Table of Contents
United States
Securities and Exchange Commission
Washington, D.C. 20549
_____________________________________ 
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,September 30, 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
_____________________________________ 
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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,Georgia30328
(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 ClassTrading SymbolName of Each Exchange on Which Registered
Class B common stock, par value $0.01 per shareUPSNew York Stock Exchange
0.375% Senior Notes due 2023UPS23ANew York Stock Exchange
1.625% Senior Notes due 2025UPS25New York Stock Exchange
1% Senior Notes due 2028UPS28New York Stock Exchange
1.500% Senior Notes due 2032UPS32New 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 filerxAccelerated 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 134,106,663128,669,028 Class A shares, and 724,779,682723,256,561 Class B shares, with a par value of $0.01 per share, outstanding at April 24,October 19, 2023.


Table of Contents
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.



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, 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,” 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, the impact of: continued uncertainties related toarising from the COVID-19 pandemic; changes in general economic conditions, in the United States ("U.S.") or internationally; industry evolution and significant competition; changes in our relationships with any of our significant customers; our ability to attract and retain qualified employees; strikes, work stoppages or slowdowns by our employees; results ofimpacts arising from negotiations and ratifications of labor contracts; our ability to maintain our brand image and corporate reputation; increased or more complex physical security requirements; a significant data breach or information technology 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; significant expenses and funding obligations relating to employee health, retiree health and/or pension benefits; our ability to manage insurance and claims expenses; changes in business strategy, government regulations, or economic or market conditions that may result in impairments of our assets; 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; and other risks discussed in our filings with the Securities and Exchange Commission from time to time, including our Annual Report on Form 10-K for the year ended December 31, 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.
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Table of Contents
Item 1. Financial Statements
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,September 30, 2023 (unaudited) and December 31, 2022 (in millions)
March 31,
2023
December 31,
2022
September 30,
2023
December 31,
2022
ASSETSASSETSASSETS
Current Assets:Current Assets:Current Assets:
Cash and cash equivalentsCash and cash equivalents$6,190 $5,602 Cash and cash equivalents$4,311 $5,602 
Marketable securitiesMarketable securities3,208 1,993 Marketable securities2,967 1,993 
Accounts receivableAccounts receivable10,448 12,729 Accounts receivable9,593 12,729 
Less: Allowance for credit lossesLess: Allowance for credit losses(149)(146)Less: Allowance for credit losses(132)(146)
Accounts receivable, netAccounts receivable, net10,299 12,583 Accounts receivable, net9,461 12,583 
Other current assetsOther current assets2,028 2,039 Other current assets2,512 2,039 
Total Current AssetsTotal Current Assets21,725 22,217 Total Current Assets19,251 22,217 
Property, Plant and Equipment, NetProperty, Plant and Equipment, Net34,995 34,719 Property, Plant and Equipment, Net36,013 34,719 
Operating Lease Right-Of-Use AssetsOperating Lease Right-Of-Use Assets4,089 3,755 Operating Lease Right-Of-Use Assets4,162 3,755 
GoodwillGoodwill4,249 4,223 Goodwill4,097 4,223 
Intangible Assets, NetIntangible Assets, Net2,811 2,796 Intangible Assets, Net2,892 2,796 
Deferred Income Tax AssetsDeferred Income Tax Assets155 139 Deferred Income Tax Assets127 139 
Other Non-Current AssetsOther Non-Current Assets4,165 3,275 Other Non-Current Assets3,739 3,275 
Total AssetsTotal Assets$72,189 $71,124 Total Assets$70,281 $71,124 
LIABILITIES AND SHAREOWNERS’ EQUITYLIABILITIES AND SHAREOWNERS’ EQUITYLIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:Current Liabilities:Current Liabilities:
Current maturities of long-term debt, commercial paper and finance leasesCurrent maturities of long-term debt, commercial paper and finance leases$2,332 $2,341 Current maturities of long-term debt, commercial paper and finance leases$2,243 $2,341 
Current maturities of operating leasesCurrent maturities of operating leases668 621 Current maturities of operating leases664 621 
Accounts payableAccounts payable6,302 7,515 Accounts payable5,972 7,515 
Accrued wages and withholdingsAccrued wages and withholdings3,012 4,049 Accrued wages and withholdings3,341 4,049 
Self-insurance reservesSelf-insurance reserves1,069 1,069 Self-insurance reserves1,065 1,069 
Accrued group welfare and retirement plan contributionsAccrued group welfare and retirement plan contributions1,196 1,078 Accrued group welfare and retirement plan contributions1,306 1,078 
Other current liabilitiesOther current liabilities1,683 1,467 Other current liabilities1,226 1,467 
Total Current LiabilitiesTotal Current Liabilities16,262 18,140 Total Current Liabilities15,817 18,140 
Long-Term Debt and Finance LeasesLong-Term Debt and Finance Leases19,856 17,321 Long-Term Debt and Finance Leases18,882 17,321 
Non-Current Operating LeasesNon-Current Operating Leases3,539 3,238 Non-Current Operating Leases3,651 3,238 
Pension and Postretirement Benefit ObligationsPension and Postretirement Benefit Obligations4,602 4,807 Pension and Postretirement Benefit Obligations4,670 4,807 
Deferred Income Tax LiabilitiesDeferred Income Tax Liabilities4,345 4,302 Deferred Income Tax Liabilities4,601 4,302 
Other Non-Current LiabilitiesOther Non-Current Liabilities3,532 3,513 Other Non-Current Liabilities3,480 3,513 
Shareowners’ Equity:Shareowners’ Equity:Shareowners’ Equity:
Class A common stock (135 and 134 shares issued in 2023 and 2022, respectively)
Class B common stock (724 and 725 shares issued in 2023 and 2022, respectively)
Class A common stock (130 and 134 shares issued in 2023 and 2022, respectively)Class A common stock (130 and 134 shares issued in 2023 and 2022, respectively)
Class B common stock (722 and 725 shares issued in 2023 and 2022, respectively)Class B common stock (722 and 725 shares issued in 2023 and 2022, respectively)
Additional paid-in capitalAdditional paid-in capital— — Additional paid-in capital— — 
Retained earningsRetained earnings21,510 21,326 Retained earnings20,699 21,326 
Accumulated other comprehensive lossAccumulated other comprehensive loss(1,481)(1,549)Accumulated other comprehensive loss(1,540)(1,549)
Deferred compensation obligationsDeferred compensation obligations13 Deferred compensation obligations13 
Less: Treasury stock (0.2 shares in both 2023 and 2022)Less: Treasury stock (0.2 shares in both 2023 and 2022)(9)(13)Less: Treasury stock (0.2 shares in both 2023 and 2022)(9)(13)
Total Equity for Controlling InterestsTotal Equity for Controlling Interests20,038 19,786 Total Equity for Controlling Interests19,168 19,786 
Noncontrolling interestsNoncontrolling interests15 17 Noncontrolling interests12 17 
Total Shareowners’ EquityTotal Shareowners’ Equity20,053 19,803 Total Shareowners’ Equity19,180 19,803 
Total Liabilities and Shareowners’ EquityTotal Liabilities and Shareowners’ Equity$72,189 $71,124 Total Liabilities and Shareowners’ Equity$70,281 $71,124 
See notes to unaudited, consolidated financial statements.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In millions, except per share amounts)
(unaudited)
 
Three Months Ended
 March 31,
Three Months Ended
 September 30,
Nine Months Ended
 September 30,
20232022 2023202220232022
RevenueRevenue$22,925 $24,378 $21,061 $24,161 $66,041 $73,305 
Operating Expenses:Operating Expenses:Operating Expenses:
Compensation and benefitsCompensation and benefits11,462 11,601 Compensation and benefits11,528 11,489 34,187 34,434 
Repairs and maintenanceRepairs and maintenance725 701 Repairs and maintenance719 732 2,126 2,160 
Depreciation and amortizationDepreciation and amortization834 764 Depreciation and amortization837 774 2,499 2,300 
Purchased transportationPurchased transportation3,543 4,607 Purchased transportation3,118 4,179 9,834 13,176 
FuelFuel1,271 1,220 Fuel1,132 1,530 3,493 4,447 
Other occupancyOther occupancy551 501 Other occupancy481 435 1,490 1,358 
Other expensesOther expenses1,998 1,733 Other expenses1,903 1,909 5,748 5,531 
Total Operating ExpensesTotal Operating Expenses20,384 21,127 Total Operating Expenses19,718 21,048 59,377 63,406 
Operating ProfitOperating Profit2,541 3,251 Operating Profit1,343 3,113 6,664 9,899 
Other Income and (Expense):
Other Income (Expense):Other Income (Expense):
Investment income and otherInvestment income and other169 315 Investment income and other124 333 424 981 
Interest expenseInterest expense(188)(174)Interest expense(199)(177)(578)(522)
Total Other Income and (Expense)(19)141 
Total Other Income (Expense)Total Other Income (Expense)(75)156 (154)459 
Income Before Income TaxesIncome Before Income Taxes2,522 3,392 Income Before Income Taxes1,268 3,269 6,510 10,358 
Income Tax ExpenseIncome Tax Expense627 730 Income Tax Expense141 685 1,407 2,263 
Net IncomeNet Income$1,895 $2,662 Net Income$1,127 $2,584 $5,103 $8,095 
Basic Earnings Per ShareBasic Earnings Per Share$2.20 $3.05 Basic Earnings Per Share$1.31 $2.97 $5.93 $9.27 
Diluted Earnings Per ShareDiluted Earnings Per Share$2.19 $3.03 Diluted Earnings Per Share$1.31 $2.96 $5.92 $9.24 

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In millions)
(unaudited)
 
Three Months Ended
 March 31,
Three Months Ended
 September 30,
Nine Months Ended
 September 30,
20232022 2023202220232022
Net IncomeNet Income$1,895 $2,662 Net Income$1,127 $2,584 $5,103 $8,095 
Change in foreign currency translation adjustment, net of taxChange in foreign currency translation adjustment, net of tax118 (40)Change in foreign currency translation adjustment, net of tax(96)(263)(548)
Change in unrealized gain (loss) on marketable securities, net of taxChange in unrealized gain (loss) on marketable securities, net of tax(6)Change in unrealized gain (loss) on marketable securities, net of tax(2)(3)(11)(10)
Change in unrealized gain (loss) on cash flow hedges, net of taxChange in unrealized gain (loss) on cash flow hedges, net of tax(77)43 Change in unrealized gain (loss) on cash flow hedges, net of tax111 281 (46)558 
Change in unrecognized pension and postretirement benefit costs, net of taxChange in unrecognized pension and postretirement benefit costs, net of tax20 24 Change in unrecognized pension and postretirement benefit costs, net of tax21 18 62 60 
Comprehensive Income (Loss)Comprehensive Income (Loss)$1,963 $2,683 Comprehensive Income (Loss)$1,161 $2,617 $5,112 $8,155 
                
See notes to unaudited, consolidated financial statements.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions)
(unaudited)
Three Months Ended
 March 31,
Nine Months Ended
 September 30,
20232022 20232022
Cash Flows From Operating Activities:Cash Flows From Operating Activities:Cash Flows From Operating Activities:
Net incomeNet income$1,895 $2,662 Net income$5,103 $8,095 
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 amortizationDepreciation and amortization834 764 Depreciation and amortization2,499 2,300 
Pension and postretirement benefit (income) expensePension and postretirement benefit (income) expense243 201 Pension and postretirement benefit (income) expense729 666 
Pension and postretirement benefit contributionsPension and postretirement benefit contributions(1,277)(45)Pension and postretirement benefit contributions(1,363)(2,106)
Self-insurance reservesSelf-insurance reserves(20)(45)Self-insurance reserves81 182 
Deferred tax (benefit) expenseDeferred tax (benefit) expense56 209 Deferred tax (benefit) expense327 466 
Stock compensation expenseStock compensation expense126 386 Stock compensation expense186 850 
Other (gains) lossesOther (gains) losses(13)44 Other (gains) losses89 (25)
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 receivableAccounts receivable2,254 1,227 Accounts receivable2,880 1,022 
Other assetsOther assets62 Other assets(252)(98)
Accounts payableAccounts payable(1,668)(743)Accounts payable(2,058)(952)
Accrued wages and withholdingsAccrued wages and withholdings(508)(343)Accrued wages and withholdings(155)(59)
Other liabilitiesOther liabilities405 173 Other liabilities(157)481 
Other operating activitiesOther operating activities(32)(17)Other operating activities(82)(50)
Net cash from operating activitiesNet cash from operating activities2,357 4,480 Net cash from operating activities7,827 10,772 
Cash Flows From Investing Activities:Cash Flows From Investing Activities:Cash Flows From Investing Activities:
Capital expendituresCapital expenditures(609)(548)Capital expenditures(3,109)(2,278)
Proceeds from disposal of businesses, property, plant and equipmentProceeds from disposal of businesses, property, plant and equipment— Proceeds from disposal of businesses, property, plant and equipment167 12 
Purchases of marketable securitiesPurchases of marketable securities(2,371)(68)Purchases of marketable securities(3,347)(195)
Sales and maturities of marketable securitiesSales and maturities of marketable securities1,179 60 Sales and maturities of marketable securities2,397 193 
Acquisitions, net of cash acquiredAcquisitions, net of cash acquired(34)Acquisitions, net of cash acquired(39)(106)
Other investing activitiesOther investing activities17 (17)Other investing activities(34)
Net cash used in investing activitiesNet cash used in investing activities(1,813)(572)Net cash used in investing activities(3,929)(2,408)
Cash Flows From Financing Activities:Cash Flows From Financing Activities:Cash Flows From Financing Activities:
Net change in short-term debtNet change in short-term debt— — Net change in short-term debt415 — 
Proceeds from long-term borrowingsProceeds from long-term borrowings2,503 — Proceeds from long-term borrowings2,546 — 
Repayments of long-term borrowingsRepayments of long-term borrowings(65)(18)Repayments of long-term borrowings(1,625)(1,124)
Purchases of common stockPurchases of common stock(751)(254)Purchases of common stock(2,250)(2,194)
Issuances of common stockIssuances of common stock49 67 Issuances of common stock190 198 
DividendsDividends(1,348)(1,284)Dividends(4,034)(3,842)
Other financing activitiesOther financing activities(384)(481)Other financing activities(427)(513)
Net cash from/(used in) financing activities(1,970)
Net cash used in financing activitiesNet cash used in financing activities(5,185)(7,475)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted CashEffect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash40 15 Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash(4)(99)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted CashNet Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash588 1,953 Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(1,291)790 
Cash, Cash Equivalents and Restricted Cash:Cash, Cash Equivalents and Restricted Cash:Cash, Cash Equivalents and Restricted Cash:
Beginning of periodBeginning of period5,602 10,255 Beginning of period5,602 10,255 
End of periodEnd of period$6,190 $12,208 End of period$4,311 $11,045 
                
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 March 31,September 30, 2023, and our results of operations for the three and nine months ended September 30, 2023 and 2022, and our cash flows for the threenine months ended March 31,September 30, 2023 and 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, 2022.
DuringIn the first quarternine 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 for the three months ended March 31, 2023 and 2022 give effect to this reclassification byas follows:
For the three and nine months ended September 30, 2023: decreasing Other expenses by $88$93 and $77$273 million, respectively, and increasing Repairs and maintenance by $83$89 and $75$265 million, respectively.
For the three and nine months ended September 30, 2022: decreasing Other expenses by $90 and $244 million, and increasing Repairs and maintenance by $93 and $252 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 approximated fair value as of March 31,September 30, 2023 and December 31, 2022. The fair values of our 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).
Use of Estimates
The preparation of the accompanying interim unaudited, consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of these financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Although our estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. As a result, our accounting estimates and assumptions may change significantly over time.
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Supplier Finance Programs
As part of our working capital management, certain financial institutions offer a Supply Chain Finance ("SCF") program to certain of our suppliers. We agree to commercial terms with our suppliers, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program. Suppliers issue invoices to us based on the agreed-upon contractual terms. If they participate in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, to sell to the financial institutions. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms. No guarantees are provided by us under the SCF program. We have no economic interest in a supplier’s decision to participate, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program.
Amounts due to our suppliers that participate in the SCF program are included in Accounts payable in our consolidated balance sheets. We have been informed by the participating financial institutions that as of March 31,September 30, 2023 and December 31, 2022, suppliers sold them $628$640 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, cash flows or cash flows.internal controls.
Accounting Standards Issued But Not Yet Effective
Accounting pronouncements issued before, but not effective until after, March 31,September 30, 2023, are not expected to have a material impact on our consolidated financial position, results of operations, cash flows or internal controls.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. REVENUE RECOGNITION
Revenue Recognition
Substantially all of our revenues are from contracts associated with the pickup, transportation and delivery of packages and freight (“("transportation services”services"). These services may be carried out by or arranged by us and generally occur over a short period of time. Additionally, we provide value-added logistics services to customers through our global network of distribution centers and field stocking locations.
The vast majority of our contracts with customers are for transportation services that include only one performance obligation; the transportation services themselves. We generally recognize revenue over time, based on the extent of progress towards completion of the services in the 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
 March 31,
Three Months Ended
 September 30,
Nine Months Ended
 September 30,
202320222023202220232022
Revenue:Revenue:Revenue:
Next Day AirNext Day Air$2,461 $2,594 Next Day Air$2,372 $2,673 $7,240 $7,923 
DeferredDeferred1,194 1,420 Deferred1,128 1,311 3,491 4,123 
GroundGround11,332 11,110 Ground10,160 11,390 32,312 33,911 
U.S. Domestic Package U.S. Domestic Package14,987 15,124  U.S. Domestic Package13,660 15,374 43,043 45,957 
DomesticDomestic794 851 Domestic742 785 2,299 2,465 
ExportExport3,552 3,778 Export3,367 3,747 10,387 11,501 
Cargo & OtherCargo & Other197 247 Cargo & Other158 267 539 782 
International Package International Package4,543 4,876  International Package4,267 4,799 13,225 14,748 
ForwardingForwarding1,514 2,589 Forwarding1,327 2,162 4,217 7,140 
LogisticsLogistics1,410 1,251 Logistics1,430 1,302 4,271 3,843 
OtherOther471 538 Other377 524 1,285 1,617 
Supply Chain Solutions Supply Chain Solutions3,395 4,378  Supply Chain Solutions3,134 3,988 9,773 12,600 
Consolidated revenueConsolidated revenue$22,925 $24,378 Consolidated revenue$21,061 $24,161 $66,041 $73,305 
Contract Assets and Liabilities
Contract assets include billed and unbilled amounts resulting from in-transit shipments, as we have an unconditional right to payment only when services have been completed (i.e. shipments have been delivered). Amounts do not exceed their net realizable value. Contract assets are generally classified as current and the full balance is converted each quarter based on the short-term nature of the transactions.
Contract liabilities consist of advance payments and billings in excess of revenue as well as deferred revenue. Advance payments and billings in excess of revenue represent payments received from our customers that will be earned over the contract term. Deferred revenue represents the amount due from customers related to in-transit shipments that has not yet been recognized as revenue based on our selected measure of progress. We classify advance payments and billings in excess of revenue as either current or long-term, depending on the period over which the amount will be earned. We classify deferred revenue as current based on the short-term nature of the transactions. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In order to determine revenue recognized in the 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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Contract assets and liabilities as of March 31,September 30, 2023 and December 31, 2022 were as follows (in millions):
Balance Sheet LocationMarch 31, 2023December 31, 2022Balance Sheet LocationSeptember 30, 2023December 31, 2022
Contract Assets:Contract Assets:Contract Assets:
Revenue related to in-transit packagesRevenue related to in-transit packagesOther current assets$267 $308 Revenue related to in-transit packagesOther current assets$233 $308 
Contract Liabilities:Contract Liabilities:Contract Liabilities:
Short-term advance payments from customersShort-term advance payments from customersOther current liabilities$10 $11 Short-term advance payments from customersOther current liabilities$13 $11 
Long-term advance payments from customersLong-term advance payments from customersOther non-current liabilities$25 $26 Long-term advance payments from customersOther non-current liabilities$25 $26 
Accounts Receivable, Net
Accounts receivable, net,, include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. Losses on accounts receivable are recognized when reasonable and supportable forecasts affect the expected collectability. This requires us to make our best estimate of the current expected losses inherent in our accounts receivable at each balance sheet date. This estimate requires consideration of historical loss experience, adjusted for current conditions, forward looking indicators, trends in customer payment frequency and judgments about the probable effects of relevant observable data, including present and future economic conditions and the financial health of specific customers and market sectors. Our risk management process includes standards and policies for reviewing major account exposures and concentrations of risk.
Our allowance for credit losses as of September 30, 2023 and December 31, 2022 was $132 and $146 million, respectively. Amounts for credit losses charged to expense, before recoveries, during each of the three months ended March 31,September 30, 2023 and 2022 were $43$49 and $54$48 million, respectively, and for the nine months ended September 30, 2023 and 2022 were $133 and $154 million, respectively.


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NOTE 4. STOCK-BASED COMPENSATION
We issue share-based awards under various incentive compensation plans, including non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units ("RSUs") and restricted performance shares and performance units ("RPUs", collectively with RSUs, "Restricted Units"). Upon vesting, Restricted Units result in the issuance of the equivalent number of UPS class A common shares after required tax withholdings. Dividends accrued on Restricted Units are reinvested in additional Restricted Units at each dividend payable date and are subject to the same vesting and forfeiture conditions as the underlying Restricted Units.
Our primary equity compensation programs are the UPS Management Incentive Program (the "MIP"), the UPS Long-Term Incentive Performance Program (the "LTIP") and the UPS Stock Option program. We also maintain an employee stock purchase plan which allows eligible employees to purchase shares of UPS class A common stock at a discount.
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 provide that awards under the MIP will be fully electable in the form of cash or unrestricted shares of 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 March 31,September 30, 2023 and 2022 was $126$21 and $386$233 million, respectively, and for the nine months ended September 30, 2023 and 2022 was $186 and $850 million, respectively.
Management Incentive Program
RPUs issued under the MIP prior to 2022 vested one year following the grant date based onsubject to continued employment with the Company and were expensed on a straight-line basis (less estimated forfeitures) over the requisite service period. In cases of death, disability or retirement, RPUs vested and were expensed immediately.
On November 2, 2022, the Compensation and Human Capital Committee of the UPS Board of Directors (the "Compensation Committee") amended and restated the terms and conditions ofRPUs issued under the MIP effective January 1, 2023, such that awards earned will be fully electable in the form of cash or unrestricted shares of class A common stock. The terms and conditions governing the 2022 MIP were also amended and restated to fully vest RPUs to be issued in connection therewith as ofvested on December 31, 2022. As a result, the award was classified as a compensation obligation and recorded in Accrued wages and withholdingson the consolidated balance sheet at that date.
Based on the date of the Compensation Committee'sand Human Capital Committee of the UPS Board of Directors (the "Compensation Committee") approval of the 2022 MIP, we determined the award measurement date to be February 8, 2023 for U.S.-based employees, andincluding executive management, and March 20, 2023 for international employees. Each RPU issued under the MIP was valued using the closing New York Stock Exchange ("NYSE") prices of $186.36 and $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 Capitaladditional paid-in capital on the measurement date.
Long-Term Incentive Performance Program
RPUs issued under the LTIP vest at the end of a three-year performance period, assumingsubject 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 cumulative free cash flow. The actual number of RPUs earned is subject to adjustment based on total shareholder return relative to the Standard & Poor's 500 Index ("S&P 500"). We determine the grant date fair value of the RPUs using a Monte Carlo model and recognize compensation expense (less estimated forfeitures) ratably over the vesting period, based on the number of awards expected to be earned.
Based on the date of the Compensation Committee's approval of the 2023 LTIP award performance targets, we determined March 22, 2023 to be the award measurement date and each target RPU awarded was valued at $200.01.
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The weighted-average assumptions used and the weighted-average fair values of the LTIP awards granted in 2023 and 2022 are as follows:
2023202220232022
Risk-free interest rateRisk-free interest rate3.81 %2.35 %Risk-free interest rate3.81 %2.35 %
Expected volatilityExpected volatility30.30 %31.92 %Expected volatility30.30 %31.92 %
Weighted-average fair value of RPUs granted$200.01 $227.00 
Fair value of RPUs grantedFair value of RPUs granted$198.98 $227.00 
Share payoutShare payout107.80 %107.37 %Share payout107.80 %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 22, 2023, we granted 0.1 million stock options at an exercise price of $185.54, the NYSE closing price on that date.
The fair value of each option granted is estimated using a Black-Scholes option pricing model. The weighted-average assumptions used and the weighted-average fair values of options granted in 2023 and 2022 are as follows:
2023202220232022
Expected dividend yieldExpected dividend yield3.54 %2.35 %Expected dividend yield3.54 %2.35 %
Risk-free interest rateRisk-free interest rate3.70 %2.39 %Risk-free interest rate3.70 %2.39 %
Expected life (in years)Expected life (in years)5.937.5Expected life (in years)5.937.50
Expected volatilityExpected volatility28.31 %25.04 %Expected volatility28.31 %25.04 %
Weighted-average fair value of options granted$41.08 $48.45 
Fair value of options grantedFair value of options granted$41.08 $48.45 
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NOTE 5. MARKETABLE SECURITIES AND NON-CURRENT INVESTMENTS
The following is a summary of marketable securities classified as trading and available-for-sale as of March 31,September 30, 2023 and December 31, 2022 (in millions):
CostUnrealized
Gains
Unrealized
Losses
Estimated
Fair Value
CostUnrealized
Gains
Unrealized
Losses
Estimated
Fair Value
March 31, 2023:
September 30, 2023:September 30, 2023:
Current trading marketable securities:Current trading marketable securities:Current trading marketable securities:
Equity securitiesEquity securities$$— $— $Equity securities$$— $— $
Total trading marketable securitiesTotal trading marketable securities— — Total trading marketable securities— — 
Current available-for-sale securities:Current available-for-sale securities:Current available-for-sale securities:
U.S. government and agency debt securitiesU.S. government and agency debt securities761 (4)759 U.S. government and agency debt securities980 — (12)968 
Mortgage and asset-backed debt securitiesMortgage and asset-backed debt securities— — Mortgage and asset-backed debt securities— — 
Corporate debt securitiesCorporate debt securities2,279 (6)2,276 Corporate debt securities1,962 — (17)1,945 
U.S. state and local municipal debt securitiesU.S. state and local municipal debt securities— — U.S. state and local municipal debt securities— — 
Non-U.S. government debt securitiesNon-U.S. government debt securities155 — — 155 Non-U.S. government debt securities41 — — 41 
Total available-for-sale marketable securitiesTotal available-for-sale marketable securities3,207 (10)3,202 Total available-for-sale marketable securities2,992 — (29)2,963 
Total current marketable securitiesTotal current marketable securities$3,213 $$(10)$3,208 Total current marketable securities$2,996 $— $(29)$2,967 
CostUnrealized
Gains
Unrealized
Losses
Estimated
Fair Value
CostUnrealized
Gains
Unrealized
Losses
Estimated
Fair Value
December 31, 2022:December 31, 2022:December 31, 2022:
Current trading marketable securities:Current trading marketable securities:Current trading marketable securities:
Equity securitiesEquity securities$$— $— $Equity securities$$— $— $
Total trading marketable securitiesTotal trading marketable securities— — Total trading marketable securities— — 
Current available-for-sale securities:Current available-for-sale securities:Current available-for-sale securities:
U.S. government and agency debt securitiesU.S. government and agency debt securities355 — (8)347 U.S. government and agency debt securities355 — (8)347 
Mortgage and asset-backed debt securitiesMortgage and asset-backed debt securities— — Mortgage and asset-backed debt securities— — 
Corporate debt securitiesCorporate debt securities1,472 — (6)1,466 Corporate debt securities1,472 — (6)1,466 
U.S. state and local municipal debt securitiesU.S. state and local municipal debt securities— — U.S. state and local municipal debt securities— — 
Non-U.S. government debt securitiesNon-U.S. government debt securities165 — — 165 Non-U.S. government debt securities165 — — 165 
Total available-for-sale marketable securitiesTotal available-for-sale marketable securities2,005 — (14)1,991 Total available-for-sale marketable securities2,005 — (14)1,991 
Total current marketable securitiesTotal current marketable securities$2,007 $— $(14)$1,993 Total current marketable securities$2,007 $— $(14)$1,993 
Investment Impairments
We have concluded that no material impairment losses existed as of March 31,September 30, 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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Maturity Information
The amortized cost and estimated fair value of marketable securities as of March 31,September 30, 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.
CostEstimated
Fair Value
CostEstimated
Fair Value
Due in one year or lessDue in one year or less$1,727 $1,726 Due in one year or less$1,469 $1,464 
Due after one year through three yearsDue after one year through three years1,478 1,474 Due after one year through three years1,515 1,491 
Due after three years through five yearsDue after three years through five yearsDue after three years through five years
Due after five yearsDue after five years— — Due after five years— — 
3,207 3,202 2,992 2,963 
Equity securitiesEquity securitiesEquity securities
$3,213 $3,208 $2,996 $2,967 
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 inOther investing activities in our statements of consolidated cash flows.
Equity method investments: As of March 31,September 30, 2023 and December 31, 2022, equity securities accounted for under the equity method had a carrying value of $257$249 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.Securities. As of March 31,September 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 $18 million as of March 31,both September 30, 2023 and December 31, 2022, respectively.2022.
Fair Value Measurements
Marketable securities valued utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds, and most U.S. government debt securities, as these securities all have quoted prices in active markets. Marketable securities valued utilizing Level 2 inputs include asset-backed securities, corporate bonds and municipal bonds. These securities are valued using market corroborated pricing, matrix pricing or other models that utilize observable inputs such as yield curves.

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The following table presents information about our investments measured at fair value on a recurring basis as of March 31,September 30, 2023 and December 31, 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)
Total Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total 
March 31, 2023:
September 30, 2023:September 30, 2023:
Marketable Securities:Marketable Securities:Marketable Securities:
U.S. government and agency debt securitiesU.S. government and agency debt securities$759 $— $— $759 U.S. government and agency debt securities$968 $— $— $968 
Mortgage and asset-backed debt securitiesMortgage and asset-backed debt securities— — Mortgage and asset-backed debt securities— — 
Corporate debt securitiesCorporate debt securities— 2,276 — 2,276 Corporate debt securities— 1,945 — 1,945 
U.S. state and local municipal debt securitiesU.S. state and local municipal debt securities— — U.S. state and local municipal debt securities— — 
Equity securitiesEquity securities— — Equity securities— — 
Non-U.S. government debt securitiesNon-U.S. government debt securities— 155 — 155 Non-U.S. government debt securities— 41 — 41 
Total marketable securitiesTotal marketable securities759 2,449 — 3,208 Total marketable securities968 1,999 — 2,967 
Other non-current investments(1)
Other non-current investments(1)
— 19 — 19 
Other non-current investments(1)
— 18 — 18 
TotalTotal$759 $2,468 $— $3,227 Total$968 $2,017 $— $2,985 
(1) Represents a variable life insurance policy funding benefits for the UPS Excess Coordinating Benefit Plan.

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
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)
TotalDecember 31, 2022:
Marketable Securities:Marketable Securities:Marketable Securities:
U.S. government and agency debt securitiesU.S. government and agency debt securities$279 $68 $— $347 U.S. government and agency debt securities$279 $68 $— $347 
Mortgage and asset-backed debt securitiesMortgage and asset-backed debt securities— — Mortgage and asset-backed debt securities— — 
Corporate debt securitiesCorporate debt securities— 1,466 — 1,466 Corporate debt securities— 1,466 — 1,466 
U.S. state and local municipal debt securitiesU.S. state and local municipal debt securities— — U.S. state and local municipal debt securities— — 
Equity securitiesEquity securities— — Equity securities— — 
Non-U.S. government debt securitiesNon-U.S. government debt securities— 165 — 165 Non-U.S. government debt securities— 165 — 165 
Total marketable securitiesTotal marketable securities279 1,714 — 1,993 Total marketable securities279 1,714 — 1,993 
Other non-current investments(1)
Other non-current investments(1)
— 18 — 18 
Other non-current investments(1)
— 18 — 18 
TotalTotal$279 $1,732 $— $2,011 Total$279 $1,732 $— $2,011 
(1) Represents a variable life insurance policy funding benefits for the UPS Excess Coordinating Benefit Plan.
There were no transfers of investments into or out of Level 3 during the threenine months ended March 31,September 30, 2023 or 2022.

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NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of March 31,September 30, 2023 and December 31, 2022 consisted of the following (in millions):
2023202220232022
VehiclesVehicles$10,840 $10,628 Vehicles$11,403 $10,628 
AircraftAircraft22,638 22,598 Aircraft22,780 22,598 
LandLand2,143 2,140 Land2,124 2,140 
BuildingsBuildings6,122 6,032 Buildings6,164 6,032 
Building and leasehold improvementsBuilding and leasehold improvements5,142 5,067 Building and leasehold improvements5,173 5,067 
Plant equipmentPlant equipment16,454 16,145 Plant equipment16,961 16,145 
Technology equipmentTechnology equipment2,445 2,411 Technology equipment2,613 2,411 
Construction-in-progressConstruction-in-progress2,544 2,409 Construction-in-progress2,852 2,409 
68,328 67,430 70,070 67,430 
Less: Accumulated depreciation and amortizationLess: Accumulated depreciation and amortization(33,333)(32,711)Less: Accumulated depreciation and amortization(34,057)(32,711)
Property, Plant and Equipment, NetProperty, Plant and Equipment, Net$34,995 $34,719 Property, Plant and Equipment, Net$36,013 $34,719 
Property, plant and equipment purchased on account was $626$734 and $176 million as of March 31,September 30, 2023 and December 31, 2022, respectively.
ThereFor the three and nine months ended September 30, 2023 and 2022, there were no material impairment charges during the three months ended March 31, 2023 or 2022.


charges.

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NOTE 7. EMPLOYEE BENEFIT PLANS
Company-Sponsored Benefit Plans
Information about the net periodic benefit cost (income) for our company-sponsored pension and postretirement benefit plans for the three and nine months ended March 31,September 30, 2023 and 2022 is as follows (in millions):
U.S. Pension BenefitsU.S. Postretirement
Medical Benefits
International
Pension Benefits
U.S. Pension BenefitsU.S. Postretirement
Medical Benefits
International
Pension Benefits
202320222023202220232022202320222023202220232022
Three Months Ended March 31:
Three Months Ended September 30:Three Months Ended September 30:
Service costService cost$293 $506 $$$11 $18 Service cost$293 $506 $$$11 $17 
Interest costInterest cost627 488 29 20 17 12 Interest cost627 488 29 21 16 11 
Expected return on assetsExpected return on assets(742)(820)(3)(1)(21)(20)Expected return on assets(742)(820)(3)(1)(21)(19)
Amortization of prior service costAmortization of prior service cost27 23 — — — — Amortization of prior service cost27 23 — — — 
Settlement and curtailment (gain) loss— — — — — (33)
Net periodic benefit cost (income)Net periodic benefit cost (income)$205 $197 $31 $27 $$(23)Net periodic benefit cost (income)$205 $197 $31 $27 $$
U.S. Pension BenefitsU.S. Postretirement
Medical Benefits
International
Pension Benefits
202320222023202220232022
Nine Months Ended September 30:Nine Months Ended September 30:
Service costService cost$879 $1,518 $15 $22 $33 $52 
Interest costInterest cost1,881 1,463 87 62 49 34 
Expected return on assetsExpected return on assets(2,225)(2,460)(9)(3)(63)(59)
Amortization of prior service costAmortization of prior service cost80 69 — 
Settlement and curtailment (gain) lossSettlement and curtailment (gain) loss— — — — — (33)
Net periodic benefit cost (income)Net periodic benefit cost (income)$615 $590 $94 $81 $20 $(5)
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 quarter ofnine months ended September 30, 2022, we amended the UPS Canada Ltd. Retirement Plan to cease future benefit accruals effective December 31, 2023. We remeasured planthe plan's assets and benefit obligations for this plan,obligation, which resulted in a curtailment gain of $33 million ($24 million after-tax) duringfor the three-month period.nine months ended September 30, 2022. The gain is included in Investment income and other in the statement of consolidated income.
During the first quarter ofnine months ended September 30, 2023, we contributed $1.2$1.3 billion and $74$108 million to our company-sponsored pension and U.S. postretirement medical benefit plans, respectively. We expect to contribute approximately $78$26 and $44$10 million over the remainder of the year to our pension and U.S. postretirement medical benefit plans, respectively.
Multiemployer Benefit Plans
We contribute to a number of multiemployer defined benefit and health and welfare plans under the terms of collective bargaining agreements that cover our union-represented employees. Our current collective bargaining agreements set forth the annual contribution increases allotted to the plans that we participate in, and we are in compliance with these contribution rates. These limitations on annual contribution rates will remain in effect throughout the terms of the existing collective bargaining agreements.
As of March 31,September 30, 2023 and December 31, 2022, we had $819$815 and $821 million, respectively, recorded in Other Non-Current Liabilities in our consolidated balance sheets and $8 million as of March 31,each of September 30, 2023 and December 31, 2022 recorded in Other current liabilities in our consolidated balance sheets associated with our previous withdrawal from the New England Teamsters and Trucking Industry Pension Fund. This liability is payable in equal monthly installments over a remaining term of approximately 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 March 31,September 30, 2023 and December 31, 2022 was $710$642 and $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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UPS was a contributing employer to the Central States Pension Fund (“CSPF”) until 2007 at which time UPS withdrew from the CSPF. Under a collective bargaining agreement with the International Brotherhood of Teamsters (“IBT”), UPS agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 (“the UPS Transfer Group”) in the event that benefits are reduced by the CSPF consistent with the terms of our withdrawal agreement with the CSPF. Under this agreement, benefits to the UPS Transfer Group cannot be reduced without our consent and can only be reduced in accordance with law. Subsequent to our withdrawal, the CSPF incurred extensive asset losses and indicated that it was projected to become insolvent. In such event, the CSPF benefits would be reduced to the legally permitted Pension Benefit Guaranty Corporation ("PBGC") limits, triggering the coordinating benefits provision in the collective bargaining agreement.

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In March 2021, the American Rescue Plan Act (“ARPA”("ARPA") was enacted into law. The ARPA contains provisions that allow for qualifying multiemployer pension plans to apply for special financial assistance ("SFA") from the PBGC, which will be funded by the U.S. government. Following SFA approval, a qualifying multiemployer pension plan will receive a lump sum payment to enable it to continue paying unreduced pension benefits through 2051. The multiemployer plan is not obligated to repay the SFA. The ARPA is intended to prevent both the PBGC and certain financially distressed multiemployer pension plans, including the CSPF, from becoming insolvent through 2051. The CSPF submitted an application for SFA that was approved in December 2022 and, in January 2023, the CSPF received $35.8 billion from the PBGC.
We account for the potential obligation to pay coordinating benefits under ASC Topic 715, which requires us to provide a best estimate of various actuarial assumptions in measuring our pension benefit obligation at the December 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 after SFA funds have been exhausted was immaterial.
The value of our estimate for future coordinating benefits will continue to be influenced by a number of factors, including interpretations of the ARPA, future legislative actions, actuarial assumptions and the ability of the CSPF to sustain its long-term commitments. Actual events may result in a change in our best estimate of the projected benefit obligation. We will continue to assess the impact of these uncertainties in accordance with ASC Topic 715.
Collective Bargaining Agreements
We have approximately 330,000more than 300,000 employees in the U.S. employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters. These agreements run throughwere scheduled to expire on July 31, 2023. We have begun negotiating successor agreementsOn July 25, 2023, we reached a new tentative national master agreement with the Teamsters. WeOn September 9, 2023, the agreement was fully ratified. The new agreement contains wage and benefit rate increases for both our part-time and full-time Teamster employees. Based on the most recent actuarial assumptions, the impact to the projected benefit obligation ("PBO") would be approximately $0.6 billion. These enhancements will be recognized at the plans' next measurement date, which is expected to be December 31, 2023, and are negotiating in good faith in an effortsubject to reach an agreementactuarial assumptions at that is indate which may further impact the best interests of our employees, the Teamsters and UPS; however, no assurances of our ability to do so, or the timing or terms thereof, can be provided. Customers may reduce their business or stop doing business with us if they believe that such actions or threatened actions may adversely affect our ability to provide services. We may permanently lose customers if we are unable to provide uninterrupted service, and this could materially adversely affect us. The terms of future collective bargaining agreements also may affect our competitive position and results of operations. Furthermore, our actions or responses to any such negotiations, labor disputes, strikes or work stoppages could negatively impact how our brand is perceived and our corporate reputation and have adverse effects on our business, including our results of operations.final PBO calculation.
We have approximately 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").Association. This collective bargaining agreement becomes amendable September 1, 2025.
We have approximately 1,800 airline mechanics who are covered by a collective bargaining agreement with Teamsters Local 2727 which becomes amendable November 1, 2026. In addition, approximately 3,100 of our auto and maintenance mechanics who are not employed under agreements with the Teamsters are employed under collective bargaining agreements with the International Association of Machinists and Aerospace Workers (“IAM”). TheWorkers. These collective bargaining agreement with the IAM runsagreements run through July 31, 2024.
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NOTE 8. GOODWILL AND INTANGIBLE ASSETS
The following table indicates the allocation of goodwill as of March 31,September 30, 2023 and December 31, 2022 (in millions):
U.S. Domestic
Package
International
Package
Supply Chain SolutionsConsolidatedU.S. Domestic
Package
International
Package
Supply Chain SolutionsConsolidated
December 31, 2022:December 31, 2022:$847 $492 $2,884 $4,223 December 31, 2022:$847 $492 $2,884 $4,223 
AcquiredAcquired— — Acquired— — 
ImpairmentsImpairments— — (8)(8)Impairments— — (125)(125)
Currency / OtherCurrency / Other— 19 25 Currency / Other— (5)(4)(9)
March 31, 2023:$847 $498 $2,904 $4,249 
September 30, 2023:September 30, 2023:$847 $487 $2,763 $4,097 
DuringWe conducted our most recent goodwill impairment testing as of July 1, 2023 using both qualitative and quantitative methods. Our quantitative tests utilize a combination of the three months ended March 31,income and market approaches. In developing our valuation assumptions underlying the annual impairment testing, we determined that the cost of capital for our Roadie and Delivery Solutions reporting units had increased, driven by increases in the risk-free interest rate and volatility of the stock prices of market comparables. The results of our testing using these assumptions indicated that the carrying values of our Roadie and Delivery Solutions reporting units exceeded their estimated fair values.
As a result, for the third quarter of 2023, we recorded an impairment charge of $117 million ($103 million after tax, or $0.12 per diluted share) within Other Expenses in our Statement of Consolidated Income. This charge represented goodwill adjustmentsimpairment of $9$56 million relatingrelated to the Roadie reporting unit and $61 million related to Delivery Solutions, representing all of the goodwill associated with this reporting unit.
Additional changes in goodwill during the nine months ended September 30, 2023 resulted from:
An increase in goodwill of $8 million, as part of purchase accounting for our November 2022 acquisition of Bomi Group.Group in the fourth quarter of 2022. Certain areas, including our estimates of non-current liabilities and tax positions, for Bomi Group, remain preliminary as of March 31,September 30, 2023.
Additionally, we recorded anAn immaterial impairment charge related to the closure of a trade management services business within Supply Chain 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.
We complete our annual goodwill impairment evaluation as of July 1st on a reporting unit basis. Our 2022 annual impairment testing indicated that the fair value of goodwill associated with our Roadie reporting unit remained greater than its carrying value, although this excess was less than 10 percent. The goodwill associated with our Roadie reporting unit as of March 31, 2023 was $241 million. There were no events or changes in circumstances during the first quarter of 2023 that would indicate the carrying amount of Roadie goodwill may be impaired as of the date of this report.
For each of our reporting units and our indefinite-lived trade name, we continue to monitor the combined impact of macroeconomic conditions and business performance on our estimates of fair value.

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The following is a summary of intangible assets as of March 31,September 30, 2023 and December 31, 2022 (in millions):
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
March 31, 2023:
September 30, 2023:September 30, 2023:
Capitalized softwareCapitalized software$5,300 $(3,598)$1,702 Capitalized software$5,637 $(3,790)$1,847 
LicensesLicenses55 (34)21 Licenses71 (43)28 
Franchise rightsFranchise rights261 (39)222 Franchise rights261 (46)215 
Customer relationshipsCustomer relationships880 (474)406 Customer relationships852 (489)363 
Trade nameTrade name126 (10)116 Trade name124 (24)100 
Trademarks, patents and otherTrademarks, patents and other177 (37)140 Trademarks, patents and other188 (53)135 
Amortizable intangible assetsAmortizable intangible assets$6,799 $(4,192)$2,607 Amortizable intangible assets$7,133 $(4,445)$2,688 
Indefinite-lived intangible assetsIndefinite-lived intangible assets204 — 204 Indefinite-lived intangible assets204 — 204 
Total Intangible Assets, NetTotal Intangible Assets, Net$7,003 $(4,192)$2,811 Total Intangible Assets, Net$7,337 $(4,445)$2,892 
December 31, 2022:December 31, 2022:December 31, 2022:
Capitalized softwareCapitalized software$5,186 $(3,500)$1,686 Capitalized software$5,186 $(3,500)$1,686 
LicensesLicenses55 (30)25 Licenses55 (30)25 
Franchise rightsFranchise rights226 (37)189 Franchise rights226 (37)189 
Customer relationshipsCustomer relationships872 (453)419 Customer relationships872 (453)419 
Trade nameTrade name125 (8)117 Trade name125 (8)117 
Trademarks, patents and otherTrademarks, patents and other183 (27)156 Trademarks, patents and other183 (27)156 
Amortizable intangible assetsAmortizable intangible assets$6,647 $(4,055)$2,592 Amortizable intangible assets$6,647 $(4,055)$2,592 
Indefinite-lived intangible assetsIndefinite-lived intangible assets204 — 204 Indefinite-lived intangible assets204 — 204 
Total Intangible Assets, NetTotal Intangible Assets, Net$6,851 $(4,055)$2,796 Total Intangible Assets, Net$6,851 $(4,055)$2,796 
A trade name and licenses with carrying values of $200 and $4 million, respectively, as of March 31,September 30, 2023 are deemed to be indefinite-lived intangible assets, and therefore are not amortized.
Our annual impairment testing indicated that the fair value of the indefinite-lived trade name associated with our truckload brokerage business remained greater than its carrying value by less than 10 percent. The carrying value of the trade name is $200 million. Our truckload brokerage business continues to be negatively impacted by market conditions, which has resulted in revenue declines. We continue to monitor business performance and external factors affecting our valuation assumptions for this trade name. There were no events or changes in circumstances during the three months ended March 31,as of September 30, 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. Impairment charges for finite-lived intangible assets were $8 million for the three and nine months ended September 30, 2023. There were no impairment charges for finite-lived intangible assets duringfor the three and nine months ended March 31, 2023 orSeptember 30, 2022.
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NOTE 9. DEBT AND FINANCING ARRANGEMENTS
The carrying value of our outstanding debt obligations as of March 31,September 30, 2023 and December 31, 2022 consistsconsisted of the following (in millions):
Principal
Amount
Carrying ValuePrincipal
Amount
Carrying Value
Maturity20232022Maturity20232022
Commercial paperCommercial paper$461 2023-2024$458 $— 
Fixed-rate senior notes:Fixed-rate senior notes:Fixed-rate senior notes:
2.500% senior notes2.500% senior notes$1,000 2023$1,000 $999 2.500% senior notes$— 2023$— $999 
2.800% senior notes2.800% senior notes500 2024499 499 2.800% senior notes500 2024499 499 
2.200% senior notes2.200% senior notes400 2024399 399 2.200% senior notes400 2024400 399 
3.900% senior notes3.900% senior notes1,000 2025998 997 3.900% senior notes1,000 2025998 997 
2.400% senior notes2.400% senior notes500 2026499 499 2.400% senior notes500 2026499 499 
3.050% senior notes3.050% senior notes1,000 2027995 995 3.050% senior notes1,000 2027996 995 
3.400% senior notes3.400% senior notes750 2029747 747 3.400% senior notes750 2029747 747 
2.500% senior notes2.500% senior notes400 2029398 397 2.500% senior notes400 2029398 397 
4.450% senior notes4.450% senior notes750 2030745 744 4.450% senior notes750 2030745 744 
4.875% senior notes4.875% senior notes900 2033894 — 4.875% senior notes900 2033894 — 
6.200% senior notes6.200% senior notes1,500 20381,485 1,485 6.200% senior notes1,500 20381,485 1,485 
5.200% senior notes5.200% senior notes500 2040494 494 5.200% senior notes500 2040494 494 
4.875% senior notes4.875% senior notes500 2040491 491 4.875% senior notes500 2040491 491 
3.625% senior notes3.625% senior notes375 2042369 369 3.625% senior notes375 2042369 369 
3.400% senior notes3.400% senior notes500 2046492 492 3.400% senior notes500 2046492 492 
3.750% senior notes3.750% senior notes1,150 20471,137 1,137 3.750% senior notes1,150 20471,138 1,137 
4.250% senior notes4.250% senior notes750 2049743 743 4.250% senior notes750 2049743 743 
3.400% senior notes3.400% senior notes700 2049688 688 3.400% senior notes700 2049689 688 
5.300% senior notes5.300% senior notes1,250 20501,231 1,231 5.300% senior notes1,250 20501,231 1,231 
5.050% senior notes5.050% senior notes1,100 20531,083 — 5.050% senior notes1,100 20531,083 — 
Floating-rate senior notes:Floating-rate senior notes:Floating-rate senior notes:
Floating-rate senior notesFloating-rate senior notes500 2023500 500 Floating-rate senior notes— 2023— 500 
Floating-rate senior notesFloating-rate senior notes1,566 2049-20731,548 1,027 Floating-rate senior notes1,566 2049-20731,549 1,027 
Debentures:Debentures:Debentures:
7.620% debentures7.620% debentures276 2030280 280 7.620% debentures276 2030280 280 
Pound Sterling notes:Pound Sterling notes:Pound Sterling notes:
5.500% notes5.500% notes82 203182 79 5.500% notes81 203181 79 
5.125% notes5.125% notes563 2050535 521 5.125% notes555 2050527 521 
Euro senior notes:Euro senior notes:Euro senior notes:
0.375% senior notes0.375% senior notes762 2023761 745 0.375% senior notes741 2023741 745 
1.625% senior notes1.625% senior notes762 2025760 744 1.625% senior notes741 2025739 744 
1.000% senior notes1.000% senior notes544 2028542 531 1.000% senior notes530 2028527 531 
1.500% senior notes1.500% senior notes544 2032542 530 1.500% senior notes530 2032527 530 
Canadian senior notes:Canadian senior notes:Canadian senior notes:
2.125% senior notes2.125% senior notes555 2024553 553 2.125% senior notes556 2024555 553 
Finance lease obligationsFinance lease obligations365 2023-2046365 390 Finance lease obligations425 2023-2046425 390 
Facility notes and bondsFacility notes and bonds320 2029-2045320 320 Facility notes and bonds320 2029-2045320 320 
Other debtOther debt13 2023-202613 36 Other debt2023-202636 
Total debtTotal debt$22,377 22,188 19,662 Total debt$21,312 21,125 19,662 
Less: current maturitiesLess: current maturities(2,332)(2,341)Less: current maturities(2,243)(2,341)
Long-term debtLong-term debt$19,856 $17,321 Long-term debt$18,882 $17,321 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Commercial Paper
We are authorized to borrow up to $10.0 billion under a U.S. commercial paper program and €5.0 billion (in a variety of currencies) under a European commercial paper program. As of March 31,September 30, 2023, we had no$458 million outstanding balances under our U.S. commercial paper programs.program, with an average interest rate of 5.32%. The amount of commercial paper outstanding under these programs in 2023 is expected to fluctuate. As of September 30, 2023, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheet. There was no commercial paper outstanding at December 31, 2022.
Debt Classification
We have classified certain floating-rate senior notes that are redeemable at the option of the note holder as long-term liabilities in our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised.
Debt Repayments
During the first quarter ofnine months ended September 30, 2023, we repaid approximately $16$23 million of foreign currency-denominatedforeign-currency-denominated debt assumed in the Bomi Group acquisition.
On April 1, 2023, our 2.500% Senior Notes with a principal balance of $1.0 billion and our floating rate senior notes with a principal balance of $500 million matured and were repaid in full.
Debt Issuances
On February 23, 2023, we issued two series of notes in the principal amounts of $900 million and $1.1 billion. These notes bear interest at 4.875% and 5.050%, respectively, and mature on March 3, 2033 and March 3, 2053, respectively. Interest on the notes is payable semi-annually, beginning September 2023. Each series of notes is callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of scheduled payments of principal and interest, plus accrued and unpaid interest.
On March 7, 2023, we issued floating rate senior notes with a principal balance of $529 million. These notes bear interest at a rate equal to the compounded Secured Overnight Financing Rate ("SOFR") less 0.350% per year and mature on March 15, 2073. These notes are callable at various times after 30 years at a stated percentage of par value and are redeemable at the option of the note holders at various times after one year at a stated percentage of par value.
Reference Rate Reform
Our floating-rate senior notes that mature between 2049 and 2067 bearbore interest at rates that referencereferenced 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 ceaseceased to be published after June 2023. We are currently working to transitionBeginning July 1, 2023, we transitioned these notes to an alternative reference rate, and we anticipate that the SOFR, will bewhich was adopted in accordance with recommendations of the Alternative Reference Rates Committee.
Sources of Credit
We maintain two credit agreements with a consortium of banks. The first of these agreements provides revolving credit facilities of $1.0 billion, and expires on December 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 March 31,September 30, 2023 was 0.70%. Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (2) the Federal Funds effective rate plus 0.50%; or (3) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00%, may be used at our discretion. We expect to renew this credit agreement in the fourth quarter of 2023 on substantially similar terms.
The second agreement provides revolving credit facilities of $2.0 billion, and expires on December 7, 2026. Amounts outstanding under this facility bear interest at a periodic fixed rate equal to the term SOFR rate plus 0.10% per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of March 31,September 30, 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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If the credit ratings established by Standard & Poor's and Moody's differ, the higher rating will be used, except in cases where the lower rating is two or more levels lower. In these circumstances, the rating one step below the higher rating will be used. We are also able to request advances under these facilities based on competitive bids for the applicable interest rate.
There were no amounts outstanding under these facilities as of March 31,September 30, 2023.
Debt Covenants
Our existing debt instruments and credit facilities subject us to certain financial covenants. As of March 31,September 30, 2023, and for all prior periods presented, we have satisfied these financial covenants. These covenants limit the amount of secured indebtedness that we may incur, and limit the amount of attributable debt in sale-leaseback transactions, to 10% of net tangible assets. As of March 31,September 30, 2023, 10% of net tangible assets was equivalent to $4.9$4.7 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 $21.9$19.8 and $18.2 billion as of March 31,September 30, 2023 and December 31, 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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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, vehicles and various other equipment used in operating our business. Certain leases for real estate and aircraft contain options to purchase, extend or terminate the lease.
Aircraft
In addition to the aircraft that we own, we charter aircraft to handle package and cargo volume on certain international trade lanes and domestic routes. Due to the nature of these agreements, primarily being that either party can cancel the agreement with short notice, we have classified these as short-term leases. A majority of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline.
Transportation equipment and other equipment
We enter into both long-term and short-term leases for transportation equipment to supplement our capacity or meet contractual demands. Some of these assets are leased on a month-to-month basis and the leases can be terminated without penalty. We also enter into equipment leases to increase capacity during periods of high demand. These leases are treated as short-term as the cumulative right of use is less than 12 months over the term of the contract.
Some of our transportation and technology equipment leases require us to make additional lease payments based on the underlying usage of the assets. Due to the variable nature of these costs, these are expensed as incurred and are not included in the right of use lease asset and associated lease obligation.
The components of lease expense for the three and nine months ended March 31,September 30, 2023 and 2022 were as follows (in millions):
Three Months Ended
 September 30,
Nine Months Ended
 September 30,
202320222023202220232022
Operating lease costsOperating lease costs$207 $183 Operating lease costs$219 $179 $645 $546 
Finance lease costs:Finance lease costs:Finance lease costs:
Amortization of assetsAmortization of assets29 28 Amortization of assets31 28 88 84 
Interest on lease liabilitiesInterest on lease liabilitiesInterest on lease liabilities13 10 
Total finance lease costsTotal finance lease costs33 32 Total finance lease costs35 31 101 94 
Variable lease costsVariable lease costs72 68 Variable lease costs63 62 203 194 
Short-term lease costsShort-term lease costs277 302 Short-term lease costs243 319 746 944 
Total lease costs(1)
Total lease costs(1)
$589 $585 
Total lease costs(1)
$560 $591 $1,695 $1,778 
(1) This table excludes sublease income as it was not material to the three months ended March 31, 2023 or 2022.
(1) This table excludes sublease income as it was not material for the three and nine months ended September 30, 2023 or 2022.
(1) This table excludes sublease income as it was not material for the three and nine months ended September 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. There were no material impairments recognized during the three months ended March 31, 2023September 30, 2023. We recognized $13 million of impairments during the nine months ended September 30, 2023. There were no material impairments recognized during the three or nine months ended September 30, 2022.
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Supplemental information related to leases and location within our consolidated balance sheets is as follows (in millions, except lease term and discount rate):
March 31,
2023
December 31,
2022
September 30,
2023
December 31,
2022
Operating Leases:Operating Leases:Operating Leases:
Operating lease right-of-use assetsOperating lease right-of-use assets$4,089 $3,755 Operating lease right-of-use assets$4,162 $3,755 
Current maturities of operating leasesCurrent maturities of operating leases$668 $621 Current maturities of operating leases$664 $621 
Non-current operating leasesNon-current operating leases3,539 3,238 Non-current operating leases3,651 3,238 
Total operating lease obligationsTotal operating lease obligations$4,207 $3,859 Total operating lease obligations$4,315 $3,859 
Finance Leases:Finance Leases:Finance Leases:
Property, plant and equipment, netProperty, plant and equipment, net$869 $959 Property, plant and equipment, net$810 $959 
Current maturities of long-term debt, commercial paper and finance leasesCurrent maturities of long-term debt, commercial paper and finance leases$68 $92 Current maturities of long-term debt, commercial paper and finance leases$86 $92 
Long-term debt and finance leasesLong-term debt and finance leases297 298 Long-term debt and finance leases339 298 
Total finance lease obligationsTotal finance lease obligations$365 $390 Total finance lease obligations$425 $390 
Weighted average remaining lease term (in years):Weighted average remaining lease term (in years):Weighted average remaining lease term (in years):
Operating leasesOperating leases11.210.8Operating leases11.010.8
Finance leasesFinance leases8.88.4Finance leases8.18.4
Weighted average discount rate:Weighted average discount rate:Weighted average discount rate:
Operating leasesOperating leases2.73 %2.32 %Operating leases3.04 %2.32 %
Finance leasesFinance leases3.28 %3.17 %Finance leases3.72 %3.17 %

Supplemental cash flow information related to leases is as follows (in millions):
Three Months Ended
 March 31,
Nine Months Ended
 September 30,
2023202220232022
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 leasesOperating cash flows from operating leases$212 $176 Operating cash flows from operating leases$627 $523 
Operating cash flows from finance leasesOperating cash flows from finance leasesOperating cash flows from finance leases10 
Financing cash flows from finance leasesFinancing cash flows from finance leases48 18 Financing cash flows from finance leases101 123 
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 leasesOperating leases$498 $119 Operating leases$1,013 $588 
Finance leasesFinance leases$30 $59 Finance leases$136 $98 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Maturities of lease obligations as of March 31,September 30, 2023 were as follows (in millions):
Finance LeasesOperating LeasesFinance LeasesOperating Leases
20232023$73 $576 2023$32 $180 
2024202462 705 202497 789 
2025202548 632 202574 713 
2026202639 543 202651 612 
2027202738 472 202744 532 
ThereafterThereafter183 2,038 Thereafter212 2,323 
Total lease paymentsTotal lease payments443 4,966 Total lease payments510 5,149 
Less: Imputed interestLess: Imputed interest(78)(759)Less: Imputed interest(85)(834)
Total lease obligationsTotal lease obligations365 4,207 Total lease obligations425 4,315 
Less: Current obligationsLess: Current obligations(68)(668)Less: Current obligations(86)(664)
Long-term lease obligationsLong-term lease obligations$297 $3,539 Long-term lease obligations$339 $3,651 
As of March 31,September 30, 2023, we had $771$764 million of additional leases which had not commenced. These leases will commence between 2023 and 20242025 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, they were granted a discretionary review by the Kentucky Supreme Court. In the first quarter of 2023, the Kentucky Supreme Court ruled in our favor. Plaintiffs havesubsequently filed a motion for rehearing, beforewhich was denied.
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 Kentucky Supreme Court.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 loss that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity.
Other Matters
In August 2016, Spain’s National Markets and Competition Commission ("CNMC") announced an investigation into 10 companies in the commercial delivery and parcel industry, including UPS, related to alleged nonaggression agreements to allocate customers. In May 2017, we received a Statement of Objections issued by the CNMC. In July 2017, we received a Proposed Decision from the CNMC. In March 2018, the CNMC adopted a final decision, finding an infringement and imposing an immaterial fine on UPS. We appealed the decision. In December 2022, a trial court ruled against us. We have filed an appeal before the Spanish Supreme Court. We are vigorously defending ourselves and believe that we have a number of meritorious defenses. There are also unresolved questions of law that could be important to the ultimate resolution of this matter. We do not believe that any loss from this matter would have a material impact on our 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 that could be important to the ultimate resolution of this matter.
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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NOTE 12. SHAREOWNERS' EQUITY
Capital Stock, Additional Paid-In Capital, Retained Earnings and Non-Controlling Minority Interests
We are authorized to issue two classes of common stock, which are distinguished from each other primarily by their respective voting rights. Class A shares of UPS are entitled to 10 votes per share, whereas class B shares are entitled to one vote per share. Class A shares are primarily held by UPS employees and retirees, as well as trusts and descendants of the Company's founders, and these shares are fully convertible into class B shares at any time. Class B shares are publicly traded on the NYSE under the symbol “UPS”. Class A and B shares both have a $0.01 par value, and as of March 31,September 30, 2023, there were 4.6 billion class A shares and 5.6 billion class B shares authorized to be issued. Additionally, there are 200 million preferred shares authorized to be issued, with a par value of $0.01 per share. As of March 31,September 30, 2023, no preferred shares had been issued.
The following is a rollforward of our common stock, additional paid-in capital, retained earnings and non-controlling minority interests accounts for the three and nine months ended March 31,September 30, 2023 and 2022 (in millions, except per share amounts):
Three Months Ended March 31:20232022
Three Months Ended September 30:Three Months Ended September 30:20232022
SharesDollarsSharesDollars SharesDollarsSharesDollars
Class A Common Stock:
Class A Common StockClass A Common Stock
Balance at beginning of periodBalance at beginning of period134 $138 $Balance at beginning of period132 $138 $
Stock award plansStock award plans— — Stock award plans— (1)— 
Common stock issuancesCommon stock issuances— — Common stock issuances— — 
Conversions of class A to class B common stockConversions of class A to class B common stock(3)— (3)— Conversions of class A to class B common stock(4)— (3)— 
Class A shares outstanding at end of period135 $140 $
Class B Common Stock:
Class A shares issued at end of periodClass A shares issued at end of period130 $135 $
Class B Common StockClass B Common Stock
Balance at beginning of periodBalance at beginning of period725 $732 $Balance at beginning of period723 $732 $
Common stock purchasesCommon stock purchases(4)— (1)— Common stock purchases(5)— (5)— 
Conversions of class A to class B common stockConversions of class A to class B common stock— — Conversions of class A to class B common stock— — 
Class B shares outstanding at end of period724 $734 $
Additional Paid-In Capital:
Class B shares issued at end of periodClass B shares issued at end of period722 $730 $
Additional Paid-In CapitalAdditional Paid-In Capital
Balance at beginning of periodBalance at beginning of period$— $1,343 Balance at beginning of period$— $573 
Stock award plansStock award plans345 (35)Stock award plans14 233 
Common stock purchasesCommon stock purchases(492)(260)Common stock purchases(123)(903)
Common stock issuancesCommon stock issuances147 183 Common stock issuances115 97 
Other (1)
Other (1)
(6)— 
Balance at end of periodBalance at end of period$— $1,231 Balance at end of period$— $— 
Retained Earnings:
Retained EarningsRetained Earnings
Balance at beginning of periodBalance at beginning of period$21,326 $16,179 Balance at beginning of period$21,584 $18,958 
Net income attributable to controlling interests1,895 2,662 
Dividends ($1.62 and $1.52 per share) (1)
(1,453)(1,406)
Net income attributable to common shareownersNet income attributable to common shareowners1,127 2,584 
Dividends ($1.62 and $1.52 per share) (2)
Dividends ($1.62 and $1.52 per share) (2)
(1,384)(1,316)
Common stock purchasesCommon stock purchases(258)— Common stock purchases(627)(48)
OtherOther— (2)Other(1)(1)
Balance at end of periodBalance at end of period$21,510 $17,433 Balance at end of period$20,699 $20,177 
Non-Controlling Interests:
Non-Controlling InterestNon-Controlling Interest
Balance at beginning of periodBalance at beginning of period$17 $16 Balance at beginning of period$18 $21 
Change in non-controlling interestChange in non-controlling interest(2)Change in non-controlling interest(6)(1)
Balance at end of periodBalance at end of period$15 $18 Balance at end of period$12 $20 
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $105 and $122 million as of March 31, 2023 and 2022, respectively, that were settled in shares of class A common stock.
(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 $43 and $41 million as of September 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 $43 and $41 million as of September 30, 2023 and 2022, respectively, that were settled in shares of class A common stock.
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Nine Months Ended September 30:20232022
 SharesDollarsSharesDollars
Class A Common Stock:
Balance at beginning of period134 $138 $
Stock award plans— — 
Common stock issuances— — 
Conversions of class A to class B common stock(10)— (10)— 
Class A shares issued at end of period130 $135 $
Class B Common Stock:
Balance at beginning of period725 $732 $
Common stock purchases(13)— (12)— 
Conversions of class A to class B common stock10 — 10 — 
Class B shares issued at end of period722 $730 $
Additional Paid-In Capital:
Balance at beginning of period$— $1,343 
Stock award plans391 410 
Common stock purchases(750)(2,146)
Common stock issuances370 393 
Other (1)
(11)— 
Balance at end of period$— $— 
Retained Earnings:
Balance at beginning of period$21,326 $16,179 
Net income attributable to controlling interests5,103 8,095 
Dividends ($4.86 and $4.56 per share) (2)
(4,230)(4,049)
Common stock purchases(1,500)(48)
Other— — 
Balance at end of period$20,699 $20,177 
Non-Controlling Interests:
Balance at beginning of period$17 $16 
Change in non-controlling interest(5)
Balance at end of period$12 $20 
(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 $196 and $207 million as of September 30, 2023 and 2022, respectively, that were settled in shares of class A common stock.

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We repurchased 4.14.4 and 1.212.8 million shares of class B common stock for $750 million and $260 million$2.3 billion during the three and nine months ended March 31,September 30, 2023, respectively. We repurchased 4.9 and 11.6 million shares of class B common stock for $951 million and $2.2 billion during the three and nine months ended September 30, 2022, respectively. Repurchases of $751 and $254 million, respectively, are reported on the statements of consolidated cash flows due to the timing of settlements. These repurchases were completed as follows:
In August 2021, the Board of Directors authorized the company to repurchase up to $5.0 billion of class A and class B common stock (the "2021 Authorization"). For the threenine months ended March 31,months ended September 30, 2023, and 2022, we repurchased 0.5 and 1.2 million shares of class B common stock for $82 million under this authorization. The share repurchases discussed above for the three and $260 million, respectively,nine months ended September 30, 2022, 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 nine months ended March 31,September 30, 2023, we repurchased 3.64.4 and 12.3 million shares for $668750 million and $2.2 billion, respectively, under the 2023 Authorization. As of March 31,September 30, 2023, we had $4.3$2.8 billion available under this repurchase authorization.
We do not anticipate ourfurther share repurchases will total approximately $3.0 billion in 2023.
Future share repurchases may be in the form of accelerated share repurchase programs, open market purchases or other methods we deem appropriate. The timing of share repurchases will depend upon market conditions. Unless terminated earlier by the Board of Directors, this program will expire when we have purchased all shares authorized for repurchase under the program.
Movements in additional paid-in capital in respect of stock award plans comprise accruals for unvested awards, offset by adjustments for awards that vest during the period.
Accumulated Other Comprehensive Income (Loss)
We recognize activity in other comprehensive income for foreign currency translation adjustments, unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized pension and postretirement benefit costs. The activity in accumulated other comprehensive income (loss) for the three and nine months ended March 31,September 30, 2023 and 2022 was as follows (in millions):
Three Months Ended March 31:20232022
Foreign currency translation gain (loss), net of tax:
Balance at beginning of period$(1,446)$(1,162)
Translation adjustment (net of tax effect of $(15) and $0)115 (40)
Reclassification to earnings (net of tax effect of $0 and $0)— 
Balance at end of period(1,328)(1,202)
Unrealized gain (loss) on marketable securities, net of tax:
Balance at beginning of period(11)(1)
Current period changes in fair value (net of tax effect of $1 and $(2))(6)
Reclassification to earnings (net of tax effect of $1 and $0)— 
Balance at end of period(4)(7)
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of period167 (17)
Current period changes in fair value (net of tax effect of $(8) and $23)(26)72 
Reclassification to earnings (net of tax effect of $(16) and $(9))(51)(29)
Balance at end of period90 26 
Unrecognized pension and postretirement benefit costs, net of tax:
Balance at beginning of period(259)(2,098)
Net actuarial gain (loss) resulting from remeasurements of plan assets and liabilities (net of tax effect of $0 and $11)— 31 
Reclassification to earnings (net of tax effect of $7 and $(3))20 (7)
Balance at end of period(239)(2,074)
Accumulated other comprehensive income (loss) at end of period$(1,481)$(3,257)
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Detail of the gains (losses) reclassified from accumulated other comprehensive income (loss) to the statements of consolidated income for the three months ended March 31, 2023 and 2022 is as follows (in millions):
Amount Reclassified from AOCI(1)
Affected Line Item in the Income Statement
Three Months Ended March 31:20232022
Unrealized Gain (Loss) on Foreign Currency Translation:
Realized gain (loss) on business wind-down$(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— Income tax expense
Impact on net income(2)— Net income
Unrealized gain (loss) on cash flow hedges:
Interest rate contracts(1)(3)Interest expense
Foreign currency exchange contracts68 41 Revenue
Income tax (expense) benefit(16)(9)Income tax expense
Impact on net income51 29 Net income
Unrecognized pension and postretirement benefit costs:
Prior service costs(27)(23)Investment income and other
Curtailment of benefit obligation— 33 Investment income and other
Income tax (expense) benefit(3)Income tax expense
Impact on net income(20)Net income
Total amount reclassified for the period$26 $36 Net income
(1) Accumulated other comprehensive income (loss)
Three Months Ended September 30:20232022
Foreign Currency Translation Gain (Loss), Net of Tax:
Balance at beginning of period$(1,346)$(1,447)
Translation adjustment (net of tax effect of $0 and $4)(96)(263)
Balance at end of period(1,442)(1,710)
Unrealized Gain (Loss) on Marketable Securities, Net of Tax:
Balance at beginning of period(20)(8)
Current period changes in fair value (net of tax effect of $(1) and $(1))(2)(4)
Reclassification to earnings (net of tax effect of $0 and $0)— 
Balance at end of period(22)(11)
Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax:
Balance at beginning of period10 260 
Current period changes in fair value (net of tax effect of $44 and $110)138 350 
Reclassification to earnings (net of tax effect of $(8) and $(21))(27)(69)
Balance at end of period121 541 
Unrecognized Pension and Postretirement Benefit Costs, Net of Tax:
Balance at beginning of period(218)(2,056)
Reclassification to earnings (net of tax effect of $7 and $5)21 18 
Balance at end of period(197)(2,038)
Accumulated other comprehensive income (loss) at end of period$(1,540)$(3,218)
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Nine Months Ended September 30:20232022
Foreign currency translation gain (loss), net of tax:
Balance at beginning of period$(1,446)$(1,162)
Translation adjustment (net of tax effect of $(13) and $11)(548)
Reclassification to earnings (net of tax effect of $0 and $0)— 
Balance at end of period(1,442)(1,710)
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 $(5) and $(3))(13)(11)
Reclassification to earnings (net of tax effect of $1 and $0)
Balance at end of period(22)(11)
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of period167 (17)
Current period changes in fair value (net of tax effect of $22 and $222)69 705 
Reclassification to earnings (net of tax effect of $(36) and $(46))(115)(147)
Balance at end of period121 541 
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 $20 and $8)62 29 
Balance at end of period(197)(2,038)
Accumulated other comprehensive income (loss) at end of period$(1,540)$(3,218)
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Detail of the gains (losses) reclassified from accumulated other comprehensive income (loss) to the statements of consolidated income for the three and nine months ended September 30, 2023 and 2022 is as follows (in millions):
Amount Reclassified from AOCI(1)
Affected Line Item in the Income Statement
Three Months Ended September 30:20232022
Unrealized Gain (Loss) on Marketable Securities:
Realized gain (loss) on sale of securities$— $(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(6)(4)Interest expense
Foreign currency exchange contracts41 94 Revenue
Income tax (expense) benefit(8)(21)Income tax expense
Impact on net income27 69 Net income
Unrecognized Pension and Postretirement Benefit Costs:
Prior service costs(28)(23)Investment income and other
Income tax (expense) benefitIncome tax expense
Impact on net income(21)(18)Net income
Total amount reclassified for the period$$50 Net income
(1) Accumulated other comprehensive income (loss)
Amount Reclassified from AOCI(1)
Affected Line Item in the Income Statement
Nine Months Ended September 30:20232022
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)(1)Investment income and other
Income tax (expense) benefit— Income tax expense
Impact on net income(2)(1)Net income
Unrealized gain (loss) on cash flow hedges:
Interest rate contracts(9)(9)Interest expense
Foreign currency exchange contracts160 202 Revenue
Income tax (expense) benefit(36)(46)Income tax expense
Impact on net income115 147 Net income
Unrecognized pension and postretirement benefit costs:
Prior service costs(82)(70)Investment income and other
Curtailment of benefit obligation— 33 Investment income and other
Income tax (expense) benefit20 Income tax expense
Impact on net income(62)(29)Net income
Total amount reclassified for the period$48 $117 Net income
(1) Accumulated other comprehensive income (loss)
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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 a deferred compensation obligationsobligation within Shareowners’ Equity 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 nine months ended March 31,September 30, 2023 and 2022 was as follows (in millions):
20232022
Three Months Ended September 30:SharesDollarsSharesDollars
Deferred Compensation Obligations:
Balance at beginning of period$$12 
Reinvested dividends— — 
Benefit payments— — 
Balance at end of period$$12 
Treasury Stock:
Balance at beginning of period— $(9)— $(12)
Reinvested dividends— — — — 
Benefit payments— — — — 
Balance at end of period— $(9)— $(12)
20232022
20232022
Three Months Ended March 31:SharesDollarsSharesDollars
Nine Months Ended September 30:Nine Months Ended September 30:SharesDollarsSharesDollars
Deferred Compensation Obligations:Deferred Compensation Obligations:Deferred Compensation Obligations:
Balance at beginning of periodBalance at beginning of period$13 $16 Balance at beginning of period$13 $16 
Reinvested dividendsReinvested dividends— — Reinvested dividends— 
Benefit paymentsBenefit payments(4)(4)Benefit payments(4)(5)
Balance at end of periodBalance at end of period$$12 Balance at end of period$$12 
Treasury Stock:Treasury Stock:Treasury Stock:
Balance at beginning of periodBalance at beginning of period— $(13)— $(16)Balance at beginning of period— $(13)— $(16)
Reinvested dividendsReinvested dividends— — — — Reinvested dividends— — — (1)
Benefit paymentsBenefit payments— — Benefit payments— — 
Balance at end of periodBalance at end of period— $(9)— $(12)Balance at end of period— $(9)— $(12)

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NOTE 13. SEGMENT INFORMATION
We have two reportable segments: U.S. Domestic Package and International Package, which are together referred to as our global small package operations. Our remaining businesses are reported as Supply Chain Solutions. Global small package operations represent our most significant business and are broken down into regional operations around the world. Regional operations managers are responsible for both domestic and export products within their geographic area. Supply Chain Solutions comprises the results of non-reportable operating segments that do not meet the quantitative and qualitative criteria of a reportable segment as defined under ASC Topic 280 – Segment Reporting.
U.S. Domestic Package
U.S. Domestic Package operations include the time-definite delivery of letters, documents and packages throughout the United States.
International Package
International Package operations include delivery to more than 220200 countries and territories worldwide, including shipments wholly outside the United States, as well as shipments with either origin or destination outside the United States. Our International Package reporting segment includes our operations in Europe, Asia, the Indian sub-continent, the Middle East and Africa ("EMEA"), Canada and Latin America.America (together "Americas") and Asia.
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 businesses provide services in more than 200 countries and territories worldwide and include international air and ocean freight forwarding, customs brokerage, distribution and post-sales services, healthcare logistics, mail and consulting services. Coyote offers truckload brokerage services primarily in the United States. Marken providesOur Healthcare businesses provide supply chain solutions to the healthcare and life sciences industry.industries. Other businesses within this segmentSupply Chain Solutions include The UPS Store, UPS Capital, Roadie and Delivery Solutions.
In evaluating financial performance, we focus on operating profit as a segment’s measure of profit or loss. Operating profit is before investment income (expense) and other, interest expense and income tax expense. Certain expenses are allocated between the segments using activity-based costing methods. These activity-based costing methods 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 first quarter.third quarter or year-to-date periods.
Results of operations for the three and nine months ended March 31,September 30, 2023 and 2022 arewere as follows (in millions):
Three Months Ended
 March 31,
Three Months Ended
 September 30,
Nine Months Ended
 September 30,
20232022 2023202220232022
Revenue:Revenue:Revenue:
U.S. Domestic PackageU.S. Domestic Package$14,987 $15,124 U.S. Domestic Package$13,660 $15,374 $43,043 $45,957 
International PackageInternational Package4,543 4,876 International Package4,267 4,799 13,225 14,748 
Supply Chain SolutionsSupply Chain Solutions3,395 4,378 Supply Chain Solutions3,134 3,988 9,773 12,600 
Consolidated revenueConsolidated revenue$22,925 $24,378 Consolidated revenue$21,061 $24,161 $66,041 $73,305 
Operating Profit:Operating Profit:Operating Profit:
U.S. Domestic PackageU.S. Domestic Package$1,466 $1,662 U.S. Domestic Package$571 $1,666 $3,639 $5,157 
International PackageInternational Package828 1,116 International Package630 997 2,341 3,306 
Supply Chain SolutionsSupply Chain Solutions247 473 Supply Chain Solutions142 450 684 1,436 
Consolidated operating profitConsolidated operating profit$2,541 $3,251 Consolidated operating profit$1,343 $3,113 $6,664 $9,899 

 
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NOTE 14. EARNINGS PER SHARE
The earnings per share amounts are the same for class A and class B common shares as the holders of each class are legally entitled to equal per-share distributions whether through dividends or in liquidation.
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended March 31,September 30, 2023 and 2022 (in millions, except per share amounts):
Three Months Ended
 March 31,
Three Months Ended
 September 30,
Nine Months Ended
 September 30,
20232022 2023202220232022
Numerator:Numerator:
Net income attributable to common shareownersNet income attributable to common shareowners$1,895 $2,662 Net income attributable to common shareowners$1,127 $2,584 $5,103 $8,095 
Denominator:Denominator:Denominator:
Weighted average sharesWeighted average shares858 871 Weighted average shares853 867 856 870 
Vested portion of restricted unitsVested portion of restricted unitsVested portion of restricted units
Denominator for basic earnings per shareDenominator for basic earnings per share862 874 Denominator for basic earnings per share857 870 860 873 
Effect of dilutive securities:Effect of dilutive securities:Effect of dilutive securities:
Restricted unitsRestricted unitsRestricted units
Stock optionsStock optionsStock options— — — 
Denominator for diluted earnings per shareDenominator for diluted earnings per share865 879 Denominator for diluted earnings per share858 872 861 876 
Basic earnings per share$2.20 $3.05 
Diluted earnings per share$2.19 $3.03 
Basic earnings per share(1)
Basic earnings per share(1)
$1.31 $2.97 $5.93 $9.27 
Diluted earnings per share(1)
Diluted earnings per share(1)
$1.31 $2.96 $5.92 $9.24 
(1) Earnings per share is computed using unrounded amounts.
(1) Earnings per share is computed using unrounded amounts.
Diluted earnings per share for the three and nine months ended March 31,September 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.
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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. Where deemed appropriate, to manage the impact of these exposures on earnings and/or cash flows, we may enter into a variety of derivative financial instruments. We do not hold or issue derivative financial instruments for trading or speculative purposes.
Credit Risk Management
The forward contracts, swaps and options discussed below contain an element of risk that the counterparties may be unable to meet the terms of the agreements. We seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines. We may further manage credit risk through the use of zero threshold bilateral collateral provisions and/or early termination rights utilizing master netting arrangements, whereby cash is exchanged based on the net fair value of derivatives associated with each counterparty.
As of March 31,September 30, 2023 and December 31, 2022, we held cash collateral of $375$382 and $534 million, respectively, under these agreements. This collateral is included in Cash and cash equivalents in the consolidated balance sheets and is unrestricted. As of March 31,September 30, 2023 and December 31, 2022, no collateral was required to be posted with our counterparties.
Types of Hedges
Commodity Risk Management
Currently, the fuel surcharges that we apply in our domestic and international package 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 generally designate and account for these contracts as cash flow hedges of anticipated foreign currency denominated revenue.
We may also hedge portions of our anticipated cash settlements of principal and interest on certain foreign currency denominated debt. We generally designate and account for these contracts as cash flow hedges of forecasted foreign currency denominated transactions.
We hedge our net investment in certain foreign operations with foreign currency denominated debt instruments.
Interest Rate Risk Management
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.
We have designatedgenerally 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. We have designateddesignate and account for interest rate swaps that convert floating-rate interest payments into fixed-rate interest payments as cash flow hedges of the forecasted payment obligations.
We may periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings by using forward starting interest rate swaps, interest rate locks or similar derivatives.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Outstanding Positions
As of March 31,September 30, 2023 and December 31, 2022, the notional amounts of our outstanding derivative positions were as follows (in millions):
March 31,
2023
December 31,
2022
September 30,
2023
December 31,
2022
Currency hedges:Currency hedges:Currency hedges:
EuroEuroEUR3,880 4,115 EuroEUR3,837 4,115 
British Pound SterlingBritish Pound SterlingGBP776 856 British Pound SterlingGBP682 856 
Canadian DollarCanadian DollarCAD1,515 1,598 Canadian DollarCAD1,518 1,598 
Hong Kong DollarHong Kong DollarHKD4,552 4,261 Hong Kong DollarHKD2,669 4,261 
Interest rate hedges:Interest rate hedges:Interest rate hedges:
Floating to Fixed Interest Rate SwapsFloating to Fixed Interest Rate SwapsUSD28 28 Floating to Fixed Interest Rate SwapsUSD— 28 
As of March 31,September 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 March 31,September 30, 2023 and December 31, 2022 (in millions):
Fair Value Hierarchy LevelGross Amounts Presented in Consolidated Balance SheetsNet Amounts if Right of
Offset had been Applied
Fair Value Hierarchy LevelGross Amounts Presented in Consolidated Balance SheetsNet Amounts if Right of
Offset had been Applied
Asset DerivativesAsset DerivativesBalance Sheet LocationMarch 31,
2023
December 31,
2022
March 31,
2023
December 31,
2022
Asset DerivativesBalance Sheet LocationSeptember 30,
2023
December 31,
2022
September 30,
2023
December 31,
2022
Derivatives designated as hedges:Derivatives designated as hedges:Derivatives designated as hedges:
Foreign currency exchange contractsForeign currency exchange contractsOther current assetsLevel 2$143 $174 $135 $171 Foreign currency exchange contractsOther current assetsLevel 2$171 $174 $166 $171 
Foreign currency exchange contractsForeign currency exchange contractsOther non-current assetsLevel 2188 250 159 226 Foreign currency exchange contractsOther non-current assetsLevel 2172 250 161 226 
Derivatives not designated as hedges:Derivatives not designated as hedges:Derivatives not designated as hedges:
Foreign currency exchange contractsForeign currency exchange contractsOther current assetsLevel 2— — Foreign currency exchange contractsOther current assetsLevel 2— — 
Total Asset DerivativesTotal Asset Derivatives$331 $425 $294 $398 Total Asset Derivatives$343 $425 $327 $398 
Fair Value Hierarchy LevelGross Amounts Presented in
Consolidated Balance Sheets
Net Amounts if Right of
Offset had been Applied
Liability DerivativesBalance Sheet LocationMarch 31,
2023
December 31,
2022
March 31,
2023
December 31,
2022
Derivatives designated as hedges:
Foreign currency exchange contractsOther current liabilitiesLevel 2$$$— $— 
Foreign currency exchange contractsOther non-current liabilitiesLevel 229 24 — — 
Interest rate contractsOther non-current liabilitiesLevel 2
Derivatives not designated as hedges:
Foreign currency exchange contractsOther current liabilitiesLevel 2— — 
Total Liability Derivatives$43 $32 $$
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Hierarchy LevelGross Amounts Presented in
Consolidated Balance Sheets
Net Amounts if Right of
Offset had been Applied
Liability DerivativesBalance Sheet LocationSeptember 30,
2023
December 31,
2022
September 30,
2023
December 31,
2022
Derivatives designated as hedges:
Foreign currency exchange contractsOther current liabilitiesLevel 2$$$— $— 
Foreign currency exchange contractsOther non-current liabilitiesLevel 211 24 — — 
Interest rate contractsOther non-current liabilitiesLevel 2— — 
Total Liability Derivatives$16 $32 $— $
Our foreign currency exchange rate and interest rate and investment market price derivatives are largely comprised of over-the-counter derivatives, which are primarily valued using pricing models that rely on market observable inputs such as yield curves, foreign currency exchange rates and investment forward prices; therefore, these derivatives are classified as Level 2.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet Location of Hedged Item in Fair Value Hedges    
The following table indicates the amounts that were recorded in the consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of March 31,September 30, 2023 and December 31, 2022 (in millions):
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is IncludedLine Item in the Consolidated Balance Sheets in Which the Hedged Item is IncludedCarrying Amount
of Hedged Liabilities
Cumulative Amount
of Fair Value Hedge
Adjustments
Carrying Amount
of Hedged Liabilities
Cumulative Amount
 of Fair Value Hedge
Adjustments
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is IncludedCarrying Amount
of Hedged Liabilities
Cumulative Amount
of Fair Value Hedge
Adjustments
Carrying Amount
of Hedged Liabilities
Cumulative Amount
 of Fair Value Hedge
Adjustments
March 31, 2023March 31, 2023December 31, 2022December 31, 2022September 30, 2023September 30, 2023December 31, 2022December 31, 2022
Long-term debt and finance leasesLong-term debt and finance leases$280 $$280 $Long-term debt and finance leases$280 $$280 $
Income Statement and AOCI Recognition of Designated Hedges
The following table indicates the amount of gains (losses) that have been recognized in the statements of consolidated income for fair value and cash flow hedges, as well as the associated gain (loss) for the underlying hedged item for fair value hedges for the three and nine months ended March 31,September 30, 2023 and 2022 (in millions):
Three Months Ended March 31,

20232022
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging RelationshipsRevenueInterest ExpenseInvestment Income and OtherRevenueInterest ExpenseInvestment Income and Other
Gain (loss) on fair value hedging relationships:
Interest Rate Contracts:
Hedged items$— $— $— $— $$— 
Derivatives designated as hedging instruments— — — — (8)— 
Gain (loss) on cash flow hedging relationships:
Interest Rate Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income— (1)— — (3)— 
Foreign Currency Exchange Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income68 — — 41 — — 
Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded$68 $(1)$— $41 $(3)$— 


Three Months Ended September 30,
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships20232022
RevenueInterest ExpenseInvestment Income and OtherRevenueInterest ExpenseInvestment Income and Other
Gain or (loss) on fair value hedging relationships:
Interest Contracts:
Hedged items$— $— $— $— $(1)$— 
Derivatives designated as hedging instruments— — — — — 
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income— (6)— — (4)— 
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income41 — — 94 — — 
Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded$41 $(6)$— $94 $(4)$— 
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended September 30,

20232022
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging RelationshipsRevenueInterest ExpenseInvestment Income and OtherRevenueInterest ExpenseInvestment Income and Other
Gain (loss) on fair value hedging relationships:
Interest Rate Contracts:
Hedged items$— $— $— $— $10 $— 
Derivatives designated as hedging instruments— — — — (10)— 
Gain (loss) on cash flow hedging relationships:
Interest Rate Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income— (9)— — (9)— 
Foreign Currency Exchange Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income160 — — 202 — — 
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$160 $(9)$— $202 $(9)$— 
The following table indicates the amount of gains (losses) that have been recognized in AOCI for the three and nine months ended March 31,September 30, 2023 and 2022 for those derivatives designated as cash flow hedges (in millions):
Three Months Ended March 31:
Three Months Ended September 30:Three Months Ended September 30:
Derivative Instruments in Cash Flow Hedging RelationshipsDerivative Instruments in Cash Flow Hedging RelationshipsAmount of Gain (Loss) Recognized in AOCI on DerivativesDerivative Instruments in Cash Flow Hedging RelationshipsAmount of Gain (Loss) Recognized in AOCI on Derivatives
2023202220232022
Interest rate contractsInterest rate contracts$— $Interest rate contracts$— $
Foreign currency exchange contractsForeign currency exchange contracts(34)92 Foreign currency exchange contracts182 459 
TotalTotal$(34)$95 Total$182 $460 
Nine Months Ended September 30:Nine Months Ended September 30:
Derivative Instruments in Cash Flow Hedging RelationshipsDerivative Instruments in Cash Flow Hedging RelationshipsAmount of Gain (Loss) Recognized in AOCI on Derivatives
20232022
Interest rate contractsInterest rate contracts$— $
Foreign currency exchange contractsForeign currency exchange contracts91 922 
TotalTotal$91 $927 
As of March 31,September 30, 2023, there were $130$160 million of pre-tax gains related to cash flow hedges deferred in AOCI that are expected to be reclassified to income over the 12-month period ending March 31,September 30, 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 93 years.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table indicates the amount of gains (losses) that have been recognized in AOCI within foreign currency translation adjustment for the three and nine months ended March 31,September 30, 2023 and 2022 for those instruments designated as net investment hedges (in millions):
Three Months Ended March 31:
Three Months Ended September 30:Three Months Ended September 30:
Non-derivative Instruments in Net Investment Hedging RelationshipsNon-derivative Instruments in Net Investment Hedging RelationshipsAmount of Gain (Loss) Recognized in AOCI on DebtNon-derivative Instruments in Net Investment Hedging RelationshipsAmount of Gain (Loss) Recognized in AOCI on Debt
2023202220232022
Foreign currency denominated debtForeign currency denominated debt$(73)$46 Foreign currency denominated debt$103 $209 
TotalTotal$(73)$46 Total$103 $209 
Nine Months Ended September 30:Nine Months Ended September 30:
Non-derivative Instruments in Net Investment Hedging RelationshipsNon-derivative Instruments in Net Investment Hedging RelationshipsAmount of Gain (Loss) Recognized in AOCI on Debt
20232022
Foreign currency denominated debtForeign currency denominated debt$$436 
TotalTotal$$436 
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 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 forward contracts not designated as hedges for the three and nine months ended March 31,September 30, 2023 and 2022 (in millions) were as follows:
Derivative Instruments Not Designated in
Hedging Relationships
Location of Gain (Loss)
Recognized in Income
Amount of Gain (Loss) Recognized in Income
20232022
Three Months Ended March 31:
Foreign currency exchange contractsInvestment income and other$$(28)
Total$$(28)

Derivative Instruments Not Designated in
Hedging Relationships
Location of Gain (Loss)
Recognized in Income
Amount of Gain (Loss) Recognized in Income
20232022
Three Months Ended September 30:
Foreign currency exchange contractsInvestment income and other$(4)$(45)
Total$(4)$(45)
Nine Months Ended September 30:
Foreign currency exchange contractsInvestment income and other$(1)$(131)
Total$(1)$(131)
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. INCOME TAXES
Our third-quarter effective tax rate fordecreased to 11.1% as compared to 21.0% in the three months ended March 31, 2023 and 2022 was approximately 24.9% and 21.5%, respectively.prior year (21.6% year to date compared to 21.8% in 2022). The year-over-year increase in our effective tax ratedecrease was driven by lower excessfavorable U.S. Treasury guidance on utilization of foreign tax benefits related to share-based compensation, unfavorable changescredits, decreases in jurisdictional earnings mix and uncertain tax positions.positions as a result of resolution of global tax audits and adjustments to our tax balances to reflect our recently filed tax returns.
We have recognized liabilities for uncertain tax positions and we reevaluate these uncertain tax positions on a quarterly basis. A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months, however, an estimate of the range of reasonably possible outcomes cannot be made. Items that may cause changes to unrecognized tax benefits include the allowance or disallowance of deductions, the timing of deductions and the allocation of income and expense between tax jurisdictions. TheseAny changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of the statutestatutes of limitations or other unforeseen circumstances. Over
During the next twelve months, it is reasonably possible thatthird quarter of 2023, we recognized an income tax benefit of $15 million related to a one-time compensation payment of $61 million. This income tax benefit was generated at a higher average tax rate than the amountU.S. federal statutory tax rate due to the effect of unrecognizedU.S. state and local taxes.
Also in the third quarter of 2023, we recorded goodwill impairment charges of $117 million ($125 million year to date). As a result, we recorded an additional income tax benefits may decrease by upbenefit of $14 million ($16 million year to $180 million.

date). This income tax benefit was generated at a lower average tax rate than the U.S. federal statutory tax rate due to a portion of the goodwill impairment charge not being deductible for tax purposes.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. TRANSFORMATION STRATEGY COSTS
We are undertaking an enterprise-wide transformation of our organization. The programorganization that includes initiatives, as well as changes in processes and technology, that impact global direct and indirect operating costs. During the third quarter of 2023, we reduced staff to better align direct headcount with volumes. As of September 30, 2023, we recorded an accrual for separation costs of $90 million on the consolidated balance sheet. We currently expect approximately $26 million to be paid by December 31, 2023 and the remainder to be paid during the first quarter of 2024.
The table below presents transformation strategy costs for the three and nine months ended March 31,September 30, 2023 and 2022 (in millions):
Three Months Ended
 March 31,
Three Months Ended
 September 30,
Nine Months Ended
 September 30,
202320222023202220232022
Transformation Strategy Costs:Transformation Strategy Costs:Transformation Strategy Costs:
Compensation and benefitsCompensation and benefits$(12)$33 Compensation and benefits$80 $15 $178 $71 
Total other expensesTotal other expenses15 22 Total other expenses14 21 58 61 
Total Transformation Strategy CostsTotal Transformation Strategy Costs$$55 Total Transformation Strategy Costs$94 $36 $236 $132 
Income Tax Benefit from Transformation Strategy CostsIncome Tax Benefit from Transformation Strategy Costs— (12)Income Tax Benefit from Transformation Strategy Costs(24)(9)(57)(31)
After-Tax Transformation Strategy CostsAfter-Tax Transformation Strategy Costs$$43 After-Tax Transformation Strategy Costs$70 $27 $179 $101 
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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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18. SUBSEQUENT EVENTS
In the third quarter of 2023, we entered into an agreement to acquire MNX Global Logistics, a global time-critical and temperature-sensitive logistics provider. This acquisition is expected to enhance our capabilities in time-critical logistics, including healthcare and related industries and is expected to close in the fourth quarter of 2023, subject to regulatory approval.
Also in the third quarter of 2023, we entered into a separate agreement to acquire Happy Returns, a technology-focused company that provides innovative end-to-end return services. This acquisition will expand our returns portfolio and provide a consolidated returns solution for our enterprise retail customers. This acquisition was closed on November 1, 2023.
The aggregate purchase price for both acquisitions will be approximately $1.3 billion. These acquisitions are not expected to exceed 10% of operating income.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview
We continue to execute our Customer First, People Led, Innovation Driven strategy by investing to improveAs the customer experienceworld’s premier package delivery company and drive growth in our targeted customer segments, including small- and medium-sized businesses ("SMBs") and healthcare. Weleading 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.network and diversified portfolio. Our Customer First, People Led, Innovation Driven strategy is enabling us to stay focused on our core business and invest to grow in the most attractive parts of the market, like healthcare and with small- and medium-sized businesses ("SMBs").
DuringWe have taken a number of steps in furtherance of our strategy in the third quarter of 2023. We entered into an agreement to acquire MNX Global Logistics, a global time-critical and temperature-sensitive logistics provider, which we anticipate will close during the fourth quarter. We also entered into an agreement to acquire Happy Returns, a technology-focused company that provides innovative end-to-end return services. This acquisition closed on November 1st.
In addition, in early September, our International Brotherhood of Teamsters employees fully ratified a new national master agreement. In total, wage and benefit rates combined with all other contract provisions will increase union cost at a 3.3% compounded annual growth rate over the five-year term of the contract, with the majority of the increase in the first and fifth years. Importantly, this contract provides us significant certainty around labor, and we have retained the ability to implement technology to further drive productivity inside our buildings, which is expected to help offset cost increases.
Throughout the third quarter, we continued the expansiondeploying our Smart Package Smart Facility RFID technology to reduce package car loading errors and improve efficiency in deliveries. As of September 30, 2023, this technology was installed in most of our Digital Access ProgramU.S. facilities. In Supply Chain Solutions, we began implementing robotic technology to unload packages more efficiently.
For the quarter and other technology-driven initiatives to make it faster and easier for SMBs to do business with us. We expanded our global footprint of dedicated healthcare facilities, accelerated deployment of our smart package-smart facility technology and continued to pursue initiatives to drive further productivity improvements and better serve our customers.
Macroeconomicyear-to-date periods, macroeconomic headwinds, including persistent global inflation, geopolitical tensions and a declinechanges in U.S. manufacturing production, ledconsumer behavior, together with volume diversion resulting from our labor negotiations with the Teamsters, have contributed to a challenging operating environment in the first quarter of 2023. In the U.S., consumer spendingenvironment. Internationally, demand continued to shift towards services and discretionary spending slowed. Internationally, exports out ofdecline in Asia while economic conditions in Europe remained weak and inflationary pressures persisted in Europe. challenging.
These factors negatively impacted demand for our services, resulting inled to volume declines in our global small package operations. Weoperations for both the quarter and year to date, and we anticipate these factorsthat they will continue to impact us throughoutin the remainderfourth quarter, although we have experienced week-over-week U.S. volume growth since the ratification of 2023. We may also be negatively impacted by the ongoing negotiation of our labor contract with the Teamsters. For additional information on
Faced with this challenging external environment during the status of these negotiations, see note 7 to the accompanying unaudited financial statements.
Notwithstanding the challenging macroeconomic environment in the first quarter, we managedcontinued our focus on adjusting our network with agility, focused on productivity, controlled costto match volume levels and generated operating profit that was in line withdelivering industry-leading service to our expectations.customers. Additionally, we returnedremained disciplined in our capital allocation practices by returning cash to shareowners through dividendsboth a dividend and share repurchases, and continued to make long-term investments to supportby reinvesting in our strategy.business. We do not anticipate further share repurchases in 2023.
We have two reportable segments: U.S. Domestic Package and International Package, which are together referred to as our global small package operations.Package. Our remaining businesses are reported as Supply Chain Solutions.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS



Highlights of our consolidated results, which are discussed in more detail below, include:
Three Months Ended
 March 31,
Change Three Months Ended
 September 30,
ChangeNine Months Ended
 September 30,
Change
20232022$% 20232022$%20232022$%
Revenue (in millions)Revenue (in millions)$22,925 $24,378 $(1,453)(6.0)%Revenue (in millions)$21,061 $24,161 $(3,100)(12.8)%$66,041 $73,305 $(7,264)(9.9)%
Operating Expenses (in millions)Operating Expenses (in millions)20,384 21,127 (743)(3.5)%Operating Expenses (in millions)19,718 21,048 (1,330)(6.3)%59,377 63,406 (4,029)(6.4)%
Operating Profit (in millions)Operating Profit (in millions)$2,541 $3,251 $(710)(21.8)%Operating Profit (in millions)$1,343 $3,113 $(1,770)(56.9)%$6,664 $9,899 $(3,235)(32.7)%
Operating MarginOperating Margin11.1 %13.3 %Operating Margin6.4 %12.9 %10.1 %13.5 %
Net Income (in millions)Net Income (in millions)$1,895 $2,662 $(767)(28.8)%Net Income (in millions)$1,127 $2,584 $(1,457)(56.4)%$5,103 $8,095 $(2,992)(37.0)%
Basic Earnings Per ShareBasic Earnings Per Share$2.20 $3.05 $(0.85)(27.9)%Basic Earnings Per Share$1.31 $2.97 $(1.66)(55.9)%$5.93 $9.27 $(3.34)(36.0)%
Diluted Earnings Per ShareDiluted Earnings Per Share$2.19 $3.03 $(0.84)(27.7)%Diluted Earnings Per Share$1.31 $2.96 $(1.65)(55.7)%$5.92 $9.24 $(3.32)(35.9)%
Operating DaysOperating Days64 64 Operating Days63 64 191 192 
Average Daily Package Volume (in thousands)Average Daily Package Volume (in thousands)21,989 23,278 (5.5)%Average Daily Package Volume (in thousands)20,425 22,900 (10.8)%21,109 23,083 (8.6)%
Average Revenue Per PieceAverage Revenue Per Piece$13.74 $13.26 $0.48 3.6 %Average Revenue Per Piece$13.81 $13.58 $0.23 1.7 %$13.82 $13.52 $0.30 2.2 %
AverageRevenue and average daily package volume and revenue in our global small package operations decreased for both the quarter and year to date, with declines in both commercial and residential shipments across all of our products. These declines were primarily as athe result of the macroeconomic conditions and labor-related uncertainties described herein.above, as well as a reduction in fuel surcharge revenue driven by declines in fuel prices.
Operating expenses decreased for both the quarter and year to date, driven by a reduction in purchased transportation in Supply Chain Solutions.Solutions and reductions in fuel expense in our small package operations, as well as the impact of our ongoing productivity initiatives.
Operating profit and operating margin decreased for both the quarter and year to date, as revenue declines were greater than operating expense reductions.
We reported third quarter net income of $1.9$1.1 billion and diluted earnings per share of $2.19.$1.31 ($5.1 billion and $5.92 per diluted share for the year-to-date period). Adjusted diluted earnings per share was $2.20, which includeswere $1.57 for the third quarter ($6.31 per diluted share year to date) after adjusting for the after-tax impacts of of:
transformation strategy costs of $70 million, or $0.09 per diluted share, for the third quarter ($179 million and $0.21 per diluted share year to date);
goodwill impairment charges of $9$103 million, or $0.01$0.12 per diluted share.share, for the third quarter ($109 million and $0.13 per diluted share year to date); and
a one-time compensation payment of $46 million, or $0.05 per diluted share, for the third quarter and year to date.
In the U.S. Domestic Package segment, revenue declines for the quarter and year to date were driven by lower volume.volume and fuel surcharge revenue. These were somewhat offset by revenue per piece growth due to improvementsincreases in revenue qualitybase rates and changes in product and customer mix, together with higher fuel revenue as a result of increases in price per gallonmix. Expenses for the quarter and pricing initiatives. Expenses increasedyear to date decreased, primarily due to higher wagesdeclines in fuel expense, purchased transportation and benefits costs for our union employees, partially offset by lower management compensation expense, increased productivity and declines in purchased transportation costs.expense.
In our International Package segment, revenue declines for the quarter and year to date were driven by lower volume unfavorable fluctuations in foreign currency exchange rates and declines in fuel and demand-related surcharges. These declines were partiallyslightly offset by the impact of revenue quality initiativesbase rate increases. Expense decreases for the quarter and increased fuel revenue. Expense decreasesyear to date were primarily driven by favorable currency impactslower fuel and the impactpurchased transportation expense as a result of volume declines partially offset by higherand 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 driven by lower purchased transportation costs in Forwarding. These were partiallyThis was slightly offset by expense increases in transportation and other costs within Logistics.
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Supplemental Information - Items Affecting Comparability
We supplement the reporting of our financial information determined under generally accepted accounting principles in the United States ("GAAP") with certain non-GAAP financial measures.
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 and therefore may not be comparable to similarly titled measures reported by other companies.
Adjusted amounts reflect the following (in millions):
Three Months Ended
 March 31,
Three Months Ended
 September 30,
Nine Months Ended
 September 30,
Non-GAAP AdjustmentsNon-GAAP Adjustments20232022Non-GAAP Adjustments2023202220232022
Operating Expenses:Operating Expenses:Operating Expenses:
Transformation Strategy CostsTransformation Strategy Costs$$55 Transformation Strategy Costs$94 $36 $236 $132 
Goodwill and Asset Impairments, and Divestiture ChargesGoodwill and Asset Impairments, and Divestiture Charges— Goodwill and Asset Impairments, and Divestiture Charges117 — 125 — 
One-Time Compensation PaymentOne-Time Compensation Payment61 — 61 — 
Total Adjustments to Operating ExpensesTotal Adjustments to Operating Expenses$11 $55 Total Adjustments to Operating Expenses$272 $36 $422 $132 
Other Income and (Expense):Other Income and (Expense):Other Income and (Expense):
Defined Benefit Plan (Gains) LossesDefined Benefit Plan (Gains) Losses$— $(33)Defined Benefit Plan (Gains) Losses$— $— $— $(33)
Total Adjustments to Other Income and (Expense)Total Adjustments to Other Income and (Expense)$— $(33)Total Adjustments to Other Income and (Expense)$— $— $— $(33)
Total Adjustments to Income Before Income TaxesTotal Adjustments to Income Before Income Taxes$11 $22 Total Adjustments to Income Before Income Taxes$272 $36 $422 $99 
Income Tax (Benefit) Expense:Income Tax (Benefit) Expense:Income Tax (Benefit) Expense:
Transformation Strategy CostsTransformation Strategy Costs$— $(12)Transformation Strategy Costs$(24)$(9)$(57)$(31)
Goodwill and Asset Impairments, and Divestiture ChargesGoodwill and Asset Impairments, and Divestiture Charges(2)— Goodwill and Asset Impairments, and Divestiture Charges(14)— (16)— 
One-Time Compensation PaymentOne-Time Compensation Payment(15)— (15)— 
Defined Benefit Plan (Gains) LossesDefined Benefit Plan (Gains) Losses— Defined Benefit Plan (Gains) Losses— — — 
Total Adjustments to Income Tax (Benefit) ExpenseTotal Adjustments to Income Tax (Benefit) Expense$(2)$(3)Total Adjustments to Income Tax (Benefit) Expense$(53)$(9)$(88)$(22)
Total Adjustments to Net IncomeTotal Adjustments to Net Income$$19 Total Adjustments to Net Income$219 $27 $334 $77 
Transformation Charges, and Goodwill, Asset Impairment and Divestiture Charges
We supplement the presentation of our operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of charges related to transformation activities, and goodwill, asset impairment and divestiture charges. We believe excluding the impact of these charges better enables users of our financial statements to view and evaluate underlying business performance from the perspective of management. We do not consider these costs when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards. For more information regarding transformation activities, see note 17 to the unaudited, consolidated financial statements. For more information regardingstatements and for goodwill impairment charges, see note 8 to ourthe unaudited, consolidated financial statements.
One-Time Compensation Payment
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 a one-time payment made to certain U.S.-based, non-union part-time supervisors following the ratification of our labor agreement with the Teamsters. We do not expect this or similar payments to recur. We believe excluding the impact of this one-time payment better enables users of our financial statements to view and evaluate underlying business performance from the same perspective as management.
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Foreign Currency Exchange Rate Changes and Hedging Activities
We supplement the reporting of revenue, revenue per piece and operating profit with adjusted measures that exclude the period over periodperiod-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 periodperiod-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 periodperiod-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 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 obligation resulting in a curtailmentgain of $33 million ($24 million after-tax) infor the threenine months ended March 31,September 30, 2022.
For additional information, refer to note 7 to the unaudited, consolidated financial statements.
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Results of Operations - Segment Review
The results and discussions that follow are reflective of how management monitors and evaluates the performance of our segments as defined in note 13 to the unaudited, consolidated financial statements.
Certain operating expenses are allocated between our reporting segments using activity-based costing methods. These activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed to each segment. Changes in these estimates directly impact the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. Our allocation methodologies are refined periodically, or as necessary to reflect changes in our businesses. There were no significant changes to our allocation methodologies in the firstthird quarter or year-to-date periods.
As a normal part of 2023.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 during the quarter, we 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 September 30, 2023, we had nine 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 testsat other dates on an interim basis if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying amountvalue 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, and our cost of capital.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. Actual results that differ from, changes in, or the use of different, assumptions may adversely affect the fair value of a reporting unit, which may in turn require us to recognize an impairment charge.
Our 2022We conducted our most recent goodwill impairment testing as of July 1, 2023. In developing our valuation assumptions underlying the annual impairment testing, we determined that the cost of capital for our Roadie and Delivery Solutions reporting units had increased, driven by increases in the risk-free interest rate and volatility of the stock prices of market comparables. The results of our testing using these assumptions indicated that the carrying values of our Roadie and Delivery Solutions reporting units exceeded their estimated fair values.
As a result, for the third quarter of 2023, we recorded an impairment charge of $117 million ($103 million after tax, or $0.12 per diluted share) within Other Expenses in our Statement of Consolidated Income. This charge represented goodwill impairment of $56 million related to the Roadie reporting unit and $61 million related to Delivery Solutions, which represents all of the goodwill associated with this reporting unit.
Additionally, our annual impairment testing indicated that the fair value of the indefinite-lived trade name associated with our Roadie reporting unittruckload brokerage business remained greater than its carrying value although this excess wasby less than 10 percent. The carrying value of goodwill associated withthe trade name is $200 million. Our truckload brokerage business continues to be negatively impacted by market conditions, which has resulted in revenue declines. We continue to monitor business performance and external factors affecting our Roadie reporting unit is $241 million. There were no events or changes in circumstances during the first quarter of 2023 that would indicate the carrying value of Roadie goodwill may be impaired as of the date ofvaluation assumptions for this report.
Future actual results, transactions or other events, or changes in estimates or assumptions, whether due to unexpected impacts on our business, our transformation activities, or the continuing evaluation of our business portfolio, could result in an impairment charge in one or more of our reporting units or to our indefinite-lived intangible assets in a future period.trade name.
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U.S. Domestic Package
Three Months Ended March 31,Change Three Months Ended September 30,ChangeNine Months Ended
 September 30,
Change
20232022$% 20232022$%20232022$%
Average Daily Package Volume (in thousands):Average Daily Package Volume (in thousands):Average Daily Package Volume (in thousands):
Next Day AirNext Day Air1,737 1,945 (10.7)%Next Day Air1,679 1,932 (13.1)%1,699 1,929 (11.9)%
DeferredDeferred1,139 1,509 (24.5)%Deferred1,078 1,341 (19.6)%1,102 1,417 (22.2)%
GroundGround15,796 16,287 (3.0)%Ground14,529 16,266 (10.7)%15,102 16,309 (7.4)%
Total Average Daily Package VolumeTotal Average Daily Package Volume18,672 19,741 (5.4)%Total Average Daily Package Volume17,286 19,539 (11.5)%17,903 19,655 (8.9)%
Average Revenue Per Piece:Average Revenue Per Piece:Average Revenue Per Piece:
Next Day AirNext Day Air$22.14 $20.84 $1.30 6.2 %Next Day Air$22.42 $21.62 $0.80 3.7 %$22.31 $21.39 $0.92 4.3 %
DeferredDeferred16.38 14.70 1.68 11.4 %Deferred16.61 15.28 1.33 8.7 %16.59 15.15 1.44 9.5 %
GroundGround11.21 10.66 0.55 5.2 %Ground11.10 10.94 0.16 1.5 %11.20 10.83 0.37 3.4 %
Total Average Revenue Per PieceTotal Average Revenue Per Piece$12.54 $11.97 $0.57 4.8 %Total Average Revenue Per Piece$12.54 $12.29 $0.25 2.0 %$12.59 $12.18 $0.41 3.4 %
Operating Days in PeriodOperating Days in Period64 64 Operating Days in Period63 64 191 192 
Revenue (in millions):Revenue (in millions):Revenue (in millions):
Next Day AirNext Day Air$2,461 $2,594 $(133)(5.1)%Next Day Air$2,372 $2,673 $(301)(11.3)%$7,240 $7,923 $(683)(8.6)%
DeferredDeferred1,194 1,420 (226)(15.9)%Deferred1,128 1,311 (183)(14.0)%3,491 4,123 (632)(15.3)%
GroundGround11,332 11,110 222 2.0 %Ground10,160 11,390 (1,230)(10.8)%32,312 33,911 (1,599)(4.7)%
Total RevenueTotal Revenue$14,987 $15,124 $(137)(0.9)%Total Revenue$13,660 $15,374 $(1,714)(11.1)%$43,043 $45,957 $(2,914)(6.3)%
Operating Expenses (in millions):Operating Expenses (in millions):Operating Expenses (in millions):
Operating ExpensesOperating Expenses$13,521 $13,462 $59 0.4 %Operating Expenses$13,089 $13,708 $(619)(4.5)%$39,404 $40,800 $(1,396)(3.4)%
Transformation Strategy CostsTransformation Strategy Costs(22)(43)21 (48.8)%Transformation Strategy Costs(33)(20)(13)65.0 %(134)(89)(45)50.6 %
One-Time Compensation PaymentOne-Time Compensation Payment(61)— (61)N/A(61)— (61)N/A
Adjusted Operating ExpenseAdjusted Operating Expense$13,499 $13,419 $80 0.6 %Adjusted Operating Expense$12,995 $13,688 $(693)(5.1)%$39,209 $40,711 $(1,502)(3.7)%
Operating Profit (in millions) and Operating Margin:Operating Profit (in millions) and Operating Margin:Operating Profit (in millions) and Operating Margin:
Operating ProfitOperating Profit$1,466 $1,662 $(196)(11.8)%Operating Profit$571 $1,666 $(1,095)(65.7)%$3,639 $5,157 $(1,518)(29.4)%
Adjusted Operating ProfitAdjusted Operating Profit$1,488 $1,705 $(217)(12.7)%Adjusted Operating Profit$665 $1,686 $(1,021)(60.6)%$3,834 $5,246 $(1,412)(26.9)%
Operating MarginOperating Margin9.8 %11.0 %Operating Margin4.2 %10.8 %8.5 %11.2 %
Adjusted Operating MarginAdjusted Operating Margin9.9 %11.3 %Adjusted Operating Margin4.9 %11.0 %8.9 %11.4 %
Revenue
The change in revenue was due to the following factors:
VolumeRates /
Product Mix
Fuel
Surcharge
Total Revenue
Change
VolumeRates /
Product Mix
Fuel
Surcharge
Total Revenue
Change
Revenue Change Drivers:Revenue Change Drivers:Revenue Change Drivers:
First quarter 2023 vs. 2022(5.4)%3.1 %1.4 %(0.9)%
Third quarter 2023 vs. 2022Third quarter 2023 vs. 2022(12.9)%4.7 %(2.9)%(11.1)%
Year to date 2023 vs. 2022Year to date 2023 vs. 2022(9.4)%4.6 %(1.5)%(6.3)%
Volume
Average daily volume decreased, with reductions inIn both residentialthe three and commercial shipments as a result of challenging macroeconomic conditions, including high inflation, declines in U.S. manufacturing production and changes in consumer spending. We anticipate a continued decline in average daily volume throughout the remainder of the year.
Business-to-consumer shipments declined 5.5%nine month periods, revenue was negatively impacted by having one less operating day in the firstthird quarter driven by the continued shift in consumer spending towards services and a reduction in discretionary spending. We experienced smaller declines in residential volume from SMBs than from our large customers, which was partially due to additional volume generated through our Digital Access Program. Volume from our largest customer declined as we continued to execute within agreed-upon contract terms.of 2023.
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Volume
Average daily volume decreased in the third quarter and year to date, with reductions in both residential and commercial shipments. In both periods, challenging external conditions, including persistent inflation, geopolitical tensions and changes in consumer behavior contributed to overall volume declines. Volume was also negatively impacted for both the quarter and year-to-date periods by our labor negotiations with the Teamsters. Following ratification of the contract in September, we began to experience week-over-week increases in volume. We anticipate that average daily volume will decline in the fourth quarter relative to the comparative period, but will increase compared to the third quarter of 2023.
Business-to-consumer shipments declined 13.4% in the third quarter (down 10.1% year to date), primarily due to a reduction in discretionary consumer spending as a result of the macroeconomic environment discussed above, as well as the impact of our labor negotiations with the Teamsters. In both periods, 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 third quarter and year to date as planned under our contract terms.
Business-to-business shipments declined 5.4%9.0% in the third quarter (down 7.3% year to date), primarily as a result of declines across multiplefrom our large customers in industry sectors that are sensitive to the macroeconomic factors discussed above. Uncertainty around our Teamsters contract also negatively impacted volume in both periods. Returns volume declined in the third quarter, but remained relatively flat year to date. We experienced an increase inanticipate that our acquisition of Happy Returns will accelerate returns volume in the first quarter.growth.
Within our Air products, average daily volume decreased across all customer segments.segments for both the quarter and year to date. These decreases were driven bydeclines resulted from continued execution under the contract terms with our largest customer as planned, as well as from other customers making cost trade offstrade-offs and taking advantage ofutilizing the enhanced speed in our ground network. Additionally, continued execution of the agreed-upon contract terms with our largest customer also contributed to the overall decline in air volume.
Ground residential and Ground commercial average daily volume decreases of 2.1%12.3% and 4.2%8.7%, respectively, for the quarter (down 8.0% and 6.7%, respectively, year to date) were primarily attributable to volume declines from a number of our large customers due to the economicmacroeconomic factors discussed above. Within Ground residential, we experienced growth from SMBs. SurePost volume from our larger customers increased as a result of the shift in volume from our Air products discussed above.
Rates and Product Mix
Air and Ground rates increased an average of 6.9% in December 2022. Revenue per piece infrom our Air and Ground products increased infor the quarter and year to date, resulting from base rate increases and additional pricing actions, as well as favorable changes in customer mix. These increases were partially offset bymix and, for the third quarter, a favorable shift in product mix discussed above. Rates for Air and Ground products increased an average of 6.9%mix. Declines in December 2022. In our Next Day Air and Deferred products,fuel surcharges negatively impacted revenue per piece in both periods.
We anticipate the year-over-year revenue per piece growth was negatively impacted by a reductionrate will improve in average billable weight per piece.
We anticipate moderatethe fourth quarter relative to the third quarter of 2023, as anticipated declines in fuel surcharge revenue per piece growth in 2023 which isare expected to somewhatbe more than offset by the expected decline in volume as we continue to focus on revenue quality.impact of the base rate increases and additional pricing actions.
Fuel Surcharges
We apply a fuel surcharge on our domestic air and ground services that adjusts weekly. Our air fuel surcharge is based on the U.S. Department of Energy's ("DOE") Gulf Coast spot price for a gallon of kerosene-type fuel, and our ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel price.
Fuel surcharge revenue increased $206decreased $459 million for the quarter (down $724 million year to date), driven by increasesreductions in price per gallon and increases in fuel surcharges as part of our pricing initiatives, partially offset by the impact of lower volume. We expect a reduction in fuel surcharge through the remainder of 2023 basedBased on the current commodity market outlook, and as we wrapexpect a continued year-over-year reduction in fuel pricing initiatives that were introduced last year.
Operating Expenses
Operating expenses and adjusted operating expenses increased. Our pickup and delivery costs and other indirect operating costs increased $39 and $115 million, respectively. These increases were partially offset by cost reductions of $50 million in our integrated air and ground network and a $24 million decrease in package sorting costssurcharge revenue in the first quarter of 2023. The overall increase in operating expenses was primarily due to:
Higher employee benefits expense for our union workforce, due to contractual rate increases for contributions to multiemployer benefit plans, as well as increases in workers' compensation and auto liability expenses that were driven by claims experience. Service costs for our company-sponsored pension and postretirement plans decreased, primarily attributable to higher discount rates used to measure the projected benefit obligations of these plans.
Additional facilities coming into service, coupled with inflationary pressures, contributed to cost increases in repairs and maintenance and facility operating costs.
These increases were partially offset by:
Lower compensation expense, primarily resulting from incentive compensation program design changes. Contractual rate increases and cost of living adjustments for our union workforce were somewhat offset by a reduction in direct union labor hours.
Lower purchased transportation costs, primarily due to a reduction in ground volume handled by third-party carriers, and the impact of continued productivity initiatives as we executed within our strategy.
Fuel expense remained relatively flat, as the impact of lower volume for the quarter mostly offset increases in jet fuel, diesel and gasoline prices. We expect fuel expense to continue to decline throughout the remainder of 2023.fourth quarter.
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TotalOperating Expenses
Operating expenses and adjusted operating expenses decreased for both the quarter and year to date. Our pickup and delivery costs decreased $210 million in the third quarter (down $479 million year to date), the costs of operating our integrated air and ground network decreased $439 million in the third quarter (down $1.0 billion year to date) and our package sorting costs decreased $88 million in the third quarter (down $198 million year to date). These decreases were partially offset by an increase of $44 million in other indirect operating costs in the third quarter (up $200 million year to date). In addition to the impact of one less operating day in 2023, 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 the impact of incentive compensation program design changes implemented in the fourth quarter of 2022 and reductions in management headcount. These decreases were partially offset by the impact of the first-year contractual rate increase under our new Teamsters contract that became effective August 1st.
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 initiatives.
Lower fuel expense driven by lower volume and decreases in the price of jet fuel, diesel and gasoline which we expect to continue in the fourth quarter.
Notwithstanding the factors discussed above, total cost per piece increased 6.1%9.7% for the quarter (up 6.6% year to date), and adjusted cost per piece increased 6.4% in8.9% for the quarter for the reasons described above.(up 6.3% year to date), driven by overall reductions in volume. We anticipate that the cost per piece growth rate will decline throughmoderate in the remainderfourth quarter relative to the third quarter of 2023, driven by volume growth, additional network improvements and productivity initiatives, as we manage our costs, adjust our operating network, andwell as efficiency initiatives are realized.further reductions in fuel cost.
Operating Profit and Margin
As a result of the factors described above, operatingOperating profit decreased $196 million$1.1 billion in the firstthird quarter (down $1.5 billion year to date), with operating margin decreasing 120660 basis points to 9.8%.4.2% (down 270 basis points to 8.5% year to date) as revenue declines were greater than operating expense reductions. Adjusted operating profit decreased $217 million,$1.0 billion in the third quarter (down $1.4 billion year to date), with adjusted operating margin decreasing 140610 basis points to 9.9%4.9% (down 250 basis points to 8.9% year to date).
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International Package
Three Months Ended
 March 31,
Change Three Months Ended
 September 30,
ChangeNine Months Ended
 September 30,
Change
20232022$% 20232022$%20232022$%
Average Daily Package Volume (in thousands):Average Daily Package Volume (in thousands):Average Daily Package Volume (in thousands):
DomesticDomestic1,635 1,806 (9.5)%Domestic1,524 1,677 (9.1)%1,571 1,729 (9.1)%
ExportExport1,682 1,731 (2.8)%Export1,615 1,684 (4.1)%1,635 1,699 (3.8)%
Total Average Daily Package VolumeTotal Average Daily Package Volume3,317 3,537 (6.2)%Total Average Daily Package Volume3,139 3,361 (6.6)%3,206 3,428 (6.5)%
Average Revenue Per Piece:Average Revenue Per Piece:Average Revenue Per Piece:
DomesticDomestic$7.59 $7.36 $0.23 3.1 %Domestic$7.73 $7.31 $0.42 5.7 %$7.66 $7.43 $0.23 3.1 %
ExportExport33.00 34.10 (1.10)(3.2)%Export33.09 34.77 (1.68)(4.8)%33.26 35.26 (2.00)(5.7)%
Total Average Revenue Per PieceTotal Average Revenue Per Piece$20.47 $20.45 $0.02 0.1 %Total Average Revenue Per Piece$20.78 $21.07 $(0.29)(1.4)%$20.72 $21.22 $(0.50)(2.4)%
Operating Days in PeriodOperating Days in Period64 64 Operating Days in Period63 64 191 192 
Revenue (in millions):Revenue (in millions):Revenue (in millions):
DomesticDomestic$794 $851 $(57)(6.7)%Domestic$742 $785 $(43)(5.5)%$2,299 $2,465 $(166)(6.7)%
ExportExport3,552 3,778 (226)(6.0)%Export3,367 3,747 (380)(10.1)%10,387 11,501 (1,114)(9.7)%
Cargo and OtherCargo and Other197 247 (50)(20.2)%Cargo and Other158 267 (109)(40.8)%539 782 (243)(31.1)%
Total RevenueTotal Revenue$4,543 $4,876 $(333)(6.8)%Total Revenue$4,267 $4,799 $(532)(11.1)%$13,225 $14,748 $(1,523)(10.3)%
Operating Expenses (in millions):Operating Expenses (in millions):Operating Expenses (in millions):
Operating ExpensesOperating Expenses$3,715 $3,760 $(45)(1.2)%Operating Expenses$3,637 $3,802 $(165)(4.3)%$10,884 $11,442 $(558)(4.9)%
Transformation Strategy CostsTransformation Strategy Costs22 (4)26 N/ATransformation Strategy Costs(45)(7)(38)542.9 %(42)(22)(20)90.9 %
Adjusted Operating ExpensesAdjusted Operating Expenses$3,737 $3,756 $(19)(0.5)%Adjusted Operating Expenses$3,592 $3,795 $(203)(5.3)%$10,842 $11,420 $(578)(5.1)%
Operating Profit (in millions) and Operating Margin:Operating Profit (in millions) and Operating Margin:Operating Profit (in millions) and Operating Margin:
Operating ProfitOperating Profit$828 $1,116 $(288)(25.8)%Operating Profit$630 $997 $(367)(36.8)%$2,341 $3,306 $(965)(29.2)%
Adjusted Operating ProfitAdjusted Operating Profit$806 $1,120 $(314)(28.0)%Adjusted Operating Profit$675 $1,004 $(329)(32.8)%$2,383 $3,328 $(945)(28.4)%
Operating MarginOperating Margin18.2 %22.9 %Operating Margin14.8 %20.8 %17.7 %22.4 %
Adjusted Operating MarginAdjusted Operating Margin17.7 %23.0 %Adjusted Operating Margin15.8 %20.9 %18.0 %22.6 %
Currency Benefit / (Cost) – (in millions)*:Currency Benefit / (Cost) – (in millions)*:Currency Benefit / (Cost) – (in millions)*:
RevenueRevenue$(161)Revenue$43 $(152)
Operating ExpensesOperating Expenses110 Operating Expenses(75)37 
Operating ProfitOperating Profit$(51)Operating Profit$(32)$(115)
* Net of currency hedging; amount represents the change in currency translation compared to the prior year.* Net of currency hedging; amount represents the change in currency translation compared to the prior year.* Net of currency hedging; amount represents the change in currency translation compared to the prior year.
Revenue
The change in revenue was due to the following:
VolumeRates /
Product Mix
Fuel
Surcharge
CurrencyTotal Revenue
Change
VolumeRates /
Product Mix
Fuel
Surcharge
CurrencyTotal Revenue
Change
Revenue Change Drivers:Revenue Change Drivers:Revenue Change Drivers:
First quarter 2023 vs. 2022(6.2)%1.5 %1.2 %(3.3)%(6.8)%
Third quarter 2023 vs. 2022Third quarter 2023 vs. 2022(8.4)%(0.1)%(3.5)%0.9 %(11.1)%
Year to date 2023 vs. 2022Year to date 2023 vs. 2022(7.0)%0.6 %(2.9)%(1.0)%(10.3)%
In both the three and nine month periods, revenue was negatively impacted by having one less operating day in the third quarter of 2023.
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Volume
Average daily volume decreased in bothfor domestic and export products.products decreased for the third quarter and year to date. Business-to-consumer volume decreased 11.5% for the third quarter (down 9.8% year to date) as persistent inflation and high interest rates continued to impact consumer demand. These factors and increased levels of U.S. inventory also negatively impacted business-to-business volume, which decreased 4.7% for the third quarter (down 5.2% year to date). Volume from both large customers and SMBs declined primarily in both periods, driven by declines from the retail, manufacturing and technology sectors. Business-to-consumer volume decreased 7.7% as challenging global economic conditions, including rising interest rates, high inflation and geopolitical uncertainty, impacted consumer demand. These factors also impacted business-to-business volume, which decreased 5.6%. We anticipateexpect year-over-year declines in average daily volume will moderate, but will persist intoto continue through the second half of 2023.fourth quarter.
Export volume decreased infor the quarter and year to date, driven by declines in intra-Europe and Asia and U.S. trade lanes. Declines onactivity. These were partially offset by an increase in volume in the Americas region. The volume declines in intra-Europe and U.S. exportAsia trade lanes were primarily due to lower consumer spending as a result of the challenging macroeconomiceconomic conditions. Asia volume declines were highest on theThe Asia to U.S. trade lane as a result of risingwas also negatively impacted by high inventory levels and softening U.S. consumer demand.in the United States.
Our premium products saw volume decline 6.7%11.3% for the third quarter (down 10.0% year to date), primarily in our Worldwide and Transborder Express Saver product.products. These declines resulted from shifts in customer product preferences, macroeconomic conditions and lower import demand from U.S. consumers. Volume in our non-premium products decreased 1.1%2.6% for the third quarter (down 1.5% year to date), driven by declines in Transborder Standard and Worldwide Expedited. The decline in our Worldwide products was largely attributableThese declines were primarily due to softening import demand from U.S. consumers, while the decline in our Transborder products wasmacroeconomic conditions described above.
Macroeconomic conditions also impacted Domestic volume, which declined for both the third quarter and year to date, driven by the economic factors outlined above.
Domestic volume also declineddeclines in the first quarter, primarily within Europe and Canada, as a result of economic conditions discussed above.Canada.
Rates and Product Mix
In December 2022, we implemented an average 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.
Total revenue per piece increased slightlydecreased 1.4% for the quarter (down 2.4% year to date), primarily due to favorabledeclines in fuel and demand-related surcharges and unfavorable shifts in customer and product mix, fuel surcharges andmix. These declines were partially offset by base rate increases. These increases were mostly offset by unfavorableand, for the third quarter, favorable currency movements and declines in demand-related surcharges.movements. Year to date, currency negatively impacted revenue per piece. Excluding the impact of currency, revenue per piece increased 3.8%decreased 2.4% in the quarter (down 1.2% year to date). ForIn the remainder of the year,fourth quarter, we expectanticipate overall revenue per piece will be relatively flat compared to decrease relative to prior year periods as trends in fuel and demand-related surcharges are expected to continue to be unfavorable.the same period last year.
Export revenue per piece decreased 3.2%,4.8% for the quarter (down 5.7% year to date). Decreases were driven by declineschanges in product mix, primarily a decline in our Worldwide products and unfavorable currency movements.products. In both periods, these decreases were slightly offset by base rate increases. Excluding the impact of currency, export revenue per piece decreased 0.4%5.4% in the quarter (down 4.7% year to date).
Domestic revenue per piece increased 5.7% for the quarter (up 3.1% year to date), primarily due to rate increases and favorable shifts in customer mix. This was partially offset byCurrency movements favorably impacted revenue per piece for the quarter, but were unfavorable currency movements.for the year. Excluding the impact of currency, domestic revenue per piece increased 10.2%2.9% for the quarter (up 5.1% 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 international fuel surcharge revenue increased $28decreased $156 million infor the quarter (down $450 million year to date), primarily due to increasesdriven by a decrease in price per gallon. These increases were slightly offset by unfavorable currency movementsgallon and the impact of volume declines. Based on theour current commodity market outlook, we expect fuel surcharge revenue will decline duringin the remainderfourth quarter to remain below the same period last year.
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Operating Expenses
Operating expenses and adjusted operating expenses decreased for both the third quarter and year to date. This was primarily due to reductions in the first quarter. The principal drivers were:
Pickup and delivery costs decreased $21 million and other indirect costs decreased $22 million as inflationary pressures were more than offset by favorable currency movements and the impact of volume declines.
The costscost of operating our integrated international air and ground network, which decreased $277 million for the quarter and $594 million year to date, driven by lower fuel prices as well as a reduction in air charters and aircraft block hours. We anticipate that fuel prices in the fourth quarter will remain lower than in the prior year.
These reductions were slightly offset by increases in our pickup and delivery costs of $29 million for the quarter (down $9 million year to date) and our other indirect costs, which increased $26$39 million for the quarter (up $24 million year to date). We also incurred additional employee separation costs as we made staffing adjustments to reduce overhead and better align direct labor headcount with volume.
Operating Profit and Margin
As a result of the factors described above, operating profit decreased $367 million for the third quarter (down $965 million year to date), with operating margin decreasing 600 basis points to 14.8% (down 470 basis points to 17.7% year to date). Adjusted operating profit decreased $329 million for the third quarter (down $945 million year to date), while adjusted operating margin decreased 510 basis points to 15.8% (down 460 basis points to 18.0% year to date).
Substantially all of our operations in Russia and Belarus were suspended in March 2022. Subsequently, we have commenced liquidation of our Small Package and Forwarding and Logistics subsidiaries in these countries. We expect to complete this process in early 2024. Substantially all of our operations in Ukraine remain indefinitely suspended. These actions have not had, and are not expected to have, a material impact on us.
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Supply Chain Solutions
 Three Months Ended
 September 30,
ChangeNine Months Ended
 September 30,
Change
 20232022$%20232022$%
Revenue (in millions):
Forwarding$1,327 $2,162 $(835)(38.6)%$4,217 $7,140 $(2,923)(40.9)%
Logistics1,430 1,302 128 9.8 %4,271 3,843 428 11.1 %
Other377 524 (147)(28.1)%1,285 1,617 (332)(20.5)%
Total Revenue$3,134 $3,988 $(854)(21.4)%$9,773 $12,600 $(2,827)(22.4)%
Operating Expenses (in millions):
Operating Expenses$2,992 $3,538 $(546)(15.4)%$9,089 $11,164 $(2,075)(18.6)%
Transformation Strategy Costs(16)(9)(7)77.8 %(60)(21)(39)185.7 %
Goodwill and Asset Impairments, and Divestiture Charges(117)— (117)N/A(125)— (125)N/A
Adjusted Operating Expenses:$2,859 $3,529 $(670)(19.0)%$8,904 $11,143 $(2,239)(20.1)%
Operating Profit (in millions) and Operating Margin:
Operating Profit$142 $450 $(308)(68.4)%$684 $1,436 $(752)(52.4)%
Adjusted Operating Profit$275 $459 $(184)(40.1)%$869 $1,457 $(588)(40.4)%
Operating Margin4.5 %11.3 %7.0 %11.4 %
Adjusted Operating Margin8.8 %11.5 %8.9 %11.6 %
Currency Benefit / (Cost) – (in millions)*:
Revenue$24 $(33)
Operating Expenses(30)35 
Operating Profit$(6)$
* Amount represents the change in currency translation compared to the prior year.
 Three Months Ended
 September 30,
ChangeNine Months Ended
 September 30,
Change
 20232022$%20232022$%
Adjustments to Operating Expenses
(in millions):
Transformation Strategy Costs
Forwarding$14 $$13 1,300.0 %$38 $$29 322.2 %
Logistics(6)(85.7)%21 12 133.3 %
Other— — %(2)(66.7)%
Total Transformation Strategy Costs$16 $$77.8 %$60 $21 $39 185.7 %
Goodwill and Asset Impairments, and Divestiture Charges
Forwarding$— $— $— N/A$$— $N/A
Logistics— — — N/A— — — N/A
Other117 — 117 N/A117 — 117 N/A
Total Goodwill and Asset Impairments, and Divestitures Charges$117 $— $117 N/A$125 $— $125 N/A
Total Adjustments to Operating Expenses$133 $$124 1,377.8 %$185 $21 $164 781.0 %
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Revenue
Total revenue in Supply Chain Solutions decreased for both the third quarter and year to date. This was primarily due to declines in our Forwarding business as macroeconomic conditions drove declines in customer activity, while increased capacity led to lower market rates.
International airfreight revenue decreased approximately $290 million for the quarter (down $1.1 billion year to date). Customer demand remained weak, particularly on Asia export lanes for the first half of the year, 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 in the fourth quarter.
Revenue in our truckload brokerage business decreased $295 million for the quarter (down $1.1 billion year to date) due to lower volume and a continued decline in market rates. We remained focused on our revenue quality initiatives and, as a result, were able to grow volume from SMBs during both the third quarter and year-to-date periods.
The remaining reduction in revenue, for both the quarter and year to date, was attributable to our ocean freight forwarding business. Market rates declined in both periods, particularly on the Asia to U.S. lane, driven by challenging macroeconomic conditions and the impact of additional capacity entering the market. While volume decreases negatively impacted revenue year to date, volume growth in the third quarter slightly offset the impact of lower market rates. We expect revenue to remain challenged in the fourth quarter as capacity increases are expected to continue to outpace demand.
Within our Logistics businesses, healthcare logistics revenue increased $138 million for the third quarter (up $342 million year to date). The acquisition of Bomi Group in the fourth quarter of 2022 drove $97 million of the increase for the quarter ($291 million year to date) and we also experienced growth across our other healthcare operations. Revenue in mail services increased $19 million for the quarter (up $122 million year to date) as a result of volume growth, rate increases and a favorable shift in product characteristics. The growth in healthcare and mail services was partially offset by declines in our other distribution operations for both the third quarter and year to date.
Revenue from the other businesses within Supply Chain Solutions decreased for both the quarter and year to date, driven by a reduction of $92 million (down $307 million year to date) in transition services provided to the acquirer of UPS Freight as we continue to wind down these arrangements. Third-quarter revenue was also negatively impacted by lower volumes from service contracts with the U.S. Postal Service. These reductions were partially offset by higher fuel prices, whichrevenue from our digital businesses for both the third quarter and year to date.
Operating Expenses
Total operating expenses and total adjusted operating expenses for Supply Chain Solutions decreased for both the quarter and year to date.
Forwarding operating expenses decreased $687 million for the quarter (down $2.4 billion year to date). This primarily resulted from a reduction of approximately $650 million in purchased transportation expense for the quarter (down approximately $2.3 billion year to date) due to lower volumes and market rates across our forwarding businesses. We expect these conditions to persist as we expect to declinemove through the remainderfourth quarter, resulting in lower purchased transportation costs.
Logistics operating expenses increased $121 million for the quarter (up $388 million year to date), driven by the impact of the year.acquisition of Bomi Group, which was responsible for $107 million of the increase ($317 million year to date). Purchased transportation costs in mail services were relatively flat for the quarter but increased $67 million year to date due to volume and rate increases and shifts in product characteristics.
Expenses in the other businesses within Supply Chain Solutions decreased for both the quarter and year to date, largely driven by a reduction in costs incurred to procure transportation for, and provide transition services to, the acquirer of UPS Freight. Transportation costs related to our contracts with the U.S. Postal Service decreased during the third quarter as a result of lower volumes. These decreases were partially offset by goodwill impairment charges and higher operating costs within our digital businesses.
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Operating Profit and Margin
As a result of the factors described above, total operating profit decreased $288$308 million for the firstthird quarter (down $752 million year to date) with operating margin decreasing 470680 basis points to 18.2%. Adjusted operating profit decreased $314 million in the quarter, while adjusted operating margin decreased 5304.5% (down 440 basis points to 17.7%.
Substantially all of our operations in Russia and Belarus were suspended in March 2022 and, during the first quarter of 2023, we commenced liquidation of our Small Package and Forwarding and Logistics subsidiaries. Substantially all of our operations in Ukraine remain indefinitely suspended. These actions have not had, and are not expected7.0% year to have, a material impact on us.
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Supply Chain Solutions
 Three Months Ended
 March 31,
Change
 20232022$%
Revenue (in millions):
Forwarding$1,514 $2,589 $(1,075)(41.5)%
Logistics1,410 1,251 159 12.7 %
Other471 538 (67)(12.5)%
Total Revenue$3,395 $4,378 $(983)(22.5)%
Operating Expenses (in millions):
Operating Expenses$3,148 $3,905 $(757)(19.4)%
Transformation Strategy Costs(3)(8)(62.5)%
Goodwill and Asset Impairments, and Divestiture Charges(8)— (8)N/A
Adjusted Operating Expenses:$3,137 $3,897 $(760)(19.5)%
Operating Profit (in millions) and Operating Margin:
Operating Profit$247 $473 $(226)(47.8)%
Adjusted Operating Profit$258 $481 $(223)(46.4)%
Operating Margin7.3 %10.8 %
Adjusted Operating Margin7.6 %11.0 %
Currency Benefit / (Cost) – (in millions)*:
Revenue$(50)
Operating Expenses55 
Operating Profit$
* Amount represents the change in currency translation compared to the prior year.
 Three Months Ended
 March 31,
Change
 20232022$%
Adjustments to Operating Expenses (in millions):
Transformation Strategy Costs
Forwarding$$$(5)(83.3)%
Logistics100.0 %
Other— (1)(100.0)%
Total Transformation Strategy Costs$$$(5)(62.5)%
Goodwill and Asset Impairments, and Divestiture Charges
Forwarding$$— $N/A
Logistics— — — N/A
Other— — — N/A
Total Goodwill and Asset Impairments, and Divestitures Charges$$— $N/A
Total Adjustments to Operating Expenses$11 $$37.5 %
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Revenue
Total revenue in Supply Chain Solutions decreased in the first quarter. This was driven by declines in our Forwarding business as challenging economic conditions drove declines in customer activity, while increased capacity led to lower market rates.
International airfreight revenue decreased approximately $415 million as customer demand declined, particularly on Asia export lanes. This volume decline also resulted in a reduction in the rates we charge for services. We anticipate that lower demand, coupled with higher market capacity, will continue to pressure rates throughout the remainder of the year.
Revenue in our truckload brokerage business decreased $403 million due to lower volume and a continued decline in market rates. We remained focused on our revenue quality initiatives and experienced volume growth from SMBs during the quarter, which partially offset the decline.
The remaining reduction in revenue was attributable to ocean freight forwarding. Market rates and volume declined, particularly on the Asia to U.S. lane, due to lower demand, an increase in inventory levels and additional capacity entering the market. We expect revenue to remain challenged in the rest of 2023 as capacity increases are expected to outweigh demand.
Within our Logistics businesses, healthcare logistics revenue increased $98 million in the first quarter, primarily driven by the impact of the 2022 acquisition of Bomi Group with additional growth from our clinical trials business. Revenue in mail services increased $55 million as a result of volume from new customers, rate increases, and a favorable shift in product characteristics.
Revenue from the other businesses within Supply Chain Solutions decreased in the quarter, driven by a reduction of $85 million in transition services provided to the acquirer of UPS Freight as we begin to wind down these arrangements. This was partially offset by year-over-year revenue increases from our digital businesses, driven by business growth.
Operating Expenses
Total operating expenses and total adjusted operating expenses for Supply Chain Solutions decreased in the quarter.
Forwarding operating expenses decreased $881 million. This primarily resulted from a reduction of approximately $845 million in purchased transportation expense due to lower volumes and market rates in truckload brokerage, international airfreight and ocean freight forwarding. We expect these conditions to persist as we move through the year, which will reduce our purchased transportation costs.
Logistics operating expenses increased $155 million in the first quarter, driven by the impact of the acquisition of Bomi Group and higher purchased transportation costs for mail services due to rate increases and shifts in product characteristics.
Expenses in the other businesses within Supply Chain Solutions decreased in the quarter, largely driven by a reduction in costs incurred to procure transportation for, and provide transition services to, the acquirer of UPS Freight. This was partially offset by increased transportation costs, as well as higher compensation and benefits, incurred by our digital businesses.
Operating Profit and Margin
As a result of the factors described above, total operating profit decreased $226 million, with operating margin decreasing 350 basis points to 7.3%date). On an adjusted basis, operating profit decreased $223$184 million for the third quarter (down $588 million year to date), with adjusted operating margin decreasing 340270 basis points to 7.6%8.8% (down 270 basis points to 8.9% year to date).
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Consolidated Operating Expenses
Three Months Ended
 March 31,
Change Three Months Ended
 September 30,
ChangeNine Months Ended
 September 30,
Change
20232022$% 20232022$%20232022$%
Operating Expenses (in millions):Operating Expenses (in millions):Operating Expenses (in millions):
Compensation and benefitsCompensation and benefits$11,462 $11,601 $(139)(1.2)%Compensation and benefits$11,528 $11,489 $39 0.3 %$34,187 $34,434 $(247)(0.7)%
Transformation Strategy CostsTransformation Strategy Costs12 (33)45 N/ATransformation Strategy Costs(80)(15)(65)433.3 %(178)(71)(107)150.7 %
One-Time Compensation PaymentOne-Time Compensation Payment$(61)$— $(61)N/A$(61)$— $(61)N/A
Adjusted Compensation and benefitsAdjusted Compensation and benefits$11,474 $11,568 $(94)(0.8)%Adjusted Compensation and benefits$11,387 $11,474 $(87)(0.8)%$33,948 $34,363 $(415)(1.2)%
Repairs and maintenanceRepairs and maintenance$725 $701 $24 3.4 %Repairs and maintenance$719 $732 $(13)(1.8)%$2,126 $2,160 $(34)(1.6)%
Depreciation and amortizationDepreciation and amortization834 764 70 9.2 %Depreciation and amortization837 774 63 8.1 %2,499 2,300 199 8.7 %
Purchased transportationPurchased transportation3,543 4,607 (1,064)(23.1)%Purchased transportation3,118 4,179 (1,061)(25.4)%9,834 13,176 (3,342)(25.4)%
FuelFuel1,271 1,220 51 4.2 %Fuel1,132 1,530 (398)(26.0)%3,493 4,447 (954)(21.5)%
Other occupancyOther occupancy551 501 50 10.0 %Other occupancy481 435 46 10.6 %1,490 1,358 132 9.7 %
Other expensesOther expenses1,998 1,733 265 15.3 %Other expenses1,903 1,909 (6)(0.3)%5,748 5,531 217 3.9 %
Total Other expensesTotal Other expenses8,922 9,526 (604)(6.3)%Total Other expenses8,190 9,559 (1,369)(14.3)%25,190 28,972 (3,782)(13.1)%
Transformation Strategy CostsTransformation Strategy Costs(15)(22)(31.8)%Transformation Strategy Costs(14)(21)(33.3)%(58)(61)(4.9)%
Goodwill and Asset Impairments, and Divestiture ChargesGoodwill and Asset Impairments, and Divestiture Charges(8)— (8)N/AGoodwill and Asset Impairments, and Divestiture Charges(117)— (117)N/A(125)— (125)N/A
Adjusted Total Other expensesAdjusted Total Other expenses$8,899 $9,504 $(605)(6.4)%Adjusted Total Other expenses$8,059 $9,538 $(1,479)(15.5)%$25,007 $28,911 (3,904)(13.5)%
Total Operating ExpensesTotal Operating Expenses$20,384 $21,127 $(743)(3.5)%Total Operating Expenses$19,718 $21,048 $(1,330)(6.3)%$59,377 $63,406 $(4,029)(6.4)%
Adjusted Total Operating ExpensesAdjusted Total Operating Expenses$20,373 $21,072 $(699)(3.3)%Adjusted Total Operating Expenses$19,446 $21,012 $(1,566)(7.5)%$58,955 $63,274 $(4,319)(6.8)%
Currency (Benefit) / Cost - (in millions)*Currency (Benefit) / Cost - (in millions)*$(165)Currency (Benefit) / Cost - (in millions)*$105 $(72)
* Amount represents the change in currency translation compared to the prior year.* Amount represents the change in currency translation compared to the prior year.* Amount represents the change in currency translation compared to the prior year.
Three Months Ended
 March 31,
Change Three Months Ended
 September 30,
ChangeNine Months Ended
 September 30,
Change
20232022$% 20232022$%20232022$%
Adjustments to Operating Expenses (in millions):Adjustments to Operating Expenses (in millions):Adjustments to Operating Expenses (in millions):
Transformation Strategy CostsTransformation Strategy CostsTransformation Strategy Costs
CompensationCompensation$$16 $(11)(68.8)%Compensation$$$(2)(28.6)%$15 $31 $(16)(51.6)%
BenefitsBenefits(17)17 (34)N/ABenefits136 128 1,600.0 %223 40 183 457.5 %
Other expensesOther expenses15 22 (7)(31.8)%Other expenses14 21 (7)(33.3)%59 61 (2)(3.3)%
Total Transformation Strategy CostsTotal Transformation Strategy Costs$$55 $(52)(94.5)%Total Transformation Strategy Costs$155 $36 $119 330.6 %$297 $132 $165 125.0 %
Goodwill and Asset Impairments, and Divestiture ChargesGoodwill and Asset Impairments, and Divestiture ChargesGoodwill and Asset Impairments, and Divestiture Charges
Other expensesOther expenses$$— $N/AOther expenses$117 $— $117 N/A$125 $— $125 N/A
Total Adjustments to Operating ExpensesTotal Adjustments to Operating Expenses$11 $55 $(44)(80.0)%Total Adjustments to Operating Expenses$272 $36 $236 655.6 %$422 $132 $290 219.7 %
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Compensation and Benefits
Total compensation and benefits andcosts increased in the third quarter while adjusted total compensation and benefits decreased in the first quarter of 2023 compared tothird quarter. In the 2022 period.year-to-date period, total compensation and benefits and adjusted total compensation and benefits decreased. Compensation costs decreased $178$163 million and decreased $168for the third quarter (down $542 million onyear to date). On an adjusted basis.basis, compensation costs decreased $161 million for the third quarter (down $526 million year to date). The principal factors impactingcontributing to the changedecreases were:
Management compensation decreased $206$152 million for the third quarter (down $476 million year to date). On an adjusted basis, management compensation decreased $150 million for the third quarter (down $468 million year to date). The decreases were driven by fourth quarter 2022 design changes to our incentive compensation programs, and lower incentive compensation accruals.accruals and lower overall headcount.
Direct labor costs decreased $36 million for the third quarter (down $90 million year to date). Reductions in U.S. Domestic direct labor costs increased $57 millionhours and administrative headcount due to volume declines resulted in a reduction in expense of $362 million for the quarter (down approximately $760 million year to date). Other labor-related costs decreased by approximately $30 million for the quarter (approximately $110 million year to date). These declines were largely offset by an increase of $372 million for the quarter (approximately $790 million year to date) attributable to contractual wage rate increases for our U.S. union workforce that occurred in August 2022, as well as cost of living adjustments driven by inflation and other market factors. These increases were largely offset by a reduction in labor hours, primarilyworkforce. We expect wage rate growth will continue through the fourth quarter due to volume declines.the new Teamsters contract.
The November 2022 acquisition of Bomi Group increasedin the fourth quarter of 2022 resulted in additional compensation cost by $15 million.of $28 million for the third quarter ($79 million year to date).
Benefits costs increased $39$202 million andfor the third quarter (up $295 million year to date). On an adjusted basis, benefits costs increased $74 million onfor the third quarter (up $111 million year to date). The principal factors impacting the changes were:
Other benefits costs increased $118 million for the quarter (up $180 million year to date), driven by a one-time payment of $52 million to certain U.S.-based, non-union part time supervisors and employee separation costs of $64 million ($118 million year to date) related to staffing adjustment initiatives to reduce our overhead cost and better align direct labor headcount with volume. On an adjusted basis, other benefits increased $2 million for the third quarter (up $9 million year to date).
Accruals for paid time off, payroll taxes and other costs increased $85 million for the quarter (up $65 million year to date), primarily as a result of:due to wage growth and payroll taxes for the one-time payment discussed above. On an adjusted basis, these costs increased $76 million for the quarter (up $56 million year to date).
Health and welfare costs increased $89$65 million for the third quarter (up $200 million year to date), driven by increased contributions to multiemployer plans as a result of contractually-mandated rate increases, partially offset by a reduction in eligible headcount.increases.
Workers' compensation expense increased $23$60 million for the third quarter (up $96 million year to date), driven by an increase in current year claims partially offset by a decrease in overall hours worked and favorableunfavorable developments in reserves for prior years' claims.claims, partially offset by the impact of a decrease in overall hours worked.
Pension and other postretirement benefits costs decreased $48$126 million for the quarter:third quarter (down $248 million year to date) due primarily to:
The cost of company-sponsored defined benefit plans decreased $110$219 million in the third quarter (down $658 million year to date), driven by a reduction in 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.
An increaseContributions to multiemployer plans remained flat in expensethe third quarter but increased $56 million year to date due to the impact of contractually-mandated contribution increases, partially offset by reductions in eligible headcount.
Expense for the UPS 401(k) Savings Plan of $22increased $87 million resulted from demographic changes.
Contributionsin the third quarter (up $328 million year to multiemployer plans increased $39 million asdate), primarily due to the impact of contractually-mandated contribution increases was partially offset by a reduction in eligible headcount.
Repairs and Maintenance
The increase in repairs and maintenance expense during the quarter was primarily due to increases in the cost of materials and supplies, increased vehicle maintenance and an increase in routine repairs to buildings and facilities. We expect these increases will persistreplacement contributions for the remainder of 2023.
DepreciationUPS Retirement Plan, demographic changes and Amortization
We incurred higher depreciation and amortization expense as a result of additional facilities coming into service, growth incontributions resulting from the size of our vehicle and aircraft fleets and the reduction in estimated residual value of our MD-11 aircraft.
Purchased Transportation
Third-party transportation expense charged to us by air, ocean and ground carriers decreased for the quarter. The changes were primarily driven by:
Supply Chain Solutions expense decreased by $890 million for the quarter, driven by volume declines and lower market rates paid for services in our Forwarding businesses. This was partially offset by increases in our logistics operations due to business growth, third-party rate increases in our mail services business and the acquisition of Bomi Group, which was not present in the comparative period.
U.S. Domestic expense decreased $99 million for the quarter, driven by a reduction in ground volume handled by third-party carriers as a result of our network optimization initiatives.
International Package expense decreased $75 million for the quarter, as market rate and fuel surcharge increases were more than offset by the impact of lower volumes and favorable currency movements.one-time payment discussed above.
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Repairs and Maintenance
The decrease in repairs and maintenance expense for the third quarter and year-to-date periods was primarily due to the deferral of aircraft engine maintenance, as the declines in volume resulted in the temporary idling of certain aircraft in both periods.
Depreciation and Amortization
We incurred higher depreciation expense during the third quarter and year-to-date periods as a result of additional facilities coming into service, growth in the size of our vehicle fleet 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.
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 $686 million for the third quarter (down $2.4 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 impacts from the acquisition of Bomi Group.
U.S. Domestic expense decreased $302 million for the third quarter (down $639 million year to date), driven by the overall decline in volume and a reduction in ground volume handled by third-party carriers as a result of our network optimization initiatives.
International Package expense decreased $73 million for the third quarter (down $271 million year to date), primarily due to declines in volume partially offset by unfavorable currency movements.
Fuel
The increasedecrease in fuel expense for both the quarter and year to date was primarily driven by higherlower prices for jet fuel, diesel and gasoline partially offset byand the impact of lower volume. Market prices and the manner in which we purchase fuel influence our costs. The majority of our fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential. While many of the indices are correlated, each index may respond differently to changes in underlying prices, which in turn can drive variability in our costs.
Other Occupancy
Other occupancy expense increased for both the quarter and year to date as a result of additional operating facilities coming into service, higher utilities costs and increases in rental rates.rates and higher year-to-date utilities costs. We expect inflation may continue to adversely impact these costs for the remainder of the year.
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Other Expenses
Other expenses and adjusted other expenses decreased for the quarter but increased for the year-to-date period. The decrease for the quarter was primarily as athe result of:
OutsourcingGains on the sale of surplus real estate of $82 million.
A reduction in outsourcing and professional fees increased $60of $38 million due to increased utilizationa decrease in project-driven consulting services and higher capitalization of third-party servicessoftware development expenditure relative to the prior year period.
Reductions of $35 million in vehicle lease expense due to the decrease in volume.
Lower costs incurred under the transition service agreements with the acquirer of UPS Freight as these agreements wind down.
Other decreases for the quarter were primarily attributable to the impact of lower volumes. These were partially offset by increases in the following expenses:
We recorded goodwill impairment charges in respect of our Roadie and Delivery Solutions reporting units of $117 million.
Supplies required to support our strategic initiatives.
An increase of $39 million in commissions paid for certain online shipments.
Smart Package Smart FacilityFavorable changes in reserves for legal and tax contingencies in 2022 drove a year-over-year increase in expense of $29 initiative increased $45 million.
Hosted software application fees and other technology costs increased $28$26 million in support of ongoing investments in our digital transformation.
Other increasesFor the year-to-date period, the overall increase in expense was driven by the goodwill impairment charges and hosted software application fees described above, as well as an increase in outsourcing and professional fees to support ongoing strategic initiatives. An increase in commissions paid for the quarter included employee-related expenses, advertising costs, facility security and self-insured automobile liability expense. These increases were partially offset by a reduction of costs incurred under transitional service agreementscertain online shipments also contributed to the acquirer of UPS Freight.increase.
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Other Income and (Expense)
The following table sets forth investment income and other and interest expense for the three and nine months ended March 31,September 30, 2023 and 2022 (in millions):
Three Months Ended
 March 31,
Change Three Months Ended
 September 30,
ChangeNine Months Ended
 September 30,
Change
20232022$% 20232022$%20232022$%
Investment Income and OtherInvestment Income and Other$169 $315 $(146)(46.3)%Investment Income and Other$124 $333 $(209)(62.8)%$424 $981 $(557)(56.8)%
Defined Benefit Plan (Gains) LossesDefined Benefit Plan (Gains) Losses— (33)33 (100.0)%Defined Benefit Plan (Gains) Losses— — — N/A— (33)33 (100.0)%
Adjusted Investment Income and OtherAdjusted Investment Income and Other$169 $282 $(113)(40.1)%Adjusted Investment Income and Other$124 $333 $(209)(62.8)%$424 $948 $(524)(55.3)%
Interest ExpenseInterest Expense(188)(174)(14)8.0 %Interest Expense(199)(177)(22)12.4 %(578)(522)(56)10.7 %
Total Other Income and (Expense)$(19)$141 $(160)(113.5)%
Adjusted Other Income and (Expense)$(19)$108 $(127)(117.6)%
Total Other Income (Expense)Total Other Income (Expense)$(75)$156 $(231)N/A$(154)$459 $(613)N/A
Adjusted Other Income (Expense)Adjusted Other Income (Expense)$(75)$156 $(231)N/A$(154)$426 $(580)N/A
Investment Income and Other
Investment income and other decreased $146 million. We recognized$209 and $557 million for the third quarter and year-to-date periods, respectively. Excluding the impact of a $33 million defined benefit plan curtailment gain that we recognized in the first quarter of 2022. Excluding the impact of this defined benefit plan gain,2022, adjusted investment income and other decreased $113$524 million withyear to date. These decreases were primarily due to a reduction in other pension income and an increase in foreign currency losses, partially offset by higher yields on invested balances and year-over-year changes in the fair value of certain non-current investments.
Other pension income decreased $232$231 million in the quarter (down $695 million year to date) due to:
Lower expected returns on pension assets for both the quarter and year to date as a result of a smallerlower asset base due to losses in 2022, partially offset by an increase in our rate of return assumption.
Higher pension interest cost for both the quarter and year to date, primarily due to higher discount rates and changes in demographic assumptions.
Interest Expense
Interest expense increased duefor both the quarter and year to the impact ofdate, driven by higher effective interest rates on floating rate debt as well as higher debt balances due to debt issuancesand an increase in the first quarter of 2023,our total debt. These impacts were partially offset by higheran increase in capitalized interest.
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Income Tax Expense
The following table sets forth our income tax expense and effective tax rate for the three and nine months ended March 31,September 30, 2023 and 2022 (in millions):
Three Months Ended
 March 31,
Change Three Months Ended
 September 30,
ChangeNine Months Ended
 September 30,
Change
20232022$% 20232022$%20232022$%
Income Tax ExpenseIncome Tax Expense$627 $730 $(103)(14.1)%Income Tax Expense$141 $685 $(544)(79.4)%$1,407 $2,263 $(856)(37.8)%
Income Tax Impact of: Income Tax Impact of: Income Tax Impact of:
Transformation Strategy CostsTransformation Strategy Costs— 12 (12)(100.0)%Transformation Strategy Costs24 15 166.7 %57 31 26 83.9 %
Goodwill and Asset Impairments, and Divestiture ChargesGoodwill and Asset Impairments, and Divestiture Charges— N/AGoodwill and Asset Impairments, and Divestiture Charges14 — 14 N/A16 — 16 N/A
One-Time Compensation PaymentOne-Time Compensation Payment15 — 15 N/A15 — 15 N/A
Defined Benefit Plan (Gains) LossesDefined Benefit Plan (Gains) Losses— (9)(100.0)%Defined Benefit Plan (Gains) Losses— — — N/A— (9)(100.0)%
Adjusted Income Tax ExpenseAdjusted Income Tax Expense$629 $733 $(104)(14.2)%Adjusted Income Tax Expense$194 $694 $(500)(72.0)%$1,495 $2,285 $(790)(34.6)%
Effective Tax RateEffective Tax Rate24.9 %21.5 %Effective Tax Rate11.1 %21.0 %21.6 %21.8 %
Adjusted Effective Tax RateAdjusted Effective Tax Rate24.8 %21.5 %Adjusted Effective Tax Rate12.6 %21.0 %21.6 %21.9 %
For additional information on our income tax expense and effective tax rate, see note 16 to the unaudited, consolidated financial statements.
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Liquidity and Capital Resources
We deploy a disciplined and balanced approach to capital allocation, including returns to shareowners through dividends and share repurchases. As of March 31,September 30, 2023, we had $9.4$7.3 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, planned acquisitions, 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.
Cash Flows From Operating Activities
The following is a summary of the significant sources (uses) of cash from operating activities (in millions):
Three Months Ended March 31, Nine Months Ended September 30,
20232022 20232022
Net incomeNet income$1,895 $2,662 Net income$5,103 $8,095 
Non-cash operating activities (a)
Non-cash operating activities (a)
1,226 1,559 
Non-cash operating activities (a)
3,911 4,439 
Pension and postretirement medical benefit plan contributions (company-sponsored plans)Pension and postretirement medical benefit plan contributions (company-sponsored plans)(1,277)(45)Pension and postretirement medical benefit plan contributions (company-sponsored plans)(1,363)(2,106)
Hedge margin receivables and payablesHedge margin receivables and payables(159)(9)Hedge margin receivables and payables(152)771 
Income tax receivables and payablesIncome tax receivables and payables426 379 Income tax receivables and payables(728)(38)
Changes in working capital and other non-current assets and liabilitiesChanges in working capital and other non-current assets and liabilities278 (49)Changes in working capital and other non-current assets and liabilities1,138 (339)
Other operating activitiesOther operating activities(32)(17)Other operating activities(82)(50)
Net cash from operating activitiesNet cash from operating activities$2,357 $4,480 Net cash from operating activities$7,827 $10,772 
___________________ 
(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 $2.1$3.0 billion for the nine months ended September 30, 2023 primarily due to a reduction in the first quarter,net income. It was also impacted by:
The timing ofA decrease in contributions to our company-sponsored, defined benefit pension and postretirement medical plans that includedplans. We made discretionary pension contributions of $1.2 and $1.9 billion in discretionary contributions to our qualified U.S. pension plans. There were no discretionary contributions to these plans induring the first quarter of 2022.nine months ended September 30, 2023 and 2022, respectively.
A decrease in our net hedge margin collateral position due to changes in the fair value of derivative contracts used in our currency hedging programs.
An increase in income taxes receivable due to excess tax payments relative to accruals, changes in uncertain tax positions and timing of payments.
Our working capital primarily benefited from an improvementimprovements in collections, partially offset by an increasesettlement of vendor payables and reductions in vendor payments. Working capital was also impacted byamounts outstanding for duty and tax payables due to the decline in volume. We benefited from the timing of payroll and other compensation-related payments. Additionally, initems relative to the comparative period.
During the first quarternine months of 2023, we paid the remaining $323 million of employer payroll taxes that were deferred under the Coronavirus Aid, Recovery and Economic Security (CARES) Act in 2020. No such payments were made in the 2022 period.
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As of March 31,September 30, 2023, approximately $2.5$3.0 billion of our total worldwide holdings of cash, cash equivalents and marketable securities were held by foreign subsidiaries. The amount of cash, cash equivalents and marketable securities held by our U.S. and foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts and disbursements in the normal course of business. Cash provided by operating activities in the U.S. continues to be our primary source of funds to finance domestic operating needs, capital expenditures, share repurchases, pension contributions and dividend payments to shareowners. All cash, cash equivalents and marketable securities held by foreign subsidiaries are generally available for distribution to the U.S. without any U.S. federal income taxes. Any such distributions may be subject to foreign withholding and U.S. state taxes. When amounts earned by foreign subsidiaries are expected to be indefinitely reinvested, no accrual for taxes is provided. We did not have any restricted cash as of March 31,September 30, 2023 or 2022.2022.
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Cash Flows From Investing Activities
Our primary sources (uses) of cash from investing activities were as follows (in millions):
Three Months Ended March 31, Nine Months Ended September 30,
20232022 20232022
Net cash used in investing activitiesNet cash used in investing activities$(1,813)$(572)Net cash used in investing activities$(3,929)$(2,408)
Capital Expenditures:Capital Expenditures:Capital Expenditures:
Buildings, facilities and plant equipmentBuildings, facilities and plant equipment$(368)$(169)Buildings, facilities and plant equipment$(1,559)$(937)
Aircraft and partsAircraft and parts(71)(206)Aircraft and parts(364)(468)
VehiclesVehicles(13)(10)Vehicles(518)(382)
Information technologyInformation technology(157)(163)Information technology(668)(491)
Total Capital Expenditures(1)
Total Capital Expenditures(1)
$(609)$(548)
Total Capital Expenditures(1)
$(3,109)$(2,278)
Capital Expenditures as a % of revenueCapital Expenditures as a % of revenue2.7 %2.2 %Capital Expenditures as a % of revenue4.7 %3.1 %
Other Investing Activities:Other Investing Activities:Other Investing Activities:
Proceeds from disposal of businesses, property, plant and equipmentProceeds from disposal of businesses, property, plant and equipment$$— Proceeds from disposal of businesses, property, plant and equipment$167 $12 
Net (purchases)/sales and maturities of marketable securitiesNet (purchases)/sales and maturities of marketable securities$(1,192)$(8)Net (purchases)/sales and maturities of marketable securities$(950)$(2)
Acquisitions, net of cash acquiredAcquisitions, net of cash acquired$(34)$Acquisitions, net of cash acquired$(39)$(106)
Other investing activitiesOther investing activities$17 $(17)Other investing activities$$(34)
(1) In addition to capital expenditures of $609$3.1 and $548 million$2.3 billion for the threenine months ended March 31,September 30, 2023 and 2022, respectively, there were principal repayments of finance lease obligations of $48$101 and $18$124 million, respectively. These are included in cash flows from financing activities.
We have commitments for acquisitions and 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 current2023 investment program anticipates investments in technology initiatives and enhanced network capabilities, including overapproximately $1.0 billion of projects tothat support our environmental sustainability goals. It also provides for the maintenance of buildings, facilities and equipment and replacement of certain aircraft within our fleet. We currently expect that our capital expenditures will total approximately $5.3 billion in 2023, of which approximately 50 percent will be allocated to strategic expansion projects.
Total capital expenditures increased inFor the first quarternine months of 2023 compared to the 2022, period,total capital expenditures increased, primarily due to increased spendingto:
Spending on buildings, facilities and plant equipment forincreased due to facility maintenance and capacity expansion projects. This was partially
Vehicle expenditures increased, driven by the timing and availability of vehicle replacements and continuing investments in our network.
Information technology expenditures increased as a result of continuing investments in our digital capabilities and network automation.
Aircraft expenditures decreased, as higher payments associated with open aircraft orders were more than offset by a decrease in expenditureslower payments associated with the delivery of aircraft.
Proceeds from the disposal of businesses, property, plant and equipment were higher relative to the comparative period due to the sale of surplus real estate properties during 2023.
Net purchases of marketable securities increased due to a continued shift to longer duration investments.
Cash paid for acquisitions in the first quarter of 2023 was related toperiod primarily represents the purchase of development areas for The UPS Store. In the 2022 period, this also included our acquisition of Delivery Solutions. Other investing activities were impacted by changes in our non-current investments, purchase contract deposits and various other immaterial items.
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Cash Flows From Financing Activities
Our primary sources (uses) of cash from financing activities were as follows (amounts in millions, except per share data):
Three Months Ended March 31, Nine Months Ended September 30,
2023202220232022
Net cash from/(used in) financing activities$$(1,970)
Net cash used in financing activitiesNet cash used in financing activities$(5,185)$(7,475)
Share Repurchases:Share Repurchases:Share Repurchases:
Cash paid to repurchase sharesCash paid to repurchase shares(751)(254)Cash paid to repurchase shares$(2,250)$(2,194)
Number of shares repurchasedNumber of shares repurchased(4.1)(1.2)Number of shares repurchased(12.8)(11.6)
Shares outstanding at period endShares outstanding at period end859 874 Shares outstanding at period end852 865 
Dividends:Dividends:Dividends:
Dividends declared per shareDividends declared per share$1.62 $1.52 Dividends declared per share$4.86 $4.56 
Cash paid for dividendsCash paid for dividends$(1,348)$(1,284)Cash paid for dividends$(4,034)$(3,842)
Borrowings:Borrowings:Borrowings:
Net borrowings (repayments) of debt principalNet borrowings (repayments) of debt principal$2,438 $(18)Net borrowings (repayments) of debt principal$1,336 $(1,124)
Other Financing Activities:Other Financing Activities:Other Financing Activities:
Cash received for common stock issuancesCash received for common stock issuances$49 $67 Cash received for common stock issuances$190 $198 
Other financing activitiesOther financing activities$(384)$(481)Other financing activities$(427)$(513)
Capitalization:Capitalization:Capitalization:
Total debt outstanding at period endTotal debt outstanding at period end$22,188 $21,881 Total debt outstanding at period end$21,125 $20,350 
Total shareowners’ equity at period endTotal shareowners’ equity at period end20,053 15,434 Total shareowners’ equity at period end19,180 16,988 
Total capitalizationTotal capitalization$42,241 $37,315 Total capitalization$40,305 $37,338 
We repurchased 4.112.8 and 1.211.6 million shares of class B common stock for $750 million$2.3 and $260 million$2.2 billion under our stock repurchase program during the threenine months ended March 31,September 30, 2023 and 2022, respectively ($751 and $254 millionrespectively. We do not anticipate further repurchases in repurchases2023. In the fourth quarter we plan to redeploy cash back into the business for 2023 and 2022, respectively, are reported on the statements of consolidated cash flows duegrowth initiatives, such as strategic acquisitions, to the timing of settlements). We anticipate our share repurchases will total approximately $3.0 billion in 2023.drive shareowner value. For additional information on our share repurchase activities, see note 12 to the unaudited, consolidated financial statements.
The declaration of dividends is subject to the discretion of the Board and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors. In the first quarter of 2023, we increased ourWe have paid quarterly cash dividend from $1.52 todividends of $1.62 per share.share in 2023, compared to $1.52 in 2022.
Issuances of debt during the threenine months ended March 31,September 30, 2023 consisted of fixedborrowings under our commercial paper program and floating ratefixed- and floating-rate senior notes of varying maturities totaling $2.5 billion. We used proceeds from the senior note issuances to repay $1.5 billion of fixed- and floating-rate senior notes, debt assumed in the Bomi Group acquisition and to make scheduled principal payments on our finance lease obligations. We expect to use substantially all of the remaining proceeds from these debt issuances to repay outstanding debt at maturity€700 million of fixed-rate senior notes that mature in the fourth quarter of 2023.
There were no issuances of debt in the first quarter ofnine months ended September 30, 2022.
Repayments of debt in the first quarter2022 included fixed- and floating-rate senior notes of 2023 included scheduled principal payments on our finance lease obligationsvarying maturities totaling $1.0 billion and payment of amounts assumed in the Bomi Group acquisition. In the first quarter of 2022, we made scheduled principal payments on our finance lease obligations.
As of March 31, 2023, we had $2.3 billion of fixed- and floating-rate senior notes outstanding that mature in 2023. We repaid $1.5 billion of these senior notes in April 2023. We consider the overall fixed and floating interest rate mix of our portfolio and the related overall cost of borrowing when planning for future issuances and non-scheduled repayments of debt.
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The amount of commercial paper outstanding fluctuates based on daily liquidity needs. The following is a summary of our commercial paper program (in millions):
Functional currency outstanding balance at quarter-endOutstanding balance at quarter-end ($)Average balance outstanding ($)Average interest rate
USD$458 $458 $75 5.32 %
Total$458 
We had no outstanding balances under our European commercial paper program during the nine months ended September 30, 2023.
The variation in cash received from common stock issuances primarily resulted from activity within the UPS 401(k) Savings Plan and our employee stock purchase plan in both the current and comparative period.
Other financing activities includes cash used to repurchase shares to satisfy tax withholding obligations on vested employee stock awards. Cash outflows for this purpose were $363$402 and $479$514 million for the threenine months ended March 31,September 30, 2023 and 2022, respectively. The decrease was driven by changes in required repurchase amounts.
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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, 2022.2022, except as described below.
Purchase commitments represent contractual agreements to purchase assets, goods or services that are legally binding, including contracts for aircraft, construction of new or expanded facilities and vehicles. We also have commitments related to pending business acquisitions.
The following table summarizes the expected cash outflows to satisfy our total purchase commitments, inclusive of these changes, as of September 30, 2023 (in millions):
Commitment Type20232024202520262027After 2027Total
Purchase Commitments(1)
$2,301 $1,548 $911 $373 $38 $27 $5,198 
Total$2,301 $1,548 $911 $373 $38 $27 $5,198 
(1)Purchase commitments for 2023 include amounts related to pending business acquisitions.
For additional information on the first quarter 2023 debt issuances, see note 9 to the unaudited, consolidated financial statements.
Legal Proceedings and Contingencies
See note 7 and note 11 to the unaudited, consolidated financial statements for a discussion of judicial proceedings and other matters arising from the conduct of our business activities, and note 16 for a discussion of income tax related matters.
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Collective Bargaining Agreements
Status of Collective Bargaining Agreements
See note 7 to the unaudited, consolidated financial statements for a discussion of the status of our collective bargaining agreements.
Multiemployer Benefit Plans
See note 7 to the unaudited, consolidated financial statements for a discussion of our participation in multiemployer benefit plans.
Recent Accounting Pronouncements
Adoption of New Accounting Standards
See note 2 to the unaudited, consolidated financial statements for a discussion of recently adopted accounting standards.
Accounting Standards Issued But Not Yet Effective
See note 2 to the unaudited, consolidated financial statements for a discussion of accounting standards issued, but not yet effective.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in certain commodity prices, foreign currency exchange rates, interest rates and equity prices. All of these market risks arise in the normal course of business, as we do not engage in speculative trading activities. In order to manage the risk arising from these exposures, we may utilize a variety of commodity, foreign currency exchange and interest rate forward contracts, options and swaps. A discussion of our accounting policies for derivative instruments and further disclosures are provided in note 15 to the unaudited, consolidated financial statements.
The total net fair value asset (liability) of our derivative financial instruments is summarized in the following table (in millions):
March 31,
2023
December 31,
2022
September 30,
2023
December 31,
2022
Currency DerivativesCurrency Derivatives$293 $398 Currency Derivatives$327 $398 
Interest Rate DerivativesInterest Rate Derivatives(5)(5)Interest Rate Derivatives— (5)
$288 $393 $327 $393 
As of March 31,September 30, 2023 and December 31, 2022, we had no outstanding commodity hedge positions.
The information concerning market risk in Item 7A under the caption "Quantitative and Qualitative Disclosures about Market Risk" of our Annual Report on Form 10-K for the year ended December 31, 2022 is incorporated herein by reference.
Our market risks, hedging strategies and financial instrument positions as of March 31,September 30, 2023 have not materially changed from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022. In the firstthird quarter of 2023, we entered into foreign currency exchange forward contracts on the Euro, British Pound Sterling, Canadian Dollar and Hong KongCanadian Dollar, and had forward contracts expire. The fair value changes between December 31, 2022 and March 31,September 30, 2023 in the preceding table are primarily due to terminated interest rate swaps and foreign currency exchange rate fluctuations between those dates.
The foreign currency exchange forward contracts, swaps and options previously discussed contain an element of risk that the counterparties may be unable to meet the terms of the agreements; however, we seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines and by monitoring counterparty credit risk to prevent concentrations of credit risk with any single counterparty.
We have agreements with all of our active counterparties (covering all of our derivative positions) containing early termination rights and/or zero threshold bilateral collateral provisions whereby cash is required based on the net fair value of derivatives associated with those counterparties. Events such as a credit rating downgrade (depending on the ultimate rating level) could also allow us to take additional protective measures such as the early termination of trades. As of March 31,September 30, 2023, we held cash collateral of $375$382 million and were not required to post cash collateral with our counterparties under these agreements. We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default.
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Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our Principal Executive Officer and Principal Financial and Accounting Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")). Based upon, and as of the date of, the evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31,September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, 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 firstthird quarter of 2023 is as follows (in millions, except per share amounts):
Total Number of Shares Purchased (1)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of a Publicly Announced ProgramApproximate Dollar Value of Shares that May Yet be Purchased Under the Program
January 1 - January 31, 20230.5 $178.40 0.5 $4,985 
February 1 - February 28, 20233.3 182.69 3.3 4,393 
March 1 - March 31, 20230.3 182.69 0.3 $4,332 
Total January 1 - March 31, 20234.1 $182.12 4.1 
___________________ 
(1)Includes shares repurchased through our publicly announced share repurchase programs and shares tendered to pay the exercise price and tax withholding on employee stock options.
Total Number of Shares Purchased (1)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of a Publicly Announced ProgramApproximate Dollar Value of Shares that May Yet be Purchased Under the Program
July 1 - July 31, 20231.2 $183.27 1.2 $3,368 
August 1 - August 31, 20232.8 168.37 2.8 2,906 
September 1 - September 30, 20230.4 164.90 0.4 $2,832 
Total July 1 - September 30, 20234.4 $172.00 4.4 
(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 4.14.4 and 12.8 million shares of class B common stock for $750 million and $2.3 billion during the three and nine months ended March 31, 2023.September 30, 2023, respectively. These repurchases were completed as follows:
In August 2021, the Board of Directors approved a share repurchase authorization of $5.0 billion of class A and class B common stock (the "2021 Authorization"). During the threenine months ended March 31,September 30, 2023, we repurchased 0.5 million shares of class B common stock for $82 million under this authorization.
In January 2023, the Board of Directors terminated the 2021 Authorization and approved a new share repurchase authorization of $5.0 billion for class A and class B common stock. During the three and nine months ended March 31,September 30, 2023, we repurchased 3.64.4 and 12.3 million shares of class B common stock for $668$750 million and $2.2 billion, respectively, under this authorization.
We do not anticipate repurchasing approximately $3.0 billion in sharesfurther share repurchases 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
Insider Trading Arrangements and Policies
None.
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Item 6. Exhibits
3.1
3.2
4.01
4.02
4.03
10.1
10.2
10.3
10.4
31.1
31.2
32.1
32.2
101
The following unaudited financial information from this Quarterly Report on Form 10-Q for the quarter ended March 31,September 30, 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.
104Cover Page Interactive Data File - The cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31,September 30, 2023 is formatted in Inline XBRL (included as Exhibit 101).
__________________________
*Management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
UNITED PARCEL SERVICE, INC.
(Registrant)
Date:May 3,November 1, 2023By:  /s/ BRIAN O. NEWMAN
  Brian O. Newman
  Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


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