UPS 10-K & 10-Q changes, risk factors and insider trading

Our business, financial condition and results of operations are and will remain subject to numerous risks and uncertainties. You should carefully consider the following risk factors, which may have materially affected or could materially affect us, including impacting our business, financial condition, results of operations, stock price, credit rating or reputation. You should read these risk factors in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 and our "Financial Statements and Supplementary Data" in Item 8. These are not the only risks we face. We could also be affected by other unknown events, factors, uncertainties, or risks that we do not currently consider to be material. Additionally, the disclosures in this section reflect our beliefs and opinions as to factors that could materially and adversely affect us in the future. References to historical events are provided by way of example only, and are not intended to be a complete listing or a representation as to whether such events have occurred in the past or their likelihood of occurring in the future.

Changes or continued uncertainty in general economic conditions, in the U.S. and internationally, may adversely affect us.

We conduct operations in over 200 countries and territories. Our operations are subject to national and international economic factors, as well as the local economic environments in which we operate. Changes or continued uncertainty in general economic conditions are beyond our control, and it may be difficult for us to adjust our business model. For example, we are affected by industrial production, inflation, unemployment, consumer spending andspending, retail activity levels.levels and international trade policies. We have been, and may in the future be, materially affected by adverse developments or uncertainty in these and other aspects of the economy. We have also been, and may in the future be, adversely impacted by changes in general economic conditions resulting from geopolitical uncertaintyuncertainty, tensions and/or conflicts in or arising from thevarious countries and regions where we operate,regions, including the European Union, Ukraine, the Russian Federation, the Middle East and the Trans-Pacific region. Changes or uncertainty in general economic conditions, or our inability to accurately forecast these changes or mitigate the impact of these conditions on our business, could materially adversely affect us.

Our industry iscontinues to rapidly evolving.evolve. We expect to continue to face significant competition, which could materially adversely affect us.

Our industry continues to rapidly evolve, including demands for faster deliveries, increased visibility into shipments and development of other services. We expect to continue to face significant local, regional, national and international competition. Competitors include the U.S. and international postal services, various motor carriers, express companies, freight forwarders, air couriers, large transportation companies, e-commerce companies and other retailers that continue to make significant investments in their own technology and logistics capabilities, some of whom are currently our customers. We also face competition from start-ups and other smaller companies that combine technologies with flexible labor solutions such as crowdsourcing. New and emerging technologies arecontinue alsoto creatingcreate additional sources of competition.competition, and if we fail to incorporate new and emerging technologies as effectively as our competitors, our competitive position may be harmed. Competitors have cost, operational and organizational structures that differ from ours and may offer services or pricing terms that we are not willing to offer. Additionally, from time to time we have raised, and may in the future raise, prices and our customers may not be willing to accept these higher prices. If we do not appropriately respond to competitive pressures, including retaining or replacing volume lost to competitors or maintaining our profitability, we could be materially adversely affected.

Changes in our relationships with any of our significant customers, including as a result of our strategy to reduce volume from our largest customer or the loss or reduction in business from one or more ofother them,customers, could have a material adverse effect on us.

ForOur thestrategy yearincludes endedplanned Decembervolume 31,declines 2024,from oneour largest customer, Amazon.com, Inc. For 2025, this customer and its affiliates,affiliates accounted for 11.8%10.6% of our consolidated revenues. In connection with the first quarterexecution of 2025,this strategy, we enteredhave intomade anand agreementcontinue to make reductions in principlethe withnumber thisof customerour thatfacilities, will provide for a reduction in their volume by more than 50% by June 2026. In connection therewith, we are making certain businessvehicles and operationalaircraft, changesand our workforce, intended to matchbetter align our assets and workforce to our activityplanned operations, and to eliminate our stranded costs. In the event we are not able to successfully reducemake ourappropriate costsadjustments inor connectioncontrol therewith,related costs, our profitability could be materially impacted. For additional information on the expected operational and financial impacts arising from this agreement,strategy, see “"Management’s Discussion and Analysis of Financial Condition and Results of Operations”".

Some of our other larger customers can account for a relatively significant portion of our volume and revenues in a particular quarter or year. Customer impact on our revenue and profitability can vary based on a number of factors,factors including: contractual volume amounts; pricing terms; product launches; e-commerce or other industry trends, including those related to the holiday season; business combinations and the overall growth of a customer's underlying business; as well as any disruptions to their businesses.business. Customers could choose, and have in the past chosen, to divert all or a portion of their business with us to one of our competitors, demand pricing concessions, request enhanced services that increase our costs, or develop their own logistics capabilities. In addition, certain of our significant customer contracts include termination rights of either party upon the occurrence of certain events or without cause upon advance notice to the other party. If all or a portion of our business relationships with one or more significant customers were to terminate or significantly change,change in an unplanned manner, this could materially adversely affect us.

We depend on the skills and continued service of our largelarge, global workforce. WeAnnually, we also regularly hire a large number ofmany part-time and seasonal workers. We must be able to attract, develop and retain a large and diverse global workforce. If we are unable to hire, properly train or retain qualified employees, we could experience higherincreased labor costs, reduced revenues, further increased workers' compensation and automobile liability claims costs, regulatory noncompliance, customer losses and diminution of our brand value or company culture, which could materially adversely affect us. Our ability to control labor costs has in the past been, and is expected to continue to be, subject to numerous factors, including labor-related contractual obligations, turnover, training costs, regulatory changes, market pressures, inflation, unemployment levels and healthcare and other benefit costs.

In addition, weour Network Reconfiguration and Efficiency Reimagined initiatives have led to, and are expected to continue to strivelead toto, lowerconsolidations of our costfacilities toand serve,workforce, includingas laborwell costs,as throughan variousend-to-end strategicprocess initiatives.redesign. Our inability to continue to retain experienced and motivated employees through the execution of these and other initiatives may also materially adversely affect us.

Many of our U.S. employees are employed under a national master agreement with the Teamsters and various supplemental agreements with affiliated local unions affiliated with the International Brotherhood of Teamsters (the "Teamsters").unions. Our national master agreement with the Teamsters runsexpires throughon July 31, 2028. Our airline pilots, airline mechanics, ground mechanics and certain other employees are employed under other collective bargaining agreements that expire at various times. In addition, some of our international employees are employed under collective bargaining or similar agreements. OtherEmployees employeeswho are not employed under a collective bargaining agreement may choose to organize in the future. Actual or threatened strikes, work stoppages or slowdowns by our employees could adversely affect our ability to meet our customers' needs. As a result, customers have in the past reduced, and in the future 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 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 reputation and could havematerially adverseadversely effectsaffect on our business, including our results of operations.us.

As a result of concerns about global terrorism and physical security, various governments have adopted and may adopt additional heightened security requirements, resulting in significantly increasedincreasing our operating costs. Regulatory and legislative requirements may change periodically in response to evolving threats. We cannot determine the effect that any new requirements will have on our operations, cost structure or operating results, and new rules or other future security requirements may significantly increase our operating costs and reduce operating efficiencies. Compliance with security requirements or our own security measures may not prevent attacks or security breaches, which could materially adversely affect one or more of our operations, or our business.us.

A significant cybersecurity incident, or increased data protection regulations, or other information technology related risks, could materially adversely affect us.

We rely on information technology networks and systems and other operational technologies,technologies to operate our business, including the internet and ainternally number of internally-developeddeveloped systems and applications, as well as certain technology systems from third-party vendors (collectively referred to as "IT"), to operate our business.. For example, we rely on these technologiesIT to receive package level information in advance of the physical receipt of packages, move and track packages through our operations, efficiently plan deliveries, execute billing processes, provide information to package recipients, manage employee data and track and report financial and operational data. Our franchise locations and subsidiaries also rely on IT systems to manage their business processes and activities.

IT and other systems (ours, as well as those of our franchisees, acquired businesses, and third-party service providers) have been and will continue in the future to be susceptible to damage, disruptions and shutdowns due to programming errors, defects or other vulnerabilities, power outages, hardware failures, misconfigurations, computer viruses, cyber-attacks, encryption caused by ransomware or malware attacks, exfiltration of data, attacks by foreign governments, state-sponsored actors, or criminal groups, theft, misconduct by employees or other insiders, telecommunications failures, misuse, human errors or other catastrophic events. In recent periods, the frequency and sophistication of cyber-attacks have increased and are expected to continue to increase, including as a result of state-sponsored cybersecurity attacks during periods of geopolitical conflict, such as the ongoing conflicts in Ukraine and the Middle East. In addition, the rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks. Accordingly, we may be unable to anticipate these techniquesrisks or to implement adequate measures to recognize, detect or prevent the occurrence of any of the events described above. In addition, our security processes, protocols and standards may not prove to be sufficient, effective or may not be complied with, either intentionally or inadvertently. To date, we have not experienced a material cybersecurity incident. However, cybersecurityCybersecurity incidents have in the past and may in the future expose us, our customers, employees, franchisees, service providers or others, to loss, disclosure or misuse of proprietary information and sensitive or confidential data or result in disruptions to our operations or those of our customers, franchisees, service providers or others. For example, cyber criminals have in the past gained access,access to customer accounts and are expected to continue to try to gain access to customer accounts. The type ofCriminal activity includes fraudulently inserting, diverting and misappropriating items being transported in our network, fraudulently charging shipment fees to customer or franchisee accounts, and fraudulently sending text messages to recipients purporting to be from UPS. The occurrence of any of the events described above could result in material disruptions in our business, the loss of existing or potential customers, damage to our brand and reputation, additional regulatory scrutiny, litigation and other potential material liability. We also may not discover the occurrence of any of the events described above for a significant period of time after the event occurs. Additionally, it may take considerable time for us to investigate and evaluate the full impact of incidents, particularly for sophisticated attacks. These factors may inhibit our ability to provide prompt, full, and reliable information about the incident to our customers, regulators and the public.

We utilize and interact with the IT networks and systems of third parties for many aspects of our business, including related to our customers, franchisees and service providers such as cloud service providers and third-party delivery services.service providers. These third parties have access to information we maintain about our company, operations, customers, employees and vendors, or operating systems that are critical to or can significantly impact our business operations. These third parties are subject to risks described above, and other risks, that could damage, disrupt or close down their networks or systems. SecurityThe security processes, protocols and standards that we implementimplement, and the contractual provisions requiring security measures that we impose on such third parties, may not be sufficient or effective at preventing such events or may not be adhered to. These events have in the past and could in the future result in unauthorized access to, or disruptions or denials of access to, misuse or disclosure of, information or systems that are important to us, including proprietary information, sensitive or confidential data, and other information about our operations, customers, employees and suppliers, including personal information.

We have invested and expect to continue to invest in IT security initiatives, IT risk management and disaster recovery capabilities. The costs and operational consequences of implementing, maintaining and enhancing further data or system protection measures could increase significantly to overcomemitigate increasingly frequent, complex and sophisticated cyber threats and regulatory requirements.

In addition, our customers’ confidence in our ability to protect data and systems and to provide services consistent with their expectations could be impacted, further disrupting our operations. While we maintain cyber insurance, we cannot be certain that our coverage will be adequate for any liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

Although toTo date we are unaware of any material data breach or cybersecurity incident, including an information system disruption, although we cannot provide any assurances that sucha material eventsevent andor impactsimpact will not occur in the future. Our efforts to deter, identify, mitigate and/or eliminate future breaches or cybersecurity incidents may require significant additional effort and expense and may not be successful.

In addition, there has recently been heightened regulatory and enforcement focus relating to the collection, use, retention, transfer, and processing of personal data in the U.S. (at both the state and federal level) and internationally,internationally. includingThis includes the EU’s General Data Protection Regulation, the California Privacy Rights Act, the Virginia Consumer Data Protection Act, and other similar laws that have been or are expected to be enacted by other jurisdictions. In addition, China and certain other jurisdictions have enacted more stringent data localization requirements. An actual or alleged failure to comply with applicable data protection laws, regulations, or other data protection standards has in the past and may in the future expose us to litigation, fines, sanctions, or other penalties, which could harm our reputation and materially adversely affect our business, results of operations, and financial condition.us. The regulatory environment is increasingly challenging, based on discretionary factors, and difficult to predict. Consequently, compliance with applicable regulations in the various jurisdictions in which we do business may present material obligations and risks to our business, including significantly expanded compliance burdens, costs, and enforcement risks which are expected to increase over time; require us to make extensive system or operational changes; or adversely affect the cost or attractiveness of the services we offer.

Our success depends in part on our reputation and our ability to maintain thea positive image of the UPS brand. Service quality issues, actual or perceived, could tarnish the image of our brand and may cause customers not to use UPSour services. Also, adverse publicity or public sentiment surrounding labor relations, safety matters, environmental, sustainability and governance concerns, physical or cyber security matters, political activities and similar matters, or attempts to connect our company to such issues, either in the U.S. or elsewhere, could materially adversely affect us. For example, damage to our reputation or loss of brand equity could require the allocation of resources to rebuild our reputation and restore the value of our brand. The proliferation of social media may increase the likelihood, speed, and magnitude of negative brand events.

GlobalThe effects of global climate change could materially adversely affect us.

The effects of climate change have presented and will continue to present financial and operational risks to our business, both directly and indirectly. We have publiclydisclosed stated ouran intention to reduce our carbon emissions, including our goal to achieve carbon neutrality in our global operations by 2050 and our other short- and mid-term environmental sustainability goals.

Our ability to meet our goals will depend in part on significant technological advancements, many of which are outside ofbeyond our control. This includes the development and availability of reliable, affordable and low emission energy solutions, including sustainable aviation fuel and alternative fuel and battery electric vehicles. There can be no assurances that our goals and strategic plans to achieve those goals will be successful, that the related costs will not be higher than expected, that the necessary technological advancements will occur in the timeframe we expect, or at all, that the severity of and or the pace of negative climate-related effects will not accelerate faster than expected, or that proposed regulation or deregulation related to climate change will not have a negative competitive impact, any one of which could have a material adverse effect on our capital expenditures or other expenses, revenue or results of operations.us.

Furthermore, methodologies for reporting climate-related information may change and previously reported information may need to be adjusted to reflect new reporting protocols or regulations. Other changesThese could include improvementschanges in the availability and quality of third-party data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances. Our processes and controls for reporting climate-related information across our operations are evolving along with multiple disparate standards for identifying, measuring and reporting sustainability metrics, including disclosures that may be required by theU.S. SEC,federal Europeanor andstate, otheror international, regulators. Such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or our ability to achieve such goals in the future.goals. Changes in regulation or technology impacting our business could require us to write down the carrying value of assets, which could result in material impairment charges.

Moreover, we may determine that it is in our best interests to prioritize other business, social, governance or sustainable investments over the achievement of our current goals based on economic, regulatory or social factors,regulatory, business strategy or other factors. If we do not meet theseour goals or there is perception that we failed to meet these goals, then, in addition to regulatory and legal risks related to compliance, we could incur adverse publicity and reaction, which could adversely impact our reputation, and in turnmaterially adversely impact our results of operations.us.

The increased severity or frequency of certain weather conditions (including as a result of climate change) or other natural or man-made disasters, including storms, floods, fires, wind gusts, earthquakes, rising temperatures, epidemics, pandemics, conflicts, civil or political unrest, safety failures or terrorist attacks, have in the past and may in the future disrupt our business. Customers may reduce shipments, supply chains may be disrupted, demand may be negatively impacted, property may be damaged, employees may be injured, or our costs to operate our business may increase, any of which could have a material adverse effect on us. Any such event affecting one of our major facilities could result in a significant interruption in or disruption of our business. To the extent that weather conditions or other disasters become more frequent or severe, disruptions to our business and those of our customers and costs to repair damaged facilities or maintain or resume operations could increase. Furthermore, as a result of the impact of climate change on the frequency or severity of weather conditions and other disasters, insurance providers may reduce the availability or increase the cost of insurance.

We have significant international operations and, as a result, we are exposed to changing economic, political and social developments in aseveral number of countries, all ofcountries which are beyond our control. Emerging markets are often more volatile than those in otherdeveloped countries, and any broad-based downturn in these markets could reduce our revenues and materially adversely affect our business, financial condition and results of operations.us. We are subject to many laws governing our international operations, including those that prohibit improper payments to government officials and commercial customers, govern our environmental impact or labor matters, restrict where we can do business, regulate our shipmentsservices to certain countries and limit information that we can provide to non-U.S. governments. Our failure to manage and anticipate these and other risks associated with our international operations could materially adversely affect us.

Our inabilityInability to effectively integrate any acquired businesses and realize the anticipated benefits of any acquisitions, joint ventures or strategic alliances could materially adversely affect us.

FromAs part of our strategy, from time to time we acquire businesses, form joint ventures and enter into strategic alliances. Whether we realize the anticipated benefits from these transactions depends, in part, upon successful integration between the businesses involved, the performance of the underlying operations, capabilities or technologies and the management of the acquired operations. Accordingly, our financial results could be materially adversely affected by our delay or failure to effectively integrate acquired operations, unanticipated performance or other issues or transaction-relatedtransaction or other integration-related charges.

Fuel and energy costs have a significant impact on our operations. We require significant quantities of fuel for our aircraft and delivery vehicles and are exposed to the risks associated with variations in the market price for petroleum products, including gasoline, diesel and jet fuel. We seek to mitigate our exposure to changing fuel prices through our pricing strategystrategies and have in the past and may in the future utilize hedging transactions. There can be no assurance that thisthese strategystrategies will be effective. If we are unable to maintain or increase our fuel surcharges, higher fuel costs could materially adversely impact our operating results. Even if we are able tocan offset changes in fuel costs with surcharges, high fuel surcharges have in the past, and may in the futurefuture, result in acustomers shiftshifting from our higher-yielding products to lower-yielding products or an overall reduction in volume, revenue and profitability. Moreover, we could experience a disruption in energy supplies as a result of new or increased regulation,regulations, war or other conflicts, weather-related events or natural disasters, actions by producers (including as part of their own sustainability efforts) or other factors beyond our control, which could have a material adverse effect on us.

We conduct business in a number ofmany countries, with a significant portion of our revenue derived from operations outside the United States. Our international operations are affected by changes in the exchange rates for local currencies, in particularparticularly the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar.

We are exposedaffected toby changes in interest rates, primarily on our short-term debt and that portion of our long-term debt that carries floating interest rates. Additionally, changes in interest rates impact the valuation of our pension and postretirement benefit obligations and the related costs recognized in the statements of consolidated income. The impact of changes in interest rates on our pension and postretirement benefit obligations and costs, and on our debt, is discussed further in Part I, "Item 7 - Critical Accounting Estimates," and Part II, "Item 7A - Quantitative and Qualitative Disclosures about Market Risk", respectively, of this report.

Our business requires significant capital investments, including in aircraft, vehicles, technology, facilities and sortation and other equipment. In addition to forecasting our capital investment requirements, we adjust other elements of our operations and cost structure in response to strategic initiatives, and economic and regulatory conditions. These investments support both our existing business and anticipatedour growth.strategic initiatives. Forecasting amounts, types and timing of investments involves many factors which are subject to uncertainty and may be beyond our control, such as technological changes, general economic trends, revenues, profitability, changes in governmental regulation and competition. If we do not accurately forecast our future capital investment needs, we could under- or over-invest, or have excess capacity or insufficient capacity, any of which could negativelymaterially adversely affect our revenues and profitability.us.

Our employee health, retiree health and pension benefit expenses are significant. In recent years, we have experienced increases in some of these costs, inincluding particular, increases inincreased healthcare costs in excess ofexceeding the rate of inflation and discount rates that we use to value our company-sponsored defined benefit plan obligations. Increasing healthcare costs, volatility in investment returns and discount rates, as well as changes in laws, regulations and assumptions used to calculate retiree health and pension benefit expenses, may materially adversely affect our business, financial condition, or results of operations, and have required, and may in the future requirerequire, significant contributions to our benefit plans. Our national master agreement with the Teamsters includes provisions that are designed to mitigate certain healthcare expenses, but there can be no assurance that our efforts will be successful or that these effortsexpense increases will not materially adversely affect us.

We participate in various trustee-managed multiemployer pension and health and welfare plans for employees covered under collective bargaining agreements. As part of the overall collective bargaining process for wage and benefit levels,process, we have agreed to contribute certain amounts to the multiemployer benefit plans during the contract period. The multiemployer benefit plans set benefit levels and are responsible for benefit delivery to participants. Future contribution amounts to multiemployer benefit plans will be determined through collective bargaining. However, inIn future collective bargaining negotiations,negotiations we could agree to make significantly higher future contributions to one or more of these plans. At this time, we are unable to determine the amount of additional future contributions, if any, or whether any material adverse effect on us could result from our participation in these plans.

We have a combination of both self-insurance and high-deductible insurance programs for the risks arising out of our business and operations, including claims exposure resulting from cargo loss, cyber-attacks, personal injury, property damage, aircraft and related liabilities, business interruption and workers' compensation. Self-insured workers' compensation, automobile and general liabilities are determined using actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims, on an undiscounted basis. Our accruals for insurance reserves reflect certain actuarial assumptions and management judgments, which are subject to a high degree of variability. If the number, severity or cost of claims for which we retain risk continues to increase,increases, our financial condition and results of operations could be materially adversely affected. If we lose our ability to, or decide not to, self-insure these risks, our insurance costcosts could materially increase and weit maycould find itbe difficult to obtain adequate levels of insurance coverage.

We regularly assess the carrying values of our assets relative to their estimated fair values. If the carrying value of an asset exceeds its estimated fair value, we may be required to incur charges to reduce theits carrying valuevalue. thereof. The determination of fairFair value isdeterminations are dependent on a significant number of estimates and assumptions that could be impacted by a variety of factors, including changes in business strategy, revenue,revenues, expenses, acquisition integration activities, government regulations, including regulation related to climate change, costs of capital and economic or market conditions. The use of different estimates or assumptions could also result in different estimates of fair value.value estimates. Our estimates of fair value estimates have resulted from time to time, and may in the future result, in substantial impairments of our assets. For example, during the year ended December 31, 2023, as a result of a number of factors including changes in business strategy and challenging macroeconomic conditions such as increases in the risk-free interest rate and volatility of the stock prices of market comparables, we incurred impairment charges of $125 and $111 million in respect of goodwill and indefinite-lived intangible assets, respectively. While we did not identifyincur any impairmentimpairments of goodwill during 2025 or 2024, certain of our reporting units experienced a decrease in the excess of their estimated fair values over their respective carrying values.values Additionalduring decreaseseach could result in goodwill or other impairment charges, which could be material.year. We have been and may be required in the future to recognize additional impairments of long-lived assets, including definite-lived intangible assets, property, plant and equipment and leases.leases, which could be material. For example, as previously disclosed, we have recorded $182 million in asset impairment charges during the fourth quarter of 2025. Furthermore, we have been and may be required in the future to recognize increasedaccelerated depreciation and amortization charges if we determine the useful lives or salvage values of our assets are less than we originally estimated. Changes in our business plans, including anticipatednetwork changes tothat our networkbegan in 2025, have previouslyled to and may in the future lead to revisions in our estimates of useful lives or salvage values of our assets. Such charges have in the past, and may in the future, reduce our net income, potentially materially.

We are subject to income taxes in the U.S. and many foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. There are many transactions and calculations where theour ultimate tax determinationliability is uncertain.

We are subject to complex and stringent aviation, transportation, environmental, security, labor, employment, safety, privacy, disclosure and data protection and other governmental laws, regulations and policies, both in the U.S. and internationally. In addition, we are and expect to continue to be impacted by laws, regulations and policies that affect global trade, including tariff and trade policies, export requirements, embargoes, sanctions, taxes, monetary policies and other restrictions and charges. Trade discussions and arrangements between the U.S. and various of its trading partners are fluid,unpredictable, and existing and future trade agreements are, and are expected to continue to be, subject to a number of uncertainties, including the imposition of new tariffs or adjustments and changes to the products covered by existing tariffs.tariff policies. The impact of new laws, regulations and policies or decisions or interpretations by authorities applying those laws and regulations, cannot be predicted. Compliance with any new laws, regulations or policies may increase our operating costs or require significant capital expenditures. Any failure to comply with applicable laws, regulations or policies in the U.S. or other countries could result in substantial fines or possible revocation of our authority to conduct our operations, which could materially adversely affect us. For example, as previously disclosed, the SEC recently investigated our controls and practices surrounding impairment analyses in connection with the divestiture of UPS Freight in April 2021. On November 22, 2024, we entered into a settlement with the SEC, without admitting or denying the SEC’s findings in connection with alleged violations of Section 17(a)(2) and (3) of the Securities Act of 1933 (and related provisions), resolving the investigation. Under the terms of the settlement, we agreed to pay a civil penalty, and agreed to remedial actions, training and process changes.

Increasingly stringent regulationsRegulations related to climate change, including reporting obligations, could materially increase our operating costs.

Regulation and required disclosures of greenhouse gas ("GHG") emissions and related matters exposes us to potentially significant new taxes, fees, disclosure and compliance obligations and other costs. Compliance with such regulation,regulations, and any increased or additional regulation,regulations, or the associated costs is further complicated by the fact that various countries and regions may adopt different approaches to climate change regulation and disclosures.

International regulations also continue to increase and could materially increase our operating and other costs. For example, the ReFuelEU Aviation initiative, a European regulation, mandates jet fuel suppliers in Europe supply a target percentage of sustainable aviation fuel (“"SAF”") at airports inside the European Union. The SAF target percentage startsstarted at 2% in 2025 and increases to 70% by 2050. The cost of SAF can be higher than conventional jet fuel, and theseSAF suppliers can pass this cost along to purchasers, which can increase our operating costs, potentially significantly. This initiative has also mandated increased reporting requirements. Also beginning in 2025, we have been required to monitor and report the non-carbon dioxide aviation effects for certain routes in the European Union. These requirements are expected to increase in the future, and may expand beyond reporting, either of which would increase our compliance costs. In addition, the Carbon Offsetting and Reduction Scheme for International Aviation ("CORSIA"), a global, market-based emissions offset program to encourage carbon-neutral growth began a voluntary pilot phase in 2021, with mandatory participation scheduled to begin in 2027. Details regarding implementation of CORSIA continue to develop, and compliance may increase our operating costs, potentially significantly.

In addition, in January 2025, the President of2026, the U.S. signed an executive order indicating that the U.S. would withdrawwithdrew from the Paris Climate Accords. The effect that the withdrawal may have on future U.S. policy regarding GHG emissions, on CORSIA and on other GHG regulation remains uncertain. The extent to which other countries implement those accords could also have a material adverse effect on us.

Increased regulation relating to GHG emissions in the U.S. or abroad, especially aircraft, gasoline or diesel engine emissions, could, among other things, increase the cost of fuel and other energy we purchase and the capital costs associated with updating or replacing our aircraft or vehicles prematurely. We cannot predict the impact any future regulation will have on our cost structure or our operating results. It is likely that such regulation could significantly increase our operating costs and that we may not be willing or able to passoffset such costs along to our customers.costs. Moreover, even without such regulation, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies in the airline and transportation industriescompanies could harm our reputation and reduce customer demand for our services, especially our air services.

Furthermore, many countries,countries as well asand U.S. states, in which we operate or are subject to regulationstates have adopted, or are expected to adopt, additional requirements relating to the disclosure of GHG emissions disclosures and related matters. In many cases theseThese requirements may differ and mayor conflict from countryjurisdiction to country.jurisdiction. Compliance with these disclosure requirements may increase our operating costs or require significant management time and attention. Any failure to comply with applicable disclosure regulations in the U.S. (at either the federal or state level) or other countries could result in substantial fines or other penalties, which could materially adversely affect us.

We may be subject to various other claims and lawsuits that could result in significant expenditures which may materially adversely affect us.

WeIn are2025, executingwe continued to execute our Customer First, People Led and Innovation Driven strategystrategy, towhich growfocuses on growing in the most attractive parts of the market that value our end-to-end solutions, including healthcare, small andsmall-and medium-sized businesses (“"SMBs”") and International.

During 2024,2025, we alsoreturned returned$6.4 billion in cash to shareholders inby thecompleting form$1.0 of dividends of $6.52 per share, for a total of $5.4 billion, and $500 millionbillion of share repurchases.repurchases Forand thepaying year,$5.4 capitalbillion expendituresin were $3.9 billion.dividends.

Highlights of our consolidated results for the years ended December 31, 2024 and 2023, which are discussed in more detail in the sections that follow,below, include (dollars in millions, except per share and per piece amounts):

•Average daily package volume in our global small package operations increased for the year primarilydecreased in our2025, U.S. Domestic Package segmentprimarily due to growth in our SurePost product, with those increases partially offset by the impactexecution of planned volume reductionsdeclines from our largest customer underand therevenue termsquality ofactions ourwe contracttook with them. Within our International package segment, challenging macroeconomic conditions ledrelated to acertain slighte-commerce volume decline.customers.

•NetWe reported net income wasof $5.8$5.6 billion and diluted earnings per share wereof $6.75$6.56, forwhich included $0.30 per diluted share attributable to the year.gain from sale-leaseback transactions involving real estate properties within SCS. Non-GAAP adjusted diluted earnings per share in 2025 were $7.72 for the year$7.16 after adjusting for the after-tax impacts of:

◦totalTransformation transformationStrategy strategy costsCosts of $245$452 million, or $0.29$0.53 per diluted share;

◦an expense to withdraw from a multiemployerNet pensionLoss planon Divestiture of $14$15 million, or $0.02 per diluted share; and ◦definedthe benefit pension and postretirement medical benefit plan mark-to-market loss outsideReversal of aan 10%Income corridorTax Valuation Allowance of $506($109) million, or $0.59($0.13) per diluted share.

For additional operational results for the quarter and year-to-date periods specific to our segments: U.S. Domestic Package, International Package and Supply Chain SolutionsSCS refer to the respective segment discussions below.

We supplement the reporting of our financial information determined under generally accepted accounting principles ("GAAP") with certain non-GAAP adjusted financial measures. Non-GAAP adjusted financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our non-GAAP 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.

The income tax impactseffects of theseadjustments itemsto income before income taxes are calculated by multiplying the statutory tax rates applicable in each tax jurisdiction, including the U.S. federal jurisdiction and various U.S. state and non-U.S. jurisdictions, by the tax-deductible adjustments. The blended average effective income tax rates for the2025 years ended December 31,and 2024 and 2023 were 24.1%23.4% and 22.5%,24.1%, respectively.

Our transformation strategy has includedincludes the following programs and initiatives:

Fit to Serve: In 2023, a number of factors, including macroeconomic headwinds and volume diversion resulting from our labor negotiations with the International Brotherhood of Teamsters, contributed to volume declines in our U.S. Domestic Package business. In addition, our International Package and Supply Chain SolutionsSCS businesses were also negatively impacted by a number of challenging macroeconomic conditions during 2023. In response to these factors, we began to undertakeundertook our Fit to Serve initiative with the intent to right-size our business to create a more efficient operating model that was more responsive to market dynamics through a workforce reduction of approximately 14,000 positions, primarily within management, throughout 2024. We have incurred total costs of $416 million undermanagement. Fit to Serve,Serve whichwas primarilycompleted consistin of2025, benefitand total related costs relatedwere to reductions in our workforce. We expect to complete this initiative during 2025 with expected remaining costs of approximately $45$463 million. We achieved savings of approximately $1.0 billion in 2024 through reductionsthis in our compensation and benefit expense.program.

Net Loss (Gain) on Divestiture of Coyote

WeDuring continuethe tosecond executequarter of 2026, we took several steps in furtherance of our Customer First, People Led and Innovation Driven strategy to grow in the most attractive parts of the market including healthcare, small and medium-sized businesses ("SMBs") and international. DuringThis included completing the firstplanned quarterreduction of 2026, we took several steps in furtherance of this strategy, including continued targeted volume reduction from our largest customer, theas deliberatepreviously shiftannounced, in ourwhich businesswe toreduced increasetheir volume by more than 50% from 2024 levels. We also continued our focus on higherrevenue yielding volumequality and made progress on previously announced initiatives related to workforce optimizationoptimization, network capacity actions and the outsourcing of last-mile delivery of a portion of our Ground Saver product to the United States Postal Service ("USPS"), as well as related network capacity actions. As previously disclosed, by June 2026 we expect to complete our targeted volume reduction from our largest customer by more than 50% from 2024 levels..

We also continued to progress onadvanced our Network of the Future initiative, which is intended to enhance the efficiency of our U.S. Domestic Package network through automation and operational sort consolidation. Our related Network Reconfiguration initiative expanded our Network of the Future initiative, and has led, and couldwill continue to lead, to further consolidations in facilities, vehicles, aircraft and workforce, as well as an end-to-end process redesign. We launched our Efficiency Reimagined initiatives to undertake the end-to-end process redesign effort which will align our organizational processes to the network reconfiguration. As a part of these initiatives, in the first half of 2026, we closed 45 leased and owned buildings, 44 of which have been permanently closed, and recorded approximately $1.1 billion in separation costs related to our previously announced voluntary separation program, the Driver Choice Program. See Supplemental Information - Items Affecting Comparability for additional discussion of this initiative.

In addition,the first half of 2026, we continuedalso advanced a number of initiatives supportingthat drove growth in healthcare and international markets.markets, We advancedincluding the integration of Andlauer Healthcare Group ("AHG"), towhich further strengthenexpanded our healthcare logistics capabilities.network and capabilities, and investments in temperature-controlled cross-dock facilities. Internationally, we investedexpanded our hub in network enhancements, including expansion at our Incheon, South Korea hub, in Taiwan weKorea, opened our largest and most advanceda logistics center in the regionTaiwan and in Europe we executedimplemented initiatives to improve ground speed,transit alltimes ofin which are intended to support premium volume growth and revenue quality.Europe.

Our financial results for the three and six months ended MarchJune 31,30, 2026 reflected the impact of a complex macromacroeconomic environment, including volatileevolving globaltrade markets,policies, higher fuel and network costs arising from the conflict in the Middle East,East conflict, as well as the impact of our strategic actions.actions Wedescribed also experienced certain cost pressures that we expect to abate in the second quarter of 2026. Our focus on revenue quality has delivered several consecutive quarters of product and customer mix improvements.above.

In February 2026, the U.S. Supreme Court issued a ruling invalidating certain tariffs previously imposed under the International Emergency Economic Powers Act.Act As("IEEPA"). UPS has filed and received U.S. Customs and Border Protection ("CBP") approval for approximately $500 million of MarchIEEPA 31,tariffs 2026, no amounts related to potential tariff refunds or amounts refundable to customerspaid for tariffsentries previouslyeligible paidfor have been recognized. We will continue to monitor and evaluate the financial statement impact of related developments.refund. For additional information on tariffs, see note 10 to the unaudited, consolidated financial statements included in this report.

We exclude the impact of charges related to activitiesinitiatives within our transformation strategy. Our transformation strategy activitiesinitiatives have spanned several years and are designed to fundamentally change the spans and layers of our organization structure, processes, technologies and the composition of our business portfolio. Our transformation strategy has included initiatives within our Transformation 2.0, Fit to Serve, and Network Reconfiguration and Efficiency Reimagined programs.

Various circumstances precipitated these initiatives, including identification and prioritization of certain investments, developments and changes in competitive landscapes, inflationary pressures, consumer behaviors,behaviors and other factors including post-COVID normalization and volume diversions attributed to our 2023 labor negotiations.

Our transformation strategy includeshas included the following programs and initiatives:

Network Reconfiguration and Efficiency Reimagined: Our Network of the Future initiative is intended to enhance the efficiency of our network through automation and operational sort consolidation in our U.S. Domestic Package network. In connection with our strategic execution of planned volume declines from our largest customer, we began our Network Reconfiguration initiative, which is an expansion of Network of the Future and has led, and couldwill continue to lead to further reductions in our facilities, vehicles, aircraft and workforce, as well as an end-to-end process redesign. We launched our Efficiency Reimagined initiatives to undertake the end-to-end process redesign effort which will align our organizational processes to the network reconfiguration.reconfiguration and enhance our business performance and profitability beyond ordinary ongoing efforts. Through these initiatives we have reduced our operational workforce and closed certain daily operations at leased and owned buildings. We continue to review expected changes in volume in our integrated air and ground network to identify additional workforce reductions and buildings for closure. In the first quarterhalf of 2026, we closed 2345 leased and owned buildings, 2244 of which have been permanently closed as of March 31, 2026. We have identified 27 additional buildings for closure in 2026. We will continue to review expected changes in volume in our integrated air and ground network and may identify additional workforce reductions and buildings for closure.closed. In the first threesix months of 2026, we achieved approximately $600$1.2 millionbillion of program costbenefits savings,from andthese initiatives. We expect to achieve approximately $3 billion in full year-over-yearyear cost2026 savingsbenefits from thisthese initiative in 2026.initiatives.

InAs connectiona withpart of these Network Reconfiguration and Efficiency Reimagined programs,initiatives, we expect non-GAAP adjusted operating expense to exclude between $1.3 and $1.5 billion in cost during the full year 2026, primarily related to employee separation benefitscosts and third-party consulting fees of which $1.2$1.1 billion will beis related to the Driver Choice Program. As of MarchJune 31,30, 2026, we had incurred program costs to date of $599$1.8 million,billion, including $55$1.2 millionbillion in 2026.2026, as a part of these initiatives. These initiatives are expected to conclude by 2027.

We do not consider the related costs to be ordinary because each program involves separate and distinct activities that may span multiple periodsperiods, and such costs are not expected to drive incremental revenue, and because the scope of the programs exceeds that of routine, ongoing efforts to enhance profitability.revenue. These initiatives are in addition toexceed ordinary, ongoing efforts to enhance our business performance.performance and profitability.

In addition, we have incurred and expect to continue to incur other costs and benefits associated with our Network Reconfiguration programsinitiative and anticipated lower volumes, including early asset retirement, lease relatedlease-related costs and gains from the sale of properties. It is our intention to exit or abandon leases, sell property and transfer or dispose of equipment associated with closed facilities. During the firstsix quartermonths ofended June 30, 2026, we recorded $47$60 million in gains on sales of properties.properties related to this initiative. We expect the costs and benefits associated with these actions may increase should we determine to close additional buildings.

We previously recorded non-GAAP adjustments for transactions that resulted in capital loss deferred tax assets not expected to be realized. As a result of property sales during 2025, these capital losses were fully realized within thethat 2025 financial reporting period.year. We supplement our presentation with non-GAAP adjusted financial measures that exclude the impact of the reversals of the valuation allowances against these deferred tax assets as we believe such treatment is consistent with how the valuation allowance was initially established.

We evaluate the efficiency of our operations using various metrics, including non-GAAP adjusted cost per piece. Non-GAAP adjusted cost per piece in any period is calculated as non-GAAP adjusted operating expenses in a period divided by total volume for that period.volume. Because non-GAAP adjusted operating expenses exclude costs or charges that we do not consider a part of underlying business performance when monitoring and evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards, we believe this is the appropriate metric on which to base reviews and evaluations of the efficiency of our operational performance.

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. Our allocation methodologies are refined periodically, or as necessary to reflect changes in our businesses. ThereDuring the six months ended June 30, 2026, there were no significant changes to our allocation methodologies in the first quarter of 2026.methodologies.

As a normal part of managing our air network, we routinely idle aircraft and engines temporarily for maintenance or to adjust network capacity. As of MarchJune 31,30, 2026, we had two aircraft temporarily idled for an average period of approximately sevensix months 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. We expect these aircraft to return to operational service during the third and fourth quarterquarters of 2026. Following the permanent grounding and retirement of our MD‑11MD-11 fleet in the fourth quarter of 2025, we experienced increased third-party lease expense to address capacity constraints. During the firstsix quartermonths ofended June 30, 2026, we took delivery of threefive Boeing 767-300 aircraft, which were accounted for as finance leases, and began to reduce the associated third-party expense.

For each of our reporting units, we continue to monitor the impact of macroeconomic conditions and business performance on our estimates of fair value. During the three months ended March 31, 2026, none of our reporting units had indications that an impairment was more likely than not. As of our July 1, 2025 testing date, approximately $877 million and $738 million of our $4.8 billion consolidated goodwill balance was represented by our Global Freight Forwarding ("GFF") and Healthcare Logistics and Distribution ("HLD") reporting units, respectively, included in SCS. Based on our most recent annual impairment evaluation, both reporting units exhibited a limited excess of fair value above carrying value and reflect a greater risk of an impairment occurring in future periods. An interim quantitative test for goodwill impairment performed in the fourth quarter of 2025 on the GFF reporting unit did not result in an impairment. At June 30, 2026, none of our reporting units had indications that an impairment was more likely than not. For further discussion see note 7 to the audited, consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2025.

The growth in rates and product mix and fuel surcharge shown above includes contributions from our air cargo product, which is measured by dimensional weight rather than on a per piece basis and therefore does not impact the volume and revenue per piece discussions below.

Average daily volume decreased,decreased for both the quarter and year-to-date periods, driven by our continued execution of planned volume declinesreductions from our largest customercustomer, andwhich deliberateconcluded during the quarter, as well as, actions totaken remove certainon lower-yielding e-commerce volume, reflecting our ongoing revenue quality actions and challenging market conditions.volume. These overall declines were partially offset by continued growth from SMBs who leveraged our Digital Access Program ("DAP").

Residential ("business-to-consumer") and commercial ("business-to-business") volume declined. Business-to-consumer volume decreased 10.4%,3.5% duefor the quarter (down 6.9% year to date) as a result of the actionsplanned volume declines discussed above. Business-to-business volume decreased 5.1%,3.2% for the quarter (down 4.1% year to date) primarily driven by the retail sector, partially offset by continued growth in the technology sector.

Within our Airair products, average daily volume decreased 9.0%,2.3% for the quarter (down 5.7% year to date), driven by the continued execution of planned volume declines from our largest customer, partially offset by growth infrom theSMB and healthcare sector.customers.

Ground average daily volume decreased 7.9%,3.5% for the quarter (down 5.7% year to date), driven primarily by the business-to-consumerresidential and commercial volume reductions discussed above.

Revenue per piece increased 6.5%,9.3% for the quarter (up 8.0% year to date), driven by an average 5.9% net increase in base and accessorial rates implemented throughout 2025, higher fuel surcharges and favorable customer and product mix and higher fuel surcharges.mix.

We apply a fuel surcharge on our domestic air and ground services that adjusts weekly and is intendeddesigned to mitigatehelp theoffset impactfluctuations ofin fuel costs resulting from fuel price volatility. 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. During the first quarter of 2026, the conflict in the Middle East resulted in higher fuel costs and higher fuel surcharge rates. Fuel surcharge revenue increased $146approximately $575 million for the quarter (up approximately $721 million year to date) primarily as a result of higher fuel costs and surcharge rates,rates due to the Middle East conflict, partially offset by the impact of lower volume.

Operating expenses increased,increased primarilyfor dueboth tothe quarter and year-to-date periods as a result of second quarter separation costs associated with the Driver Choice Program within compensation and benefits, higher facility and transportation expenses and otherhigher expenses,fuel costs. These increases were partially offset by cost reductions from the execution of our Network Reconfiguration and Efficiency Reimagined initiatives primarily within compensation and benefits.initiatives.

•Facility and transportation related costs increased $341$602 million,million for the quarter (up $1.1 billion year to date), primarily due to higher fees paid to the USPS associated with outsourcing our Ground Saver product, increased expense related to routine repairs and maintenance and higher weather-related costs.product.

•Other expenses increased $180$205 million,million for the quarter (up $202 million year to date), driven primarily by higher fuel costs and third-party lease expense to address capacity constraints resulting from fourth quarter 2025 aircraft retirements, partially offset by gains on sales of properties.properties and aircraft parts.

Our non-GAAP adjusted operating expenses exclude the impact of transformation strategy costs of $50$1.2 billion and $32$66 million in the firstsecond quarters of 2026 and 2025, respectively and $1.2 billion and $98 million in the 2026 and 2025 year-to-date periods, respectively. The transformation strategy costs in the second quarter of 2026 primarily reflect separation costs related to the Driver Choice Program. Transformation strategy costs during both2026 and 2025 periods relatedrelate to our Network Reconfiguration and Efficiency Reimagined programs. Costs in the 2025 period also included costs related to our Transformation 2.0 and Fit to Serve programs. These primarily consisted of compensation and benefits costs, as well as fees paid to outside professional service providers. See Supplemental Information - Items Affecting Comparability for additional discussion of transformation strategy costs excluded from our non-GAAP financial measures.

Cost per piece increased 9.7%16.8% during the firstsecond quarter of 2026 (up 13.3% year to date) primarily driven by separation costs related to the Driver Choice Program, higher fees paid to the USPS and transition costs and excess operational staffing associated with outsourcing our Ground Saver product to the USPS,product, higher third‑party lease expense to address capacity constraints resulting from aircraft retirements, higher weather-relatedfuel costs, contractual wage rate increases and lower average daily volume.volume and stops, partially offset by increased productivity and operational efficiencies from our network reconfiguration efforts. Non-GAAP adjusted cost per piece increased 9.5%.8.0% (up 8.7% year to date).

Average daily volume decreased for both domestic and export products,products for the quarter and year-to-date periods, primarily in Europe, the Middle East and Africa ("EMEA"), reflecting our revenue quality efforts and global trade policy changes in 2025, including de minimis exclusions..

Domestic average daily volume decreased 6.6%7.5% for the quarter (down 7.1% year to date) primarily driven by business-to-consumerdomestic retailstandard volumeproduct declines in EMEA,EMEA reflectingand our revenue quality efforts, partially offset by growth in domestic standard products in Canada from healthcare and professional services customers.efforts.

Export average daily volume decreased 5.5%4.2% for the quarter (down 4.9% year to date) led by declines onin theEMEA intra-regional movements due to our revenue quality efforts, and in U.S. destination lanes resulting from trade policy changes, including de minimis exclusions. Total U.S. importsimport average daily volume decreased led by average daily volume declines from EMEA andglobal China.trade Despitepolicy changes, including de minimis exclusions. The decline was partially offset by higher demand on the overall declines in the U.S. inbound lanes, we experienced growth in Asia to U.S. trade lane, led by China outbound volume, as we lapped the restelimination of the worldde volumesminimis asin tradeMay lanes shifted to these regions.2026.

Domestic revenue per piece increased 15.9%13.1% for the quarter (up 14.4% year to date) primarily driven by fuel surcharges and shifts in customer mix, mainly in EMEA.EMEA and Canada.

Export revenue per piece increased 9.1%18.7% for the quarter (up 14.0% year to date) primarily asdriven aby resultfuel ofsurcharges and favorable shiftcustomer inand product mix in Canada, EMEA and U.S exports.shift.