United Parcel Service (UPS) 8-K Ups Releases 3Q 2020 Earnings

Exhibit 99.2

United Parcel Service, Inc.

Selected Financial Data - Third Quarter

(unaudited)

	Three Months Ended
	September 30
	2020			2019			Change		% Change
(amounts in millions, except per share data)
Statement of Income Data:
Revenue:
U.S. Domestic Package	$	13,225		$	11,455		$	1,770	15.5	%
International Package	4,087			3,494			593		17.0	%
Supply Chain & Freight	3,926			3,369			557		16.5	%
Total revenue	21,238			18,318			2,920		15.9	%
Operating expenses:
Compensation and benefits	11,077			9,590			1,487		15.5	%
Other	7,798			6,600			1,198		18.2	%
Total operating expenses	18,875			16,190			2,685		16.6	%
Operating profit:
U.S. Domestic Package	1,098			1,216			(118)		(9.7)	%
International Package	966			667			299		44.8	%
Supply Chain & Freight	299			245			54		22.0	%
Total operating profit	2,363			2,128			235		11.0	%
Other income (expense):
Other pension income (expense)	327			191			136		71.2	%
Investment income and other	11			46			(35)		(76.1)	%
Interest expense	(176)			(159)			(17)		10.7	%
Total other income (expense)	162			78			84		107.7	%
Income before income taxes	2,525			2,206			319		14.5	%
Income tax expense (benefit)	568			456			112		24.6	%
Net income	$	1,957		$	1,750		$	207	11.8	%
Net income as a percentage of revenue	9.2		%	9.6		%
Per share amounts:
Basic earnings per share	$	2.25		$	2.03		$	0.22	10.8	%
Diluted earnings per share	$	2.24		$	2.01		$	0.23	11.4	%
Weighted-average shares outstanding:
Basic	868			864			4		0.5	%
Diluted	872			870			2		0.2	%
As adjusted income data (1):
Operating profit:
U.S. Domestic Package	$	1,133		$	1,242		$	(109)	(8.8)	%
International Package	972			693			279		40.3	%
Supply Chain & Freight	302			256			46		18.0	%
Total operating profit	2,407			2,191			216		9.9	%
Income before income taxes	$	2,569		$	2,269		$	300	13.2	%
Net income	$	1,990		$	1,797		$	193	10.7	%
Basic earnings per share	$	2.29		$	2.08		$	0.21	10.1	%
Diluted earnings per share	$	2.28		$	2.07		$	0.21	10.1	%

(1) See Non-GAAP Schedules for detail of Transformation costs.

Certain prior year amounts have been reclassified to conform to the current year presentation.

United Parcel Service, Inc.

Selected Operating Data - Third Quarter

(unaudited)

	Three Months Ended
	September 30
	2020		2019		Change		% Change
Revenue (in millions):
U.S. Domestic Package:
Next Day Air	$	2,098	$	2,146	$	(48)	(2.2)	%
Deferred	1,378		1,248		130		10.4	%
Ground	9,749		8,061		1,688		20.9	%
Total U.S. Domestic Package	13,225		11,455		1,770		15.5	%
International Package:
Domestic	776		689		87		12.6	%
Export	3,153		2,673		480		18.0	%
Cargo and Other	158		132		26		19.7	%
Total International Package	4,087		3,494		593		17.0	%
Supply Chain & Freight:
Forwarding	1,753		1,472		281		19.1	%
Logistics	1,040		846		194		22.9	%
Freight	870		852		18		2.1	%
Other	263		199		64		32.2	%
Total Supply Chain & Freight	3,926		3,369		557		16.5	%
Consolidated	$	21,238	$	18,318	$	2,920	15.9	%
Consolidated volume (in millions)	1,550		1,345		205		15.2	%
Operating weekdays	65		64		1		1.6	%
Average Daily Package Volume (in thousands):
U.S. Domestic Package:
Next Day Air	1,915		1,891		24		1.3	%
Deferred	1,657		1,474		183		12.4	%
Ground	16,803		14,544		2,259		15.5	%
Total U.S. Domestic Package	20,375		17,909		2,466		13.8	%
International Package:
Domestic	1,806		1,668		138		8.3	%
Export	1,674		1,437		237		16.5	%
Total International Package	3,480		3,105		375		12.1	%
Consolidated	23,855		21,014		2,841		13.5	%
Average Revenue Per Piece:
U.S. Domestic Package:
Next Day Air	$	16.85	$	17.73	$	(0.88)	(5.0)	%
Deferred	12.79		13.23		(0.44)		(3.3)	%
Ground	8.93		8.66		0.27		3.1	%
Total U.S. Domestic Package	9.99		9.99		—		—	%
International Package:
Domestic	6.61		6.45		0.16		2.5	%
Export	28.98		29.06		(0.08)		(0.3)	%
Total International Package	17.37		16.92		0.45		2.7	%
Consolidated	$	11.06	$	11.02	$	0.04	0.4	%

Certain prior year amounts have been reclassified to conform to the current year presentation.

United Parcel Service, Inc.

Detail of Other Operating Expenses - Third Quarter

(unaudited)

	Three Months Ended
	September 30
	2020		2019		Change		% Change
(in millions)
Repairs and maintenance	$	576	$	485	$	91	18.8	%
Depreciation and amortization	677		587		90		15.3	%
Purchased transportation	3,937		2,984		953		31.9	%
Fuel	618		824		(206)		(25.0)	%
Other occupancy	376		346		30		8.7	%
Other expenses	1,614		1,374		240		17.5	%
Total other operating expenses	$	7,798	$	6,600	$	1,198	18.2	%

Earnings Per Share and Share Data - Third Quarter

(unaudited)

	Three Months Ended
	September 30
	2020		2019
(amounts in millions, except per share data)
Numerator:
Net income	$	1,957	$	1,750
Denominator:
Weighted-average shares	864		858
Deferred compensation obligations	—		—
Vested portion of restricted units	4		6
Denominator for basic earnings per share	868		864
Effect of dilutive securities:
Restricted units	4		6
Stock options	—		—
Denominator for diluted earnings per share	872		870
Basic earnings per share	$	2.25	$	2.03
Diluted earnings per share	$	2.24	$	2.01
Detail of shares outstanding as of September 30, 2020:
Class A shares	150
Class B shares	714
Total shares outstanding	864

Certain prior year amounts have been reclassified to conform to the current year presentation.

United Parcel Service, Inc.

Selected Financial Data - Year to Date

(unaudited)

	Nine Months Ended
	September 30
	2020			2019			Change		% Change
(amounts in millions, except per share data)
Statement of Income Data:
Revenue:
U.S. Domestic Package	$	37,755		$	33,085		$	4,670	14.1	%
International Package	11,175			10,458			717		6.9	%
Supply Chain & Freight	10,802			9,983			819		8.2	%
Total revenue	59,732			53,526			6,206		11.6	%
Operating expenses:
Compensation and benefits	32,006			28,206			3,800		13.5	%
Other	22,079			19,655			2,424		12.3	%
Total operating expenses	54,085			47,861			6,224		13.0	%
Operating profit:
U.S. Domestic Package	2,644			3,090			(446)		(14.4)	%
International Package	2,288			1,858			430		23.1	%
Supply Chain & Freight	715			717			(2)		(0.3)	%
Total operating profit	5,647			5,665			(18)		(0.3)	%
Other income (expense):
Other pension income (expense)	981			574			407		70.9	%
Investment income and other	30			98			(68)		(69.4)	%
Interest expense	(526)			(487)			(39)		8.0	%
Total other income (expense)	485			185			300		162.2	%
Income before income taxes	6,132			5,850			282		4.8	%
Income tax expense (benefit)	1,442			1,304			138		10.6	%
Net income	$	4,690		$	4,546		$	144	3.2	%
Net income as a percentage of revenue	7.9		%	8.5		%
Per share amounts:
Basic earnings per share	$	5.42		$	5.26		$	0.16	3.0	%
Diluted earnings per share	$	5.39		$	5.23		$	0.16	3.1	%
Weighted-average shares outstanding:
Basic	866			865			1		0.1	%
Diluted	870			869			1		0.1	%
As adjusted income data(1):
Operating profit:
U.S. Domestic Package	$	2,749		$	3,162		$	(413)	(13.1)	%
International Package	2,372			1,970			402		20.4	%
Supply Chain & Freight	727			740			(13)		(1.8)	%
Total operating profit	5,848			5,872			(24)		(0.4)	%
Income before income taxes	$	6,333		$	6,057		$	276	4.6	%
Net income	$	4,841		$	4,703		$	138	2.9	%
Basic earnings per share	$	5.59		$	5.44		$	0.15	2.8	%
Diluted earnings per share	$	5.56		$	5.41		$	0.15	2.8	%

(1) See Non-GAAP Schedules for detail of Transformation costs.

Certain prior year amounts have been reclassified to conform to the current year presentation.

United Parcel Service, Inc.

Selected Operating Data - Year to Date

(unaudited)

	Nine Months Ended
	September 30
	2020		2019		Change		% Change
Revenue (in millions):
U.S. Domestic Package:
Next Day Air	$	6,137	$	6,160	$	(23)	(0.4)	%
Deferred	3,873		3,494		379		10.8	%
Ground	27,745		23,431		4,314		18.4	%
Total U.S. Domestic Package	37,755		33,085		4,670		14.1	%
International Package:
Domestic	2,183		2,069		114		5.5	%
Export	8,538		7,972		566		7.1	%
Cargo and Other	454		417		37		8.9	%
Total International Package	11,175		10,458		717		6.9	%
Supply Chain & Freight:
Forwarding	4,897		4,384		513		11.7	%
Logistics	2,862		2,511		351		14.0	%
Freight	2,360		2,486		(126)		(5.1)	%
Other	683		602		81		13.5	%
Total Supply Chain & Freight	10,802		9,983		819		8.2	%
Consolidated	$	59,732	$	53,526	$	6,206	11.6	%
Consolidated volume (in millions)	4,466		3,885		581		15.0	%
Operating weekdays	193		191		2		1.0	%
Average Daily Package Volume (in thousands):
U.S. Domestic Package:
Next Day Air	1,888		1,771		117		6.6	%
Deferred	1,617		1,413		204		14.4	%
Ground	16,346		14,068		2,278		16.2	%
Total U.S. Domestic Package	19,851		17,252		2,599		15.1	%
International Package:
Domestic	1,746		1,661		85		5.1	%
Export	1,545		1,425		120		8.4	%
Total International Package	3,291		3,086		205		6.6	%
Consolidated	23,142		20,338		2,804		13.8	%
Average Revenue Per Piece:
U.S. Domestic Package:
Next Day Air	$	16.84	$	18.21	$	(1.37)	(7.5)	%
Deferred	12.41		12.95		(0.54)		(4.2)	%
Ground	8.79		8.72		0.07		0.8	%
Total U.S. Domestic Package	9.85		10.04		(0.19)		(1.9)	%
International Package:
Domestic	6.48		6.52		(0.04)		(0.6)	%
Export	28.63		29.29		(0.66)		(2.3)	%
Total International Package	16.88		17.04		(0.16)		(0.9)	%
Consolidated	$	10.85	$	11.10	$	(0.25)	(2.3)	%

Certain prior year amounts have been reclassified to conform to the current year presentation.

United Parcel Service, Inc.

Detail of Other Operating Expenses - Year to Date

(unaudited)

	Nine Months Ended
	September 30
	2020		2019		Change		% Change
(in millions)
Repairs and maintenance	$	1,693	$	1,392	$	301	21.6	%
Depreciation and amortization	1,986		1,730		256		14.8	%
Purchased transportation	10,584		8,950		1,634		18.3	%
Fuel	1,878		2,451		(573)		(23.4)	%
Other occupancy	1,114		1,039		75		7.2	%
Other expenses	4,824		4,093		731		17.9	%
Total other operating expenses	$	22,079	$	19,655	$	2,424	12.3	%

Earnings Per Share and Share Data - Year to Date

(unaudited)

	Nine Months Ended
	September 30
	2020		2019
(amounts in millions, except per share data)
Numerator:
Net income	$	4,690	$	4,546
Denominator:
Weighted-average shares	861		859
Deferred compensation obligations	—		—
Vested portion of restricted units	5		6
Denominator for basic earnings per share	866		865
Effect of dilutive securities:
Restricted units	4		4
Stock options	—		—
Denominator for diluted earnings per share	870		869
Basic earnings per share	$	5.42	$	5.26
Diluted earnings per share	$	5.39	$	5.23

Certain prior year amounts have been reclassified to conform to the current year presentation.

United Parcel Service, Inc.

Consolidated Balance Sheets

September 30, 2020 (unaudited) and December 31, 2019

	September 30, 2020		December 31, 2019
(amounts in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	8,839	$	5,238
Marketable securities	402		503
Accounts receivables	9,153		9,645
Less: Allowance for credit losses	(160)		(93)
Accounts receivable, net	8,993		9,552
Other current assets	1,696		1,810
Total Current Assets	19,930		17,103
Property, Plant and Equipment, Net	32,164		30,482
Operating Lease Right-Of-Use Assets	3,022		2,856
Goodwill	3,816		3,813
Intangible Assets, Net	2,289		2,167
Investments and Restricted Cash	25		24
Deferred Income Tax Assets	277		330
Other Non-Current Assets	883		1,082
Total Assets	$	62,406	$	57,857
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of long-term debt, commercial paper and finance leases	$	2,382	$	3,420
Current maturities of operating leases	560		538
Accounts payable	5,609		5,555
Accrued wage and withholdings	3,140		2,552
Self-insurance reserves	1,128		914
Accrued group welfare and retirement plan contributions	857		793
Other current liabilities	1,780		1,641
Total Current Liabilities	15,456		15,413
Long-Term Debt and Finance Leases	23,336		21,818
Non-Current Operating Leases	2,473		2,391
Pension and Postretirement Benefit Obligations	9,630		10,601
Deferred Income Tax Liabilities	2,145		1,632
Other Non-Current Liabilities	3,760		2,719
Shareowners' Equity:
Class A common stock	2		2
Class B common stock	7		7
Additional paid-in capital	490		150
Retained earnings	11,115		9,105
Accumulated other comprehensive loss	(6,022)		(5,997)
Deferred compensation obligations	20		26
Less: Treasury stock	(20)		(26)
Total Equity for Controlling Interest	5,592		3,267
Noncontrolling interests	14		16
Total Shareowners' Equity	5,606		3,283
Total Liabilities and Sharewoners' Equity	$	62,406	$	57,857

Amounts are subject to reclassification.

United Parcel Service, Inc.

Statements of Consolidated Cash Flows

(unaudited)

(amounts in millions)		Nine Months Ended
		September 30,
		2020		2019
Cash Flows From Operating Activities:
	Net income	$	4,690	$	4,546
	Adjustments to reconcile net income to net cash from operating activities:
	Depreciation and amortization	1,986		1,730
	Pension and postretirement benefit expense	481		566
	Pension and postretirement benefit contributions	(1,307)		(2,321)
	Self-insurance reserves	388		(181)
	Deferred tax (benefit) expense	566		43
	Stock compensation expense	508		716
	Other (gains) losses	164		46
	Changes in assets and liabilities, net of effects of business acquisitions:
	Accounts receivable	352		843
	Other assets	391		778
	Accounts payable	(450)		(914)
	Accrued wages and withholdings	1,330		(506)
	Other liabilities	120		393
	Other operating activities	64		(46)
	Net cash from operating activities	9,283		5,693
Cash Flows From Investing Activities:
	Capital expenditures	(3,219)		(4,336)
	Proceeds from disposals of property, plant and equipment	10		61
	Purchases of marketable securities	(202)		(487)
	Sales and maturities of marketable securities	309		817
	Net change in finance receivables	24		8
	Cash paid for business acquisitions, net of cash and cash equivalents acquired	(13)		(6)
	Other investing activities	(15)		(84)
	Net cash used in investing activities	(3,106)		(4,027)
Cash Flows From Financing Activities:
	Net change in short-term debt	(1,924)		(1,100)
	Proceeds from long-term borrowings	5,003		4,802
	Repayments of long-term borrowings	(2,746)		(2,411)
	Purchases of common stock	(224)		(751)
	Issuances of common stock	214		161
	Dividends	(2,528)		(2,397)
	Other financing activities	(351)		(158)
	Net cash used in financing activities	(2,556)		(1,854)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash		(19)		6
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash		3,602		(182)
Cash, Cash Equivalents and Restricted Cash:
	Beginning of period	5,238		4,367
	End of period	$	8,840	$	4,185

Certain prior year amounts have been reclassified to conform to the current year presentation.

United Parcel Service, Inc.

Supplemental Analysis of Currency and Pension Discount Rates - Third Quarter

Currency Neutral Revenue Per Piece, Revenue and Operating Profit
(unaudited)
	Three Months Ended								Currency
	September 30								Neutral
	2020		2019		% Change		Currency		2020 (1)		% Change
Average Revenue Per Piece:
International Package:
Domestic	$	6.61	$	6.45	2.5	%	$	(0.18)	$	6.43	(0.3)	%
Export	28.98		29.06		(0.3)	%	(0.30)		28.68		(1.3)	%
Total International Package	$	17.37	$	16.92	2.7	%	$	(0.23)	$	17.14	1.3	%
Consolidated	$	11.06	$	11.02	0.4	%	$	(0.03)	$	11.03	0.1	%
	Three Months Ended								Currency
	September 30								Neutral
	2020		2019		% Change		Currency		2020(1)		% Change
Revenue (in millions):
U.S. Domestic Package	$	13,225	$	11,455	15.5	%	$	—	$	13,225	15.5	%
International Package	4,087		3,494		17.0	%	(54)		4,033		15.4	%
Supply Chain & Freight	3,926		3,369		16.5	%	8		3,934		16.8	%
Total revenue	$	21,238	$	18,318	15.9	%	$	(46)	$	21,192	15.7	%
	Three Months Ended								Currency
	September 30								Neutral
	2020(2)		2019(2)		% Change		Currency		2020(3)		% Change
As-Adjusted Operating Profit (in millions):
U.S. Domestic Package	$	1,133	$	1,242	-8.8	%	$	—	$	1,133	(8.8)	%
International Package	972		693		40.3	%	(7)		965		39.2	%
Supply Chain & Freight	302		256		18.0	%	2		304		18.8	%
Total operating profit	$	2,407	$	2,191	9.9	%	$	(5)	$	2,402	9.6	%

Pension Discount Rate Neutral Operating Profit and Margin

(unaudited)

	Three Months Ended September 30											Pension Discount Rate Neutral
	2020(2)			2019(2)			% Change		Pension			2020(4)			% Change
As-Adjusted Operating profit (in millions):
U.S. Domestic Package	$	1,133		$	1,242		(8.8)	%	$	63		$	1,196		(3.7)	%
International Package	972			693			40.3	%	4			976			40.8	%
Supply Chain & Freight	302			256			18.0	%	7			309			20.7	%
Total operating profit	$	2,407		$	2,191		9.9	%	$	74		$	2,481		13.2	%
	Three Months Ended September 30											Pension Discount Rate Neutral
	2020(2)			2019(2)			% Change		Pension			2020(4)			% Change
As- Adjusted Operating margin:
U.S. Domestic Package	8.6		%	10.8		%	(2.2)	%	0.4		%	9.0		%	(1.8)	%
International Package	23.8		%	19.8		%	4.0	%	0.1		%	23.9		%	4.1	%
Supply Chain & Freight	7.7		%	7.6		%	0.1	%	0.2		%	7.9		%	0.3	%
Total operating margin	11.3		%	12.0		%	(0.7)	%	0.4		%	11.7		%	(0.3)	%
(1) Amounts adjusted for period over period foreign currency exchange rate and hedging differences
(2) Amounts adjusted for transformation strategy costs
(3) Amounts adjusted for transformation strategy costs and period over period foreign currency exchange rate and hedging differences
(4) Amounts adjusted for transformation strategy costs and period over period impact of discount rates on pension service cost

Certain prior year have been reclassified to conform to the current year presentation.

United Parcel Service, Inc.

Supplemental Analysis of Currency and Pension Discount Rates - Year to Date

Currency Neutral Revenue Per Piece, Revenue and Operating Profit
(unaudited)
	Nine Months Ended								Currency
	September 30								Neutral
	2020		2019		% Change		Currency		2020(1)		% Change
Average Revenue Per Piece:
International Package:
Domestic	$	6.48	$	6.52	(0.6)	%	$	0.02	$	6.50	(0.3)	%
Export	28.63		29.29		(2.3)	%	(0.02)		28.61		(2.3)	%
Total International Package	$	16.88	$	17.04	(0.9)	%	$	—	$	16.88	(0.9)	%
Consolidated	$	10.85	$	11.10	(2.3)	%	$	—	$	10.85	(2.3)	%
	Nine Months Ended								Currency
	September 30								Neutral
	2020		2019		% Change		Currency		2020(1)		% Change
Revenue (in millions):
U.S. Domestic Package	$	37,755	$	33,085	14.1	%	$	—	$	37,755	14.1	%
International Package	11,175		10,458		6.9	%	3		11,178		6.9	%
Supply Chain & Freight	10,802		9,983		8.2	%	108		10,910		9.3	%
Total revenue	$	59,732	$	53,526	11.6	%	$	111	$	59,843	11.8	%
	Nine Months Ended								Currency
	September 30								Neutral
	2020(2)		2019(2)		% Change		Currency		2020(3)		% Change
As-Adjusted Operating Profit (in millions):
U.S. Domestic Package	$	2,749	$	3,162	(13.1)	%	$	—	$	2,749	(13.1)	%
International Package	2,372		1,970		20.4	%	(37)		2,335		18.5	%
Supply Chain & Freight	727		740		(1.8)	%	(4)		723		(2.3)	%
Total operating profit	$	5,848	$	5,872	(0.4)	%	$	(41)	$	5,807	(1.1)	%

Pension Discount Rate Neutral Operating Profit and Margin

(unaudited)

	Nine Months Ended September 30											Pension Discount Rate Neutral
	2020(2)			2019(2)			% Change		Pension			2020(4)			% Change
As-Adjusted Operating profit (in millions):
U.S. Domestic Package	$	2,749		$	3,162		(13.1)	%	$	188		$	2,937		(7.1)	%
International Package	2,372			1,970			20.4	%	12			2,384			21.0	%
Supply Chain & Freight	727			740			(1.8)	%	21			748			1.1	%
Total operating profit	$	5,848		$	5,872		(0.4)	%	$	221		$	6,069		3.4	%
	Nine Months Ended September 30											Pension Discount Rate Neutral
	2020(2)			2019(2)			% Change		Pension			2020(4)			% Change
As- Adjusted Operating margin:
U.S. Domestic Package	7.3		%	9.6		%	(2.3)	%	0.5		%	7.8		%	(1.8)	%
International Package	21.2		%	18.8		%	2.4	%	0.1		%	21.3		%	2.5	%
Supply Chain & Freight	6.7		%	7.4		%	(0.7)	%	0.2		%	6.9		%	(0.5)	%
Total operating margin	9.8		%	11.0		%	(1.2)	%	0.4		%	10.2		%	(0.8)	%
(1) Amounts adjusted for period over period foreign currency exchange rate and hedging differences
(2) Amounts adjusted for transformation strategy costs
(3) Amounts adjusted for transformation strategy costs and period over period foreign currency exchange rate and hedging differences
(4) Amounts adjusted for transformation strategy costs and period over period impact of discount rates on pension service cost

Certain prior year have been reclassified to conform to the current year presentation.

United Parcel Service, Inc.

Non-GAAP Schedules

Reconciliation of GAAP and Non-GAAP Income Statement Data

(in millions, except per share amounts):

Three Months Ended September 30,
	2020						2019
	As-Reported (GAAP)		Transformation Strategy Costs(1)		As-Adjusted (Non-GAAP)		As-Reported (GAAP)		Transformation Strategy Costs(2)		As-Adjusted (Non-GAAP)
Operating profit:
U.S. Domestic Package	$	1,098	$	35	$	1,133	$	1,216	$	26	$	1,242
International Package	966		6		972		667		26		693
Supply Chain & Freight	299		3		302		245		11		256
Total operating profit	$	2,363	$	44	$	2,407	$	2,128	$	63	$	2,191
Income before income taxes	$	2,525	$	44	$	2,569	$	2,206	$	63	$	2,269
Income tax expense	$	568	$	11	$	579	$	456	$	16	$	472
Net income	$	1,957	$	33	$	1,990	$	1,750	$	47	$	1,797
Diluted earnings per share	$	2.24	$	0.04	$	2.28	$	2.01	$	0.06	$	2.07

(1) Transformation costs of $44 million reflect other employee benefits costs of $18 million and other costs of $26 million.

(2) Transformation costs of $63 million reflect other employee benefits costs of $41 million and other costs of $22 million.

Nine Months Ended September 30,
	2020						2019
	As-Reported (GAAP)		Transformation Strategy Costs(1)		As-Adjusted (Non-GAAP)		As-Reported (GAAP)		Transformation Strategy Costs(2)		As-Adjusted (Non-GAAP)
Operating profit:
U.S. Domestic Package	$	2,644	$	105	$	2,749	$	3,090	$	72	$	3,162
International Package	2,288		84		2,372		1,858		112		1,970
Supply Chain & Freight	715		12		727		717		23		740
Total operating profit	$	5,647	$	201	$	5,848	$	5,665	$	207	$	5,872
Income before income taxes	$	6,132	$	201	$	6,333	$	5,850	$	207	$	6,057
Income tax expense	$	1,442	$	50	$	1,492	$	1,304	$	50	$	1,354
Net income	$	4,690	$	151	$	4,841	$	4,546	$	157	$	4,703
Diluted earnings per share	$	5.39	$	0.17	$	5.56	$	5.23	$	0.18	$	5.41

(1) Transformation costs of $201 million reflect other employee benefits costs of $111 million and other costs of $90 million.

(2) Transformation costs of $207 million reflect other employee benefits costs of $149 million and other costs of $58 million.

Reconciliation of Adjusted Capital Expenditures and Free Cash Flow (Non-GAAP measures)
(in millions):
Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities	$	9,283	$	5,693
Capital expenditures	(3,219)		(4,336)
Principal repayments of finance lease obligations	(136)		(120)
Adjusted Capital Expenditures (Non-GAAP measure)	$	(3,355)	$	(4,456)
Proceed from disposal of PP&E	10		61
Net change in finance receivables	24		8
Other investing activities	(15)		(84)
Adjusted free cash flow (Non-GAAP measure)	$	5,947	$	1,222
Discretionary pension contributions	1,000		2,000
Adjusted Free cash flow (Non-GAAP measure) excluding discretionary pension contributions	$	6,947	$	3,222

Amounts are subject to reclassification.

United Parcel Service, Inc.

Aircraft Fleet - as of September 30, 2020

(unaudited)

Description	Owned and Finance Leases	Operating Leases & Charters from Others	On Order	Under Option
Operating:
Boeing 757-200	75	—	—	—
Boeing 767-300	66	—	6	—
Boeing 767-300BCF	4	—	—	—
Boeing 767-300BDSF	3	—	1	—
Airbus A300-600	52	—	—	—
Boeing MD-11	39	—	3	—
Boeing 747-400F	11	—	—	—
Boeing 747-400BCF	2	—	—	—
Boeing 747-8F	17	—	11	—
Other	—	297	—	—
Total	269	297	21	—