2,140		Land	2,151		2,140
Buildings	Buildings	5,794		5,802		Buildings	6,178		6,032
Building and leasehold improvements	Building and leasehold improvements	5,027		5,010		Building and leasehold improvements	5,169		5,067
Plant equipment	Plant equipment	15,629		15,650		Plant equipment	16,456		16,145
Technology equipment	Technology equipment	2,858		2,798		Technology equipment	2,567		2,411
Construction-in-progress	Construction-in-progress	1,520		1,418		Construction-in-progress	2,870		2,409
		65,622		64,809			69,317		67,430
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(32,135)		(31,334)		Less: Accumulated depreciation and amortization	(33,816)		(32,711)
Property, Plant and Equipment, Net	Property, Plant and Equipment, Net	$	33,487	$	33,475	Property, Plant and Equipment, Net	$	35,501	$	34,719

Property, plant and equipment purchased on account was ~~$477~~$684 and ~~$248~~$176 million as of June 30, ~~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. For the three and six months ended June 30, ~~2022~~2023 and ~~2021, and for the six months ended June 30,~~ 2022, there were no material impairment charges. ~~We recorded impairment charges of $24 million for the six months ended June 30, 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) for our company-sponsored pension and postretirement benefit plans for the three and six months ended June 30, ~~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 June 30:	Three Months Ended June 30:													Three Months Ended June 30:
Service cost	Service cost	$	506	$	461	$	7	$	7	$	17	$	19	Service cost	$	293	$	506	$	5	$	7	$	11	$	17
Interest cost	Interest cost	487		481		21		20		11		10		Interest cost	627		487		29		21		16		11
Expected return on assets	Expected return on assets	(820)		(831)		(1)		(1)		(20)		(17)		Expected return on assets	(741)		(820)		(3)		(1)		(21)		(20)

Amortization of prior service cost	Amortization of prior service cost	23		34		—		1		1		1		Amortization of prior service cost	26		23		1		—		—		1

Net periodic benefit cost		$	196	$	145	$	27	$	27	$	9	$	13
Net periodic benefit cost (income)														Net periodic benefit cost (income)	$	205	$	196	$	32	$	27	$	6	$	9

		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
Six Months Ended June 30:	Six Months Ended June 30:													Six Months Ended June 30:
Service cost	Service cost	$	1,012	$	1,014	$	15	$	14	$	35	$	38	Service cost	$	586	$	1,012	$	10	$	15	$	22	$	35
Interest cost	Interest cost	975		969		41		39		23		20		Interest cost	1,254		975		58		41		33		23
Expected return on assets	Expected return on assets	(1,640)		(1,677)		(2)		(3)		(40)		(34)		Expected return on assets	(1,483)		(1,640)		(6)		(2)		(42)		(40)
Amortization of prior service cost	Amortization of prior service cost	46		67		—		3		1		1		Amortization of prior service cost	53		46		1		—		—		1
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		$	393	$	(2,917)	$	54	$	53	$	(14)	$	25
Net periodic benefit cost (income)														Net periodic benefit cost (income)	$	410	$	393	$	63	$	54	$	13	$	(14)

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

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

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

During the six months ended June 30, ~~2021,~~2023, we remeasured the UPS/IBT Full Time Employee Pension Plan following the enactment into law of the American Rescue Plan Act, which is discussed below. The interim remeasurement resulted in a pre-tax mark-to-market gain of $3.3contributed $1.2 billion ~~($2.5 billion after tax) during the six month period. The gain was included within~~ ~~Investment income~~ and ~~other~~ ~~in the statement of consolidated income for the six months ended June 30, 2021.~~

~~Contributions~~$92 million to our company-sponsored pension and U.S. postretirement medical benefit plans, ~~for the first six months of 2022 were $66 and $57 million,~~ respectively. We expect to contribute approximately ~~$1.9 billion~~$45 and ~~$221~~$26 million over the remainder of the year to our pension and U.S. postretirement medical benefit plans, respectively.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Multiemployer Benefit Plans

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

As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$826~~$817 and ~~$830~~$821 million, respectively, recorded in Other Non-Current Liabilities onin our consolidated balance sheets and $8 million as of each of June 30, ~~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 4039 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 June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$744~~$705 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.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~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~~more than 300,000 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~~were scheduled to expire on July 31, 2023. On July 25, 2023, we reached a new tentative national master agreement with the Teamsters. For additional information on these agreements and the ratification process, see note 18. No assurances of the timing of the ratification process can be provided. Customers may further reduce their business or stop doing business with us if they believe that such ratification process or the timing thereof may adversely affect our ability to provide services. In that event, we may permanently lose customers and this could materially adversely affect us. The terms of future collective bargaining agreements also may affect our competitive position and 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. In the second quarter of 2022, we reached a tentative agreement on a two-year contract extension with the IPA. If ratified, the new agreement will extend the amendable date to September 1,~~ 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

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. GOODWILL AND INTANGIBLE ASSETS

The following table indicates the allocation of goodwill as of June 30, ~~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 — — 61 61
Currency / Other — (21) (57) (78)
June 30, 2022: $ 847 $ 382 $ 2,446 $ 3,675

~~The~~


	U.S. Domestic Package		International Package		Supply Chain Solutions		Consolidated
December 31, 2022:	$	847	$	492	$	2,884	$	4,223
Acquired	—		—		8		8
Impairments	—		—		(8)		(8)
Currency / Other	—		3		24		27
June 30, 2023:	$	847	$	495	$	2,908	$	4,250

During the six months ended June 30, 2023:

•We recorded an increase in goodwill ~~balances~~of $8 million, as part of purchase accounting for ~~both International Package and~~our November 2022 acquisition of Bomi Group. Certain areas, including our estimates of tax positions, remain preliminary as of June 30, 2023.

•We recorded an immaterial impairment charge related to the closure of a trade management services business within Supply Chain ~~Solutions decreased~~Solutions.

•The remaining movements are due to the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances. ~~In May~~

We complete our annual goodwill impairment evaluation as of July 1st on a reporting unit basis. Our 2022 ~~we acquired Delivery Solutions, a digital platform~~annual impairment testing indicated that ~~optimizes customer deliveries across multiple networks. The acquisition~~the fair value of goodwill associated with our Roadie reporting unit remained greater than its carrying value, although this excess was ~~funded with cash from operations and was not material to our consolidated financial position or results of operations.~~less than 10 percent. The goodwill associated with our Roadie reporting unit as of June 30, 2023 was $241 million.

For each of our reporting units and our indefinite-lived trade name, we continue to monitor the ~~acquisition~~combined impact of macroeconomic conditions and business performance on our estimates of fair value. While we do not believe it is ~~included within Supply Chain Solutions.~~more likely than not our reporting unit fair values are less than their respective carrying values as of June 30, 2023, actual reporting unit performance, revisions to our forecasts of reporting unit performance, changes in estimates or assumptions in connection with our annual testing, or a combination thereof could result in an impairment charge in one or more of our reporting units during the third quarter of 2023 or another future period.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of intangible assets as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in millions):


		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
June 30, 2022:
									Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
June 30, 2023:								June 30, 2023:
Capitalized software	Capitalized software	$	5,048	$	(3,406)	$	1,642	Capitalized software	$	5,507	$	(3,694)	$	1,813
Licenses	Licenses	48		(22)		26		Licenses	55		(38)		17
Franchise rights	Franchise rights	138		(36)		102		Franchise rights	260		(42)		218
Customer relationships	Customer relationships	720		(435)		285		Customer relationships	860		(472)		388
Trade name	Trade name	67		(5)		62		Trade name	126		(12)		114
Trademarks, patents and other	Trademarks, patents and other	169		(14)		155		Trademarks, patents and other	187		(51)		136
Amortizable intangible assets	Amortizable intangible assets	$	6,190	$	(3,918)	$	2,272	Amortizable intangible assets	$	6,995	$	(4,309)	$	2,686
Indefinite-lived intangible assets	Indefinite-lived intangible assets	204		—		204		Indefinite-lived intangible assets	204		—		204
Total Intangible Assets, Net	Total Intangible Assets, Net	$	6,394	$	(3,918)	$	2,476	Total Intangible Assets, Net	$	7,199	$	(4,309)	$	2,890
December 31, 2021:
December 31, 2022:								December 31, 2022:
Capitalized software	Capitalized software	$	4,910	$	(3,275)	$	1,635	Capitalized software	$	5,186	$	(3,500)	$	1,686
Licenses	Licenses	58		(27)		31		Licenses	55		(30)		25
Franchise rights	Franchise rights	119		(37)		82		Franchise rights	226		(37)		189
Customer relationships	Customer relationships	733		(408)		325		Customer relationships	872		(453)		419
Trade name	Trade name	67		(1)		66		Trade name	125		(8)		117
Trademarks, patents and other	Trademarks, patents and other	158		(15)		143		Trademarks, patents and other	183		(27)		156
Amortizable intangible assets	Amortizable intangible assets	$	6,045	$	(3,763)	$	2,282	Amortizable intangible assets	$	6,647	$	(4,055)	$	2,592
Indefinite-lived intangible assets	Indefinite-lived intangible assets	204		—		204		Indefinite-lived intangible assets	204		—		204
Total Intangible Assets, Net	Total Intangible Assets, Net	$	6,249	$	(3,763)	$	2,486	Total Intangible Assets, Net	$	6,851	$	(4,055)	$	2,796

AsA trade name and licenses with carrying values of $200 and $4 million, respectively, as of June 30, ~~2022, we had a trade name with a carrying value of $200 million and licenses with a current carrying value of $4 million, which~~2023 are deemed to be indefinite-lived intangible assets, and therefore are included in the table above. Our 2021 annual impairment testing of these assets indicated that the fair value of the trade name, which is associated with our truckload brokerage business, remained greater than its carrying value as of our testing date, although this excess was less than 10 percent.not amortized. There were no events or changes in circumstances during the six months ended June 30, ~~2022~~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 or~~ six months ended June 30, 2023 or 2022. ~~We recorded $1 and $7 million in impairment charges for finite-lived intangible assets during the three and six months ended June 30, 2021, respectively.~~

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. DEBT AND FINANCING ARRANGEMENTS

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


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

Fixed-rate senior notes:	Fixed-rate senior notes:													Fixed-rate senior notes:
2.450% senior notes		1,000			2022		999			1,010
2.350% senior notes		—			2022		—			600
2.500% senior notes	2.500% senior notes	1,000			2023		999			998		2.500% senior notes	$	—		2023		$	—		$	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		997			996		3.900% senior notes	1,000			2025		998			997
2.400% senior notes	2.400% senior notes	500			2026		499			498		2.400% senior notes	500			2026		499			499
3.050% senior notes	3.050% senior notes	1,000			2027		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		1,138			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		1,082			—
Floating-rate senior notes:	Floating-rate senior notes:											Floating-rate senior notes:
Floating-rate senior notes	Floating-rate senior notes	—			2022		—			400		Floating-rate senior notes	—			2023		—			500
Floating-rate senior notes	Floating-rate senior notes	500			2023		500			500		Floating-rate senior notes	1,566			2049-2073		1,549			1,027
Floating-rate senior notes		1,039			2049-2067		1,027			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	81			2031		80			89		5.500% notes	84			2031		83			79
5.125% notes	5.125% notes	553			2050		525			583		5.125% notes	573			2050		545			521
Euro senior notes:	Euro senior notes:											Euro senior notes:
0.375% senior notes	0.375% senior notes	728			2023		727			791		0.375% senior notes	763			2023		763			745
1.625% senior notes	1.625% senior notes	728			2025		726			791		1.625% senior notes	763			2025		761			744
1.000% senior notes	1.000% senior notes	520			2028		518			564		1.000% senior notes	545			2028		543			531
1.500% senior notes	1.500% senior notes	520			2032		517			564		1.500% senior notes	545			2032		542			530

Canadian senior notes:	Canadian senior notes:											Canadian senior notes:
2.125% senior notes	2.125% senior notes	582			2024		580			585		2.125% senior notes	566			2024		564			553
Finance lease obligations	Finance lease obligations	372			2022-2046		372			408		Finance lease obligations	416			2023-2046		416			390
Facility notes and bonds	Facility notes and bonds	320			2029-2045		320			320		Facility notes and bonds	320			2029-2045		320			320
Other debt	Other debt	4			2022-2025		4			5		Other debt	10			2023-2026		10			36
Total debt	Total debt	$	20,748				20,576			21,915		Total debt	$	20,952				20,763			19,662
Less: current maturities	Less: current maturities						(2,579)			(2,131)		Less: current maturities						(1,412)			(2,341)
Long-term debt	Long-term debt						$	17,997		$	19,784	Long-term debt						$	19,351		$	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 June 30, ~~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 ~~ended June 30, 2022,~~of 2023, we repaid approximately $16 million of foreign-currency-denominated debt assumed in the Bomi Group acquisition.

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

Debt Issuances

On 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~~bore interest at rates that ~~reference~~referenced 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~~ceased to be published after June 2023. ~~We are currently working to transition~~Beginning July 1, 2023, we transitioned these notes to an alternative reference rate, ~~and we anticipate that the Secured Overnight Financing Rate ("SOFR") will be~~SOFR, which was 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, 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 June 30, ~~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 June 30, ~~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 June 30, ~~2022.~~2023.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of June 30, ~~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 June 30, ~~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 ~~$20.4~~$20.2 and ~~$25.1~~$18.2 billion as of June 30, ~~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 and warehouses), aircraft and engines, information technology equipment, ~~(primarily mainframes, servers and copiers),~~ vehicles and various other equipment used in operating our business. Certain leases for real estate and aircraft contain options to purchase, extend or terminate the lease.

We recognize a right-of-use ("ROU") asset and lease obligation for all leases greater than twelve months. Some of our leases contain both lease and non-lease components, which we have elected to treat as a single lease component. We have also elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase options, of twelve months or less in our consolidated balance sheets for all classes of underlying assets. Lease costs for short-term leases are recognized on a straight-line basis over the lease term.

Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease obligation for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and whether the optional period and payments should be included in the calculation of the associated ROU asset and lease obligation. In making this determination, we consider all relevant economic factors that would compel us to exercise or not exercise an option.

When our leases contain future payments that are dependent on an index or rate, such as the consumer price index, we initially measure the lease obligation and ROU asset using the index or rate at the commencement date. In subsequent periods, lease payments dependent on an index or rate are not remeasured. Rather, changes to payments due to a change in an index or rate are recognized in our statements of consolidated income in the period of the change.

When available, we use the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of our leases. For these leases, we use an estimate of our incremental borrowing rate to discount lease payments based on information available at lease commencement. The incremental borrowing rate is derived using multiple inputs including our credit rating, the impact of full collateralization, lease term and denominated currency. Our remaining lease terms vary from 1 month to 138 years.

Aircraft

In addition to the aircraft that we own, we have leases for 311 aircraft. Of these leased aircraft, 19 are classified as finance leases, 18 are classified as operating leases and the remaining 274 are classified as short-term leases. A majority of the obligations associated with the aircraft classified as finance leases have been legally defeased. A majority of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline.

~~In order to meet customers' needs,~~ we charter aircraft to handle package and cargo volume on certain international trade lanes and domestic routes. Due to the nature of these agreements, primarily being that either party can cancel the agreement with short notice, we have classified these as short-term leases. ~~Additionally, the lease payments associated with these charter agreements are variable in nature based on the number of hours flown.~~

~~Real Estate~~

~~We have operating and finance leases for package centers, airport facilities, warehouses, office space and expansion facilities utilized during peak shipping periods. Many~~A majority of our long-term aircraft operating leases ~~contain charges for common area maintenance or other expenses that~~ are ~~updated based on landlord estimates. Due~~operated by a third party to ~~this variability, the cash flows associated with these charges~~handle package and cargo volume in geographic regions where, due to government regulations, we are ~~not included in the minimum lease payments used in determining the ROU asset and associated lease obligation.~~

Some of our real estate leases contain options to renew or extend the lease or terminate the lease before the expiration date. These options are factored into the determination of the lease term and lease payments when their exercise is considered to be reasonably certain.

We also enter into real estate leases that contain lease incentives, such as tenant improvement allowances or move-in allowances, that are received or receivable at lease commencement. These incentives reduce lease payments for classification purposes and reduce the initial ROU asset. When lease incentives are receivable at lease commencement, these also reduce the initial lease obligation.

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

From time to time, we enter into leases with the intention of purchasing the underlying property, either through purchase options with a fixed price or a purchase agreement negotiated contemporaneously with the lease agreement. We classify these leases as finance leases and include the purchase date and purchase price in the determination of the lease term and lease payments, respectively, when the option to exercise or purchase is reasonably certain.restricted from operating an airline.

Transportation equipment and other equipment

We enter into both long-term and short-term leases for transportation equipment to supplement our capacity or meet contractual demands. Some of these assets are leased on a month-to-month basis and the leases can be terminated without penalty. ~~The lease term for these types of leases is determined by the length of the underlying customer contract or based on the judgment of the business unit.~~ We also enter into ~~multi-year~~equipment leases ~~for trailers~~ to increase capacity during periods of high ~~demand, which are typically only used for 90-120 days during the year.~~demand. These leases are treated as short-term as the cumulative right of use is less than 12 months over the term of the contract.

The remainder of our leases are primarily related to equipment used in our air operations, vehicles required to meet capacity needs during periods of higher demand for our shipping services, technology equipment and office equipment used in our facilities.

Some of our transportation and technology equipment leases require us to make additional lease payments based on the underlying usage of the assets. Due to the variable nature of these costs, these are expensed as incurred and are not included in the ~~ROU~~right of use lease asset and associated lease obligation.

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Operating lease costs	Operating lease costs	$	184	$	179	$	367	$	354	Operating lease costs	$	219	$	184	$	426	$	367
Finance lease costs:	Finance lease costs:									Finance lease costs:
Amortization of assets	Amortization of assets	28		23		56		46		Amortization of assets	28		28		57		56
Interest on lease liabilities	Interest on lease liabilities	3		3		7		7		Interest on lease liabilities	5		3		9		7
Total finance lease costs	Total finance lease costs	31		26		63		53		Total finance lease costs	33		31		66		63
Variable lease costs	Variable lease costs	64		62		132		127		Variable lease costs	68		64		140		132
Short-term lease costs	Short-term lease costs	323		251		625		530		Short-term lease costs	226		323		503		625
Total lease costs(1)	Total lease costs(1)	$	602	$	518	$	1,187	$	1,064	Total lease costs(1)	$	546	$	602	$	1,135	$	1,187
(1) This table excludes sublease income as it was not material to the three and six months ended June 30, 2023 or 2022.										(1) This table excludes sublease income as it was not material to the three and six months ended June 30, 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. We recognized $13 million of impairments during the three and six months ended June 30, 2023. There were no material impairments recognized during the three or six months ended June 30, ~~2022 or 2021.~~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 is as follows (in millions, except lease term and discount rate):


		June 30, 2022			December 31, 2021				June 30, 2023			December 31, 2022
Operating Leases:	Operating Leases:							Operating Leases:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	3,436		$	3,562		Operating lease right-of-use assets	$	4,219		$	3,755

Current maturities of operating leases	Current maturities of operating leases	$	562		$	580		Current maturities of operating leases	$	673		$	621
Non-current operating leases	Non-current operating leases	2,962			3,033			Non-current operating leases	3,680			3,238
Total operating lease obligations	Total operating lease obligations	$	3,524		$	3,613		Total operating lease obligations	$	4,353		$	3,859

Finance Leases:	Finance Leases:							Finance Leases:
Property, plant and equipment, net	Property, plant and equipment, net	$	1,008		$	1,225		Property, plant and equipment, net	$	843		$	959

Current maturities of long-term debt, commercial paper and finance leases	Current maturities of long-term debt, commercial paper and finance leases	$	79		$	129		Current maturities of long-term debt, commercial paper and finance leases	$	84		$	92
Long-term debt and finance leases	Long-term debt and finance leases	293			279			Long-term debt and finance leases	332			298
Total finance lease obligations	Total finance lease obligations	$	372		$	408		Total finance lease obligations	$	416		$	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	11.3			11.7			Operating leases	11.2			10.8
Finance leases	Finance leases	8.6			8.0			Finance leases	8.4			8.4

Weighted average discount rate:	Weighted average discount rate:							Weighted average discount rate:
Operating leases	Operating leases	2.06		%	1.94		%	Operating leases	2.91		%	2.32		%
Finance leases	Finance leases	3.06		%	2.79		%	Finance leases	3.59		%	3.17		%

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


		Six Months Ended June 30,					Six Months Ended June 30,
		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	$	354	$	364	Operating cash flows from operating leases	$	419	$	354
Operating cash flows from finance leases	Operating cash flows from finance leases	2		7		Operating cash flows from finance leases	8		2
Financing cash flows from finance leases	Financing cash flows from finance leases	105		33		Financing cash flows from finance leases	79		105

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	$	345	$	854	Operating leases	$	826	$	345
Finance leases	Finance leases	72		113		Finance leases	$	106	$	72

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


		Finance Leases		Operating Leases			Finance Leases		Operating Leases
2022		$	49	$	304
2023	2023	80		620		2023	$	54	$	382
2024	2024	54		521		2024	90		763
2025	2025	40		461		2025	66		688
2026	2026	33		415		2026	44		586
2027						2027	40		504
Thereafter	Thereafter	196		1,748		Thereafter	207		2,249
Total lease payments	Total lease payments	452		4,069		Total lease payments	501		5,172
Less: Imputed interest	Less: Imputed interest	(80)		(545)		Less: Imputed interest	(85)		(819)
Total lease obligations	Total lease obligations	372		3,524		Total lease obligations	416		4,353
Less: Current obligations	Less: Current obligations	(79)		(562)		Less: Current obligations	(84)		(673)
Long-term lease obligations	Long-term lease obligations	$	293	$	2,962	Long-term lease obligations	$	332	$	3,680

As of June 30, ~~2022,~~2023, we had ~~$808~~$752 million of additional leases which had not commenced. These leases will commence between ~~2022~~2023 and ~~2023~~2025 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 the second quarter of 2022 the plaintiffs~~denied. However, they were granted a discretionary review ~~of these claims~~ by the Kentucky Supreme Court. In the first quarter of 2023, the Kentucky Supreme Court ruled in our favor. Plaintiffs have filed a motion for rehearing before the Kentucky Supreme Court.

In July 2023, another matter, Baker v. United Parcel Service, Inc. (DE) and United Parcel Service, Inc. (OH) was certified as a class action in federal court in the Eastern District of Washington. The plaintiff in this matter alleges that UPS violated the Uniformed Services Employment and Reemployment Rights Act. We are vigorously defending ourselves in this matter and believe that we have a number of meritorious defenses, and there are unresolved questions of law and fact that could be important to the ultimate resolution of this matter. Accordingly, at this time, we are not able to estimate a possible loss or range of losses that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our operations or financial condition.

Other Matters

In August 2016, Spain’s National Markets and Competition Commission ("CNMC") announced an investigation into 10 companies in the commercial delivery and parcel industry, including UPS, related to alleged nonaggression agreements to allocate customers. In May 2017, we received a Statement of Objections issued by the CNMC. In July 2017, we received a Proposed Decision from the CNMC. OnIn March 8, 2018, the CNMC adopted a final decision, finding an infringement and imposing an immaterial fine on UPS. We appealed the ~~decision~~decision. In December 2022, a trial court ruled against us. We have filed an appeal before the Spanish Supreme Court. We are vigorously defending ourselves and ~~in September 2018, obtained~~believe that we have a ~~suspension~~number of meritorious defenses. There are also unresolved questions of law that could be important to the ~~implementation~~ultimate resolution of ~~the decision (including payment of the fine). The appeal is pending.~~this matter. 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 June 30, ~~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 June 30, ~~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 and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 (in millions, except per share amounts):


Three Months Ended June 30:	Three Months Ended June 30:	2022			2021			Three Months Ended June 30:	2023			2022
		Shares	Dollars		Shares	Dollars			Shares	Dollars		Shares	Dollars
Class A Common Stock	Class A Common Stock							Class A Common Stock
Balance at beginning of period	Balance at beginning of period	140	$	2	148	$	2	Balance at beginning of period	135	$	2	140	$	2

Stock award plans	Stock award plans	2	—		2	—		Stock award plans	—	—		2	—

Common stock issuances								Common stock issuances	—	—		—	—
Conversions of class A to class B common stock	Conversions of class A to class B common stock	(4)	—		(6)	—		Conversions of class A to class B common stock	(3)	—		(4)	—
Class A shares issued at end of period	Class A shares issued at end of period	138	$	2	144	$	2	Class A shares issued at end of period	132	$	2	138	$	2
Class B Common Stock	Class B Common Stock							Class B Common Stock
Balance at beginning of period	Balance at beginning of period	734	$	7	722	$	7	Balance at beginning of period	724	$	7	734	$	7
Common stock purchases	Common stock purchases	(6)	—		—	—		Common stock purchases	(4)	—		(6)	—
Conversions of class A to class B common stock	Conversions of class A to class B common stock	4	—		6	—		Conversions of class A to class B common stock	3	—		4	—
Class B shares issued at end of period	Class B shares issued at end of period	732	$	7	728	$	7	Class B shares issued at end of period	723	$	7	732	$	7
Additional Paid-In Capital	Additional Paid-In Capital							Additional Paid-In Capital
Balance at beginning of period	Balance at beginning of period		$	1,231		$	1,049	Balance at beginning of period		$	—		$	1,231
Stock award plans								Stock award plans		32			212
Common stock purchases	Common stock purchases		(983)			—		Common stock purchases		(135)			(983)
Stock award plans			212			193
Common stock issuances	Common stock issuances		113			87		Common stock issuances		108			113

Other (1)								Other (1)		(5)			—
Balance at end of period	Balance at end of period		$	573		$	1,329	Balance at end of period		$	—		$	573
Retained Earnings	Retained Earnings							Retained Earnings
Balance at beginning of period	Balance at beginning of period		$	17,433		$	10,748	Balance at beginning of period		$	21,510		$	17,433
Net income attributable to common shareowners	Net income attributable to common shareowners		2,849			2,676		Net income attributable to common shareowners		2,081			2,849
Dividends ($1.52 and $1.02 per share) (1)			(1,327)			(893)
Dividends ($1.62 and $1.52 per share) (2)								Dividends ($1.62 and $1.52 per share) (2)		(1,393)			(1,327)
Common stock purchases								Common stock purchases		(615)			—
Other	Other		3			—		Other		1			3
Balance at end of period	Balance at end of period		$	18,958		$	12,531	Balance at end of period		$	21,584		$	18,958
Non-Controlling Minority Interest	Non-Controlling Minority Interest							Non-Controlling Minority Interest
Balance at beginning of period	Balance at beginning of period		$	18		$	12	Balance at beginning of period		$	15		$	18
Change in non-controlling minority interest	Change in non-controlling minority interest		3			5		Change in non-controlling minority interest		3			3
Balance at end of period	Balance at end of period		$	21		$	17	Balance at end of period		$	18		$	21
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $44 and $33 million as of June 30, 2022 and 2021, respectively, that were settled in shares of class A common stock.
(1) Includes a 1% excise tax applicable to share repurchases. (2) The dividend per share amount is the same for both class A and class B common stock. Dividends included $48 and $44 million as of June 30, 2023 and 2022, respectively, that were settled in shares of class A common stock.								(1) Includes a 1% excise tax applicable to share repurchases. (2) The dividend per share amount is the same for both class A and class B common stock. Dividends included $48 and $44 million as of June 30, 2023 and 2022, respectively, that were settled in shares of class A common stock.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Six Months Ended June 30:	Six Months Ended June 30:	2022			2021			Six Months Ended June 30:	2023			2022
		Shares	Dollars		Shares	Dollars			Shares	Dollars		Shares	Dollars
Class A Common Stock:	Class A Common Stock:							Class A Common Stock:
Balance at beginning of period	Balance at beginning of period	138	$	2	147	$	2	Balance at beginning of period	134	$	2	138	$	2

Stock award plans	Stock award plans	6	—		6	—		Stock award plans	3	—		6	—
Common stock issuances	Common stock issuances	1	—		1	—		Common stock issuances	1	—		1	—
Conversions of class A to class B common stock	Conversions of class A to class B common stock	(7)	—		(10)	—		Conversions of class A to class B common stock	(6)	—		(7)	—
Class A shares outstanding at end of period	Class A shares outstanding at end of period	138	$	2	144	$	2	Class A shares outstanding at end of period	132	$	2	138	$	2
Class B Common Stock:	Class B Common Stock:							Class B Common Stock:
Balance at beginning of period	Balance at beginning of period	732	$	7	718	$	7	Balance at beginning of period	725	$	7	732	$	7
Common stock purchases	Common stock purchases	(7)	—		—	—		Common stock purchases	(8)	—		(7)	—
Conversions of class A to class B common stock	Conversions of class A to class B common stock	7	—		10	—		Conversions of class A to class B common stock	6	—		7	—
Class B shares outstanding at end of period	Class B shares outstanding at end of period	732	$	7	728	$	7	Class B shares outstanding at end of period	723	$	7	732	$	7
Additional Paid-In Capital:	Additional Paid-In Capital:							Additional Paid-In Capital:
Balance at beginning of period	Balance at beginning of period		$	1,343		$	865	Balance at beginning of period		$	—		$	1,343
Stock award plans								Stock award plans		377			177
Common stock purchases	Common stock purchases		(1,243)			—		Common stock purchases		(627)			(1,243)
Stock award plans			177			223
Common stock issuances	Common stock issuances		296			241		Common stock issuances		255			296
Other (1)								Other (1)		(5)			—
Balance at end of period	Balance at end of period		$	573		$	1,329	Balance at end of period		$	—		$	573
Retained Earnings:	Retained Earnings:							Retained Earnings:
Balance at beginning of period	Balance at beginning of period		$	16,179		$	6,896	Balance at beginning of period		$	21,326		$	16,179
Net income attributable to controlling interests	Net income attributable to controlling interests		5,511			7,468		Net income attributable to controlling interests		3,976			5,511
Dividends ($3.04 and $2.04 per share) (1)			(2,733)			(1,831)
Dividends ($3.24 and $3.04 per share) (2)								Dividends ($3.24 and $3.04 per share) (2)		(2,846)			(2,733)
Common stock purchases								Common stock purchases		(873)			—
Other	Other		1			(2)		Other		1			1
Balance at end of period	Balance at end of period		$	18,958		$	12,531	Balance at end of period		$	21,584		$	18,958
Non-Controlling Interests:	Non-Controlling Interests:							Non-Controlling Interests:
Balance at beginning of period	Balance at beginning of period		$	16		$	12	Balance at beginning of period		$	17		$	16
Change in non-controlling interest	Change in non-controlling interest		5			5		Change in non-controlling interest		1			5
Balance at end of period	Balance at end of period		$	21		$	17	Balance at end of period		$	18		$	21
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $166 and $113 million as of June 30, 2022 and 2021, respectively, that were settled in shares of class A common stock.
(1) Includes a 1% excise tax applicable to share repurchases. (2) The dividend per share amount is the same for both class A and class B common stock. Dividends include $153 and $166 million as of June 30, 2023 and 2022, respectively, that were settled in shares of class A common stock.								(1) Includes a 1% excise tax applicable to share repurchases. (2) The dividend per share amount is the same for both class A and class B common stock. Dividends include $153 and $166 million as of June 30, 2023 and 2022, respectively, that were settled in shares of class A common stock.

We repurchased 4.3 and 8.4 million shares of class B common stock for $750 million and $1.5 billion during the three and six months ended June 30, 2023, respectively. We repurchased 5.5 and 6.7 million shares of class B common stock for $983 million and $1.2 billion during the three and six months ended June 30, 2022, respectively. These repurchases were completed as follows:

•In August 2021, the Board of Directors authorized the company to repurchase up to $5.0 billion of class A and class B common ~~stock. We~~stock (the "2021 Authorization"). For the six months ended months ended June 30, 2023, we repurchased ~~5.5 and 6.7~~0.5 million shares of class B common stock for ~~$983~~$82 million ~~and $1.2 billion~~ under this ~~program during~~authorization. The share repurchases discussed above for the three and six months ended June 30, 2022, ~~respectively.~~were completed under this authorization.

•In January 2023, the Board of Directors terminated the 2021 Authorization and approved a new share repurchase authorization for $5.0 billion of class A and class B common stock (the "2023 Authorization"). For the three and six months ended June 30, 2023, we repurchased 4.3 and 7.9 million shares for$750 million and $1.4 billion, respectively, under the 2023 Authorization. As of June 30, ~~2022,~~2023, we had ~~$3.3~~$3.6 billion ~~of our share~~available under this repurchase ~~authorization available. In July 2022, we announced that we~~authorization.

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

Table of ~~2022.~~Contents

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

~~Table of Contents~~

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Accumulated Other Comprehensive Income (Loss)

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

Three Months Ended June 30: 2022 2021
Foreign Currency Translation Gain (Loss), Net of Tax:
Balance at beginning of period $ (1,202) $ (1,063)
Translation adjustment (net of tax effect of $7 and $(1)) (245) 48
Balance at end of period (1,447) (1,015)
Unrealized Gain (Loss) on Marketable Securities, Net of Tax:
Balance at beginning of period (7) 2
Current period changes in fair value (net of tax effect of $0 and $0) (1) —
Reclassification to earnings (net of tax effect of $0 and $0) — (1)
Balance at end of period (8) 1
Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax:
Balance at beginning of period 26 (109)
Current period changes in fair value (net of tax effect of $89 and $(14)) 283 (43)
Reclassification to earnings (net of tax effect of $(16) and $(1)) (49) (3)
Balance at end of period 260 (155)
Unrecognized Pension and Postretirement Benefit Costs, Net of Tax:
Balance at beginning of period (2,074) (3,489)
Net actuarial gain (loss) resulting from remeasurements of plan assets and liabilities (net of tax effect of $0 and $495) — 1,569
Reclassification to earnings (net of tax effect of $6 and $8) 18 25
Balance at end of period (2,056) (1,895)
Accumulated other comprehensive income (loss) at end of period $ (3,251) $ (3,064)

~~Table of Contents~~

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

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Six Months Ended June 30: 2022 2021
Foreign currency translation gain (loss), net of tax:
Balance at beginning of period $ (1,162) $ (981)
Translation adjustment (net of tax effect of $7 and $29) (285) (34)
Balance at end of period (1,447) (1,015)
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) (7) (1)
Reclassification to earnings (net of tax effect of $0 and $0) — (4)
Balance at end of period (8) 1
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of period (17) (223)
Current period changes in fair value (net of tax effect of $112 and $25) 355 81
Reclassification to earnings (net of tax effect of $(25) and $(4)) (78) (13)
Balance at end of period 260 (155)
Unrecognized pension and postretirement benefit costs, net of tax:
Balance at beginning of period (2,098) (5,915)
Net actuarial gain (loss) resulting from remeasurements of plan assets and liabilities (net of tax effect of $11 and $2,039) 31 6,470
Reclassification to earnings (net of tax effect of $3 and $(772)) 11 (2,450)
Balance at end of period (2,056) (1,895)
Accumulated other comprehensive income (loss) at end of period $ (3,251) $ (3,064)


Three Months Ended June 30:	2023		2022
Foreign Currency Translation Gain (Loss), Net of Tax:
Balance at beginning of period	$	(1,328)	$	(1,202)
Translation adjustment (net of tax effect of $2 and $7)	(18)		(245)
Reclassification to earnings (net of tax effect of $0 and $0)	—		—
Balance at end of period	(1,346)		(1,447)
Unrealized Gain (Loss) on Marketable Securities, Net of Tax:
Balance at beginning of period	(4)		(7)
Current period changes in fair value (net of tax effect of $(5) and $0)	(16)		(1)
Reclassification to earnings (net of tax effect of $0 and $0)	—		—
Balance at end of period	(20)		(8)
Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax:
Balance at beginning of period	90		26
Current period changes in fair value (net of tax effect of $(14) and $89)	(43)		283
Reclassification to earnings (net of tax effect of $(12) and $(16))	(37)		(49)
Balance at end of period	10		260
Unrecognized Pension and Postretirement Benefit Costs, Net of Tax:
Balance at beginning of period	(239)		(2,074)
Net actuarial gain (loss) resulting from remeasurements of plan assets and liabilities (net of tax effect of $0 and $0)	—		—
Reclassification to earnings (net of tax effect of $6 and $6)	21		18
Balance at end of period	(218)		(2,056)
Accumulated other comprehensive income (loss) at end of period	$	(1,574)	$	(3,251)

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the three and six months ended June 30, 2022 and 2021 is as follows (in millions):~~
Amount Reclassified from AOCI Affected Line Item in the Income Statement
Three Months Ended June 30: 2022 2021
Unrealized Gain (Loss) on Marketable Securities:
Realized gain (loss) on sale of securities $ — $ 1 Investment income and other
Income tax (expense) benefit — — Income tax expense
Impact on net income — 1 Net income
Unrealized Gain (Loss) on Cash Flow Hedges:
Interest rate contracts (2) (3) Interest expense
Foreign currency exchange contracts 67 7 Revenue
Income tax (expense) benefit (16) (1) Income tax expense
Impact on net income 49 3 Net income
Unrecognized Pension and Postretirement Benefit Costs:
Prior service costs (24) (36) Investment income and other
Prior service credit for divested business — 69 Other expenses
Plan amendments for divested business — (66) Other expenses
Income tax (expense) benefit 6 8 Income tax expense
Impact on net income (18) (25) Net income
Total amount reclassified for the period $ 31 $ (21) Net income

Amount Reclassified from AOCI Affected Line Item in the Income Statement
Six Months Ended June 30: 2022 2021
Unrealized gain (loss) on marketable securities:
Realized gain (loss) on sale of securities $ — $ 4 Investment income and other
Income tax (expense) benefit — — Income tax expense
Impact on net income — 4 Net income
Unrealized gain (loss) on cash flow hedges:
Interest rate contracts (5) (5) Interest expense
Foreign currency exchange contracts 108 22 Revenue
Income tax (expense) benefit (25) (4) Income tax expense
Impact on net income 78 13 Net income
Unrecognized pension and postretirement benefit costs:
Prior service costs (47) (71) Investment income and other
Prior service credit for divested business — 69 Other expenses
Plan amendments for divested business — (66) Other expenses
Remeasurement of benefit obligation — 3,290 Investment income and other
Curtailment of benefit obligation 33 — Investment income and other
Income tax (expense) benefit 3 (772) Income tax expense
Impact on net income (11) 2,450 Net income
Total amount reclassified for the period $ 67 $ 2,467 Net income


Six Months Ended June 30:	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 $(13) and $7)	97		(285)
Reclassification to earnings (net of tax effect of $0 and $0)	3		—
Balance at end of period	(1,346)		(1,447)
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 $(4) and $(2))	(11)		(7)
Reclassification to earnings (net of tax effect of $1 and $0)	2		—
Balance at end of period	(20)		(8)
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 $(22) and $112)	(69)		355
Reclassification to earnings (net of tax effect of $(28) and $(25))	(88)		(78)
Balance at end of period	10		260
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 $13 and $3)	41		11
Balance at end of period	(218)		(2,056)
Accumulated other comprehensive income (loss) at end of period	$	(1,574)	$	(3,251)

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Detail of the gains (losses) reclassified from accumulated other comprehensive income (loss) to the statements of consolidated income for the three and six months ended June 30, 2023 and 2022 is as follows (in millions):


	Amount Reclassified from AOCI(1)				Affected Line Item in the Income Statement
Three Months Ended June 30:	2023		2022








Unrealized Gain (Loss) on Cash Flow Hedges:
Interest rate contracts	$	(2)	$	(2)	Interest expense
Foreign currency exchange contracts	51		67		Revenue

Income tax (expense) benefit	(12)		(16)		Income tax expense
Impact on net income	37		49		Net income
Unrecognized Pension and Postretirement Benefit Costs:
Prior service costs	(27)		(24)		Investment income and other


Income tax (expense) benefit	6		6		Income tax expense
Impact on net income	(21)		(18)		Net income
Total amount reclassified for the period	$	16	$	31	Net income
(1) Accumulated other comprehensive income (loss)


	Amount Reclassified from AOCI(1)				Affected Line Item in the Income Statement
Six Months Ended June 30:	2023		2022
Unrealized Gain (Loss) on Foreign Currency Translation:
Realized gain (loss) on business wind-down	$	(3)	$	—	Other expenses
Income tax (expense) benefit	—		—		Income tax expense
Impact on net income	(3)		—		Net income
Unrealized gain (loss) on marketable securities:
Realized gain (loss) on sale of securities	(3)		—		Investment income and other
Income tax (expense) benefit	1		—		Income tax expense
Impact on net income	(2)		—		Net income
Unrealized gain (loss) on cash flow hedges:
Interest rate contracts	(3)		(5)		Interest expense
Foreign currency exchange contracts	119		108		Revenue

Income tax (expense) benefit	(28)		(25)		Income tax expense
Impact on net income	88		78		Net income
Unrecognized pension and postretirement benefit costs:
Prior service costs	(54)		(47)		Investment income and other

Curtailment of benefit obligation	—		33		Investment income and other
Income tax (expense) benefit	13		3		Income tax expense
Impact on net income	(41)		(11)		Net income
Total amount reclassified for the period	$	42	$	67	Net income
(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.~~exercised.

Activity in the deferred compensation program for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 was as follows (in millions):


		2022			2021				2023			2022
Three Months Ended June 30:	Three Months Ended June 30:	Shares	Dollars		Shares	Dollars		Three Months Ended June 30:	Shares	Dollars		Shares	Dollars
Deferred Compensation Obligations:	Deferred Compensation Obligations:							Deferred Compensation Obligations:
Balance at beginning of period	Balance at beginning of period		$	12		$	15	Balance at beginning of period		$	9		$	12
Reinvested dividends	Reinvested dividends		1			1		Reinvested dividends		—			1
Benefit payments	Benefit payments		(1)			—		Benefit payments		—			(1)
Balance at end of period	Balance at end of period		$	12		$	16	Balance at end of period		$	9		$	12
Treasury Stock:	Treasury Stock:							Treasury Stock:
Balance at beginning of period	Balance at beginning of period	—	$	(12)	—	$	(15)	Balance at beginning of period	—	$	(9)	—	$	(12)
Reinvested dividends	Reinvested dividends	—	(1)		—	(1)		Reinvested dividends	—	—		—	(1)
Benefit payments	Benefit payments	—	1		—	—		Benefit payments	—	—		—	1
Balance at end of period	Balance at end of period	—	$	(12)	—	$	(16)	Balance at end of period	—	$	(9)	—	$	(12)


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

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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 Asia, 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, Coyote, Healthcare 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, mail and consulting services. Coyote offers truckload brokerage services primarily in the United States. ~~Marken is a global provider of~~Our Healthcare businesses provide supply chain solutions to the healthcare and life sciences ~~industry, specializing in clinical trials logistics. Our other~~industries. Other businesses within Supply Chain Solutions include The UPS Store, UPS Capital, Roadie and Delivery Solutions. ~~UPS Freight was included within this segment until its divestiture in the second quarter of 2021.~~

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

Results of operations for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 are as follows (in millions):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenue:	Revenue:									Revenue:
U.S. Domestic Package	U.S. Domestic Package	$	15,459	$	14,402	$	30,583	$	28,412	U.S. Domestic Package	$	14,396	$	15,459	$	29,383	$	30,583
International Package	International Package	5,073		4,817		9,949		9,424		International Package	4,415		5,073		8,958		9,949
Supply Chain Solutions	Supply Chain Solutions	4,234		4,205		8,612		8,496		Supply Chain Solutions	3,244		4,234		6,639		8,612
Consolidated revenue	Consolidated revenue	$	24,766	$	23,424	$	49,144	$	46,332	Consolidated revenue	$	22,055	$	24,766	$	44,980	$	49,144
Operating Profit:	Operating Profit:									Operating Profit:
U.S. Domestic Package	U.S. Domestic Package	$	1,829	$	1,567	$	3,491	$	2,926	U.S. Domestic Package	$	1,602	$	1,829	$	3,068	$	3,491
International Package	International Package	1,193		1,184		2,309		2,269		International Package	883		1,193		1,711		2,309
Supply Chain Solutions	Supply Chain Solutions	513		507		986		828		Supply Chain Solutions	295		513		542		986
Consolidated operating profit	Consolidated operating profit	$	3,535	$	3,258	$	6,786	$	6,023	Consolidated operating profit	$	2,780	$	3,535	$	5,321	$	6,786

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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 distributions whether through dividends or in liquidation.

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 (in millions, except per share amounts):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Numerator:	Numerator:									Numerator:
Net income attributable to common shareowners	Net income attributable to common shareowners	$	2,849	$	2,676	$	5,511	$	7,468	Net income attributable to common shareowners	$	2,081	$	2,849	$	3,976	$	5,511
Denominator:	Denominator:									Denominator:
Weighted average shares	Weighted average shares	871		870		871		869		Weighted average shares	857		871		858		871

Vested portion of restricted units	Vested portion of restricted units	3		5		3		5		Vested portion of restricted units	3		3		3		3
Denominator for basic earnings per share	Denominator for basic earnings per share	874		875		874		874		Denominator for basic earnings per share	860		874		861		874
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Restricted units	Restricted units	1		2		3		3		Restricted units	1		1		1		3
Stock options	Stock options	1		1		1		1		Stock options	—		1		1		1
Denominator for diluted earnings per share	Denominator for diluted earnings per share	876		878		878		878		Denominator for diluted earnings per share	861		876		863		878
Basic earnings per share	Basic earnings per share	$	3.26	$	3.06	$	6.31	$	8.54	Basic earnings per share	$	2.42	$	3.26	$	4.62	$	6.31
Diluted earnings per share	Diluted earnings per share	$	3.25	$	3.05	$	6.28	$	8.51	Diluted earnings per share	$	2.42	$	3.25	$	4.61	$	6.28

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

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NOTE 15. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT

Risk Management Policies

Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations and we actively monitor these exposures. ToWhere deemed appropriate, to manage the impact of these exposures on earnings and/or cash flows, we may enter into a variety of derivative financial instruments. Our objective is to manage, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates, commodity prices and interest rates. It is our policy and practice to use derivative financial instruments only to the extent necessary to manage exposures. As we use price-sensitive instruments to hedge a certain portion of our existing and anticipated transactions, we expect that any loss in value from those instruments generally would be offset by increases in the value of those hedged transactions. We do not hold or issue derivative financial instruments for trading or speculative purposes.

Credit Risk Management

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

Asthrough the use of ~~June 30, 2022 and December 31, 2021, we had agreements with all of our active counterparties (covering all of our derivative positions) which contained early termination rights and/or~~ zero threshold bilateral collateral provisions and/or early termination rights utilizing master netting arrangements, whereby cash is ~~required~~exchanged based on the net fair value of derivatives associated with ~~those counterparties.~~each counterparty.

As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we held cash collateral of ~~$546~~$238 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 June 30, ~~2022 and~~2023, we were required to post $1 million with our counterparties. As of 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 may 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 account remain until the sale or substantially complete liquidation of the foreign entity, upon which we recognize these balances as a component of ~~Investment income and other~~ ~~in the statements of consolidated income.~~

Interest Rate Risk Management

~~Our indebtedness under our various financing arrangements creates interest rate risk.~~ We may 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~~generally designate 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~~designate and account for interest rate swaps that convert floating-rate interest payments into fixed-rate interest payments as cash flow hedges of the forecasted payment obligations. ~~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 June 30, 2022 and December 31, 2021, the notional amounts of our outstanding derivative positions were as follows (in millions):~~

June 30, 2022 December 31, 2021
Currency hedges:
Euro EUR 4,279 4,257
British Pound Sterling GBP 1,421 1,402
Canadian Dollar CAD 1,655 1,633
Hong Kong Dollar HKD 4,327 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 June 30, 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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Outstanding Positions

As of June 30, 2023 and December 31, 2022, the notional amounts of our outstanding derivative positions were as follows (in millions):


		June 30, 2023	December 31, 2022
Currency hedges:
Euro	EUR	3,778	4,115
British Pound Sterling	GBP	733	856
Canadian Dollar	CAD	1,470	1,598
Hong Kong Dollar	HKD	3,553	4,261






Interest rate hedges:

Floating to Fixed Interest Rate Swaps	USD	28	28

As of June 30, 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 June 30, ~~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		June 30, 2022			December 31, 2021			June 30, 2022			December 31, 2021	Asset Derivatives			Balance Sheet Location				June 30, 2023			December 31, 2022			June 30, 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		$	214		$	100		$	207		$	82	Foreign currency exchange contracts			Other current assets	Level 2		$	116		$	174		$	100		$	171
Interest rate contracts		Other current assets	Level 2		—			11			—			11

Foreign currency exchange contracts	Foreign currency exchange contracts	Other non-current assets	Level 2		328			123			320			90		Foreign currency exchange contracts			Other non-current assets	Level 2		127			250			89			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		2			2			2			2		Foreign currency exchange contracts			Other current assets	Level 2		—			1			—			1

Total Asset Derivatives	Total Asset Derivatives				$	544		$	236		$	529		$	185	Total Asset Derivatives						$	243		$	425		$	189		$	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		June 30, 2022			December 31, 2021			June 30, 2022			December 31, 2021	Liability Derivatives			Balance Sheet Location				June 30, 2023			December 31, 2022			June 30, 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		$	7		$	19		$	—		$	1	Foreign currency exchange contracts			Other current liabilities	Level 2		$	16		$	3		$	—		$	—
Interest rate contracts		Other current liabilities	Level 2		1			—			1			—

Foreign currency exchange contracts	Foreign currency exchange contracts	Other non-current liabilities	Level 2		8			33			—			—		Foreign currency exchange contracts			Other non-current liabilities	Level 2		39			24			1			—
Interest rate contracts	Interest rate contracts	Other non-current liabilities	Level 2		6			10			6			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		—			—			—			—

Total Liability Derivatives	Total Liability Derivatives				$	22		$	62		$	7		$	11	Total Liability Derivatives						$	60		$	32		$	6		$	5

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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 June 30, ~~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
June 30, 2022 June 30, 2022 December 31, 2021 December 31, 2021
Current maturities of long-term debt, commercial paper and finance leases $ 999 $ (1) $ 1,010 $ 11
Long-term debt and finance leases $ 280 $ 5 $ 280 $ 5

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

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~~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
	June 30, 2023		June 30, 2023		December 31, 2022		December 31, 2022

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

Income Statement and AOCI Recognition of Designated Hedges

The following table indicates the amount of gains ~~and~~ (losses) that have been recognized in the statements of consolidated income for fair value and cash flow hedges, as well as the associated gain or (loss) for the underlying hedged item for fair value hedges for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 (in millions):

Three Months Ended June 30,
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships 2022 2021
Revenue Interest Expense Investment Income and Other Revenue Interest Expense Investment Income and Other
Gain or (loss) on fair value hedging relationships:
Interest Contracts:
Hedged items $ — $ 3 $ — $ — $ 4 $ —
Derivatives designated as hedging instruments — (3) — — (4) —
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income — (2) — — (3) —
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income 67 — 0 7 0 —
Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded $ 67 $ (2) $ — $ 7 $ (3) $ —

Six Months Ended June 30,

2022 2021
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships Revenue Interest Expense Investment Income and Other Revenue Interest Expense Investment Income and Other
Gain or (loss) on fair value hedging relationships:
Interest Contracts:
Hedged items $ — $ 11 $ — $ — $ 10 $ —
Derivatives designated as hedging instruments — (11) — — (10) —
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income — (5) — — (5) —
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income 108 — — 22 — —
Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded $ 108 $ (5) $ — $ 22 $ (5) $ —



	Three Months Ended June 30,
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships	2023						2022
	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	$	—	$	—	$	—	$	—	$	3	$	—
Derivatives designated as hedging instruments	—		—		—		—		(3)		—
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income	—		(2)		—		—		(2)		—
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income	51		—		—		67		—		—
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	$	51	$	(2)	$	—	$	67	$	(2)	$	—

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Six Months Ended June 30,
	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	$	—	$	—	$	—	$	—	$	11	$	—
Derivatives designated as hedging instruments	—		—		—		—		(11)		—
Gain (loss) on cash flow hedging relationships:
Interest Rate Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income	—		(3)		—		—		(5)		—
Foreign Currency Exchange Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income	119		—		—		108		—		—
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	$	119	$	(3)	$	—	$	108	$	(5)	$	—

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

Three Months Ended June 30:
Derivative Instruments in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives
2022 2021
Interest rate contracts $ 1 $ (3)
Foreign currency exchange contracts 371 (54)
Total $ 372 $ (57)
Six Months Ended June 30:
Derivative Instruments in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives
2022 2021
Interest rate contracts $ 4 $ —
Foreign currency exchange contracts 463 106
Total $ 467 $ 106


Three Months Ended June 30:
Derivative Instruments in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives
	2023		2022
Interest rate contracts	$	—	$	1
Foreign currency exchange contracts	(57)		371

Total	$	(57)	$	372

Six Months Ended June 30:
Derivative Instruments in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives
	2023		2022
Interest rate contracts	$	—	$	4
Foreign currency exchange contracts	(91)		463

Total	$	(91)	$	467

As of June 30, ~~2022,~~2023, there were ~~$199~~$94 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 June 30, ~~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 and six months ended June 30, 2022 and 2021 for those instruments designated as net investment hedges (in millions):

Three Months Ended June 30:
Non-derivative Instruments in Net Investment Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Debt
2022 2021
Foreign denominated debt $ 181 $ (47)
Total $ 181 $ (47)
Six Months Ended June 30:
Non-derivative Instruments in Net Investment Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Debt
2022 2021
Foreign denominated debt $ 227 $ 77
Total $ 227 $ 77

Additionally, we maintain foreign currency exchange forward contracts that are not designated as hedges. These 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.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


Three Months Ended June 30:
Non-derivative Instruments in Net Investment Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Debt
	2023		2022
Foreign currency denominated debt	$	(25)	$	181
Total	$	(25)	$	181

Six Months Ended June 30:
Non-derivative Instruments in Net Investment Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Debt
	2023		2022
Foreign currency denominated debt	$	(98)	$	227
Total	$	(98)	$	227

Income Statement Recognition of Non-Designated Derivative Instruments

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

We may periodically terminate interest rate swaps and foreign currency exchange forward contracts or enter into offsetting swap and foreign currency positions with different counterparties. As part of this process, we de-designate our original hedge relationship.

Amounts recorded in the statements of consolidated income related to fair value changes and settlements of interest rate swaps and foreign currency ~~exchange~~ forward contracts not designated as hedges for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 (in millions): were as follows:


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

Foreign currency exchange contracts	Foreign currency exchange contracts	Investment income and other		$	(58)		$	3	Foreign currency exchange contracts		Investment income and other		$	(1)	$	(58)

Total	Total			$	(58)		$	3	Total				$	(1)	$	(58)

Six Months Ended June 30:	Six Months Ended June 30:								Six Months Ended June 30:

Foreign currency exchange contracts	Foreign currency exchange contracts	Investment income and other		$	(86)		$	(3)	Foreign currency exchange contracts		Investment income and other		$	3	$	(86)

Total	Total			$	(86)		$	(3)	Total				$	3	$	(86)

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. INCOME TAXES

Our effective tax rate increased to ~~22.9%~~23.5% in the second quarter from ~~22.1%~~22.9% in the same period of ~~2021 (22.3%~~2022 (24.2% year to date compared to ~~22.5%~~22.3% in ~~2021)~~2022). The ~~recognition in income tax of~~year-over-year increase was driven by lower excess tax benefits related to share-based compensation, reduced our effective rate by 0.1% in the second quarter compared to 0.3% in the same period of 2021 (1.2% year to date compared to 0.8% in 2021). Other items that impacted our effective tax rate in the second quarter compared to 2021 included favorable changes in uncertain tax positions and unfavorable changes in ~~our~~ jurisdictional earnings ~~mix.~~mix and uncertain tax 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.

In Over the ~~first six~~next twelve months, it is reasonably possible that the amount of ~~2022, we recognized an immaterial income~~unrecognized tax ~~expense related~~benefits may decrease by up 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 six months of 2021, we recognized an income tax expense of $788 million related to a pre-tax mark-to-market gain of $3.3 billion on the UPS/IBT Full-Time Employee Pension Plan. This income tax expense was generated at a higher average tax rate than the U.S. federal statutory tax rate because it included the effect of U.S. state and local taxes.

As discussed in note 17, we recognized pre-tax transformation strategy costs of $41 million in the second quarter of 2022 compared to $116 million in the same period of 2021 ($96 million year to date compared to $234 million in the prior year). As a result, we recorded an income tax benefit of $10 million in the second quarter compared to $28 million in the same period of 2021 ($22 million year to date compared to $56 million in the prior year). The income tax benefit was generated at a higher average tax rate than the U.S. federal statutory tax rate primarily due to the effect of U.S. state and local taxes and foreign taxes.

~~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~~$186 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. In the second quarter of 2021, we completed the divestiture of UPS Freight and recorded a pre-tax gain of $101 million. As a result, we recorded additional income tax expense of $24 million. The 2021 expense was generated at a higher average tax rate than the U.S. federal statutory tax rate due to the effect of U.S. state and local taxes.

Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations, which was effective through December 31, 2021. During the first six months of 2022, the tax incentive was renegotiated and extended. The tax incentive is conditioned upon our meeting specific employment and investment thresholds, which we expect to meet. The impact of the tax incentive did not significantly change our effective tax rate for the first six months of 2022 compared to 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~~organization that includes ~~investments,~~initiatives, as well as changes in processes and technology, that impact global direct and indirect operating costs. During the quarter, we began implementing staffing adjustment initiatives to reduce our overhead cost and better align direct labor headcount with volumes. As of June 30, 2023, we recorded an accrual for separation costs of $85 million on the consolidated balance sheet. We expect substantially all of these costs will be paid by December 31, 2023.

The table below presents transformation strategy costs for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 (in millions):
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Transformation Strategy Costs:
Compensation and benefits $ 23 $ 55 $ 56 $ 131
Total other expenses 18 61 40 103
Total Transformation Strategy Costs $ 41 $ 116 $ 96 $ 234
Income Tax Benefit from Transformation Strategy Costs (10) (28) (22) (56)
After Tax Transformation Strategy Costs $ 31 $ 88 $ 74 $ 178


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Transformation Strategy Costs:
Compensation and benefits	$	109	$	23	$	97	$	56
Total other expenses	30		18		45		40
Total Transformation Strategy Costs	$	139	$	41	$	142	$	96

Income Tax Benefit from Transformation Strategy Costs	(33)		(10)		(33)		(22)
After-Tax Transformation Strategy Costs	$	106	$	31	$	109	$	74

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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18. SUBSEQUENT EVENTS

On July 25, 2023, we reached a tentative new national master agreement with the Teamsters that provides us with the flexibility we need to continue to innovate and deliver industry-leading customer service. The economic provisions in the tentative new national master agreement include pay and benefit increases for both our part-time and full-time Teamster employees, as well as workplace enhancements for employees. Subject to ratification by our Teamster-represented employees, the new agreements will be retroactively effective as of August 1, 2023.

As of the date hereof, we cannot provide any assurances as to the timing or certainty of ratification. The Teamsters have indicated publicly, however, that the ratification voting process will conclude by August 22. The failure by Teamster employees to ratify the new national master agreement could have a material adverse effect on our business, financial condition and results of operations.

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

Overview

~~Pursuing~~As the world's premier package delivery company and a leading provider of global supply chain management solutions, we seek to provide industry-leading service to our customers by combining our digital capabilities with our global integrated network. Under our Customer First, People Led, Innovation Driven strategy, we ~~continue~~are continuing to build capabilities that create value for our customers. Our strategy involves creating speed and ease of access to our services, particularly in the parts of the market that value our end-to-end network, and driving productivity improvementsinvest in our business ~~while delivering strong financial results~~ to ~~our shareowners.~~improve the customer experience, increase productivity and drive growth in targeted customer segments.

~~Customer First~~ ~~is focused on leveraging technology to enable digital commerce solutions. During~~In the second quarter, we ~~expanded~~continued the global expansion of our Digital Access Program to make it easier for e-commerce platforms and ~~our advanced technology healthcare solution that prioritizes complex healthcare shipments within our network.~~small- and medium-sized businesses ("SMBs") to do business with us. We ~~also completed the acquisition of Delivery Solutions, a digital platform that optimizes customer deliveries across multiple networks. As part of~~continued deploying our ~~People Led~~Smart Package-Smart ~~strategic focus, we recently appointed a Chief Digital and Technology Officer to lead the continuing digital transformation of our business. Executing under our~~ ~~Innovation Driven~~Facility ~~strategic pillar, we continue~~technology, added to ~~increase the agility and automation of~~ our network ~~with smart facility technology that better enables us~~of dedicated healthcare distribution facilities and continued to ~~respond more rapidly to shifting volume trends and improves productivity.~~expand our joint venture in India's domestic market.

~~A number of external factors contributed~~Macroeconomic headwinds, including persistent global inflation, declines in U.S. manufacturing production and volume diversion resulting from our labor negotiations with the Teamsters, led to a challenging operating environment ~~for~~in the ~~first half of~~second quarter and year-to-date periods. Internationally, the year, including global inflation, which impacted consumer spending, geopolitical uncertainties, wage and labor market pressures, fuel prices and foreign currency exchange rates. Additionally, areas withineconomic recovery in Asia ~~continued to experience shutdowns and other restrictions as a result of~~slowed during the ~~ongoing COVID-19 pandemic.~~ second quarter, while conditions in Europe remained challenging throughout the period.

These factors ~~resulted in disruptions~~led to certain parts of our business, negatively impacted demand for our services and contributed to increases in certain of our operating costs. We expect these impacts will continue throughout the remainder of 2022.

~~Volume declined~~volume declines in our ~~U.S. Domestic Package reportable segment in both the current year periods, driven by lower residential volume as we continued to optimize our network within our~~ ~~Better not Bigger~~ ~~strategic framework. Broader economic factors also contributed to reduced demand for residential deliveries. Revenue per piece growth more than offset the decline in volume~~global small package operations for both the quarter and year to ~~date. Successful execution~~date, and we anticipate that they will continue to impact us throughout the remainder of the year.

Notwithstanding the challenging external environment, we managed our ~~strategy primarily drove increases in~~network with agility, focused on productivity and controlled cost to deliver operating profit ~~and operating margin~~that was in ~~both periods.~~

Our International Package reportable segment was also impacted by those external factors, as well as the year-over-year impact of the COVID-19 pandemic on e-commerce spending. This resulted in volume declines in the current year periods, although the declines were more than offset by revenue per piece growth. Results were also impacted by the strengthening of the U.S. Dollar against European currencies. Despite the challenging global environment,line with our expectations. Additionally, we ~~continued to invest in our business by adding strategic lanes to our network and creating joint ventures to expand our services.~~

Within Supply Chain Solutions, year-over-year revenue growth was impacted by the second quarter 2021 divestiture of UPS Freight. Operating profit and operating margin increased, driven by growth in Forwarding and Logistics. Our Forwarding business continued to benefit from elevated market rates in international airfreight and ocean freight, which we anticipate will decrease in the latter half of the year. Truckload brokerage increased operating profit through revenue quality initiatives. Operating profit growth in Logistics was driven by business growth across our operations, including healthcare.

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

On July 25, 2023, we reached a tentative new national master agreement with the International Brotherhood of Teamsters. For additional information, see note 18 to the accompanying unaudited, consolidated financial statements.

We ~~recently announced an increase in our targeted share repurchases for 2022 to $3.0 billion.~~have two reportable segments: U.S. Domestic Package and International Package. Our remaining businesses are reported as Supply Chain 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
June 30, Change Six Months Ended
June 30, Change
2022 2021 $ % 2022 2021 $ %
Revenue (in millions) $ 24,766 $ 23,424 $ 1,342 5.7 % $ 49,144 $ 46,332 $ 2,812 6.1 %
Operating Expenses (in millions) 21,231 20,166 1,065 5.3 % 42,358 40,309 2,049 5.1 %
Operating Profit (in millions) $ 3,535 $ 3,258 $ 277 8.5 % $ 6,786 $ 6,023 $ 763 12.7 %
Operating Margin 14.3 % 13.9 % 13.8 % 13.0 %
Net Income (in millions) $ 2,849 $ 2,676 $ 173 6.5 % $ 5,511 $ 7,468 $ (1,957) (26.2) %
Basic Earnings Per Share $ 3.26 $ 3.06 $ 0.20 6.5 % $ 6.31 $ 8.54 $ (2.23) (26.1) %
Diluted Earnings Per Share $ 3.25 $ 3.05 $ 0.20 6.6 % $ 6.28 $ 8.51 $ (2.23) (26.2) %
Operating Days 64 64 128 127
Average Daily Package Volume (in thousands) 23,071 24,236 (4.8) % 23,175 24,191 (4.2) %
Average Revenue Per Piece $ 13.72 $ 12.26 $ 1.46 11.9 % $ 13.49 $ 12.19 $ 1.30 10.7 %

•~~Revenue increased in all segments in the current year periods, with double-digit revenue per piece growth in our global small package operations.~~


	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2023			2022			$		%		2023			2022			$		%
Revenue (in millions)	$	22,055		$	24,766		$	(2,711)	(10.9)	%	$	44,980		$	49,144		$	(4,164)	(8.5)	%
Operating Expenses (in millions)	19,275			21,231			(1,956)		(9.2)	%	39,659			42,358			(2,699)		(6.4)	%
Operating Profit (in millions)	$	2,780		$	3,535		$	(755)	(21.4)	%	$	5,321		$	6,786		$	(1,465)	(21.6)	%
Operating Margin	12.6		%	14.3		%					11.8		%	13.8		%
Net Income (in millions)	$	2,081		$	2,849		$	(768)	(27.0)	%	$	3,976		$	5,511		$	(1,535)	(27.9)	%
Basic Earnings Per Share	$	2.42		$	3.26		$	(0.84)	(25.8)	%	$	4.62		$	6.31		$	(1.69)	(26.8)	%
Diluted Earnings Per Share	$	2.42		$	3.25		$	(0.83)	(25.5)	%	$	4.61		$	6.28		$	(1.67)	(26.6)	%

Operating Days	64			64							128			128
Average Daily Package Volume (in thousands)	20,902			23,071					(9.4)	%	21,445			23,175					(7.5)	%
Average Revenue Per Piece	$	13.92		$	13.72		$	0.20	1.5	%	$	13.83		$	13.49		$	0.34	2.5	%

•Average daily package volume and revenue in our global small package operations decreased ~~primarily due to business-to-consumer volume declines.~~

•~~Operating expenses increased~~ for ~~both~~ the quarter and year to date, with declines in both commercial and residential shipments, primarily as a result of the external conditions and labor-related uncertainties described herein.

•Operating expenses decreased for the quarter and year to date, driven by ~~higher~~a reduction in purchased transportation in Supply Chain Solutions and reductions in fuel ~~prices.~~expense in our small package operations, as well as the impact of our ongoing productivity initiatives.

•Operating profit ~~increased in all segments~~and operating margin decreased for ~~both~~ the quarter and year to ~~date. U.S. Domestic Package segment~~date, as revenue declines were greater than operating ~~margin increased while International Package segment margin declined slightly in each period.~~expense reductions.

•~~Net~~We reported second quarter net income ~~was $2.8~~of $2.1 billion and diluted earnings per share ~~was $3.25 for the second quarter~~of $2.42 per share ($~~5.5~~4.0 billion and ~~$6.28~~$4.61 per share, year to date). Adjusted diluted earnings per share ~~was $3.29 for the quarter ($6.33~~were $2.54 per ~~share year to date) after adjusting for the after-tax impacts of:~~

◦~~transformation strategy costs of $31 million, or $0.04 per diluted~~ share for the second quarter, ~~($74~~which includes the after-tax impacts of transformation strategy costs of $106 million, ~~and $0.08~~or $0.12 per diluted share. Year to date, adjusted diluted earnings per share ~~year to date);~~were $4.74 per share, including the after-tax impacts of transformation strategy costs and

◦~~a first-quarter defined benefit plan curtailment gain~~ goodwill impairment charges of ~~$24~~$115 million, or ~~$0.03~~$0.13 per diluted ~~share that impacted the year-to-date period.~~share.

In the U.S. Domestic Package segment, revenue ~~increased~~declines for the quarter and year to date were driven by lower volume and fuel surcharge revenue. These were somewhat offset by revenue per piece growth due to increases in base rates, improvements in revenue quality and customer mix. Expenses for the quarter and year to date decreased, primarily due to a reduction in hours for union employees, lower management compensation expense, and declines in fuel expense and purchased transportation.

In our International Package segment, revenue declines for the quarter and year to date were driven by lower volume and declines in fuel and demand-related surcharges. Expense decreases for the quarter and year to date were primarily driven by lower fuel expense and purchased transportation as a result of volume declines and lower fuel prices.

In Supply Chain Solutions, revenue decreases for the quarter and year to date were driven by volume and market rate declines in Forwarding that were slightly offset by growth in Logistics, including the impact of the Bomi Group acquisition that occurred in the fourth quarter of 2022. Expenses decreased for the quarter and year to date, primarily ~~due to higher fuel revenue~~ driven by ~~increases~~lower purchased transportation in ~~both price per gallon and in fuel surcharge rates as part of our pricing strategy. Revenue quality and favorable shifts in customer mix also contributed to the increase. These factors were partially~~Forwarding. This was slightly offset by ~~volume declines. Expenses increased due to higher fuel prices and higher compensation and benefits costs.~~

In the International Package segment, revenue increased for the quarter and year to date, driven by fuel revenue and revenue quality, partially offset by lower volumes and unfavorable currency movements. Expenseexpense increases ~~were primarily driven by higher jet fuel prices.~~

~~In Supply Chain Solutions, revenue growth for the quarter and year to date was primarily attributable to Forwarding and~~within Logistics. Forwarding revenue growth was driven by market price increases, while Logistics experienced growth across its operations, particularly healthcare. Expenses were relatively flat for the quarter and year to date, as higher transportation costs in Forwarding and Logistics were offset by a reduction in operating expenses due to the second quarter 2021 divestiture of UPS Freight.

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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~~similarly titled measures reported by other companies.

Adjusted amounts reflect the following (in millions):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
Non-GAAP Adjustments	Non-GAAP Adjustments	2022		2021		2022		2021		Non-GAAP Adjustments	2023		2022		2023		2022
Operating Expenses:	Operating Expenses:									Operating Expenses:
Transformation Strategy Costs	Transformation Strategy Costs	$	41	$	116	$	96	$	234	Transformation Strategy Costs	$	139	$	41	$	142	$	96
Asset Impairment Charges and Divestitures		—		(101)		—		(35)
Goodwill and Asset Impairments, and Divestiture Charges										Goodwill and Asset Impairments, and Divestiture Charges	—		—		8		—
Total Adjustments to Operating Expenses	Total Adjustments to Operating Expenses	$	41	$	15	$	96	$	199	Total Adjustments to Operating Expenses	$	139	$	41	$	150	$	96

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	$	41	$	15	$	63	$	(3,091)	Total Adjustments to Income Before Income Taxes	$	139	$	41	$	150	$	63

Income Tax (Benefit) Expense:	Income Tax (Benefit) Expense:									Income Tax (Benefit) Expense:
Transformation Strategy Costs	Transformation Strategy Costs	$	(10)	$	(28)	$	(22)	$	(56)	Transformation Strategy Costs	$	(33)	$	(10)	$	(33)	$	(22)
Asset Impairment Charges and Divestitures		—		24		—		8
Defined Benefit Plan (Gains) and Losses		—		—		9		788
Goodwill and Asset Impairments, and Divestiture Charges										Goodwill and Asset Impairments, and Divestiture Charges	—		—		(2)		—
Defined Benefit Plan (Gains) Losses										Defined Benefit Plan (Gains) Losses	—		—		—		9
Total Adjustments to Income Tax (Benefit) Expense	Total Adjustments to Income Tax (Benefit) Expense	$	(10)	$	(4)	$	(13)	$	740	Total Adjustments to Income Tax (Benefit) Expense	$	(33)	$	(10)	$	(35)	$	(13)

Total Adjustments to Net Income	Total Adjustments to Net Income	$	31	$	11	$	50	$	(2,351)	Total Adjustments to Net Income	$	106	$	31	$	115	$	50

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~~statements and for goodwill ~~and asset~~ impairment charges, ~~and divestitures,~~ see note 48 to ~~our audited,~~the unaudited, consolidated financial ~~statements in our Annual Report on Form 10-K for the year ended December 31, 2021.~~statements.

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RESULTS OF OPERATIONS

Foreign Currency Exchange Rate Changes and Hedging Activities

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

Currency-neutral revenue, revenue per piece and operating profit are calculated by dividing current period reported U.S. Dollar revenue, revenue per piece and operating profit by the current period average exchange rates to derive current period local currency revenue, revenue per piece and operating profit. The derived amounts are then multiplied by the average foreign currency exchange rates used to translate the comparable results for each month in the prior year period (including the period-over-period impact of foreign currency hedging activities). The difference between the current period reported U.S. Dollar revenue, revenue per piece and operating profit and the derived current period U.S. Dollar revenue, revenue per piece and operating profit is the period-over-period 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). for the six months ended June 30, 2022.

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

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RESULTS OF OPERATIONS

Results of Operations - Segment Review

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

Certain operating expenses are allocated between our reporting segments using activity-based costing methods. These activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed to each segment. Changes in these estimates directly impact the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses. There were no significant changes to our allocation methodologies in the second quarter or year-to-date periods.

As a normal part of managing of our air network, we routinely idle aircraft and engines temporarily for maintenance or to adjust network capacity. As a result of the reduction in volumes experienced in the first half of 2023, we have identified additional opportunities to temporarily idle aircraft within our network in order to better match capacity with current demand. Temporarily idled assets are classified as held-and-used, and we continue to record depreciation expense for these assets. As of June 30, 2023, we had four aircraft temporarily idled for an average period of approximately four months. We expect these aircraft to return to revenue service.

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 value thereof 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, our cost of capital and market comparables. We are also required to make assumptions relating to our overall business and operating strategy, and the regulatory and market environment.

Our business has been negatively impacted by macroeconomic conditions, including rising interest rates and inflationary pressures, that have reduced demand for our services. While we do not believe it is more likely than not that our reporting units’ fair values are less than their carrying values as of June 30, 2023, if challenging macroeconomic conditions persist, then these or other factors, including market comparables, may negatively impact certain estimates and assumptions that we use in developing our reporting units' fair values. Such impacts may be more pronounced for reporting units whose fair values do not significantly exceed their carrying values. Within our consolidated goodwill balance of $4.3 billion, certain reporting units within Supply Chain Solutions, including Roadie, whose fair value exceeded their carrying value by less than 10 percent as of the most recent valuation, represented approximately $300 million.

Actual reporting unit performance, revisions to our forecasts of reporting unit performance, changes in estimates or assumptions in connection with our annual testing, or a combination thereof could result in an impairment charge in one or more of our reporting units during the third quarter of 2023 or another future period.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

U.S. Domestic Package


		Three Months Ended June 30,						Change				Six Months Ended June 30,						Change					Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
		2022			2021			$		%		2022			2021			$		%			2023			2022			$		%		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	1,910			2,071					(7.8)	%	1,928			2,041					(5.5)	%	Next Day Air	1,679			1,910					(12.1)	%	1,708			1,928					(11.4)	%
Deferred	Deferred	1,401			1,581					(11.4)	%	1,455			1,548					(6.0)	%	Deferred	1,087			1,401					(22.4)	%	1,113			1,455					(23.5)	%
Ground	Ground	16,374			16,856					(2.9)	%	16,330			16,842					(3.0)	%	Ground	14,974			16,374					(8.6)	%	15,385			16,330					(5.8)	%
Total Average Daily Package Volume	Total Average Daily Package Volume	19,685			20,508					(4.0)	%	19,713			20,431					(3.5)	%	Total Average Daily Package Volume	17,740			19,685					(9.9)	%	18,206			19,713					(7.6)	%
Average Revenue Per Piece:	Average Revenue Per Piece:																					Average Revenue Per Piece:
Next Day Air	Next Day Air	$	21.73		$	18.53		$	3.20	17.3	%	$	21.27		$	18.47		$	2.80	15.2	%	Next Day Air	$	22.40		$	21.73		$	0.67	3.1	%	$	22.27		$	21.27		$	1.00	4.7	%
Deferred	Deferred	15.52			12.98			2.54		19.6	%	15.10			13.09			2.01		15.4	%	Deferred	16.80			15.52			1.28		8.2	%	16.59			15.10			1.49		9.9	%
Ground	Ground	10.89			9.86			1.03		10.4	%	10.77			9.84			0.93		9.5	%	Ground	11.29			10.89			0.40		3.7	%	11.25			10.77			0.48		4.5	%
Total Average Revenue Per Piece	Total Average Revenue Per Piece	$	12.27		$	10.97		$	1.30	11.9	%	$	12.12		$	10.95		$	1.17	10.7	%	Total Average Revenue Per Piece	$	12.68		$	12.27		$	0.41	3.3	%	$	12.61		$	12.12		$	0.49	4.0	%
Operating Days in Period	Operating Days in Period	64			64							128			127							Operating Days in Period	64			64							128			128
Revenue (in millions):	Revenue (in millions):																					Revenue (in millions):
Next Day Air	Next Day Air	$	2,656		$	2,456		$	200	8.1	%	$	5,250		$	4,787		$	463	9.7	%	Next Day Air	$	2,407		$	2,656		$	(249)	(9.4)	%	$	4,868		$	5,250		$	(382)	(7.3)	%
Deferred	Deferred	1,392			1,313			79		6.0	%	2,812			2,573			239		9.3	%	Deferred	1,169			1,392			(223)		(16.0)	%	2,363			2,812			(449)		(16.0)	%
Ground	Ground	11,411			10,633			778		7.3	%	22,521			21,052			1,469		7.0	%	Ground	10,820			11,411			(591)		(5.2)	%	22,152			22,521			(369)		(1.6)	%
Total Revenue	Total Revenue	$	15,459		$	14,402		$	1,057	7.3	%	$	30,583		$	28,412		$	2,171	7.6	%	Total Revenue	$	14,396		$	15,459		$	(1,063)	(6.9)	%	$	29,383		$	30,583		$	(1,200)	(3.9)	%
Operating Expenses (in millions):	Operating Expenses (in millions):																					Operating Expenses (in millions):
Operating Expenses	Operating Expenses	$	13,630		$	12,835		$	795	6.2	%	$	27,092		$	25,486		$	1,606	6.3	%	Operating Expenses	$	12,794		$	13,630		$	(836)	(6.1)	%	$	26,315		$	27,092		$	(777)	(2.9)	%
Transformation and Other Charges		(26)			(108)			82		(75.9)	%	(69)			(212)			143		(67.5)	%
Transformation Strategy Costs																						Transformation Strategy Costs	(79)			(26)			(53)		203.8	%	(101)			(69)			(32)		46.4	%
Adjusted Operating Expense	Adjusted Operating Expense	$	13,604		$	12,727		$	877	6.9	%	$	27,023		$	25,274		$	1,749	6.9	%	Adjusted Operating Expense	$	12,715		$	13,604		$	(889)	(6.5)	%	$	26,214		$	27,023		$	(809)	(3.0)	%
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	$	1,829		$	1,567		$	262	16.7	%	$	3,491		$	2,926		$	565	19.3	%	Operating Profit	$	1,602		$	1,829		$	(227)	(12.4)	%	$	3,068		$	3,491		$	(423)	(12.1)	%
Adjusted Operating Profit	Adjusted Operating Profit	$	1,855		$	1,675		$	180	10.7	%	$	3,560		$	3,138		$	422	13.4	%	Adjusted Operating Profit	$	1,681		$	1,855		$	(174)	(9.4)	%	$	3,169		$	3,560		$	(391)	(11.0)	%
Operating Margin	Operating Margin	11.8		%	10.9		%					11.4		%	10.3		%					Operating Margin	11.1		%	11.8		%					10.4		%	11.4		%
Adjusted Operating Margin	Adjusted Operating Margin	12.0		%	11.6		%					11.6		%	11.0		%					Adjusted Operating Margin	11.7		%	12.0		%					10.8		%	11.6		%

Revenue

The change in revenue was due to the following factors:
Volume Rates /
Product Mix Fuel
Surcharge Total Revenue
Change
Revenue Change Drivers:
Second quarter 2022 vs. 2021 (4.0) % 4.7 % 6.6 % 7.3 %
Year to date 2022 vs. 2021 (2.8) % 5.0 % 5.4 % 7.6 %

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

~~Volume~~

Average daily volume decreased in the second quarter and year to date, driven by an 8.2% decline in residential shipments (down 7.8% year to date). The decline in residential shipments for the quarter was primarily attributable to the optimization of volume from certain large customers as we continued to execute within our ~~Better Not Bigger~~ ~~strategic framework. These declines were slightly offset by growth from small- and medium-sized businesses ("SMBs") and increased business-to-business shipments.~~

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

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

~~RESULTS OF OPERATIONS~~

Volume for the quarter and year to date was also impacted by rising inflation that affected consumer demand and by a shift in consumer spending towards services. Business-to-consumer shipments for both the quarter and year to date represented approximately 57.3% of average daily volume, compared to 59.9% and 60.0%, respectively, in 2021.

Business-to-business shipments increased 2.3% for the quarter (up 2.9% year to date), with growth primarily in our Ground commercial product. We experienced growth from all customer segments as business-to-business activity continued to return to pre-pandemic levels. Overall, we anticipate that average daily volume will improve slightly in the second half of 2022 compared to the first half of the year.

Within our Air products, average daily volume decreased for the quarter, driven by lower volumes from certain of our large customers. Year to date, these declines were slightly offset by increases in Next Day Air volume from SMBs and other customers.

Within our Ground products, average daily volume decreased for the quarter and year to date, as declines in SurePost and Ground residential outpaced the gains in Ground commercial. SurePost and Ground residential average daily volumes decreased 4.8% and 8.1%, respectively, for the quarter (both decreased 7.7% year to date), driven by a reduction in shipments from a number of large retail customers. Ground residential was also impacted by changes in consumer spending as discussed above. Ground commercial volume increased 4.1% and 4.4% for the quarter and year to date, respectively, with growth from all customer segments as business activity continued to increase.

~~Rates and Product Mix~~

Revenue per piece in both our Air and Ground products increased for both the second quarter and year to date, driven by increases in fuel surcharges, base rates, pricing actions and favorable changes in customer mix as we continued to optimize volume within our network. 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 for the quarter and year to date was slightly impacted by a reduction in average billable weight per piece.

~~For the remainder of 2022, we anticipate that revenue per piece growth will moderate relative to the first half of the year.~~

~~Fuel Surcharges~~

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

Total domestic fuel surcharge revenue increased $949 million in the second quarter (up $1.6 billion year to date), driven by increases in both price per gallon and in fuel surcharge rates as part of our pricing strategy. We expect fuel surcharge revenue to remain elevated throughout the remainder of 2022.


	Volume		Rates / Product Mix		Fuel Surcharge		Total Revenue Change
Revenue Change Drivers:
Second quarter 2023 vs. 2022	(9.9)	%	6.1	%	(3.1)	%	(6.9)	%
Year to date 2023 vs. 2022	(7.6)	%	4.5	%	(0.8)	%	(3.9)	%

~~Table of Contents~~

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

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

~~RESULTS OF OPERATIONS~~

~~Operating Expenses~~

Operating expenses, and operating expenses excluding the year-over-year impact of transformation and other charges, increased for the quarter and year to date, partly due to the impact of one additional operating day in the year-to-date period. The cost of operating our integrated air and ground network increased $345 million (up $624 million year to date) and pickup and delivery costs increased $334 million (up $789 million year to date). Other indirect operating costs increased $176 million (up $234 million year to date) and package sorting costs increased $22 million (up $102 million year to date). These increases included the following:

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

•Increases in employee benefits expense for our union workforce primarily due to contractual rate increases for contributions to multiemployer benefit plans. We expect an additional contractual rate increase in the third quarter, in addition to higher year-over-year service cost for our company-sponsored pension plans.

•Higher compensation expense due to union contractual rate increases, cost of living and market-rate adjustments for our union workforce. These increases were partially offset by lower volumes, which led to a decrease in average daily union labor hours. We expect compensation expense will increase in the second half of the year as a result of the annual contractual rate increase, as well as additional cost of living and market-rate adjustments. Overall, we expect that compensation and benefits costs will increase by approximately $600 million year over year in the second half of 2022.

•~~Reallocation of Ground with Freight Pricing product expense following the second quarter 2021 divestiture of UPS Freight, which resulted in $26 million of increased segment operating expenses.~~

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

Total cost per piece increased 10.6% for the second quarter (up 9.3% year to date). Excluding the impact of transformation and other charges, adjusted cost per piece increased 11.4% for the second quarter and 9.9% year to date, for the reasons described above. We anticipate that the cost per piece growth rate will moderate in the second half of the year and remain below revenue per piece growth as we expect our productivity initiatives to more than offset rising costs.

~~Operating Profit and Margin~~

As a result of the factors described above, operating profit increased $262 million in the second quarter (up $565 million year to date), with operating margin increasing 90 basis points to 11.8% (up 110 basis points to 11.4% year to date). Excluding the year-over-year impact of transformation and other charges, adjusted operating profit increased $180 million for the quarter (up $422 million year to date), with adjusted operating margin increasing 40 basis points to 12.0% (up 60 basis points to 11.6% year to date).

~~Table of Contents~~

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

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

~~RESULTS OF OPERATIONS~~

~~International Package~~
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2022 2021 $ % 2022 2021 $ %
Average Daily Package Volume (in thousands):
Domestic 1,703 1,967 (13.4) % 1,754 1,988 (11.8) %
Export 1,683 1,761 (4.4) % 1,708 1,772 (3.6) %
Total Average Daily Package Volume 3,386 3,728 (9.2) % 3,462 3,760 (7.9) %
Average Revenue Per Piece:
Domestic $ 7.61 $ 7.44 $ 0.17 2.3 % $ 7.48 $ 7.38 $ 0.10 1.4 %
Export 36.91 32.60 4.31 13.2 % 35.47 31.85 3.62 11.4 %
Total Average Revenue Per Piece $ 22.17 $ 19.32 $ 2.85 14.8 % $ 21.29 $ 18.91 $ 2.38 12.6 %
Operating Days in Period 64 64 128 127
Revenue (in millions):
Domestic $ 829 $ 936 $ (107) (11.4) % $ 1,680 $ 1,864 $ (184) (9.9) %
Export 3,976 3,674 302 8.2 % 7,754 7,167 587 8.2 %
Cargo and Other 268 207 61 29.5 % 515 393 122 31.0 %
Total Revenue $ 5,073 $ 4,817 $ 256 5.3 % $ 9,949 $ 9,424 $ 525 5.6 %
Operating Expenses (in millions):
Operating Expenses $ 3,880 $ 3,633 $ 247 6.8 % $ 7,640 $ 7,155 $ 485 6.8 %
Transformation and Other Charges (11) (6) (5) 83.3 % (15) (12) (3) 25.0 %
Adjusted Operating Expenses $ 3,869 $ 3,627 $ 242 6.7 % $ 7,625 $ 7,143 $ 482 6.7 %
Operating Profit (in millions) and Operating Margin:
Operating Profit $ 1,193 $ 1,184 $ 9 0.8 % $ 2,309 $ 2,269 $ 40 1.8 %
Adjusted Operating Profit $ 1,204 $ 1,190 $ 14 1.2 % $ 2,324 $ 2,281 $ 43 1.9 %
Operating Margin 23.5 % 24.6 % 23.2 % 24.1 %
Adjusted Operating Margin 23.7 % 24.7 % 23.4 % 24.2 %
Currency Benefit / (Cost) – (in millions)*:
Revenue $ (261) $ (404)
Operating Expenses 201 316
Operating Profit $ (60) $ (88)
* Net of currency hedging; amount represents the change in currency translation compared to the prior year.

~~Revenue~~

~~The change in revenue was due to the following:~~
Volume Rates /
Product Mix Fuel
Surcharge Currency Total Revenue
Change
Revenue Change Drivers:
Second quarter 2022 vs. 2021 (9.2) % 9.5 % 10.4 % (5.4) % 5.3 %
Year to date 2022 vs. 2021 (7.1) % 8.6 % 8.4 % (4.3) % 5.6 %

Table of Contents

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Volume

Average daily volume decreased in the second quarter and year to date, with reductions in both residential and commercial shipments. In both periods, challenging external conditions, including persistent inflation, declines in U.S. manufacturing production and changes in consumer spending contributed to overall volume declines. During the second quarter, volume was also negatively impacted by uncertainty around the results of our labor negotiations with the Teamsters. We expect average daily volume to increase in the second half of 2023 compared to the first half of the year, and the year-over-year decline in average daily volume to be lower in the second half than in the first half.

Business-to-consumer shipments declined 11.5% in the second quarter (down 8.5% year to date), primarily due to a reduction in discretionary consumer spending as a result of the headwinds discussed above, as well as the impact of our labor negotiations with the Teamsters. For both the quarter and year to date, residential volume declines from SMBs were lower than from our large customers, which was partially due to continued growth in our Digital Access Program. Volume from our largest customer declined for both the second quarter and year to date as planned under our contract terms.

Business-to-business shipments declined 7.7% (down 6.5% year to date) primarily as a result of declines across multiple industry sectors that are sensitive to the factors discussed above. Uncertainty around our labor contract also negatively impacted volume in the second quarter. Returns volume remained relatively flat for the second quarter, but increased year to date.

Within our Air products, average daily volume decreased across all customer segments for both the quarter and year to date. These declines resulted primarily from continued execution under the contract terms with our largest customer and from other customers making cost trade offs and utilizing the enhanced speed in our ground network.

Ground residential and Ground commercial average daily volume decreases of 9.6% and 7.3%, respectively, for the quarter (down 5.8% and 5.7%, respectively, year to date), were primarily attributable to volume declines from a number of our large customers due to the economic factors discussed above.

Rates and Product Mix

Air and Ground rates increased an average of 6.9% in December 2022. Revenue per piece from our Air and Ground products increased for the quarter and year to date, resulting from base rate increases and additional pricing actions, as well as favorable changes in customer mix. For both the quarter and year to date, these increases were partially offset by the shift in product mix. For the quarter, a decline in fuel surcharges also negatively impacted revenue per piece.

We anticipate the year-over-year revenue per piece growth rate will moderate during the second half of the year, primarily driven by further anticipated declines in fuel surcharge revenue.

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 decreased $471 million for the quarter, driven by reductions in price per gallon and the impact of lower volume. Year to date, fuel surcharge revenue decreased $265 million, as higher prices per gallon and the impacts of our pricing initiatives in the first quarter were more than offset by the second-quarter declines discussed above. Based on the current commodity market outlook, we expect a continued year-over-year reduction in fuel surcharge revenue for the remainder of 2023.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Operating Expenses

Operating expenses and adjusted operating expenses decreased for both the quarter and year to date. Our pickup and delivery costs decreased $308 million in the second quarter (down $269 million year to date), the costs of operating our integrated air and ground network decreased $536 million in the second quarter (down $586 million year to date) and our package sorting costs decreased $86 million in the second quarter (down $110 million year to date). These decreases were partially offset by an increase of $41 million in other indirect operating costs in the second quarter (up $156 million year to date). The overall decrease in operating expenses was primarily due to:

•Lower compensation expense for both the quarter and year-to-date periods due to a reduction in direct union labor hours resulting from volume declines, as well as incentive compensation program design changes. These decreases were partially offset by contractual rate increases and cost of living adjustments for our union workforce.

•Lower employee benefits expense for our union workforce in the second quarter as service costs for our company-sponsored pension and postretirement plans decreased, driven by increases in the discount rates used to measure the projected benefit obligations of these plans.

•A reduction in purchased transportation costs for both the quarter and year to date, resulting from lower overall volumes and a reduction in ground volume handled by third-party carriers, as well as the impact of continued strategic productivity initiatives.

•Lower fuel expense driven by lower volume and decreases in the price of jet fuel, diesel and gasoline during the second quarter.

Total cost per piece increased 4.2% for the quarter (up 5.1% year to date), and adjusted cost per piece increased 3.7% for the quarter (up 5.0% year to date), for the reasons described above. We anticipate the cost per piece growth rate for the second half of 2023 will be consistent with that of the first half of the year, as increased costs arising from the tentative new national master agreement with the Teamsters are expected to be largely offset by the impacts of average daily volume increases, network improvements and productivity initiatives, as well as reductions in fuel cost.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $227 million in the second quarter (down $423 million year to date), with operating margin decreasing 70 basis points to 11.1% (down 100 basis points to 10.4% year to date). Adjusted operating profit decreased $174 million in the second quarter (down $391 million year to date), with adjusted operating margin decreasing 30 basis points to 11.7% (down 80 basis points to 10.8% year to date).

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

International Package


	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2023			2022			$		%		2023			2022			$		%
Average Daily Package Volume (in thousands):
Domestic	1,554			1,703					(8.7)	%	1,594			1,754					(9.1)	%
Export	1,608			1,683					(4.5)	%	1,645			1,708					(3.7)	%
Total Average Daily Package Volume	3,162			3,386					(6.6)	%	3,239			3,462					(6.4)	%
Average Revenue Per Piece:
Domestic	$	7.67		$	7.61		$	0.06	0.8	%	$	7.63		$	7.48		$	0.15	2.0	%
Export	33.70			36.91			(3.21)		(8.7)	%	33.34			35.47			(2.13)		(6.0)	%
Total Average Revenue Per Piece	$	20.91		$	22.17		$	(1.26)	(5.7)	%	$	20.69		$	21.29		$	(0.60)	(2.8)	%
Operating Days in Period	64			64							128			128
Revenue (in millions):
Domestic	$	763		$	829		$	(66)	(8.0)	%	$	1,557		$	1,680		$	(123)	(7.3)	%
Export	3,468			3,976			(508)		(12.8)	%	7,020			7,754			(734)		(9.5)	%
Cargo and Other	184			268			(84)		(31.3)	%	381			515			(134)		(26.0)	%
Total Revenue	$	4,415		$	5,073		$	(658)	(13.0)	%	$	8,958		$	9,949		$	(991)	(10.0)	%
Operating Expenses (in millions):
Operating Expenses	$	3,532		$	3,880		$	(348)	(9.0)	%	$	7,247		$	7,640		$	(393)	(5.1)	%
Transformation Strategy Costs	(19)			(11)			(8)		72.7	%	3			(15)			18		N/A
Adjusted Operating Expenses	$	3,513		$	3,869		$	(356)	(9.2)	%	$	7,250		$	7,625		$	(375)	(4.9)	%
Operating Profit (in millions) and Operating Margin:
Operating Profit	$	883		$	1,193		$	(310)	(26.0)	%	$	1,711		$	2,309		$	(598)	(25.9)	%
Adjusted Operating Profit	$	902		$	1,204		$	(302)	(25.1)	%	$	1,708		$	2,324		$	(616)	(26.5)	%
Operating Margin	20.0		%	23.5		%					19.1		%	23.2		%
Adjusted Operating Margin	20.4		%	23.7		%					19.1		%	23.4		%
Currency Benefit / (Cost) – (in millions)*:
Revenue							$	(34)									$	(195)
Operating Expenses							2										112
Operating Profit							$	(32)									$	(83)
* Net of currency hedging; amount represents the change in currency translation compared to the prior year.

Revenue

The change in revenue was due to the following:


	Volume		Rates / Product Mix		Fuel Surcharge		Currency		Total Revenue Change
Revenue Change Drivers:
Second quarter 2023 vs. 2022	(6.6)	%	0.6	%	(6.3)	%	(0.7)	%	(13.0)	%
Year to date 2023 vs. 2022	(6.4)	%	1.1	%	(2.7)	%	(2.0)	%	(10.0)	%

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Volume

Average daily volume decreased for the second quarter and year to date for both domestic and export products. Volume ~~declined~~ from both large customers and SMBs ~~primarily in~~declined, driven by declines from the retail and technology sectors. Business-to-consumer volume decreased ~~22.8%~~10.4% for the second quarter (down ~~21.7%~~9.1% year to date)~~, driven by challenging~~ as global ~~economic conditions,~~macroeconomic headwinds, including ~~rising~~high interest rates and persistent inflation, ~~geopolitical uncertainty and COVID-19 disruptions in Asia. Consumer e-commerce spending declined relative~~continued to ~~the first half of 2021 when COVID-19 restrictions were in place in a number of countries, contributing to the year-over-year decline in residential volume.~~impact consumer demand. These factors also negatively impacted business-to-business volume, which decreased ~~2.4%~~5.1% for the second quarter (down ~~1.0%~~5.4% year to date). We ~~expect overall~~anticipate similar year-over-year declines in average daily volume ~~growth rates to improve in~~during the second half of ~~the year, relative to the first half.~~2023.

Export volume decreased for both the quarter and year to date periods, driven by declines in Europe and Asia. European volume declines were highest on intra-Europe trade lanes, driven by overall economic conditions. The intra-Europe declines were slightly offset by growth on the Europe to U.S. trade lane. The decline in Asia export volume for the quarter and year-to-date periods was primarily driven by COVID-19 disruptions, which resulted in fewer flights being operated and reduced business activity in certain areas within China.

~~We experienced a slight volume decline in our premium Express products for both~~ the quarter and year to date, driven by declines in ~~our Transborder Express Saver product. Volume for our non-premium export products decreased 4.3%~~intra-Europe and Asia activity. Declines on intra-Europe trade lanes were primarily due to lower consumer spending as a result of economic conditions. Asia volume declines were highest on the Asia to U.S. and intra-Asia trade lanes, driven by the impact of overall economic conditions. The Asia to U.S. trade lane was also negatively impacted by rising inventory levels in the United States.

Our premium products saw volume decline 11.9% for the second quarter (down ~~3.3%~~9.3% year to date), primarily in our Worldwide and Transborder Express Saver products. Volume in our non-premium products decreased 0.8% for the second quarter (down 1.0% year to date), driven by declines in ~~our~~ Transborder Standard and Worldwide ~~Expedited products. The decline in our Transborder products was~~Expedited. These declines were largely driven by ~~the factors discussed above, while the decline in~~economic conditions. Additionally, weaker import demand from U.S. consumers further impacted our Worldwide ~~Expedited product resulted from shifts in customer preferences.~~products.

The challenging economic conditions also impacted Domestic volume, ~~also~~which declined for both the second quarter and year to date, ~~particularly~~driven by declines in ~~Canada~~Germany and ~~Germany, where the COVID-19 restrictions discussed above impacted year-over-year residential volume.~~Canada.

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 14.8% in~~decreased 5.7% for the quarter ~~(up 12.6%~~(down 2.8% year to date), primarily due to declines in fuel and demand-related surcharges and ~~pricing structure changes, including demand-related surcharges, as well as favorable shifts~~volume reductions in ~~customer and product mix. These increases~~our Worldwide products out of Asia. The impact of these factors were ~~partially~~slightly offset by ~~unfavorable currency movements.~~the impact of base rate increases. Excluding the impact of currency, revenue per piece ~~increased 20.9%~~decreased 4.9% in the quarter ~~(up 17.3%~~(down 0.7% year to date). ~~We expect our~~For the second half of the year, we anticipate overall revenue per piece to ~~decrease slightly for~~be consistent with the ~~remainder of the year. Additionally, we expect year-over-year growth in demand-related surcharges to moderate during the second half of the~~same period last year.

Export revenue per piece ~~increased 13.2% in~~decreased 8.7% for the quarter ~~(up 11.4%~~(down 6.0% year to date) ~~for~~, driven by the ~~reasons described above.~~impact from the decline in our Worldwide products. Excluding the impact of currency, export revenue per piece ~~increased 17.9%~~decreased 8.1% in the quarter ~~(up 14.9%~~(down 4.3% year to date).

Domestic revenue per piece ~~remained relatively flat~~increased 0.8% for the ~~second~~ quarter ~~and~~(up 2.0% year to ~~date, as~~date),primarily due to the impact of base rate increases and favorable shifts in customer mix.This was largely offset by unfavorable currency ~~movements offset growth driven by the factors described above.~~ movements.Excluding the impact of currency, domestic revenue per piece increased ~~13.6%~~2.1% for the quarter (up ~~10.2%~~6.3% year to date).

Fuel Surcharges

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

~~Total~~During the quarter, total international fuel surcharge revenue ~~increased by $451~~decreased $322 million ~~for the second quarter (up $710~~(down $294 million year to date), primarily driven by ~~increases~~a decrease in ~~both~~ price per gallon ~~and in~~as well as the impact from volume declines. Based on the current commodity market outlook, we expect fuel surcharge ~~rates as part of our pricing strategy. These increases were slightly offset by volume declines. We expect fuel surcharges to continue to~~revenue will remain ~~elevated throughout~~stable for the remainder of ~~2022.~~the year.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Operating Expenses

Operating expenses, and adjusted operating expenses, ~~excluding the year-over-year impact of transformation and other charges, increased in~~decreased for both the second quarter and year to date. The principal drivers were:

•The costs of operating our integrated international air and ground network ~~increased $444~~decreased $343 million for the quarter ~~(up $739~~(down $317 million year to date), primarily ~~due to higher~~driven by lower fuel prices and ~~additional~~a reduction in aircraft ~~charters.~~block hours. We ~~expect these costs to~~anticipate the price paid for fuel will remain ~~elevated~~stable throughout the remainder of ~~2022.~~the year.

•Pickup and delivery costs decreased ~~$113~~$17 million infor the quarter (down ~~$151~~$38 million year to date)~~, as inflationary pressures were more than offset by favorable currency movements and~~ due to the lower volume ~~declines. Overall, other indirect and package sorting costs remained relatively flat for the quarter and year to date.~~

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

Operating Profit and Margin

As a result of the factors described above, operating profit ~~increased $9~~decreased $310 million for the second quarter ~~(up $40~~(down $598 million year to date), with operating margin decreasing ~~110~~350 basis points to ~~23.5%~~20.0% for the second quarter (down 90410 basis points to ~~23.2%~~19.1% year to date). ~~Excluding the year-over-year impact of transformation and other charges, adjusted~~Adjusted operating profit ~~increased $14~~decreased $302 million infor the second quarter ~~(up $43~~(down $616 million year to date), while adjusted operating margin decreased ~~100~~330 basis points to ~~23.7%~~20.4% for the second quarter (down 80430 basis points to ~~23.4%~~19.1% year to date).

Substantially all of our operations in Russia and Belarus were suspended in March 2022 and, during 2023, we have commenced liquidation of our Small Package and Forwarding and Logistics subsidiaries in these countries. 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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Supply Chain Solutions


		Three Months Ended June 30,						Change				Six Months Ended June 30,						Change					Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
		2022			2021			$		%		2022			2021			$		%			2023			2022			$		%		2023			2022			$		%
Revenue (in millions):	Revenue (in millions):																					Revenue (in millions):
Forwarding	Forwarding	$	2,389		$	2,309		$	80	3.5	%	$	4,978		$	4,381		$	597	13.6	%	Forwarding	$	1,376		$	2,389		$	(1,013)	(42.4)	%	$	2,890		$	4,978		$	(2,088)	(41.9)	%
Logistics	Logistics	1,290			1,162			128		11.0	%	2,541			2,266			275		12.1	%	Logistics	1,431			1,290			141		10.9	%	2,841			2,541			300		11.8	%
Freight		—			297			(297)		(100.0)	%	—			1,064			(1,064)		(100.0)	%
Other	Other	555			437			118		27.0	%	1,093			785			308		39.2	%	Other	437			555			(118)		(21.3)	%	908			1,093			(185)		(16.9)	%
Total Revenue	Total Revenue	$	4,234		$	4,205		$	29	0.7	%	$	8,612		$	8,496		$	116	1.4	%	Total Revenue	$	3,244		$	4,234		$	(990)	(23.4)	%	$	6,639		$	8,612		$	(1,973)	(22.9)	%
Operating Expenses (in millions):	Operating Expenses (in millions):																					Operating Expenses (in millions):
Operating Expenses	Operating Expenses	$	3,721		$	3,698		$	23	0.6	%	$	7,626		$	7,668		$	(42)	(0.5)	%	Operating Expenses	$	2,949		$	3,721		$	(772)	(20.7)	%	$	6,097		$	7,626		$	(1,529)	(20.0)	%
Transformation Strategy Costs	Transformation Strategy Costs	(4)			(2)			(2)		100.0	%	(12)			(10)			(2)		20.0	%	Transformation Strategy Costs	(41)			(4)			(37)		925.0	%	(44)			(12)			(32)		266.7	%
Asset Impairment Charges and Divestitures		—			101			(101)		(100.0)	%	—			35			(35)		(100.0)	%
Goodwill and Asset Impairments, and Divestiture Charges																						Goodwill and Asset Impairments, and Divestiture Charges	—			—			—		N/A		(8)			—			(8)		N/A
Adjusted Operating Expenses:	Adjusted Operating Expenses:	$	3,717		$	3,797		$	(80)	(2.1)	%	$	7,614		$	7,693		$	(79)	(1.0)	%	Adjusted Operating Expenses:	$	2,908		$	3,717		$	(809)	(21.8)	%	$	6,045		$	7,614		$	(1,569)	(20.6)	%
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	$	513		$	507		$	6	1.2	%	$	986		$	828		$	158	19.1	%	Operating Profit	$	295		$	513		$	(218)	(42.5)	%	$	542		$	986		$	(444)	(45.0)	%
Adjusted Operating Profit	Adjusted Operating Profit	$	517		$	408		$	109	26.7	%	$	998		$	803		$	195	24.3	%	Adjusted Operating Profit	$	336		$	517		$	(181)	(35.0)	%	$	594		$	998		$	(404)	(40.5)	%
Operating Margin	Operating Margin	12.1		%	12.1		%					11.4		%	9.7		%					Operating Margin	9.1		%	12.1		%					8.2		%	11.4		%
Adjusted Operating Margin	Adjusted Operating Margin	12.2		%	9.7		%					11.6		%	9.5		%					Adjusted Operating Margin	10.4		%	12.2		%					8.9		%	11.6		%
Currency Benefit / (Cost) – (in millions)*:	Currency Benefit / (Cost) – (in millions)*:																					Currency Benefit / (Cost) – (in millions)*:
Revenue	Revenue							$	(62)									$	(99)			Revenue							$	(7)									$	(57)
Operating Expenses	Operating Expenses							77										117				Operating Expenses							10										65
Operating Profit	Operating Profit							$	15									$	18			Operating Profit							$	3									$	8
* 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
June 30, Change Six Months Ended
June 30, Change
2022 2021 $ % 2022 2021 $ %
Transformation Strategy Costs (in millions):
Forwarding $ 2 $ 1 $ 1 100.0 % $ 8 $ 6 $ 2 33.3 %
Logistics 1 1 — — % 2 3 (1) (33.3) %
Freight — — — N/A — 1 (1) (100.0) %
Other 1 — 1 N/A 2 — 2 N/A
Total Transformation Strategy Costs $ 4 $ 2 $ 2 100.0 % $ 12 $ 10 $ 2 20.0 %

~~Revenue~~

Total revenue for Supply Chain Solutions increased $29 million in the second quarter (up $116 million year to date) as strong revenue growth across a number of our businesses offset a $297 million decrease ($1.1 billion year-to-date decrease) attributable to the divestiture of UPS Freight in the second quarter of 2021.


	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
	2023		2022		$		%		2023		2022		$		%
Adjustments to Operating Expenses (in millions):
Transformation Strategy Costs
Forwarding	$	23	$	2	$	21	1,050.0	%	$	24	$	8	$	16	200.0	%
Logistics	18		1		17		1,700.0	%	20		2		18		900.0	%
Other	—		1		(1)		(100.0)	%	—		2		(2)		(100.0)	%
Total Transformation Strategy Costs	$	41	$	4	$	37	925.0	%	$	44	$	12	$	32	266.7	%
Goodwill and Asset Impairments, and Divestiture Charges
Forwarding	$	—	$	—	$	—	N/A		$	8	$	—	$	8	N/A
Logistics	—		—		—		N/A		—		—		—		N/A
Other	—		—		—		N/A		—		—		—		N/A
Total Goodwill and Asset Impairments, and Divestitures Charges	$	—	$	—	$	—	N/A		$	8	$	—	$	8	N/A
Total Adjustments to Operating Expenses	$	41	$	4	$	37	925.0	%	$	52	$	12	$	40	333.3	%

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~~Forwarding~~Revenue

Total revenue ~~increased~~in Supply Chain Solutions decreased for both the second quarter and year to date. InThis was driven by declines in our ~~international~~Forwarding business as challenging economic conditions drove declines in customer activity, while increased capacity led to lower market rates.

•International airfreight revenue decreased approximately $365 million for the quarter (down $785 million year to date) as customer demand remained weak, particularly on Asia export lanes, and capacity growth continued to outpace demand. These factors drove down the rates we charge for services in both the quarter and year-to-date periods and we anticipate that they will continue to pressure rates through the second half of the year.

•Revenue in our truckload brokerage business ~~both~~decreased $372 million for the quarter (down $775 million year to date) due to lower volume and a continued decline in market rates. We remained focused on our revenue ~~declined in~~quality initiatives and experienced volume growth from SMBs during the second quarter ~~driven by the impacts of COVID restrictions~~and year-to-date periods.

•The remaining reduction in Asia and lower market demand. Year-to-date volume also declined, but was more than offset by the impact of elevated market rates and demand-related surcharges in the first quarter. Ocean freight forwarding revenue, ~~increased~~ for both the quarter and year to date, ~~as market~~was attributable to our ocean freight forwarding business. Market rates ~~remained elevated~~and volume declined in both periods, particularly on the Asia to U.S. lane, due to lower demand, an increase in inventory levels and additional capacity ~~constraints, while volume declined.~~entering the market. We expect ~~rates~~revenue to ~~moderate during~~remain challenged in the ~~remainder~~second half of 2023 as capacity increases are expected to continue to outpace demand.

Within our Logistics businesses, healthcare logistics revenue increased $106 million for the second quarter (up $204 million year to date), primarily due to the impact from the acquisition of Bomi Group in the fourth quarter of 2022, ~~in both the air and ocean freight markets~~ as ~~capacity returns to the market. While volume~~well as growth in our ~~truckload brokerage~~clinical trials business ~~declined~~for the year. Revenue in ~~the quarter and year-to-date periods, revenue remained relatively flat~~mail services increased $48 million for the quarter ~~and increased $140~~(up $103 million year to ~~date, driven by revenue quality initiatives.~~

~~Within Logistics, our healthcare operations experienced strong revenue~~date) as a result of volume growth, ~~for the quarter and year to date, driven by pharmaceuticals, clinical trials and lab customers. Revenue in our mail services business increased for both the quarter and year to date, driven by~~ rate increases and a favorable shift in product ~~characteristics, partially~~characteristics. The growth in healthcare and mail services was slightly offset by ~~lower volumes. Our~~declines in our other distribution operations ~~experienced year-over-year revenue growth~~ for both the second quarter and year to ~~date, driven by service expansion, revenue quality initiatives and strong demand for warehouse space.~~date.

Revenue from the other businesses within Supply Chain Solutions ~~increased~~decreased for ~~both~~ the quarter and year to date, driven by an expected reduction of $130 million (down $215 million year to date) in transition services provided to the acquirer of UPS Freight ~~under certain transition services agreements,~~as we continue to wind down these arrangements. This was partially offset by higher revenue from our digital businesses for both the second quarter and year to date, driven by ~~the acquisition of Roadie, Inc. in the fourth quarter of 2021.~~business growth.

Operating Expenses

Total operating expenses inand total adjusted operating expenses for Supply Chain Solutions increased for the quarter but decreased year to date. This included a decrease of $168 million ($952 million year to date) due to the divestiture of UPS Freight. Operating expenses, excluding the year-over-year impact of transformation and other charges, decreased for ~~both~~ the quarter and year to date.

Forwarding operating expenses decreased ~~$50~~$832 million for the quarter ~~driven by~~(down $1.7 billion year to date). This primarily resulted from a reduction of approximately $785 million in purchased transportation expense ~~resulting from~~for the quarter (down $1.6 billion year to date) due to lower volumes and market rates across our forwarding businesses. We expect these conditions to persist as we move through the second half of the year, resulting in truckload brokerage and international airfreight. The impact of volume declines in the quarter was partially offset by elevated ocean freight forwarding and truckload brokerage rates. Year to date, operating expenses increased $342 million, primarily due to higherlower purchased transportation ~~expense in our international airfreight and ocean freight forwarding businesses.~~costs.

Logistics operating expenses increased ~~$109~~$112 million for the quarter (up ~~$235~~$267 million year to date) ~~resulting from~~, driven by the impact of acquiring Bomi Group. Mail services incurred higher purchased transportation cost in both periods due to volume and rate increases and shifts in third-party transportation and compensation and benefits expenses as a result of business growth and inflationary pressures. We anticipate that inflation and labor market pressures may continue to drive higher costs throughout the remainder of the year.product characteristics.

Expenses in the other businesses within Supply Chain Solutions ~~increased~~decreased for both the quarter and year to date, largely ~~due to transportation and other~~driven by a reduction in costs incurred ~~in providing~~to procure transportation for, and provide transition services to, the acquirer of UPS ~~Freight and the acquisition of Roadie, Inc..~~Freight. This was partially offset by higher operating costs within our digital businesses, driven by year-over-year business growth.

Operating Profit and Margin

As a result of the factors described above, total operating profit ~~increased $6~~decreased $218 million for the second quarter ~~(up $158~~(down $444 million year to date), with operating margin ~~remaining unchanged at 12.1% (up 170~~decreasing 300 basis points to ~~11.4%~~9.1% for the second quarter (down 320 basis points to 8.2% year to date). ~~Excluding the year-over-year impact of transformation strategy costs, goodwill and asset impairments, and divestitures,~~On an adjusted basis, operating profit ~~increased $109~~decreased $181 million for the second quarter ~~(up $195~~(down $404 million year to date), with adjusted operating margin ~~increasing 250~~decreasing 180 basis points to ~~12.2% (up 210~~10.4% for the second quarter (down 270 basis points to ~~11.6%~~8.9% year to date).

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Consolidated Operating Expenses


		Three Months Ended June 30,				Change				Six Months Ended June 30,				Change					Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
		2022		2021		$		%		2022		2021		$		%			2023		2022		$		%		2023		2022		$		%
Operating Expenses (in millions):	Operating Expenses (in millions):																	Operating Expenses (in millions):
Compensation and benefits	Compensation and benefits	$	11,358	$	11,327	$	31	0.3	%	$	22,974	$	22,810	$	164	0.7	%	Compensation and benefits	$	11,197	$	11,344	$	(147)	(1.3)	%	$	22,659	$	22,945	$	(286)	(1.2)	%
Transformation and Other Charges		(23)		(55)		$	32	(58.2)	%	(56)		(131)		75		(57.3)	%
Transformation Strategy Costs																		Transformation Strategy Costs	(109)		(23)		(86)		373.9	%	(97)		(56)		(41)		73.2	%
Adjusted Compensation and benefits	Adjusted Compensation and benefits	$	11,335	$	11,272	$	63	0.6	%	$	22,918	$	22,679	$	239	1.1	%	Adjusted Compensation and benefits	$	11,088	$	11,321	$	(233)	(2.1)	%	$	22,562	$	22,889	$	(327)	(1.4)	%

Repairs and maintenance	Repairs and maintenance	$	643	$	599	$	44	7.3	%	$	1,269	$	1,218	$	51	4.2	%	Repairs and maintenance	$	682	$	727	$	(45)	(6.2)	%	$	1,407	$	1,428	$	(21)	(1.5)	%
Depreciation and amortization	Depreciation and amortization	762		739		23		3.1	%	1,526		1,461		65		4.4	%	Depreciation and amortization	828		762		66		8.7	%	1,662		1,526		136		8.9	%
Purchased transportation	Purchased transportation	4,385		4,446		(61)		(1.4)	%	8,985		8,689		296		3.4	%	Purchased transportation	3,173		4,390		(1,217)		(27.7)	%	6,716		8,997		(2,281)		(25.4)	%
Fuel	Fuel	1,697		915		782		85.5	%	2,917		1,722		1,195		69.4	%	Fuel	1,090		1,697		(607)		(35.8)	%	2,361		2,917		(556)		(19.1)	%
Other occupancy	Other occupancy	420		402		18		4.5	%	911		868		43		5.0	%	Other occupancy	458		422		36		8.5	%	1,009		923		86		9.3	%
Other expenses	Other expenses	1,966		1,738		228		13.1	%	3,776		3,541		235		6.6	%	Other expenses	1,847		1,889		(42)		(2.2)	%	3,845		3,622		223		6.2	%
Total Other expenses	Total Other expenses	9,873		8,839		1,034		11.7	%	19,384		17,499		1,885		10.8	%	Total Other expenses	8,078		9,887		(1,809)		(18.3)	%	17,000		19,413		(2,413)		(12.4)	%
Transformation and Other Charges		(18)		(61)		43		(70.5)	%	(40)		(103)		63		(61.2)	%
Asset impairment charges and divestitures		—		101		(101)		(100.0)	%	—		35		(35)		(100.0)	%
Transformation Strategy Costs																		Transformation Strategy Costs	(30)		(18)		(12)		66.7	%	(45)		(40)		(5)		12.5	%
Goodwill and Asset Impairments, and Divestiture Charges																		Goodwill and Asset Impairments, and Divestiture Charges	—		—		—		N/A		(8)		—		(8)		N/A
Adjusted Total Other expenses	Adjusted Total Other expenses	$	9,855	$	8,879	$	976	11.0	%	$	19,344	$	17,431	1,913		11.0	%	Adjusted Total Other expenses	$	8,048	$	9,869	$	(1,821)	(18.5)	%	$	16,947	$	19,373	(2,426)		(12.5)	%

Total Operating Expenses	Total Operating Expenses	$	21,231	$	20,166	$	1,065	5.3	%	$	42,358	$	40,309	$	2,049	5.1	%	Total Operating Expenses	$	19,275	$	21,231	$	(1,956)	(9.2)	%	$	39,659	$	42,358	$	(2,699)	(6.4)	%
Adjusted Total Operating Expenses	Adjusted Total Operating Expenses	$	21,190	$	20,151	$	1,039	5.2	%	$	42,262	$	40,110	$	2,152	5.4	%	Adjusted Total Operating Expenses	$	19,136	$	21,190	$	(2,054)	(9.7)	%	$	39,509	$	42,262	$	(2,753)	(6.5)	%

Currency (Benefit) / Cost - (in millions)*	Currency (Benefit) / Cost - (in millions)*					$	(278)							$	(433)			Currency (Benefit) / Cost - (in millions)*					$	(12)							$	(177)
* 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 June 30,				Change				Six Months Ended June 30,				Change				Three Months Ended June 30,			Change				Six Months Ended June 30,				Change
		2022		2021		$		%		2022		2021		$		%					2023		2022		$		%		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	$	8	$	8	$	—	—	%	$	24	$	14	$	10	71.4	%			Compensation	$	5	$	8	$	(3)	(37.5)	%	$	10	$	24	$	(14)	(58.3)	%
Benefits	Benefits	15		47		(32)		(68.1)	%	32		117		(85)		(72.6)	%			Benefits	104		15		89		593.3	%	87		32		55		171.9	%

Other occupancy		—		2		(2)		(100.0)	%	—		3		(3)		(100.0)	%

Other expenses	Other expenses	18		59		(41)		(69.5)	%	40		100		(60)		(60.0)	%			Other expenses	30		18		12		66.7	%	45		40		5		12.5	%
Total Transformation Strategy Costs	Total Transformation Strategy Costs	$	41	$	116	$	(75)	(64.7)	%	$	96	$	234	$	(138)	(59.0)	%			Total Transformation Strategy Costs	$	139	$	41	$	98	239.0	%	$	142	$	96	$	46	47.9	%
Asset impairment charges and divestitures:
Goodwill and Asset Impairments, and Divestiture Charges																			Goodwill and Asset Impairments, and Divestiture Charges
Other expenses	Other expenses	$	—	$	(101)	$	101	(100.0)	%	$	—	$	(35)	$	35	(100.0)	%			Other expenses	$	—	$	—	$	—	N/A		$	8	$	—	$	8	N/A
Total Adjustments to Operating Expenses	Total Adjustments to Operating Expenses	$	41	$	15	$	26	173.3	%	$	96	$	199	$	(103)	(51.8)	%			Total Adjustments to Operating Expenses	$	139	$	41	$	98	239.0	%	$	150	$	96	$	54	56.3	%

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RESULTS OF OPERATIONS

Compensation and Benefits

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

~~Total~~ Compensation costs decreased $201 million for the second quarter (down $379 million year to date). On an adjusted basis, compensation costs decreased $197 million for the second quarter (down $365 million year to date). The principal factors impacting the decreases were:

•Management compensation decreased $112 million for the second quarter (down $318 million year to date), driven by fourth quarter 2022 design changes to our incentive compensation programs, lower incentive compensation accruals and total compensation costs excluding transformation and other charges decreased $100 million in the quarter. For the year-to-date period, total compensation costs and total compensation costs excluding transformation and other charges decreased $69 million and $79 million, respectively. lower overall headcount.

•U.S. Domestic labor costs decreased $102 million for the second quarter (down $56 million year to date) primarily due to a reduction in direct labor ~~costs increased for both the quarter~~hours resulting from volume declines and ~~year to date, driven by increases~~reductions in ~~wage rates and~~ ~~additional headcount~~ ~~in our line-haul network operations. These increases were~~administrative labor. The decrease was partially offset by ~~a reduction~~contractual wage rate increases and cost of living adjustments for our union workforce.

•The acquisition of Bomi Group in ~~labor hours due to decreases~~the fourth quarter of 2022 resulted in ~~average daily volume. Management~~additional compensation decreased for both the quarter and year to date, driven by decreases in commissions and incentive compensation awards, partially offset by increases in part-time management wages and headcount. The divestiturecost of ~~UPS Freight reduced compensation costs by $93~~$27 million for the second quarter (~~$328~~($51 million~~reduction~~ year to date).

Benefits costs increased ~~$131~~$54 million for the second quarter (up ~~$233~~$93 million year to date). ~~Excluding the year-over-year impact of transformation and other charges,~~On an adjusted basis, benefits costs ~~increased $163~~decreased $36 million for the second quarter (up ~~$318~~$38 million year to date). The ~~primary drivers~~principal factors impacting the changes were:

•Health and welfare costs increased ~~$59~~$46 million for the second quarter (up ~~$99~~$135 million year to date), ~~due to increased contributions to multiemployer plans as a result of contractual rate increases. This was partly offset~~driven by ~~the impact of divesting UPS Freight, which reduced our costs by $16 million for the quarter ($~~65 ~~million reduction year to date).~~

•~~Pension and other postretirement benefits costs increased by $57 million for the quarter (up $20 million year to date), due to higher service costs for company-sponsored plans and~~ increased contributions to multiemployer plans as a result of contractually-mandated ~~contribution~~rate increases. ~~The divestiture of UPS Freight drove a reduction in expense of $10 million for the quarter ($46 million reduction year to date).~~

•~~Vacation, excused absence, payroll taxes and other costs increased $22 million for the quarter (up $131 million year to date), primarily due to wage~~ ~~growth.~~

•Workers' compensation ~~costs decreased $32~~expense increased $13 million for the second quarter (up $3$36 million year to date), driven by ~~changes in claims development trends relative to the prior year.~~

~~Repairs and Maintenance~~

~~Expense increased for both the quarter and year to date, due to~~ an increase in ~~planned building maintenance as well as increases~~current year claims, partially offset by a decrease in ~~the cost of materials~~overall hours worked and ~~supplies. We also incurred higher~~favorable developments in reserves for prior years' claims.

•Pension and other postretirement benefits costs ~~for aircraft engine and airframe maintenance in both the quarter and year-to-date periods due to the timing of scheduled maintenance events.~~

~~Depreciation and Amortization~~

Depreciation and amortization expense increased as a result of facility automation and expansion projects coming into service, investments in internally developed software and the amortization of intangible assets acquired as part of the Roadie, Inc. acquisition in the fourth quarter of 2021.

~~Purchased Transportation~~

~~Third-party transportation expense charged to us by air, ocean and ground carriers~~ decreased $75 million for the second quarter ~~but increased~~($123 million year to ~~date. The changes were primarily driven by:~~date):

•◦~~Supply Chain Solutions expense~~The cost of company-sponsored defined benefit plans decreased ~~by $19~~$109 million for the second quarter resulting from volume declines in our international airfreight and truckload brokerage businesses that were largely offset by increases in ocean freight rates and growth in our logistics operations. Year to date, this expense increased $326 million, due to rate increases in international airfreight, ocean freight and truckload brokerage, slightly offset by the impact of volume reductions within these businesses.

•The divestiture of UPS Freight resulted in a $73 million decrease in expense for the quarter ($260 million decrease year to date) within Supply Chain Solutions, which was somewhat offset by the cost of transportation procured under transition service agreements with the acquirer of the business.

•~~U.S. Domestic expense decreased $41 million~~ (down ~~$42~~$219 million year to date), driven by a reduction in ~~ground~~service cost due to higher discount rates. The cessation of accruals for future service in the UPS Retirement Plan was offset by the cost of replacement contributions to the UPS 401(k) Savings Plan.

◦Contributions to multiemployer plans increased $25 million for the second quarter (up $64 million year to date) as the impact of contractually-mandated contribution increases was partially offset by a reduction in eligible headcount.

◦Year to date, expense for the UPS 401(k) Savings Plan increased $18 million, primarily due to demographic changes.

•Other benefits, primarily costs related to employee separations, increased $89 million for the second quarter (up $55 million year to date) as we implemented staffing adjustment initiatives to reduce our overhead cost and better align direct labor headcount with volume.

Repairs and Maintenance

The decrease in repairs and maintenance expense for the second quarter and year-to-date periods was primarily due to the deferral of aircraft engine maintenance, as the declines in volume ~~handled by third-party carriers~~resulted in the temporary idling of certain aircraft.

Depreciation and ~~network optimization initiatives.~~Amortization

We incurred higher depreciation expense during the second quarter and year-to-date periods as a result of additional facilities coming into service, growth in the size of our vehicle and aircraft fleets and the reduction in estimated residual value of our MD-11 aircraft. We incurred higher amortization expense on capitalized software investments in support of our strategic initiatives, as well as amortization expense for intangible assets recognized in connection with the acquisition of Bomi Group.

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RESULTS OF OPERATIONS

Purchased Transportation

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

•Supply Chain Solutions expense decreased $851 million for the second quarter (down $1.7 billion year to date), driven by volume declines and lower market rates paid for services in our Forwarding businesses. This was slightly offset by increases in our logistics operations due to business growth, third-party rate increases in our mail services business and the acquisition of Bomi Group.

•U.S. Domestic expense decreased $243 million for the second quarter (down $337 million year to date), driven by a reduction in ground volume handled by third-party carriers as a result of our network optimization initiatives.

•International Package expense decreased $123 million for the second quarter (down $198 million year to date), primarily due to declines in volume.

Fuel

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

Other Occupancy

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

Other Expenses

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

•~~An increase~~Reductions of ~~$56~~$33 million in vehicle leases and $18 million in operational supplies due to the ~~quarter ($70 million increase year to date)~~decline in ~~commissions paid for certain online shipments.~~volumes.

•~~An increase~~Lower costs incurred under the transitional service agreements with the acquirer of ~~$23 million~~UPS Freight.

•A decrease in self-insured automobile liability expense of $14 million.

Other decreases for the quarter were primarily attributable to the impact of lower volumes. The decreases were partially offset by increases in the ~~quarter ($36 million increase year to date) in our allowance for credit losses, primarily resulting from a deterioration in economic forecasts relative to the prior year.~~following expenses:

•Hosted software application fees and other technology costs increased ~~$21~~$30 million ~~in the quarter (up $52 million year to date),~~ in support of ongoing investments in our digital transformation.

•~~Professional~~Outsourcing and professional fees increased ~~$20~~$29 million indue to increased utilization of third-party services to support our business initiatives.

For the ~~quarter (up $23 million year to date) as a result of an~~year-to-date period, the increase was driven by hosted software application fees and outsourcing and professional fees for the reasons discussed above. An increase in ~~services provided to various business units.~~

•~~The cost of goods provided under transition service agreements~~commissions paid for certain online shipments also contributed to the ~~acquirer of UPS Freight increased $13 million in the quarter ($41 million year to date).~~

Other increases for the quarter and year to date included costs related to the lease and purchase of additional vehicles for our network and self-insured automobile liability expense driven by increases in the frequency and severity of claims. These increases were partially offset by favorable developments in certain legal and tax contingencies and a reduction in asset impairment charges.increase.

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RESULTS OF OPERATIONS

Other Income and (Expense)

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


		Three Months Ended June 30,				Change				Six Months Ended June 30,				Change					Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
		2022		2021		$		%		2022		2021		$		%			2023		2022		$		%		2023		2022		$		%
Investment Income and Other	Investment Income and Other	$	333	$	345	$	(12)	(3.5)	%	$	648	$	3,961	$	(3,313)	(83.6)	%	Investment Income and Other	$	131	$	333	$	(202)	(60.7)	%	$	300	$	648	$	(348)	(53.7)	%
Defined Benefit Plan (Gains) and Losses		—		—		—		N/A		(33)		(3,290)		3,257		(99.0)	%
Defined Benefit Plan (Gains) Losses																		Defined Benefit Plan (Gains) Losses	—		—		—		N/A		—		(33)		33		(100.0)	%
Adjusted Investment Income and Other	Adjusted Investment Income and Other	$	333	$	345	$	(12)	(3.5)	%	$	615	$	671	$	(56)	(8.3)	%	Adjusted Investment Income and Other	$	131	$	333	$	(202)	(60.7)	%	$	300	$	615	$	(315)	(51.2)	%

Interest Expense	Interest Expense	(171)		(167)		(4)		2.4	%	(345)		(344)		(1)		0.3	%	Interest Expense	(191)		(171)		(20)		11.7	%	(379)		(345)		(34)		9.9	%
Total Other Income and (Expense)	Total Other Income and (Expense)	$	162	$	178	$	(16)	(9.0)	%	$	303	$	3,617	$	(3,314)	(91.6)	%	Total Other Income and (Expense)	$	(60)	$	162	$	(222)	N/A		$	(79)	$	303	$	(382)	N/A
Adjusted Other Income and (Expense)	Adjusted Other Income and (Expense)	$	162	$	178	$	(16)	(9.0)	%	$	270	$	327	$	(57)	(17.4)	%	Adjusted Other Income and (Expense)	$	(60)	$	162	$	(222)	N/A		$	(79)	$	270	$	(349)	N/A

Investment Income and Other

~~The decrease~~Investment income and other decreased $202 and $348 million for the second quarter and year to date, respectively. Excluding the impact of a $33 million defined benefit plan curtailment gain that we recognized in the first quarter of 2022, adjusted investment income and other ~~for the quarter was~~decreased $315 million year to date. These decreases were primarily due to a reduction in other pension income and foreign currency losses, partially offset by higher yields on invested balances and changes in the fair value of certain non-current ~~investments and a decrease in other pension income. These losses were partially offset by foreign currency gains and higher yields on invested assets.~~

Year to date, investment income and other decreased $3.3 billion due to year-over-year changes in defined benefit plan adjustments. We recognized a $3.3 billion defined benefit plan mark-to-market gain in 2021 compared to a $33 million defined benefit plan curtailment gain in 2022. Excluding the impact of these defined benefit plan gains, adjusted investment ~~income and other decreased $56 million, primarily due to 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 $4$232 million for the quarter (down ~~$20~~$464 million year to date) due ~~to the following:~~to:

•Lower expected returns on pension assets for the quarter and year to date as a result of a ~~reduction~~lower 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.

•Higher pension interest cost ~~due to an increase in projected benefit obligations and changes in demographic assumptions, partially offset by the impact of lower discount rates~~ for ~~the quarter. Year to date, pension interest cost increased due to the impact of changes in demographic data.~~

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

~~Interest Expense~~

~~The increase in interest expense for both~~ the quarter and year to date ~~was primarily~~ due to higher discount rates and changes in demographic assumptions.

Interest expense increased for the quarter and year-to-date periods, driven by higher effective interest rates on floating rate debt and ~~a reduction~~an increase in ~~capitalized interest,~~our total debt. These impacts were partially offset by ~~lower average outstanding debt balances and a positive impact from currency exchange rates on foreign currency denominated debt.~~an increase in capitalized interest.

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RESULTS OF OPERATIONS

Income Tax Expense

The following table sets forth our income tax expense and effective tax rate for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 (in millions):
Three Months Ended
June 30, Change Six Months Ended
June 30, Change
2022 2021 $ % 2022 2021 $ %
Income Tax Expense $ 848 $ 760 $ 88 11.6 % $ 1,578 $ 2,172 $ (594) (27.3) %
Income Tax Impact of:
Transformation Strategy Costs 10 28 (18) (64.3) % 22 56 (34) (60.7) %
Asset Impairment Charges and Divestitures — (24) 24 (100.0) % — (8) 8 (100.0) %
Defined Benefit Plan (Gains) and Losses — — — N/A (9) (788) 779 (98.9) %
Adjusted Income Tax Expense $ 858 $ 764 $ 94 12.3 % $ 1,591 $ 1,432 $ 159 11.1 %
Effective Tax Rate 22.9 % 22.1 % 22.3 % 22.5 %
Adjusted Effective Tax Rate 22.9 % 22.1 % 22.2 % 21.9 %


	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
	2023			2022			$		%		2023			2022			$		%
Income Tax Expense	$	639		$	848		$	(209)	(24.6)	%	$	1,266		$	1,578		$	(312)	(19.8)	%
Income Tax Impact of:
Transformation Strategy Costs	33			10			23		230.0	%	33			22			11		50.0	%
Goodwill and Asset Impairments, and Divestiture Charges	—			—			—		N/A		2			—			2		N/A
Defined Benefit Plan (Gains) Losses	—			—			—		N/A		—			(9)			9		(100.0)	%
Adjusted Income Tax Expense	$	672		$	858		$	(186)	(21.7)	%	$	1,301		$	1,591		$	(290)	(18.2)	%
Effective Tax Rate	23.5		%	22.9		%					24.2		%	22.3		%
Adjusted Effective Tax Rate	23.5		%	22.9		%					24.1		%	22.2		%

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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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 June 30, ~~2022,~~2023, we had ~~$12.1~~$7.9 billion in cash, cash equivalents and marketable securities. We believe that these positions, expected cash from operations, access to commercial paper programs and capital markets and other available liquidity options will be adequate to fund our material short- and long-term cash requirements, including our business operations, planned capital expenditures 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):


		Six Months Ended June 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Net income	Net income	$	5,511	$	7,468	Net income	$	3,976	$	5,511
Non-cash operating activities (a)	Non-cash operating activities (a)	3,059		400		Non-cash operating activities (a)	2,526		3,059
Pension and postretirement benefit plan contributions (company-sponsored plans)		(123)		(276)

Pension and postretirement medical benefit plan contributions (company-sponsored plans)						Pension and postretirement medical benefit plan contributions (company-sponsored plans)	(1,328)		(123)
Hedge margin receivables and payables	Hedge margin receivables and payables	286		(25)		Hedge margin receivables and payables	(298)		286
Income tax receivables and payables	Income tax receivables and payables	14		258		Income tax receivables and payables	(61)		14
Changes in working capital and other non-current assets and liabilities	Changes in working capital and other non-current assets and liabilities	(376)		631		Changes in working capital and other non-current assets and liabilities	856		(376)
Other operating activities	Other operating activities	(78)		(2)		Other operating activities	(77)		(78)
Net cash from operating activities	Net cash from operating activities	$	8,293	$	8,454	Net cash from operating activities	$	5,594	$	8,293

___________________

(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 ~~$161 million in~~$2.7 billion for the ~~2022~~2023 period, ~~primarily due to:~~impacted by:

•~~An unfavorable change in working capital due to the~~The timing of ~~payroll~~contributions to our company-sponsored, defined benefit pension and ~~other compensation-related items, as well as~~postretirement medical plans. We made discretionary contributions of $1.2 billion to our qualified U.S. pension plans during the ~~settlement of duties and taxes on behalf of our customers.~~

•~~A reduction~~six months ended June 30, 2023. There were no discretionary contributions to these plans in ~~income taxes payable due to~~ the ~~timing of tax payments relative to accruals.~~comparative period.

•A decrease ~~in contributions to our company-sponsored pension and U.S. postretirement medical benefit plans, driven by the timing of contributions to our U.S. postretirement medical plan.~~

•~~An increase~~ in our net hedge margin collateral position 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~~benefited from an improvement in collections, partially offset by an increase in vendor payments. The reduction in volumes also reduced our overall working capital requirements, and we benefited from 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 in the SCF program. Suppliers issue invoices to us based on the agreed-upon contractual terms. If they participate in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, to sellother compensation-related items relative to the ~~financial institutions. Our suppliers’ voluntary inclusion~~comparative period.

•During the first six months of ~~invoices in~~2023, we paid the ~~SCF program has no bearing on our payment terms. No guarantees are provided by us~~remaining $323 million of 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 June 30, 2022 and 2021, suppliers sold them $599 and $412 million, respectively, of our outstanding payment obligations. Amounts due to suppliers that participate in the SCF program may be reflected incash flows from operating activities or cash flows from investing activities in our consolidated statements of cash flows. The amounts settled through the SCF program were approximately $712 and $578 million for the six months ended June 30, 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 June 30, ~~2022,~~2023, approximately ~~$3.6~~$2.8 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 June 30, 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):


		Six Months Ended June 30,							Six Months Ended June 30,
		2022			2021				2023			2022
Net cash used in investing activities	Net cash used in investing activities	$	(1,499)		$	(734)		Net cash used in investing activities	$	(2,859)		$	(1,499)

Capital Expenditures:	Capital Expenditures:							Capital Expenditures:
Buildings, facilities and plant equipment	Buildings, facilities and plant equipment	$	(524)		$	(719)		Buildings, facilities and plant equipment	$	(818)		$	(524)
Aircraft and parts	Aircraft and parts	(406)			(438)			Aircraft and parts	(272)			(406)
Vehicles	Vehicles	(129)			(261)			Vehicles	(277)			(129)
Information technology	Information technology	(329)			(252)			Information technology	(453)			(329)
Total Capital Expenditures(1)	Total Capital Expenditures(1)	$	(1,388)		$	(1,670)		Total Capital Expenditures(1)	$	(1,820)		$	(1,388)

Capital Expenditures as a % of revenue	Capital Expenditures as a % of revenue	2.8		%	3.6		%	Capital Expenditures as a % of revenue	4.0		%	2.8		%

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	$	9		$	863		Proceeds from disposal of businesses, property, plant and equipment	$	50		$	9
Net change in finance receivables		$	7		$	16
Net (purchases), sales and maturities of marketable securities		$	(2)		$	73
Cash paid for business acquisitions, net of cash and cash equivalents acquired		$	(99)		$	(5)
Net (purchases)/sales and maturities of marketable securities								Net (purchases)/sales and maturities of marketable securities	$	(1,067)		$	(2)
Acquisitions, net of cash acquired								Acquisitions, net of cash acquired	$	(34)		$	(99)
Other investing activities	Other investing activities	$	(26)		$	(11)		Other investing activities	$	12		$	(19)

(1) In addition to capital expenditures of $1.8 and $1.4 billion for the six months ended June 30, 2023 and 2022, respectively, there were principal repayments of finance lease obligations of $79 and $105 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~~2023 investment program anticipates investments in technology initiatives and enhanced network capabilities, including ~~over $1~~approximately $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~~For the first six months of 2023 compared to 2022, total capital expenditures ~~decreased in the 2022 period,~~increased, primarily due to:

•Spending on buildings, facilities and plant equipment increased due to facility maintenance and capacity expansion projects.

•Vehicle expenditures increased, driven by the timing and availability of vehicle replacements and continuing investments in our ~~global small package business decreased~~network.

•Information technology expenditures increased as ~~supply chain disruptions resulted~~a result of continuing investments in ~~delays in certain projects.~~our digital capabilities and network automation.

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

•~~Vehicle expenditures decreased~~Proceeds from the disposal of businesses, property, plant and equipment were higher relative to the comparative period as ~~supply chain disruptions impacted delivery schedules.~~we sold surplus real estate properties during the second quarter of 2023.

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

The net change in finance receivables was primarily due 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.

~~The increase in cash~~Cash paid for ~~business~~ acquisitions in ~~2022 was primarily due to~~ the ~~acquisition of Delivery Solutions, as well as~~2023 period represents the purchase of ~~additional~~ development areas for The UPS ~~Store relative to~~Store. In 2022, this also included our acquisition of Delivery Solutions in the ~~2021 period.~~second quarter. 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):


		Six Months Ended June 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Net cash used in financing activities	Net cash used in financing activities	$	(5,286)	$	(4,038)	Net cash used in financing activities	$	(3,582)	$	(5,286)
Share Repurchases:	Share Repurchases:					Share Repurchases:
Cash paid to repurchase shares	Cash paid to repurchase shares	(1,242)		—		Cash paid to repurchase shares	$	(1,498)	$	(1,242)
Number of shares repurchased	Number of shares repurchased	6.7		—		Number of shares repurchased	(8.4)		(6.7)
Shares outstanding at period end	Shares outstanding at period end	870		872		Shares outstanding at period end	855		870
Dividends:	Dividends:					Dividends:
Dividends declared per share	Dividends declared per share	$	3.04	$	2.04	Dividends declared per share	$	3.24	$	3.04
Cash paid for dividends	Cash paid for dividends	$	(2,567)	$	(1,718)	Cash paid for dividends	$	(2,693)	$	(2,567)
Borrowings:	Borrowings:					Borrowings:
Net borrowings (repayments) of debt principal	Net borrowings (repayments) of debt principal	$	(1,105)	$	(2,101)	Net borrowings (repayments) of debt principal	$	907	$	(1,105)
Other Financing Activities:	Other Financing Activities:					Other Financing Activities:
Cash received for common stock issuances	Cash received for common stock issuances	$	136	$	141	Cash received for common stock issuances	$	119	$	136
Other financing activities	Other financing activities	$	(508)	$	(360)	Other financing activities	$	(417)	$	(508)
Capitalization:	Capitalization:					Capitalization:
Total debt outstanding at period end	Total debt outstanding at period end	20,576		22,591		Total debt outstanding at period end	$	20,763	$	20,576
Total shareowners’ equity at period end	Total shareowners’ equity at period end	16,310		10,822		Total shareowners’ equity at period end	20,037		16,310
Total capitalization	Total capitalization	$	36,886	$	33,413	Total capitalization	$	40,800	$	36,886

We repurchased 8.4 and 6.7 million shares of class B common stock for $1.5 and $1.2 billion under our stock repurchase program during the six months ended June 30, ~~2022.~~2023 and 2022, respectively. We ~~did not repurchase any shares during the six months ended June 30, 2021. In July 2022, we announced that we~~ anticipate our share repurchases will total approximately $3.0 billion ~~for all of 2022.~~in 2023. For additional information on our share repurchase activities, see note 12 to the unaudited, consolidated financial statements.

~~We increased our quarterly cash dividend to $1.52 per share in 2022, compared to $1.02 in 2021.~~ The declaration of dividends is subject to the discretion of the Board and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors. We increased our quarterly cash dividend to $1.62 per share in 2023, compared to $1.52 in 2022. On August 3, 2023, the Board approved a dividend of $1.62 per share, which is payable on August 31, 2023, to shareowners of record on August 14, 2023.

Issuances of debt during the six months ended June 30, 2023 consisted of fixed- and floating-rate senior notes of varying maturities totaling $2.5 billion. We used proceeds from these debt issuances to repay $1.5 billion of fixed- and floating-rate senior notes during the second quarter and we expect to use substantially all of the remaining proceeds to repay additional outstanding debt at maturity during the second half of the year.

There were no issuances of debt ~~during~~in the six months ended June 30, 2022. Repayments of debt in 2022 included ~~our $600 million 2.350%~~fixed- and floating-rate senior notes ~~our $400 million floating rate senior notes and scheduled principal payments on our finance lease obligations. In the prior year-to-date period, issuances~~ of ~~debt consisted of borrowings under our commercial paper program. Repayments included $2.6~~varying maturities totaling $1.0 billion ~~of fixed-rate senior notes, commercial paper~~ and scheduled principal payments on our finance lease obligations.

~~We have $1.0 billion~~As of ~~fixed rate~~June 30, 2023, we had $763 million of fixed-rate senior notes outstanding that mature in ~~2022. We currently expect to repay these notes at maturity with cash from operations.~~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 primarily resulted from activity within the ~~year based on daily liquidity needs. As of June 30, 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 attributable~~includes cash used to ~~the~~ repurchase of shares to satisfy tax withholding obligations on vested employee stock awards. Cash outflows for this purpose were ~~$512~~$395 and ~~$359~~$512 million for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~increase~~decrease was driven by changes in required repurchase amounts.

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

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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

Sources of Credit

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

Contractual Commitments

There have been no material changes to the contractual commitments described in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022, except as follows. On May 31, 2023 we entered into an accelerated share repurchase agreement for $250 million. The transaction commenced on July 7, 2023 and completed on July 31, 2023.

For additional information on 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 and note 18 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):


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Currency Derivatives	Currency Derivatives	$	529	$	173	Currency Derivatives	$	188	$	398

Interest Rate Derivatives	Interest Rate Derivatives	(7)		1		Interest Rate Derivatives	(5)		(5)

		$	522	$	174		$	183	$	393

As of June 30, ~~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 June 30, ~~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 second quarter of 2023, we entered into ~~several~~ foreign currency exchange forward contracts on the Euro, British Pound Sterling, ~~Canadian Dollar~~ and ~~Hong Kong~~Canadian Dollar, and had forward contracts expire. The fair value changes between December 31, ~~2021~~2022 and June 30, ~~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 June 30, ~~2022,~~2023, we held cash collateral of ~~$546~~$238 million and were ~~not~~ required to post ~~cash collateral~~$1 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 June 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ~~We continue to monitor and assess the effects of remote work on our internal controls to minimize the impact on their design and operating effectiveness.~~

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A.Risk Factors

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

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

(c) A summary of repurchases of our class A and class B common stock during the second 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
April 1 - April 30, 2022 0.4 $ 193.31 0.4 $ 4,155
May 1 - May 31, 2022 3.7 177.00 3.7 3,503
June 1 - June 30, 2022 1.4 178.21 1.4 $ 3,256
Total May 1 - June 30, 2022 5.5 $ 178.60 5.5


	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
April 1 - April 30, 2023	0.9	$	185.10	0.9	$	4,173
May 1 - May 31, 2023	3.2	171.90		3.2	3,620
June 1 - June 30, 2023	0.2	175.28		0.2	$	3,582
Total April 1 - June 30, 2023	4.3	$	174.71	4.3
(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 4.3 and 8.4 million shares of class B common stock for $750 million and $1.5 billion during the three and six months ended June 30, 2023, respectively. These repurchases were completed as follows:

~~(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.~~

In August 2021, the Board of Directors ~~authorized the company to~~approved a share repurchase ~~up to~~authorization of $5.0 billion of class A and class B common ~~stock. We~~stock (the "2021 Authorization"). During the six months ended June 30, 2023, we repurchased ~~5.5 and 6.7~~0.5 million shares of class B common stock for ~~$983~~$82 million ~~and $1.2 billion~~ under this ~~program during~~authorization.

•In January 2023, the Board of Directors terminated the 2021 Authorization and approved a new share repurchase authorization of $5.0 billion for class A and class B common stock. During the three and six months ended June 30, ~~2022, respectively. As~~2023, we repurchased 4.3 and 7.9 million shares of ~~June 30, 2022, we had $3.3~~class B common stock for $750 million and $1.4 billion, ~~of our share repurchase authorization available. In July 2022, we announced that we~~respectively, under this authorization.

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

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

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Item 5. Other Information

Disclosures Required Pursuant to Section 13(r) of the Securities Exchange Act of 1934

The Company maintains robust economic sanctions compliance procedures designed to promote compliance with applicable sanctions laws. However, it is possible that from time to time the Company may inadvertently pick up packages from, or deliver packages to, individuals or entities that result in required disclosure under Section 13(r).

Between January 12, 2022 and the date of this filing, the Company inadvertently delivered to: the Iranian embassy in Germany (foil paper - revenue of $5.75, no profit); Ascotec – 2 shipments delivered (alarm device - revenue of $8.88, no profit); Bank Melli (toner cartridge - revenue of $5.92, no profit); Bank Saderat (printer toner - revenue of $4.45, no profit); the Iranian embassy in the U.K. (batteries - revenue of $3.77, no profit); Bank Sepah (document - revenue of $22.08, profit of $8.36); Europaisch Iranische Handelsbank (documents - revenue of $5.11, no profit); and Ibrahim Buisir (documents - revenue of $9.88, no profit). During this time the Company also delivered a single shipment from Iran Air (toner cartridge - revenue of $4.80, no profit).

UPS does not intend to further pick up from or deliver to these parties, and intends to continue to implement process improvements designed to better identify and prevent potential shipments to or from restricted parties.

Insider Trading Arrangements and Policies

None.

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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).~~

~~10.1~~	—	~~Key Employee Severance Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on~~ May ~~10, 2022)~~9, 2023).

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 June 30, ~~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 June 30, ~~2022~~2023 is formatted in Inline XBRL (included as Exhibit 101).

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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:

August ~~3, 2022~~8, 2023

By:

/S/s/ BRIAN O. NEWMAN

Brian O. Newman

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)


	June 30, 2022		December 31, 2021		June 30, 2021
Cash and cash equivalents	$	11,735	$	10,255	$	9,608
Restricted cash	—		—		—
Total cash, cash equivalents and restricted cash	$	11,735	$	10,255	9,608



	Amount Reclassified from AOCI				Affected Line Item in the Income Statement
Three Months Ended June 30:	2022		2021
Unrealized Gain (Loss) on Marketable Securities:
Realized gain (loss) on sale of securities	$	—	$	1	Investment income and other
Income tax (expense) benefit	—		—		Income tax expense
Impact on net income	—		1		Net income
Unrealized Gain (Loss) on Cash Flow Hedges:
Interest rate contracts	(2)		(3)		Interest expense
Foreign currency exchange contracts	67		7		Revenue
Income tax (expense) benefit	(16)		(1)		Income tax expense
Impact on net income	49		3		Net income
Unrecognized Pension and Postretirement Benefit Costs:
Prior service costs	(24)		(36)		Investment income and other
Prior service credit for divested business	—		69		Other expenses
Plan amendments for divested business	—		(66)		Other expenses

Income tax (expense) benefit	6		8		Income tax expense
Impact on net income	(18)		(25)		Net income
Total amount reclassified for the period	$	31	$	(21)	Net income