United States

Securities and Exchange Commission

Washington, D.C. 20549

_____________________________________ 

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2023 or

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

For the transition period from             to             

Commission file number 001-15451

_____________________________________ 

United Parcel Service, Inc.

(Exact name of registrant as specified in its charter)

Delaware			58-2480149
(State or Other Jurisdiction of Incorporation or Organization)			(IRS Employer Identification No.)
55 Glenlake Parkway N.E. ,	Atlanta,	Georgia	30328
(Address of Principal Executive Offices)			(Zip Code)

(404) 828-6000

(Registrant’s telephone number, including area code)

____________________ 

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

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Class B common stock, par value $0.01 per share	UPS	New York Stock Exchange
0.375% Senior Notes due 2023	UPS23A	New York Stock Exchange
1.625% Senior Notes due 2025	UPS25	New York Stock Exchange
1% Senior Notes due 2028	UPS28	New York Stock Exchange
1.500% Senior Notes due 2032	UPS32	New York Stock Exchange

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

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

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

Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

There were 131,174,099 Class A shares, and 723,275,790 Class B shares, with a par value of $0.01 per share, outstanding at July 24, 2023.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
	Cautionary Statement About Forward-Looking Statements	1
Item 1.	Financial Statements	2
	Consolidated Balance Sheets	2
	Statements of Consolidated Income	3
	Statements of Consolidated Comprehensive Income (Loss)	3
	Statements of Consolidated Cash Flows	4
	Notes to Unaudited, Consolidated Financial Statements	5
	Note 1—Basis of Presentation and Accounting Policies	5
	Note 2—Recent Accounting Pronouncements	7
	Note 3—Revenue Recognition	8
	Note 4—Stock-Based Compensation	10
	Note 5—Marketable Securities and Non-Current Investments	12
	Note 6—Property, Plant and Equipment	15
	Note 7—Employee Benefit Plans	16
	Note 8—Goodwill and Intangible Assets	18
	Note 9—Debt and Financing Arrangements	20
	Note 10—Leases	23
	Note 11—Legal Proceedings and Contingencies	26
	Note 12—Shareowners’ Equity	27
	Note 13—Segment Information	33
	Note 14—Earnings Per Share	34
	Note 15—Derivative Instruments and Risk Management	35
	Note 16—Income Taxes	40
	Note 17—Transformation Strategy Costs	41
	Note 18—Subsequent Events	42
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
	Overview	43
	Supplemental Information - Items Affecting Comparability	45
	Results of Operations - Segment Review	47
	U.S. Domestic Package Operations	48
	International Package Operations	51
	Supply Chain Solutions Operations	54
	Consolidated Operating Expenses	56
	Other Income and (Expense)	59
	Income Tax Expense	60
	Liquidity and Capital Resources	61
	Cash Flows From Operating Activities	61
	Cash Flows From Investing Activities	62
	Cash Flows From Financing Activities	63
	Sources of Credit	64
	Contractual Commitments	64
	Legal Proceedings and Contingencies	64
	Collective Bargaining Agreements	64
	Recent Accounting Pronouncements	64
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4.	Controls and Procedures	66
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	67
Item 1A.	Risk Factors	67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 5.	Other Information	69
Item 6.	Exhibits	70

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 arising from the COVID-19 pandemic; changes in general economic conditions, in the 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; impacts 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.

1

Item 1. Financial Statements

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	June 30, 2023		December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	4,812	$	5,602
Marketable securities	3,071		1,993
Accounts receivable	9,738		12,729
Less: Allowance for credit losses	(151)		(146)
Accounts receivable, net	9,587		12,583
Other current assets	1,969		2,039
Total Current Assets	19,439		22,217
Property, Plant and Equipment, Net	35,501		34,719
Operating Lease Right-Of-Use Assets	4,219		3,755
Goodwill	4,250		4,223
Intangible Assets, Net	2,890		2,796
Deferred Income Tax Assets	137		139
Other Non-Current Assets	3,911		3,275
Total Assets	$	70,347	$	71,124
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt, commercial paper and finance leases	$	1,412	$	2,341
Current maturities of operating leases	673		621
Accounts payable	6,085		7,515
Accrued wages and withholdings	2,962		4,049
Self-insurance reserves	1,101		1,069
Accrued group welfare and retirement plan contributions	1,200		1,078
Other current liabilities	1,253		1,467
Total Current Liabilities	14,686		18,140
Long-Term Debt and Finance Leases	19,351		17,321
Non-Current Operating Leases	3,680		3,238
Pension and Postretirement Benefit Obligations	4,635		4,807
Deferred Income Tax Liabilities	4,421		4,302
Other Non-Current Liabilities	3,537		3,513
Shareowners’ Equity:
Class A common stock (132 and 134 shares issued in 2023 and 2022, respectively)	2		2
Class B common stock (723 and 725 shares issued in 2023 and 2022, respectively)	7		7
Additional paid-in capital	—		—
Retained earnings	21,584		21,326
Accumulated other comprehensive loss	(1,574)		(1,549)
Deferred compensation obligations	9		13
Less: Treasury stock (0.2 shares in both 2023 and 2022)	(9)		(13)
Total Equity for Controlling Interests	20,019		19,786
Noncontrolling interests	18		17
Total Shareowners’ Equity	20,037		19,803
Total Liabilities and Shareowners’ Equity	$	70,347	$	71,124

See notes to unaudited, consolidated financial statements.

2

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

(In millions, except per share amounts)

(unaudited)

 

	Three Months Ended  June 30,				Six Months Ended  June 30,
	2023		2022		2023		2022
Revenue	$	22,055	$	24,766	$	44,980	$	49,144
Operating Expenses:
Compensation and benefits	11,197		11,344		22,659		22,945
Repairs and maintenance	682		727		1,407		1,428
Depreciation and amortization	828		762		1,662		1,526
Purchased transportation	3,173		4,390		6,716		8,997
Fuel	1,090		1,697		2,361		2,917
Other occupancy	458		422		1,009		923
Other expenses	1,847		1,889		3,845		3,622
Total Operating Expenses	19,275		21,231		39,659		42,358
Operating Profit	2,780		3,535		5,321		6,786
Other Income and (Expense):
Investment income and other	131		333		300		648
Interest expense	(191)		(171)		(379)		(345)
Total Other Income and (Expense)	(60)		162		(79)		303
Income Before Income Taxes	2,720		3,697		5,242		7,089
Income Tax Expense	639		848		1,266		1,578
Net Income	$	2,081	$	2,849	$	3,976	$	5,511
Basic Earnings Per Share	$	2.42	$	3.26	$	4.62	$	6.31
Diluted Earnings Per Share	$	2.42	$	3.25	$	4.61	$	6.28

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(In millions)

(unaudited)

 

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

See notes to unaudited, consolidated financial statements.

3

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(In millions)

(unaudited)

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

See notes to unaudited, consolidated financial statements.

4

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 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 unaudited, consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly our financial position as of June 30, 2023, our results of operations for the three and six months ended June 30, 2023 and 2022, and our cash flows for the six months ended June 30, 2023 and 2022. The results reported in these 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 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.

In the first six months of 2023, we reclassified certain operating expenses to better align with the manner in which we manage our operations. Substantially all of these costs were previously classified within operating expenses as Other expenses and have now been classified within operating expenses as Repairs and maintenance in the statements of consolidated income. The remaining line items within operating expenses impacted by this reclassification were inconsequential. As a result, the statements of consolidated income give effect to this reclassification as follows:

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

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

The reclassification had no impact on our reported revenue, operating profit, net income, or any internal performance measure on which management is compensated.

Fair Value of Financial Instruments

The carrying amounts of our cash and cash equivalents, accounts receivable, finance receivables and accounts payable approximated fair value as of June 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 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.

5

Supplier Finance Programs

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

Amounts due to our suppliers that participate in the SCF program are included in Accounts payable in our consolidated balance sheets. We have been informed by the participating financial institutions that as of June 30, 2023 and December 31, 2022, suppliers sold them $807 and $806 million, respectively, of our outstanding payment obligations.

6

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

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

Other accounting pronouncements adopted during the periods covered by the unaudited, consolidated financial statements did not have a material impact on our consolidated financial position, results of operations or cash flows.

Accounting Standards Issued But Not Yet Effective

Accounting pronouncements issued before, but not effective until after, June 30, 2023, are not expected to have a material impact on our consolidated financial position, results of operations, cash flows or internal controls.

7

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"). 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  June 30,				Six Months Ended  June 30,
	2023		2022		2023		2022
Revenue:
Next Day Air	$	2,407	$	2,656	$	4,868	$	5,250
Deferred	1,169		1,392		2,363		2,812
Ground	10,820		11,411		22,152		22,521
U.S. Domestic Package	14,396		15,459		29,383		30,583
Domestic	763		829		1,557		1,680
Export	3,468		3,976		7,020		7,754
Cargo & Other	184		268		381		515
International Package	4,415		5,073		8,958		9,949
Forwarding	1,376		2,389		2,890		4,978
Logistics	1,431		1,290		2,841		2,541
Other	437		555		908		1,093
Supply Chain Solutions	3,244		4,234		6,639		8,612
Consolidated revenue	$	22,055	$	24,766	$	44,980	$	49,144

Contract Assets and Liabilities

Contract assets include billed and unbilled amounts resulting from in-transit 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.

8

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Contract assets and liabilities as of June 30, 2023 and December 31, 2022 were as follows (in millions):

	Balance Sheet Location	June 30, 2023		December 31, 2022
Contract Assets:
Revenue related to in-transit packages	Other current assets	$	252	$	308
Contract Liabilities:
Short-term advance payments from customers	Other current liabilities	$	12	$	11
Long-term advance payments from customers	Other non-current liabilities	$	25	$	26

Accounts Receivable, Net

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

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

9

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. STOCK-BASED COMPENSATION

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

Our primary equity compensation programs are the UPS 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 June 30, 2023 and 2022 was $39 and $231 million, respectively, and for the six months ended June 30, 2023 and 2022 was $165 and $617 million, respectively.

Management Incentive Program

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

RPUs issued under the MIP in 2022 vested on December 31, 2022. As a result, the award was classified as a compensation obligation and recorded in Accrued wages and withholdings on the consolidated balance sheet at that date. Based on the Compensation and 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 and 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 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, subject to continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurs on a prorated basis). The actual number of RPUs earned is based on achievement of the performance targets established on the grant date.

The performance targets are equally weighted between adjusted earnings per share and 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 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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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

	2023			2022
Risk-free interest rate	3.81		%	2.35		%
Expected volatility	30.30		%	31.92		%
Fair value of RPUs granted	$	199.95		$	227.00
Share payout	107.80		%	107.37		%

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

Non-Qualified Stock Options

We grant non-qualified stock options to a limited group of eligible senior management employees under the UPS Stock Option program. Stock option awards vest over a five-year period with approximately 20% of the award vesting at each anniversary of the grant date (except in the case of death, disability or retirement, in which case immediate vesting occurs). The option grants expire 10 years after the date of the grant. On March 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:

	2023			2022
Expected dividend yield	3.54		%	2.35		%
Risk-free interest rate	3.70		%	2.39		%
Expected life (in years)	5.93			7.50
Expected volatility	28.31		%	25.04		%
Fair value of options granted	$	41.08		$	48.45

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. MARKETABLE SECURITIES AND NON-CURRENT INVESTMENTS

The following is a summary of marketable securities classified as trading and available-for-sale as of June 30, 2023 and December 31, 2022 (in millions):

	Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
June 30, 2023:
Current trading marketable securities:
Equity securities	$	6	$	—	$	—	$	6
Total trading marketable securities	6		—		—		6
Current available-for-sale securities:
U.S. government and agency debt securities	975		—		(11)		964
Mortgage and asset-backed debt securities	8		—		—		8
Corporate debt securities	2,059		—		(15)		2,044
U.S. state and local municipal debt securities	3		—		—		3
Non-U.S. government debt securities	46		—		—		46
Total available-for-sale marketable securities	3,091		—		(26)		3,065
Total current marketable securities	$	3,097	$	—	$	(26)	$	3,071
	Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
December 31, 2022:
Current trading marketable securities:
Equity securities	$	2	$	—	$	—	$	2
Total trading marketable securities	2		—		—		2
Current available-for-sale securities:
U.S. government and agency debt securities	355		—		(8)		347
Mortgage and asset-backed debt securities	9		—		—		9
Corporate debt securities	1,472		—		(6)		1,466
U.S. state and local municipal debt securities	4		—		—		4
Non-U.S. government debt securities	165		—		—		165
Total available-for-sale marketable securities	2,005		—		(14)		1,991
Total current marketable securities	$	2,007	$	—	$	(14)	$	1,993

Investment Impairments

We have concluded that no material impairment losses existed as of June 30, 2023. In making this determination, we considered the financial condition and prospects of each issuer, the magnitude of the losses compared with the cost, the probability that we will be unable to collect all amounts due according to the contractual terms of the security, the credit rating of the security and our ability and intent to hold these investments until the anticipated recovery in market value occurs.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Maturity Information

The amortized cost and estimated fair value of marketable securities as of June 30, 2023 by contractual maturity are shown below (in millions). Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations with or without prepayment penalties.

	Cost		Estimated Fair Value
Due in one year or less	$	1,596	$	1,591
Due after one year through three years	1,489		1,468
Due after three years through five years	6		6
Due after five years	—		—
	3,091		3,065
Equity securities	6		6
	$	3,097	$	3,071

Non-Current Investments

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

•Equity method investments: As of June 30, 2023 and December 31, 2022, equity securities accounted for under the equity method had a carrying value of $252 and $256 million, respectively.

•Other equity securities: Certain equity securities that do not have readily determinable fair values are reported in accordance with the measurement alternative in ASC Topic 321 Investments - Equity Securities. As of June 30, 2023 and December 31, 2022, we held equity securities accounted for using the measurement alternative of $33 and $31 million, respectively.

•Other investments: We hold an investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan. The investment had a fair market value of $19 and $18 million as of June 30, 2023 and December 31, 2022, respectively.

Fair Value Measurements

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

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information about our investments measured at fair value on a recurring basis as of June 30, 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
June 30, 2023:
Marketable Securities:
U.S. government and agency debt securities	$	964	$	—	$	—	$	964
Mortgage and asset-backed debt securities	—		8		—		8
Corporate debt securities	—		2,044		—		2,044
U.S. state and local municipal debt securities	—		3		—		3
Equity securities	—		6		—		6
Non-U.S. government debt securities	—		46		—		46
Total marketable securities	964		2,107		—		3,071
Other non-current investments(1)	—		19		—		19
Total	$	964	$	2,126	$	—	$	3,090

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

December 31, 2022:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Marketable Securities:
U.S. government and agency debt securities	$	279	$	68	$	—	$	347
Mortgage and asset-backed debt securities	—		9		—		9
Corporate debt securities	—		1,466		—		1,466
U.S. state and local municipal debt securities	—		4		—		4
Equity securities	—		2		—		2
Non-U.S. government debt securities	—		165		—		165
Total marketable securities	279		1,714		—		1,993
Other non-current investments(1)	—		18		—		18
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 six months ended June 30, 2023 or 2022.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

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

	2023		2022
Vehicles	$	11,098	$	10,628
Aircraft	22,828		22,598
Land	2,151		2,140
Buildings	6,178		6,032
Building and leasehold improvements	5,169		5,067
Plant equipment	16,456		16,145
Technology equipment	2,567		2,411
Construction-in-progress	2,870		2,409
	69,317		67,430
Less: Accumulated depreciation and amortization	(33,816)		(32,711)
Property, Plant and Equipment, Net	$	35,501	$	34,719

Property, plant and equipment purchased on account was $684 and $176 million as of June 30, 2023 and December 31, 2022, respectively. 

For the three and six months ended June 30, 2023 and 2022, there were no material impairment charges.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. EMPLOYEE BENEFIT PLANS

Company-Sponsored Benefit Plans

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

	U.S. Pension Benefits				U.S. Postretirement Medical Benefits				International Pension Benefits
	2023		2022		2023		2022		2023		2022
Three Months Ended June 30:
Service cost	$	293	$	506	$	5	$	7	$	11	$	17
Interest cost	627		487		29		21		16		11
Expected return on assets	(741)		(820)		(3)		(1)		(21)		(20)
Amortization of prior service cost	26		23		1		—		—		1
Net periodic benefit cost (income)	$	205	$	196	$	32	$	27	$	6	$	9
	U.S. Pension Benefits				U.S. Postretirement Medical Benefits				International Pension Benefits
	2023		2022		2023		2022		2023		2022
Six Months Ended June 30:
Service cost	$	586	$	1,012	$	10	$	15	$	22	$	35
Interest cost	1,254		975		58		41		33		23
Expected return on assets	(1,483)		(1,640)		(6)		(2)		(42)		(40)
Amortization of prior service cost	53		46		1		—		—		1
Settlement and curtailment (gain) loss	—		—		—		—		—		(33)
Net periodic benefit cost (income)	$	410	$	393	$	63	$	54	$	13	$	(14)

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

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

During the six months ended June 30, 2023, we contributed $1.2 billion and $92 million to our company-sponsored pension and U.S. postretirement medical benefit plans, respectively. We expect to contribute approximately $45 and $26 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 June 30, 2023 and December 31, 2022, we had $817 and $821 million, respectively, recorded in Other Non-Current Liabilities in our consolidated balance sheets and $8 million as of each of June 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 39 years. Based on the borrowing rates currently available to us for long-term financing of a similar maturity, the fair value of this withdrawal liability as of June 30, 2023 and December 31, 2022 was $705 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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

UPS was a contributing employer to the Central States Pension Fund (“CSPF”) until 2007 at which time UPS withdrew from the CSPF. 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.

In March 2021, the American Rescue Plan Act (“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 more than 300,000 employees in the U.S. employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters. These agreements were scheduled to expire on July 31, 2023. On July 25, 2023, we reached a new tentative national master agreement with the Teamsters. For additional information on these agreements and the ratification process, see note 18. No assurances of the timing of the ratification process can be provided. Customers may further reduce their business or stop doing business with us if they believe that such ratification process or the timing thereof may adversely affect our ability to provide services. In that event, we may permanently lose customers and this could materially adversely affect us. The terms of future collective bargaining agreements also may affect our competitive position and results of operations.

We have approximately 10,000 employees in Canada employed under a collective bargaining agreement with the Teamsters which runs through July 31, 2025.

We have approximately 3,500 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association ("IPA"). This collective bargaining agreement becomes amendable September 1, 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”). The collective bargaining agreement with the IAM runs through July 31, 2024.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. GOODWILL AND INTANGIBLE ASSETS

The following table indicates the allocation of goodwill as of June 30, 2023 and December 31, 2022 (in millions):

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

During the six months ended June 30, 2023:

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

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

•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 June 30, 2023 was $241 million.

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. While we do not believe it is more likely than not our reporting unit fair values are less than their respective carrying values as of June 30, 2023, actual reporting unit performance, revisions to our forecasts of reporting unit performance, changes in estimates or assumptions in connection with our annual testing, or a combination thereof could result in an impairment charge in one or more of our reporting units during the third quarter of 2023 or another future period.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
June 30, 2023:
Capitalized software	$	5,507	$	(3,694)	$	1,813
Licenses	55		(38)		17
Franchise rights	260		(42)		218
Customer relationships	860		(472)		388
Trade name	126		(12)		114
Trademarks, patents and other	187		(51)		136
Amortizable intangible assets	$	6,995	$	(4,309)	$	2,686
Indefinite-lived intangible assets	204		—		204
Total Intangible Assets, Net	$	7,199	$	(4,309)	$	2,890
December 31, 2022:
Capitalized software	$	5,186	$	(3,500)	$	1,686
Licenses	55		(30)		25
Franchise rights	226		(37)		189
Customer relationships	872		(453)		419
Trade name	125		(8)		117
Trademarks, patents and other	183		(27)		156
Amortizable intangible assets	$	6,647	$	(4,055)	$	2,592
Indefinite-lived intangible assets	204		—		204
Total Intangible Assets, Net	$	6,851	$	(4,055)	$	2,796

A trade name and licenses with carrying values of $200 and $4 million, respectively, as of June 30, 2023 are deemed to be indefinite-lived intangible assets, and therefore are not amortized. There were no events or changes in circumstances during the six months ended June 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. There were no impairment charges for finite-lived intangible assets during the six months ended June 30, 2023 or 2022.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. DEBT AND FINANCING ARRANGEMENTS

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

	Principal Amount			Carrying Value
			Maturity	2023		2022
Fixed-rate senior notes:
2.500% senior notes	$	—	2023	$	—	$	999
2.800% senior notes	500		2024	499		499
2.200% senior notes	400		2024	399		399
3.900% senior notes	1,000		2025	998		997
2.400% senior notes	500		2026	499		499
3.050% senior notes	1,000		2027	995		995
3.400% senior notes	750		2029	747		747
2.500% senior notes	400		2029	398		397
4.450% senior notes	750		2030	745		744
4.875% senior notes	900		2033	894		—