United Parcel Service (UPS) 10-K risk factor changes: FY2017 vs FY2016

The factors that create cyclical changes to the economy and to our business are beyond our control, [added: may adversely impact our credit rating] and it may be difficult for us to adjust our business model to mitigate the impact of these factors.

These customers can drive the growth in revenue for particular services based on factors such as: new customer product launches; trends in the e-commerce industry, such as the seasonality associated with the fourth quarter holiday season; business mergers and [removed: acquisitions;] [added: acquisitions] and the overall fast growth of a customer's underlying business.

Concern over climate change, including the impact of global warming, has led to significant [removed: federal, state and international] legislative and regulatory [removed: efforts] [added: efforts, particularly internationally but also in the United States,] to limit greenhouse gas (“GHG”) emissions.

[removed: For example,] [added: In the U.S., Congress] in the past several [removed: years, the U.S. Congress] [added: years] has considered various bills that would regulate GHG [removed: emissions.][added: emissions, but these bills so far have not received sufficient Congressional support for enactment.]

[removed: While these bills have not yet received sufficient Congressional support for enactment,] [added: Nevertheless,] some form of federal climate change legislation is possible in the future.

Even in the absence of such legislation, the Environmental Protection [removed: Agency,] [added: Agency (“EPA”),] spurred by judicial interpretation of the Clean Air Act, [removed: may] [added: could determine to] regulate GHG emissions, especially aircraft or diesel engine emissions, and this could impose substantial costs on us.

[removed: These] [added: Potential] costs [added: to us of increased regulation regarding GHG emissions, especially aircraft or diesel engine emissions,] include an increase in the cost of the fuel and other energy we purchase and capital costs associated with updating or replacing our aircraft or vehicles prematurely.

[removed: Until] [added: However, until] the timing, scope and extent of any future regulation becomes known, we cannot predict its effect on our cost structure or our operating results.

Moreover, even without such [removed: legislation or] regulation, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies in the airline and transportation industries could harm our reputation and reduce customer demand for our services, especially our air services.

A significant [removed: privacy] [added: data] breach or IT system disruption could adversely affect our [removed: business] [added: business, financial results, or reputation,] and we may be required to increase our spending on data and system security.

We rely [added: heavily] on information technology networks and systems, including the Internet, to [removed: process, transmit and store electronic information, and to] manage or support a [added: wide] variety of [added: important] business processes and [removed: activities.][added: activities throughout our operations.]

In addition, the provision of service to our customers and the operation of our networks and systems involve the storage and transmission of [added: significant amounts of] proprietary information and sensitive or confidential data, including personal information of customers, employees and others.

Our franchised center locations [added: and businesses we have acquired] also are reliant on the use of information technology systems to manage their business processes and activities.

Our information technology systems (as well as those of our [removed: franchisees), some of which are managed by third-parties,] [added: franchisees and acquired businesses)] may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, [removed: attacks by computer hackers,] [added: cyber-attacks, ransomware attacks, malware attacks,] malicious [added: employees or other] insiders, [removed: telecommunication] [added: telecommunications] failures, [removed: user] [added: human] errors or catastrophic events.

Hackers, [added: foreign governments, cyber-terrorists and cyber-criminals,] acting individually or in coordinated groups, may [removed: also] launch distributed denial of service attacks or other coordinated attacks that may cause service [removed: outages] [added: outages, gain inappropriate] or [added: block legitimate access to systems or information, or result in] other interruptions in our business.

In addition, breaches in security could expose us, our customers and franchisees, or the individuals affected, to a risk of loss or misuse of proprietary information and sensitive or confidential [removed: data.][added: data, including personal information of customers, employees and others.]

Any of these [removed: occurrences] [added: events that impact our information technology networks or systems, or those of acquired businesses, franchisees, customers, service providers or other third-parties,] could result in disruptions in our operations, the loss of existing or potential customers, damage to our brand and reputation, [added: regulatory scrutiny,] and litigation and potential liability for the company.

[removed: In addition, the] [added: The] cost and operational consequences of [removed: implementing] [added: implementing, maintaining and enhancing] further data or system protection measures could [removed: be significant.][added: increase significantly to overcome increasingly intense, complex and sophisticated global cyber threats.]

[removed: In] [added: For example, in] August 2014, a broad-based malware intrusion targeting retailers throughout the U.S. was discovered and subsequently eradicated at approximately 1% of our franchisees’ locations.

While the impact of this cyber-attack, including the costs associated with investigation and remediation activities, was not material to our business and our financial results, [added: there is no assurance that such impacts will not be material in the future, and] our efforts to deter, identify, mitigate and/or eliminate [removed: any] future breaches may [added: require significant additional effort and expense and may] not be successful.

Severe weather conditions and other natural or manmade disasters, including storms, floods, fires or earthquakes, epidemics or pandemics, conflicts or unrest, or terrorist [removed: attacks] [added: attacks,] may result in decreased revenues, as our customers reduce their shipments, or increased costs to operate our business, which could have an adverse effect on our results of operations for a quarter or year.

We have significant international [removed: operations] [added: operations,] and while the geographical diversity of our international operations helps ensure that we are not overly reliant on a single region or country, we are continually exposed to changing economic, political and social developments [added: that are] beyond our control.

In recent years, we have experienced significant increases in some of these costs, largely as a result of economic factors beyond our control, including, in particular, ongoing increases in [removed: health care] [added: healthcare] costs well in excess of the rate of inflation and historically low discount rates that we use to value our benefit plan obligations.

Continually increasing [removed: health care] [added: 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 adversely affect our business, financial position, results of operations or require significant contributions to our benefit plans.

The [removed: new] national master agreement with the IBT includes changes that are designed to mitigate certain of these [removed: health care] [added: healthcare] expenses, but there can be no assurance that our efforts will be successful or that the failure or success of these efforts will not adversely affect our business, financial position, results of operations or liquidity.

The funded status of these multiemployer plans is impacted by various factors, including investment performance, [removed: health care] [added: healthcare] inflation, changes in demographics and changes in participant benefit levels.

Under a collective bargaining agreement with the International Brotherhood of [removed: Teamsters,] [added: Teamsters (“IBT”),] UPS agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) for UPS participants [removed: retiring on or after] [added: whose last employer was UPS and who had not retired as of] January 1, 2008 [added: (“the UPS Transfer Group”)] in the event that benefits are lawfully reduced by the CSPF in the [removed: future.][added: future consistent with the terms of our withdrawal agreement with the CSPF.]

In December 2014, Congress passed the Multiemployer Pension Reform Act (“MPRA”), which for the first time ever allowed multiemployer pension plans to reduce benefit payments to retirees, subject to specific guidelines in the statute and government [removed: oversight.][added: approval.]

The CSPF plan proposed to reduce retirement benefits to the CSPF participants, including [added: the] UPS [removed: participants retiring on or after January 1, 2008.][added: Transfer Group.]

We vigorously challenged the proposed benefit reduction plan because we believed that it did not comply with the law and that [removed: certain actions by] the CSPF [removed: were invalid.][added: failed to comply with its contractual obligation to obtain our consent to reduce benefits to the UPS Transfer Group under the terms of the withdrawal agreement with the CSPF.]

The CSPF has asserted that it will become insolvent in [removed: 2025] [added: 2025,] which could lead to the reduction of retirement benefits.

Although there are numerous factors that could affect the CSPF’s [added: funding] status, if the CSPF were to become insolvent as they have projected, UPS may be required to provide coordinating benefits, thereby increasing the current projected benefit obligation for the UPS/IBT Plan by approximately $4 billion.

The potential obligation to pay coordinating benefits from the UPS/IBT Plan is subject to a number of [added: significant] uncertainties, including actions that may be taken by the CSPF, the federal government or others.

These actions include whether the CSPF will submit a revised pension benefit reduction plan or otherwise seek federal government assistance, the extent to which benefits are paid by the Pension Benefit Guaranty Corporation, [added: our ability to successfully defend our legal positions] as well as the effect of discount [removed: rates] [added: rates, CSPF asset returns] and various other actuarial assumptions.

[removed: Our] [added: Accordingly, our] best [removed: estimate,] [added: estimate] as of the measurement date of December 31, [removed: 2016,] [added: 2017] is that [removed: we do not have any] [added: there is no] liability [added: to be recognized] for additional coordinating benefits of the UPS/IBT Plan.

However, [removed: there are numerous uncertainties that exist regarding] the [removed: ultimate resolution of the CSPF situation and the current] projected benefit obligation could materially increase as [removed: these] [added: the] uncertainties are resolved.

We will continue to assess the impact of these uncertainties on the projected benefit obligation of the UPS/IBT Plan in accordance with [removed: Accounting Standards Codification Topic 715 - Compensation - Retirement Benefits.][added: ASC 715.]

We are subject to increasingly stringent regulations related to climate change, and new regulations could materially increase our operating costs.

State and local governments also are increasingly considering GHG regulation.

The possibility of increased regulation of GHG emissions potentially exposes our transportation and logistics businesses to significant new taxes, fees and other costs.

Compliance with such potential regulation or the associated potential costs is further complicated by the fact that various countries and regions are following different approaches to the regulation of climate change.

We are subject to international regulation of GHG emissions.

For example, in 2009 the European Commission approved the extension to the airline industry of the European Union Emissions Trading Scheme (“ETS”) for GHG emissions.

Under this decision, all of our flights operating within the European Union are covered by the ETS requirements, and we are required annually to purchase emission allowances in an amount exceeding the number of free allowances allocated to us under the ETS.

Similarly, in 2016, the International Civil Aviation Organization (“ICAO”) passed a resolution adopting the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”), which is a global, market-based emissions offset program to encourage carbon-neutral growth beyond 2020.

A pilot phase is scheduled to begin in 2021 in which countries may voluntarily participate, and full mandatory participation is scheduled to begin in 2027.

ICAO continues to develop details regarding implementation, but compliance with CORSIA will increase our operating costs.

In August 2017, the U.S. announced its intention to withdraw from the Paris climate accord, an agreement among 196 countries to reduce GHG emissions, and the effect of that withdrawal on future U.S. policy regarding GHG emissions, on CORSIA and on other GHG regulation is uncertain.

Nevertheless, the extent to which other countries implement that agreement could have an adverse direct or indirect effect on our business.

We may face additional regulations regarding GHG emissions internationally and in the United States.

It is reasonably possible that such regulation could significantly increase our operating expenses if we are unable to pass such costs along to our customers.

For example, we rely on information technology to receive package level information in advance of physical receipt of packages, to track items that move through our delivery systems, to efficiently plan deliveries, to execute billing processes, and to track and report financial and operational data.

To conduct our operations, we regularly move data across national borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and data security.

The scope of the laws that may be applicable to us is often uncertain and may be conflicting, particularly with respect to foreign laws.

For example, the European Union’s General Data Protection Regulation (“GDPR”), which greatly increases the jurisdictional reach of European Union law and adds a broad array of requirements for handling personal data, including the public disclosure of significant data breaches, becomes effective in May 2018.

Other countries have enacted or are enacting data localization laws that require data to stay within their borders.

All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time.

We also depend on and interact with the information technology networks and systems of third-parties for many aspects of our business operations, including our customers and franchisees and service providers such as cloud service providers and third-party delivery services.

These third parties may 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.

Like us, these third-parties are subject to risks imposed by data breaches and cyber-attacks and other events or actions that could damage, disrupt or close down their networks or systems.

Security processes, protocols and standards that we have implemented and contractual provisions requiring security measures that we may have sought to impose on such third-parties may not be sufficient or effective at preventing such events, which could result in unauthorized access to, or disruptions or denials of access to, or misuse of, information or systems that are important to our business, including proprietary information, sensitive or confidential data, and other information about our operations, customers, employees and suppliers, including personal information.

Among other consequences, 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.

Similarly, an actual or alleged failure to comply with applicable U.S. or foreign data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties.

We have invested and continue to invest in technology security initiatives, information technology risk management and disaster recovery plans.

Despite our best efforts, we are not fully insulated from data breaches and system disruptions.

We account for this potential obligation under Accounting Standards Codification Topic 715- Compensation- Retirement Benefits (“ASC 715”).

Under ASC 715 we are required to provide a best estimate of various actuarial assumptions, including the eventual outcome of this matter, in measuring our pension benefit obligation at the December 31st measurement date.

While we currently believe the most likely solution to this matter and the broader systemic problems facing multiemployer pension plans is intervention by the federal government, ASC 715 does not permit anticipation of changes in law in making a best estimate of pension liabilities.

Our best estimate as of the measurement date of December 31, 2017 does not incorporate this solution.

However, if a future change in law resulted in an obligation to provide coordinating benefits under the UPS/IBT Plan, it may be a significant event, and may require us to remeasure the plan assets and projected benefit obligation of the UPS/IBT Plan at the date the law is enacted.

Our best estimate of the next most likely outcome to resolve the CSPF’s solvency concerns is that the CSPF will submit another benefit suspension application under the MPRA to forestall insolvency without reducing benefits to the UPS Transfer Group.

If the CSPF attempts to reduce benefits for the UPS Transfer Group under a MPRA filing, we would be in a strong legal position to prevent that from occurring given that these benefits cannot be reduced without our consent and such a reduction, without first exhausting reductions to other groups in the CSPF, would be contrary to the statute.

We may have additional tax liabilities.

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.

In the course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain.

For example, compliance with the 2017 United States Tax Cut and Jobs Act (the “Tax Act”) may require the collection of information not regularly produced within our company, the use of provisional estimates in our financial statements, and the exercise of significant judgment in accounting for its provisions.

We may be affected by global climate change or by legal, regulatory or market responses to such a potential change.

It is reasonably possible that such legislation or regulation could impose material costs on us.

| | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2016/ 2015] [added: 2017/ 2016] | | | [removed: 2015/ 2014] [added: 2016/ 2015] | |

| Revenue (in millions) | $ | [removed: 60,906] [added: 65,872] | | | $ | [removed: 58,363] [added: 60,906] | | | $ | [removed: 58,232] [added: 58,363] | | | [removed: 4.4] [added: 8.2] | % | | [removed: 0.2] [added: 4.4] | % |

| Operating Expenses (in millions) | [removed: 55,439] [added: 58,343] | | | | [removed: 50,695] [added: 55,439] | | | | [removed: 53,264] [added: 50,695] | | | | [removed: 9.4] [added: 5.2] | % | | [removed: (4.8] [added: 9.4] | [removed: )%] [added: %] |

| Operating Profit (in millions) | $ | [removed: 5,467] [added: 7,529] | | | $ | [removed: 7,668] [added: 5,467] | | | $ | [removed: 4,968] [added: 7,668] | | | [removed: (28.7] [added: 37.7] | [removed: )%] [added: %] | | [removed: 54.3] [added: (28.7] | [removed: %] [added: )%] |

| Operating Margin | [removed: 9.0] [added: 11.4] | | % | | [removed: 13.1] [added: 9.0] | | % | | [removed: 8.5] [added: 13.1] | | % | | | | | | |

| Average Daily Package Volume (in thousands) | [removed: 19,090] [added: 20,030] | | | | [removed: 18,324] [added: 19,090] | | | | [removed: 18,016] [added: 18,324] | | | | [removed: 4.2] [added: 4.9] | % | | [removed: 1.7] [added: 4.2] | % |

| Average Revenue Per Piece | $ | [removed: 10.30] [added: 10.53] | | | $ | [removed: 10.37] [added: 10.30] | | | $ | [removed: 10.58] [added: 10.37] | | | [removed: (0.7] [added: 2.2] | [removed: )%] [added: %] | | [removed: (2.0] [added: (0.7] | )% |

| Net Income (in millions) | $ | [removed: 3,431] [added: 4,910] | | | $ | [removed: 4,844] [added: 3,431] | | | $ | [removed: 3,032] [added: 4,844] | | | [removed: (29.2] [added: 43.1] | [removed: )%] [added: %] | | [removed: 59.8] [added: (29.2] | [removed: %] [added: )%] |

| Basic Earnings Per Share | $ | [removed: 3.89] [added: 5.64] | | | $ | [removed: 5.38] [added: 3.89] | | | $ | [removed: 3.31] [added: 5.38] | | | [removed: (27.7] [added: 45.0] | [removed: )%] [added: %] | | [removed: 62.5] [added: (27.7] | [removed: %] [added: )%] |

| Diluted Earnings Per Share | $ | [removed: 3.87] [added: 5.61] | | | $ | [removed: 5.35] [added: 3.87] | | | $ | [removed: 3.28] [added: 5.35] | | | [removed: (27.7] [added: 45.0] | [removed: )%] [added: %] | | [removed: 63.1] [added: (27.7] | [removed: %] [added: )%] |

We believe these adjusted financial measures are important indicators of our recurring results of operations because they exclude items that may not be indicative of, or are unrelated to, our underlying [added: results of] operations [removed: results,] and provide a useful baseline for analyzing trends in our underlying businesses.

| Non-GAAP Adjustments | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Defined Benefit Plans Mark-to-Market Charges | $ | [removed: 2,651] [added: 800] | | | $ | [removed: 118] [added: 2,651] | | | $ | [removed: 1,062] [added: 118] | |

| Total Adjustments to Operating Expenses | [removed: 2,651] [added: 800] | | | | [removed: 118] [added: 2,651] | | | | [removed: 2,164] [added: 118] | | |

| Income Tax [removed: Expense (Benefit)] [added: Benefit] from the [removed: Items Above] [added: Mark-to-Market Charges] | [removed: (978] [added: (193] | | ) | | [removed: (39] [added: (978] | | ) | | [removed: (807] [added: (39] | | ) |

| Total Adjustments to Net Income | $ | [removed: 1,673] [added: 349] | | | $ | [removed: 79] [added: 1,673] | | | $ | [removed: 1,357] [added: 79] | |

The income tax effects of [removed: these adjustments] [added: the mark-to-market charges] 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 adjustments.

The blended average of the applicable statutory tax rates in [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] were [added: 24.1%,] 36.9% [removed: , 33.1%] and [removed: 37.2%] [added: 33.1%,] respectively.

The adjustments made to exclude these mark-to-market adjustments utilize the expected return on plan assets [removed: ($2.580 billion, $2.567 billion] [added: ($2.956, $2.580] and [removed: $2.343] [added: $2.567] billion for [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014,] [added: 2015,] respectively) and the discount rates used for determining net periodic benefit cost.

The non-adjusted net periodic benefit cost reflects the actual return on plan assets [removed: ($1.846] [added: ($4.811] billion, [added: $1.846 billion and] $110 million [removed: and $2.600 billion] for [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014,] [added: 2015,] respectively) and the discount rates used for measuring the projected benefit obligation as summarized in the table below.

In [removed: 2014,] [added: 2017,] we recognized pre-tax mark-to-market losses in compensation and benefits expense of [removed: $1.062 billion] [added: $800 million] on our pension and postretirement defined benefit plans related to the remeasurement of plan assets and liabilities recognized outside of a 10% corridor.

These charges impacted our U.S. Domestic Package segment [removed: ($660] [added: ($637] million), International Package segment [removed: ($200] [added: ($35] million) and Supply Chain & Freight segment [removed: ($202] [added: ($128] million).

The table below indicates the amounts associated with each component of the pre-tax mark-to-market [removed: loss,] [added: losses,] as well as the weighted-average actuarial assumptions used to determine our net periodic benefit costs, for each year:

| Components of mark-to-market gain (loss) (in millions): | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Discount rates | | $ | [removed: (1,953] [added: (2,288] | ) | | $ | [removed: 1,624] [added: (1,953] | [added: )] | | $ | [removed: (954] [added: 1,624] | [removed: )] |

| Return on assets | | [removed: (732] [added: 1,525] | | [removed: )] | | [removed: (1,550] [added: (732] | | ) | | [removed: 42] [added: (1,550] | | [added: )] |

| Demographic and assumption changes | | [removed: 34] [added: (37] | | [added: )] | | [removed: (133] [added: 34] | | [removed: )] | | [removed: (150] [added: (133] | | ) |

| Reclassification of prior year unrecognized benefit cost | | — | | | | [removed: (59] [added: —] | | [removed: )] | | [removed: —] [added: (59] | | [added: )] |

| Total mark-to-market gain (loss) | | $ | [removed: (2,651] [added: (800] | ) | | $ | [removed: (118] [added: (2,651] | ) | | $ | [removed: (1,062] [added: (118] | ) |

| Weighted-average actuarial assumptions used to determine net periodic benefit cost: | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Expected rate of return on plan assets | | 8.65 | | % | | [removed: 8.66] [added: 8.65] | | % | | 8.66 | | % |

| Actual rate of return on plan assets | | [removed: 6.06] [added: 14.25] | | % | | [removed: 0.37] [added: 6.06] | | % | | [removed: 9.45] [added: 0.37] | | % |

| Discount rate used for net periodic benefit cost | | [removed: 4.81] [added: 4.34] | | % | | [removed: 4.36] [added: 4.81] | | % | | [removed: 5.24] [added: 4.36] | | % |

| Discount rate at measurement date | | [removed: 4.34] [added: 3.81] | | % | | [removed: 4.81] [added: 4.34] | | % | | [removed: 4.36] [added: 4.81] | | % |

The [removed: $2.651, $0.118 and $1.062] [added: $800 million, $2.651] billion [added: and $118 million] pre-tax mark-to-market losses for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014,] [added: 2015,] respectively, were comprised of the following components:

2016 [removed: -] [added: \-] $2.651 billion pre-tax mark-to-market loss:

| • | Demographic and Assumption Changes ($34 million pre-tax gain): This represents the difference between actual and estimated participant data and demographic factors, including items such as [removed: health care] [added: healthcare] cost trends, compensation rate increases and rates of termination, retirement and mortality. |

2015 [removed: -] [added: \-] $118 million pre-tax mark-to-market loss:

| • | Demographic and Assumption Changes ($133 million pre-tax loss): This represents the difference between actual and estimated participant data and demographic factors, including items such as [removed: health care] [added: healthcare] cost trends, compensation rate [removed: increases,] [added: increases] and rates of termination, retirement and mortality. |

[removed: 2014 - $1.062 billion] [added: 2017 \- $800 million] pre-tax mark-to-market loss:

We produced solid growth and operating results in 2017 across all operating segments.

In 2017, consolidated revenue increased 8.2% to $65.872 billion, up from $60.906 billion in 2016.

Revenue for 2017 increased in all segments and major product categories, due to shipment growth, yield expansion and benefits recognized from our network investments and portfolio initiatives.

While operating profits were positively impacted by these growth factors discussed above, they were partially offset by impacts from natural disasters, capacity constraints due to volume surges in the fourth quarter of 2017, operating costs associated with facility construction and the deployment of Saturday operations in our U.S. Domestic Package segment.

Operating profit for 2017 was up 37.7% to $7.529 billion, driven by strong performance in all segments and a $1.851 billion reduction in the pension mark-to-market charges.

Average daily package volume increased 4.9% in 2017.

We reported 2017 net income of $4.910 billion and diluted earnings per share of $5.61, compared to 2016 net income of $3.431 billion and diluted earnings per share of $3.87.

Non-GAAP 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 financial information does not represent a comprehensive basis of accounting.

Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies.

We supplement the reporting of our revenue, revenue per piece and operating profit with similar non-GAAP measures that exclude the period-over-period impact of foreign currency exchange rate changes and hedging activities.

We believe currency-neutral revenue, revenue per piece and operating profit information allows users of our financial statements to understand growth trends in our products and results.

We evaluate the performance of our International Package and Supply Chain & Freight businesses on a currency-neutral basis.

Currency-neutral revenue, revenue per piece and operating profit are calculated by dividing current period reported U.S. dollar revenue, revenue per piece and operating profit by the current period average exchange rates to derive current period local currency revenue, revenue per piece and operating profit.

The derived current period local currency revenue, revenue per piece and operating profit are then multiplied by the average foreign exchange rates used to translate the comparable results for each month in the prior year period (including the period over period impact of foreign currency revenue hedging activities).

The difference between the current period reported U.S. dollar revenue, revenue per piece and operating profit and the derived current period U.S. dollar revenue, revenue per piece and operating profit is the period over period impact of currency fluctuations.

| Income Tax Benefit from the Tax Cuts and Jobs Act and Other Non-U.S. Tax Law Changes | (258 | | ) | | — | | | | — | | |

| | | Year Ended December 31, | | | | | | | | | | |

| • | Demographic and Assumption Changes ($37 million pre-tax loss): This represents the difference between actual and estimated participant data and demographic factors, including items such as healthcare cost trends, compensation rate increases and rates of termination, retirement and mortality. |

Income Tax Benefit from the Tax Cuts and Jobs Act

We supplement the presentation of our income tax expense and effective tax rate with "adjusted" measures that exclude the impact of the income tax benefit from the Tax Cuts and Jobs Act (the "Tax Act") described in the "Income Tax Expense" section of Management's Discussion and Analysis and note 13 to the audited consolidated financial statements.

We believe income tax expense and the effective tax rate excluding the tax benefit is useful in evaluating our ongoing operating performance for the current period to that of other periods presented.

The estimates are based on our initial analysis and interpretations of the Tax Act.

Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.

| 2017/ 2016 | 3.8 | % | | 1.7 | % | | 0.9 | % | | 6.4 | % |

2017 compared to 2016

Business-to-business shipments decreased slightly in 2017 compared to 2016 largely due to declines in volume in professional services, as a result of increased digitization, and high tech industries.

Among our air products, volume increased in 2017 for our Next Day Air and Deferred services.

This growth was slightly offset by a decline in Next Day Air letter volume, largely due to declines in the professional services industry as a result of continued growth in digitization.

Business-to-business shipments decreased slightly due to adverse weather conditions in third quarter 2017 however this decrease was partially offset by an increase in our return shipping services.

2017 compared to 2016

On June 19, 2017, we announced a new peak charge applicable during selected weeks in November and December 2017 for U.S. Residential, Large Packages and packages Over Maximum Limits.

The new charge is designed to enable UPS to continue to offset some of the additional expenses incurred during significant volume surges.

Additionally on October 25, 2017, we announced an average 4.9% base rate increase effective December 24, 2017 for UPS Ground and UPS Air services.

In the first quarter of 2017, we began our expanded Saturday ground operations to several metropolitan areas in the U.S. As of December 2017, Saturday service is available in approximately 4,700 cities and towns in the U.S. covering approximately 50% of the population.

A Saturday pickup stop charge went into effect on May 1, 2017 and varies depending on the pickup service selected.

Revenue per piece for our Next Day Air services decreased in 2017 compared with 2016.

The decrease in Next Day Air revenue per piece was primarily driven by a shift in product mix, as our lower yielding products experienced much larger volume growth than our higher yielding products.

This shift was offset slightly by an increase in the average billable weight per piece.

Revenue per piece of our deferred air services increased in 2017 compared with 2016.

The U.S. economic environment was mixed in 2016 as relatively stable consumer conditions were somewhat offset by continued weakness in industrial production and soft business investment.

U.S. manufacturing has shown positive signs of growth in recent months, reaching a two-year high in the fourth quarter of 2016, and we continue to see modest GDP growth.

Consumer confidence reached a high in the fourth quarter of 2016 and there were lower fuel prices coupled with the continuation of steady job growth throughout the year.

Holiday retail sales grew 4% in 2016 as compared to last year, mainly driven by online sales, while the holiday season saw many categories of traditional brick and mortar stores struggle.

Continued growth in e-commerce and omni-channel retail sales has driven package volume demand for residential products.

Given these trends, our products most aligned with business-to-consumer shipments have experienced the strongest growth.

Outside the U.S., emerging markets have stabilized in recent months and most developed nations have seen modest growth.

The impending exit of the United Kingdom from the European Union creates some uncertainty regarding its impact on global GDP.

The uneven nature of economic growth worldwide and fluctuations in currency markets, particularly the strengthening of the U.S. Dollar, have continued shifting trade patterns and weakened demand in certain trade lanes.

As a result of these circumstances, we continued to adjust our air capacity and cost structure in our transportation network to better match the prevailing volume levels.

Our broad portfolio of product offerings and the flexibilities inherent in our transportation network have helped us adapt to these changing trends.

While the worldwide economic environment remained challenging in 2016, we have continued to undertake several initiatives in the U.S. and internationally to (1) improve the flexibility and capacity in our transportation network; (2) improve yield management; and (3) increase operational efficiency and contain costs across all segments.

Most notably, the continued deployment of technology improvements (including several facility automation projects and the accelerated deployment of our On Road Integrated Optimization and Navigation system - "ORION") should continue to increase our network capacity and improve operational efficiency, flexibility and reliability.

Additionally, we have continued to utilize newly expanded operating facilities to improve time-in-transit for shipments in each region.

| Health & Welfare Plan Charges | — | | | | — | | | | 1,102 | | |

| | |

| --- | --- |

| • | Demographic and Assumption Changes ($150 million pre-tax loss): The implementation of new U.S. mortality tables in 2014 resulted in an increased participant life expectancy assumption, which increased the overall projected benefit obligation for our plans. |

Health and Welfare Plan Charges

In connection with the ratification of our national master agreement with the International Brotherhood of Teamsters ("Teamsters") in 2014, we incurred pre-tax charges totaling $1.102 billion associated with changes in the delivery of healthcare benefits to certain active and retired union employees.

These one-time charges are discussed in further detail in the "Collective Bargaining Agreements" section and do not reflect the obligations of our on-going business.

We believe adjusting for these charges provides important supplemental information that is reflective of long-term trends and that may provide useful comparison of year-to-year financial performance without considering the short-term impact of one-time health and welfare plan charges.

These charges impacted our U.S. Domestic Package segment ($990 million), International Package segment ($28 million) and Supply Chain & Freight segment ($84 million).

Rate Adjustments

Effective February 6, 2017, the U.S. fuel surcharge will be adjusted weekly and the U.S. Import fuel surcharge percentage will increase and be assessed independently of the U.S. Air and Export fuel surcharge.

Effective January 8, 2017, the Additional Handling charge will be assessed for any package with the longest side exceeding 48 inches, instead of 60 inches.

Also, transactional requests for refunds under the UPS Service Guarantee will not be paid where timely upload of package-level detail is not provided, as set forth in the UPS Tariff/Terms and Conditions of Service.

UPS Air and International services and accessorials, including UPS Air Freight rates within and between the U.S., Canada and Puerto Rico, increased an average net 4.9%.

UPS Freight's Density-Based rate tariff will increase an average net of 4.9%.

These rate changes are customary and occur on an annual basis.

| Health & Welfare Plan Charges | — | | | | — | | | | (990 | | ) | | | | | | |

| 2015/ 2014 | 2.2 | % | | 2.7 | % | | (2.4 | )% | | 2.5 | % |

2015 compared to 2014

Business-to-business volume grew 1% in 2015, largely due to increased volume from the retail industry including the use of our solutions for omni-channel (including ship-from-store and ship-to-store models) and returns shipping.

We also experienced solid growth in our business-to-business deferred air volume, largely due to increases in the retail sector.

Next Day Air volume increased 3.3% in 2015, due to strong growth in e-commerce.

The continued growth in e-commerce drove demand for our SurePost service, with volume increasing 3% in 2015.

The increase in business-to-business ground volume was largely due to growth in omni-channel retail volume, the increased use of our returns service offerings and the growth in shipments from the retail sector.

We implemented an average 4.9% net increase in base and accessorial rates on UPS Next Day Air, UPS 2nd Day Air, UPS 3 Day Select and UPS Ground.

Additionally, a pricing change involving the application of dimensional weight pricing to all UPS Ground services took effect on December 29, 2014.

As of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] however, we had no commodity contracts outstanding.

Our [removed: floating rate] [added: floating-rate] debt and interest rate swaps subject us to risk resulting from changes in short-term (primarily LIBOR) interest rates.

| (in millions) | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Currency Derivatives(1) | $ | [removed: (437] [added: (447] | ) | | $ | [removed: (435] [added: (437] | ) |

| Variable Rate Debt(2) | $ | [removed: 49] [added: 51] | | | $ | [removed: 44] [added: 49] | |

| Interest Rate Derivatives(2) | $ | [removed: 58] [added: 55] | | | $ | [removed: 66] [added: 58] | |

The sensitivity in the fair value and interest income of our [removed: marketable securities and] finance receivables due to changes in interest rates was not material as of December 31, [removed: 2016] [added: 2017] and [removed: 2015.][added: 2016.]

In order to mitigate the impact of fuel surcharges imposed on us by outside carriers, we regularly adjust the rates we charge for our freight brokerage, inter-modal and truckload services.

| Change in Annual Interest Income: | | | | | | | |

| Marketable Securities(3) | $ | 2 | | | $ | — | |

| (3) | The potential change in interest income resulting from a hypothetical 100 basis point increase in short-term interest rates, applied to our variable rate investment holdings. |

| | |

| --- | --- |

Today, we are the world’s largest package delivery company, a leader in the U.S. less-than-truckload industry and [removed: the] [added: a] premier provider of global supply chain management solutions.

We deliver packages each business day for [removed: 1.6] [added: 1.5] million shipping customers to [removed: 8.7] [added: 9.0] million receivers ("consignees") in over 220 countries and territories.

In [removed: 2016,] [added: 2017,] we delivered an average of [removed: 19.1] [added: 20.0] million pieces per day, or a total of [removed: 4.9] [added: 5.1] billion packages.

Total revenue in [removed: 2016] [added: 2017] was [removed: $60.9] [added: $65.872] billion.

We serve the global market for logistics services, which [removed: include] [added: includes] transportation, distribution, contract logistics, ground freight, ocean freight, air freight, customs brokerage, insurance and financing.

We have three [removed: reportable] segments: U.S. Domestic Package, International Package and Supply Chain & Freight, all of which are described below.

For financial information concerning our [removed: reportable] segments and geographic regions, refer to note 12 of our [added: audited] consolidated financial statements.

[removed: Business] Strategy

Customers leverage our broad portfolio of logistics [removed: capabilities;] [added: capabilities comprised of: our] balanced global presence in North America, Europe, Middle East, Africa, Asia Pacific and Latin America; reliability; industry-leading [removed: technologies;] [added: technologies] and solutions expertise for competitive advantage in markets where they choose to compete.

We [removed: prudently] [added: continue to] invest to expand our integrated global network and service portfolio.

We have a long history of sound financial management and our consolidated balance sheet reflects financial [removed: strength that few companies can match.][added: strength.]

Cash generation is a significant strength of UPS, giving us [removed: strong] [added: ample] capacity to service our obligations and allowing for distributions to shareowners, reinvestment in our business and the pursuit of growth opportunities.

We serve more than 220 countries and territories around the world along with domestic delivery service [removed: within] [added: in over] 50 countries.

We handle all levels of service (air, ground, domestic, international, [removed: commercial,] [added: commercial and] residential) through one global integrated [removed: pick-up] [added: pickup] and delivery network.

[removed: All] [added: We combine all] packages [removed: are commingled] within our network, [removed: except when necessary to meet their] [added: unless dictated by] specific service commitments.

Compared to companies with single service network designs, our integrated network uniquely provides operational and capital efficiencies while being more [removed: environmentally-friendly.][added: environmentally friendly.]

We offer same-day [removed: pick-up] [added: pickup] of air and ground packages upon request.

Customers can schedule [removed: pick-ups] [added: pickups] for one to five days a week, based on their specific needs.

Some of these locations offer a full array of [removed: services] [added: services,] including [removed: pick-up,] [added: pickup,] delivery and packing options, while others are drop-off locations only.

The [added: continued] growth of online [added: and mobile] shopping has increased our customers’ needs for efficient and reliable returns, resulting in our development of a robust selection of returns services that are available in more than 145 countries.

[removed: Options] [added: These options] vary based on customer [removed: needs] [added: need] and [removed: country,] [added: country] and [removed: range from cost-effective] [added: include] solutions such as UPS [removed: Returns, to] [added: Returns®, as well as] more-specialized services such as UPS [removed: Returns] [added: Returns®] Exchange.

Worldport sort [removed: capacity, currently at 416,000 packages per hour,] [added: capacity] has expanded over the years due to volume growth and [removed: a] centralization [removed: effort.][added: efforts.]

Our European air hub is located in Cologne, Germany, and we maintain [removed: Asia-Pacific] [added: Asia Pacific] air hubs in Shanghai, [removed: China and] [added: China;] Shenzhen, China and Hong Kong.

Our regional air hub in Canada is located in Hamilton, [removed: Ontario,] [added: Ontario] and our regional air hub for Latin America and the Caribbean is in Miami, Florida.

[removed: In the U.S., Worldport is supported by our] [added: Our U.S.] regional air hubs in [removed: Columbia, South Carolina;] Dallas, Texas; Ontario, California; Philadelphia, [removed: Pennsylvania;] [added: Pennsylvania] and Rockford, [removed: Illinois.][added: Illinois support Worldport.]

This network design [removed: allows for] [added: creates] cost-effective package processing in our most technology-enabled facilities, which [removed: allow] [added: allows] us to use fewer, larger and more fuel-efficient aircraft.

| • | Customers can select from same day, next day, two day and three day delivery alternatives. [removed: Many of these services offer] [added: UPS’s Air portfolio offers] options [removed: that enable] [added: enabling] customers to specify a time-of-day guarantee for their delivery (e.g., by 8:00 [removed: AM,] [added: A.M.,] 10:30 [removed: AM,] [added: A.M.,] noon, end of day, etc.). |

| • | Customers can also leverage our extensive ground network to ship using our day-definite guaranteed ground service that serves every U.S. business and residential address. We deliver more ground packages [added: in the U.S.] than any other carrier, with average daily package volume of [removed: 13.5 million in the U.S.,] [added: 14.1 million,] most within one to three business days. |

| • | We also offer UPS SurePost, an economy residential ground service for customers with non-urgent, lightweight residential shipments. UPS SurePost is a contractual residential ground service that combines the consistency and reliability of the UPS Ground network with final delivery often provided by the U.S. Postal Service. [added: We utilize our operational technology to identify multiple package delivery opportunities and redirect UPS SurePost packages for final delivery, improving time in transit, customer service and operational efficiency.] |

Our International Package reporting segment includes small package operations in Europe, [removed: Asia-Pacific,] [added: Asia Pacific,] Canada and Latin America, [added: and] the Indian sub-continent, [removed: the] Middle East and [removed: Africa.][added: Africa ("ISMEA").]

| • | For international [added: package] shipments that do not require Express services, UPS Worldwide Expedited offers a reliable, deferred, guaranteed day-definite service option. The service is available from more than 80 origin countries to more than 220 countries and territories. |

To accommodate the strong potential for growth in small package exports, we made a series of enhancements to [added: both] our ground [removed: network] [added: and air networks] that [removed: helps] [added: help] reduce transit time [removed: for cross-border shipments] by one to two days and will result in improved exporting opportunities for customers in Europe.

These expansions and enhancements are part of our commitment to invest nearly $2 billion in our European [removed: infrastructure by 2019.][added: infrastructure.]

[removed: Asia-Pacific] [added: Asia Pacific] remains a strategic market due to growth rates in intra-Asia trade and the expanding Chinese economy.

To capitalize on these opportunities, we are bringing faster time-in-transit to customers focused on intra-Asia [removed: trade,] [added: trade] and reducing transit [removed: days] [added: time] from Asia to the U.S. and Europe.

Through added flight frequencies, we provide our customers the ability to ship next day to more places in the U.S. and [removed: Europe, guaranteed,] [added: Europe - guaranteed -] than any other express carrier.

We serve more than 40 [removed: Asia-Pacific] [added: Asia Pacific] countries and territories through more than two dozen alliances with local delivery companies that supplement company-owned operations.

Supply Chain & Freight [removed: Reporting Segment][added: segment]

The Supply Chain & Freight [removed: reporting] segment consists of our forwarding and logistics services, truckload freight brokerage, [removed: UPS Freight] [added: dedicated contract carriage truckload services, less-than-truckload (“LTL”) services] and our financial offerings through UPS Capital.

We meet this demand by offering a broad array of supply chain services in [removed: over 195] [added: more than 200] countries and territories.

In 2017, we formed and received approval for a joint venture with SF Express, China’s leading small package company, which will ultimately provide millions of potential customers in China with improved access to buyers and sellers around the world.

We acquired Freightex, Ltd. ("Freightex") to extend our platform-based freight transportation capabilities into both the U.K. and European markets.

The acquisition of Eirpost Group Unlimited Company ("Nightline") vaulted UPS to a leading market position in Ireland.

We added shipping centers and healthcare and distribution facilities in Mexico, Colombia and India.

In 2017, we also acquired STTAS Global Holdings, Inc. ("Sandler & Travis Trade Advisory Services" or "STTAS"), the world’s largest dedicated global trade compliance management company.

We are increasing our capital expenditures to meet increasing global demand.

Within our facilities, we are expanding automated capacity, driving greater efficiencies and providing additional network flexibilities.

We also continue to invest in our air network capacity through aircraft acquisitions.

In 2017, we announced investments in four new regional facilities in the Indianapolis, Phoenix, Salt Lake City and Dallas areas, with the previously announced regional facility in Atlanta, Georgia continuing to move toward completion.

The portfolio provides a range of cost-effective label options and a vast network of consumer drop points, as well as a selection of return technologies that promote efficiency and a friction-free consumer experience.

Our technologies promote systems integration, client ease of use and visibility of inbound merchandise, which help reduce costs and improve efficiency of our merchants' reverse logistics processes.

The newly launched UPS Returns® Manager is an excellent example of this value.

| • | In 2017, we continued expansion of our Express time-definite portfolios: |

| ◦ | We expanded UPS WorldWide Express to five new countries around the globe. |

| ◦ | UPS Express now reaches 124 countries with guaranteed mid-day delivery and 56 countries with guaranteed morning delivery with Express Plus. |

| ◦ | Express Saver reaches 220 countries and territories with guaranteed end-of-day delivery. |

| ◦ | Express Freight Midday is available from all 67 WorldWide Express Freight origin countries to 35 destination countries. |

Our new joint venture with SF Express combines SF’s extensive Chinese network with UPS’s delivery capabilities in the U.S. and Europe to increase our market presence and help provide Chinese enterprises with greater global access.

Additional international highlights include several air network enhancements, improving time in transit and better addressing growing markets.

A new direct flight from the U.S. to Dubai improves time in transit to key destinations in the ISMEA region for shippers throughout the U.S., Canada and the Americas.

Europe added flight segments in Lithuania, Poland and Spain, while a dedicated chartered flight from Cologne to Casablanca continues our investment strategy in Morocco, an emerging market.

In January 2017, UPS acquired U.K.-based freight brokerage firm, Freightex.

The acquisition of Freightex adds a full-scale truckload brokerage and transportation management solution to UPS’s European portfolio, creating a one-stop shop for shippers throughout Europe with freight ranging from parcel to full truckload.

The combination of Coyote’s technology and business model with Freightex’s market knowledge and established customer and carrier base complements UPS’s North American truckload brokerage business, as many international shippers know and trust the Coyote truckload product.

We leverage a global network of more than 900 facilities in more than 100 countries around the globe to ensure products and parts are in the right place, at the right time.

Our distribution centers are strategically located near UPS air and ground transportation hubs for rapid delivery to consumer and business markets.

In 2017, UPS began piloting a new integrated transportation-fulfillment solution for small business e-commerce merchants, enabling them to rapidly expand and grow their offerings without additional capital investment.

UPS Post Sales relies on central and field stocking sites to support installed and delivered equipment and devices.

In 2017, we integrated UPS Access Point locations into our network, offering greater flexibility, more convenience and improved service for our customers.

We also began piloting GPS tracking capabilities and are converting our primary transportation couriers across the U.S. and Canada, which will continue in 2018.

Since its acquisition in late 2016, Maze 1 Limited ("Marken") has served as the clinical trials logistics subsidiary of UPS.

Marken strengthened its position as the only patient-centric supply chain organization 100 percent dedicated to the pharmaceutical and life sciences industries.

Marken expanded into new facilities, acquiring Touchdown International Logistics Co., Ltd. in Taiwan, and launching a new hybrid service that leverages the strength and reach of UPS’s global network.

The focus in 2017 was on accelerating revenue growth through new business wins and realizing cost synergies in areas such as IT purchasing, air transportation and insurance premiums.

UPS Express Critical provides urgent, secure transportation for time-sensitive and high-value goods.

The service complements UPS's core parcel and air freight services.

In 2017, UPS focused on serving fast-growing industries such as life sciences and aerospace and we will continue this focus in 2018.

UPS Freight also provides dedicated contract carriage truckload services to select clients.

In 2017, we acquired STTAS, the world’s largest dedicated global trade compliance management company.

STTAS will help us reach our vision of becoming the global broker of choice by expanding the depth of services we provide, as well as our geographic coverage.

Technology investments create user-friendly shipping, e-commerce, logistics management and visibility tools for our customers, while supporting our ongoing effort to increase operational efficiencies.

We actively monitor and invest to gain insights into emerging technologies such as additive manufacturing (3D printing), route and network optimization tools, autonomous vehicles, and advanced product monitoring and tracking functionality.

In 2016, we invested in Deliv, a same-day retail delivery startup, and Optoro, a reverse logistics firm.

In order to meet demand, we are increasing capital expenditures to expand network capacity and increase productivity by automating existing facilities.

We are making strategic investments in our top 30 processing hubs as well as adding new facilities to our network.

In 2016, we announced investments of $400 million to build a new 1.2 million square foot regional processing facility in Atlanta, Georgia, $196 million to increase the processing capacity of our Jacksonville, Florida hub by 33%, and $175 million to double the processing capacity of our Columbus, Ohio hub.

Our service portfolio and investments have produced among the best return on invested capital and operating margins in the industry.

We enable and are the beneficiaries of the following trends:

Expansion of Global Trade

We continue to invest to expand in both developed and emerging international markets.

In Europe, we have committed to nearly $2 billion of capital investment to expand our infrastructure to meet the growing demand for cross-border commerce.

The enhancements to our European ground network are designed to ensure that we provide fast, reliable service to customers moving goods across country borders.

Emerging market opportunities continue to expand.

Over the next ten years, these markets are expected to represent the majority of global GDP growth and an increasing portion of global trade.

Emerging markets are a focus of investment and growth for our current customers and will be a source of our next generation of customers.

To take advantage of these opportunities, we continue to make long-term investments in markets where our customers are growing.

Over the past ten years, we have established a strong market presence in three developing markets: China, Poland and Turkey.

India, along with select countries in the Middle East, Latin America, Africa and Eastern Europe are also becoming increasingly important to us.

Transcontinental and cross-border trade are predicted to grow faster than U.S. and global gross domestic production for the foreseeable future.

As a result, global economies are becoming more inter-connected and dependent on foreign trade.

We are committed to continued growth in both international logistics and express services.

We are expanding our aircraft fleet beginning in 2017 to include an additional 14 Boeing 747-8s.

UPS plays an important role in both global and regional trade and is well positioned to take advantage of trade growth, wherever it occurs.

Our global presence and productivity enhancing technologies allow customers to expand into new markets.

We advocate for the expansion of free trade, including the passage of regional trade pacts and the removal of trade barriers.

These trends underscore why we believe our international business remains a catalyst for future profitable growth.

e-Commerce Growth in Retail Sectors

E-commerce continues to drive significant growth in package delivery volume.

Our integrated network puts us in an ideal position to capitalize on the shift towards residential deliveries.

We continue to create new services, supported by our technology, that complement traditional UPS premium home delivery services and address the needs of e-commerce shippers and consignees.

We offer cost-effective solutions such as UPS SurePost, for U.S. domestic shipments, and UPS i-parcel, for a low-cost deferred cross border solution, where economy takes precedence over speed.

We also offer feature-rich solutions, such as UPS My Choice, a service that provides more than 30 million members with visibility and control of their inbound shipments.

The power of UPS My Choice has been enhanced over the past year with the addition of UPS Follow My Delivery for time-sensitive shipments.

UPS Follow My Delivery offers map-based tracking from a package's delivery departure to a UPS My Choice member's residence.

UPS My Choice members have the added flexibility to direct packages to UPS Access Point locations when they will not be home to accept a delivery.

UPS Access Point locations are convenient places – such as The UPS Store and other local businesses – that offer easy package drop-off and pick-up.

With evening and weekend hours, UPS Access Point locations better fit some consumers’ schedules.

Merchants in 50 origin countries and territories can ship directly to UPS Access Point locations in 18 destination countries, giving merchants and consumers greater control over package deliveries.

Industry-focused Solutions and Offerings

We offer differentiated value propositions in several segments, including aerospace, automotive, industrial manufacturing, retail, professional and consumer services, healthcare and high-tech.

For a discussion of legal proceedings affecting us and our subsidiaries, please see [removed: the information under] note 4 to the audited consolidated financial statements for a discussion of pension related matters and note 9 for a discussion of judicial proceedings and other matters arising from the conduct of our business activities.

For the fiscal year ended December 31, [removed: 2016][added: 2017]

[removed: ][added: ]

| [removed: Floating Rate] [added: Floating-Rate] Senior Notes due 2020 | | New York Stock Exchange |

See definition of “accelerated filer”, “large accelerated [removed: filer” and] [added: filer”,] “smaller reporting company” [added: and "emerging growth company"] in Rule 12b-2 of the Exchange Act.

| Large accelerated filer x | | Accelerated filer ¨ | | Non-accelerated filer ¨ | | Smaller reporting company ¨ | [added: | Emerging growth company ¨ |]

The aggregate market value of the class B common stock held by non-affiliates of the registrant was [removed: $74,441,628,766] [added: $76,094,649,311] as of June 30, [removed: 2016.][added: 2017.]

As of February 8, [removed: 2017,] [added: 2018,] there were [removed: 180,802,416] [added: 173,362,905] outstanding shares of class A common stock and [removed: 689,227,227] [added: 688,251,874] outstanding shares of class B common stock.

Portions of the registrant’s definitive proxy statement for its annual meeting of shareowners scheduled for May [removed: 4, 2017] [added: 10, 2018] are incorporated by reference into Part III of this report.

| Item 1. | [removed: [Business](#s8B814F1A0106E163601172554128A236)] [added: [Business](#s562E56DDB8A65506B70E3F070627841D)] | [removed: [1](#s8B814F1A0106E163601172554128A236)] [added: [1](#s562E56DDB8A65506B70E3F070627841D)] |

| | [Reporting Segments and Products & [removed: Services](#s91711F594EB356D31D37725541D4CB1B)] [added: Services](#s8957CFB2F66E54BB8BAE7FB13979AAD3)] | [removed: [5](#s91711F594EB356D31D37725541D4CB1B)] [added: [2](#s8957CFB2F66E54BB8BAE7FB13979AAD3)] |

| | [Competitive [removed: Strengths](#sE48A23D845286D918E8C725542DD0B5C)] [added: Strengths](#s0B759DB656705C05AC1B0949AF368625)] | [removed: [10](#sE48A23D845286D918E8C725542DD0B5C)] [added: [6](#s0B759DB656705C05AC1B0949AF368625)] |

| | [Government [removed: Regulation](#sFEFFAA4008850398BFED7255431BF3A8)] [added: Regulation](#s3C54402F6DA954B3A8F6241AF7702652)] | [removed: [11](#sFEFFAA4008850398BFED7255431BF3A8)] [added: [6](#s3C54402F6DA954B3A8F6241AF7702652)] |

| | [Where You Can Find More [removed: Information](#s4891D7A43AB2BAF7F3197255433BB070)] [added: Information](#sA0EF5E7DA3415A738FD2393F1539B37C)] | [removed: [12](#s4891D7A43AB2BAF7F3197255433BB070)] [added: [8](#sA0EF5E7DA3415A738FD2393F1539B37C)] |

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| Item 1B. | [Unresolved Staff [removed: Comments](#sC64208AE5885B500AEFF725543895AF9)] [added: Comments](#s429AEF7FEBBA5EB4A25CE47B50B00C80)] | [removed: [19](#sC64208AE5885B500AEFF725543895AF9)] [added: [16](#s429AEF7FEBBA5EB4A25CE47B50B00C80)] |

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| | [Operating [removed: Facilities](#s3E9E578E1085BE4F9BD6725543E60387)] [added: Facilities](#sD03C19A6952F5BB9B843BE341915082A)] | [removed: [19](#s3E9E578E1085BE4F9BD6725543E60387)] [added: [16](#sD03C19A6952F5BB9B843BE341915082A)] |

| Item 3. | [Legal [removed: Proceedings](#sF119937330C9DFB65B5A72554434EB0A)] [added: Proceedings](#s7BE5D01387E751809948D2A2789B89DF)] | [removed: [20](#sF119937330C9DFB65B5A72554434EB0A)] [added: [17](#s7BE5D01387E751809948D2A2789B89DF)] |

| Item 4. | [Mine Safety [removed: Disclosures](#s0E289516982897A09B2B725544638814)] [added: Disclosures](#sC0E11CD7A73C5764BA0FF2E03F476EA7)] | [removed: [20](#s0E289516982897A09B2B725544638814)] [added: [17](#sC0E11CD7A73C5764BA0FF2E03F476EA7)] |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#sB3A9E655AF192C9E20E272552E0697C6)] [added: Securities](#s3E9C859F59D55D979B45DBE7F02B63D0)] | [removed: [21](#sB3A9E655AF192C9E20E272552E0697C6)] [added: [18](#s3E9C859F59D55D979B45DBE7F02B63D0)] |

| | [Shareowner Return Performance [removed: Graph](#sD1F0D080C0B65564F575725544E0CD4F)] [added: Graph](#sB16AD0F27AA85F88839A6823E68F3FA2)] | [removed: [22](#sD1F0D080C0B65564F575725544E0CD4F)] [added: [19](#sB16AD0F27AA85F88839A6823E68F3FA2)] |

| Item 6. | [Selected Financial [removed: Data](#s859DA211F5540C3CB2C772552DC8D183)] [added: Data](#s5A8E7342DFBC5E68A7983E60DB9BD900)] | [removed: [23](#s859DA211F5540C3CB2C772552DC8D183)] [added: [20](#s5A8E7342DFBC5E68A7983E60DB9BD900)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s0C8A0602704EADF41DA17255452E6E74)] [added: Operations](#sE2C6932BCD8753CD906B91465EC9674F)] | [removed: [24](#s0C8A0602704EADF41DA17255452E6E74)] [added: [21](#sE2C6932BCD8753CD906B91465EC9674F)] |

| | [Items Affecting [removed: Comparability](#s0307777625AFC9719A6672553103C6D9)] [added: Comparability](#s7DC1D75078C352CF825E5D788470730A)] | [removed: [25](#s0307777625AFC9719A6672553103C6D9)] [added: [22](#s7DC1D75078C352CF825E5D788470730A)] |

| | [U.S. Domestic Package [removed: Operations](#sC878D9E928832F3D10E572552DF7297F)] [added: Operations](#s829BCAD6B81B5743B986C76FD5D4E046)] | [removed: [28](#sC878D9E928832F3D10E572552DF7297F)] [added: [25](#s829BCAD6B81B5743B986C76FD5D4E046)] |

| | [International Package [removed: Operations](#s4BD0B42ADA2413A526D172552DB85029)] [added: Operations](#sA23FB5A734235EE380A157AC8CA01F7C)] | [removed: [33](#s4BD0B42ADA2413A526D172552DB85029)] [added: [30](#sA23FB5A734235EE380A157AC8CA01F7C)] |

| | [Supply Chain & Freight [removed: Operations](#s516E3D4908224A8186947255189497ED)] [added: Operations](#s9ACF7A99192B5871AAB2015284362909)] | [removed: [37](#s516E3D4908224A8186947255189497ED)] [added: [34](#s9ACF7A99192B5871AAB2015284362909)] |

| | [Operating [removed: Expenses](#sA3FC6B108132D6A70B3472552DB8CE2D)] [added: Expenses](#s565A054767905D41B390C31C4E3EB832)] | [removed: [40](#sA3FC6B108132D6A70B3472552DB8CE2D)] [added: [38](#s565A054767905D41B390C31C4E3EB832)] |

| | [Investment Income and Interest [removed: Expense](#s0F5ED057A3B99CAB5BC072553344818B)] [added: Expense](#sD28372A0B3E95C1EA2021152EF06BB71)] | [removed: [45](#s0F5ED057A3B99CAB5BC072553344818B)] [added: [42](#sD28372A0B3E95C1EA2021152EF06BB71)] |

| | [Income Tax [removed: Expense](#sDE341BAE3A1B557CCE7072552DC80FF4)] [added: Expense](#s2C75F44D0068560E9A1A0D47207C611D)] | [removed: [46](#sDE341BAE3A1B557CCE7072552DC80FF4)] [added: [43](#s2C75F44D0068560E9A1A0D47207C611D)] |

| | [Liquidity and Capital [removed: Resources](#sB767E5AB31567F3BC2EE72552E060041)] [added: Resources](#sDD2B38F85D1B52BC9EFB5EC2E1ADD4B2)] | [removed: [48](#sB767E5AB31567F3BC2EE72552E060041)] [added: [46](#sDD2B38F85D1B52BC9EFB5EC2E1ADD4B2)] |

| | [Collective Bargaining [removed: Agreements](#sac4154f7e0674794a502aa2de3f4dd75)] [added: Agreements](#s03AF558F7A0151D0B8E90C092390A3E6)] | [removed: [53](#sac4154f7e0674794a502aa2de3f4dd75)] [added: [52](#s03AF558F7A0151D0B8E90C092390A3E6)] |

| | [New Accounting [removed: Pronouncements](#s0122594F0BE09538BC4F725546D3FFC0)] [added: Pronouncements](#s6C22B90C31145B1C939EBE6DFADC2D88)] | [removed: [56](#s0122594F0BE09538BC4F725546D3FFC0)] [added: [52](#s6C22B90C31145B1C939EBE6DFADC2D88)] |

| | [Critical Accounting Policies and [removed: Estimates](#s53EF45252B888B7ACF66725530577535)] [added: Estimates](#s1F4FD929F31A5811AC69DD04625C7911)] | [removed: [56](#s53EF45252B888B7ACF66725530577535)] [added: [53](#s1F4FD929F31A5811AC69DD04625C7911)] |

| Item 7A. | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#sC0EA239264410C014BE072554721E26E)] [added: Risk](#sF978138B94555899A3204E7B644DCBFC)] | [removed: [62](#sC0EA239264410C014BE072554721E26E)] [added: [59](#sF978138B94555899A3204E7B644DCBFC)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#s5F8153EC3E19CAF74A0B72554750F2BB)] [added: Data](#sCD6857F0B0C9519F93D8D7FBBEF5680A)] | [removed: [64](#s5F8153EC3E19CAF74A0B72554750F2BB)] [added: [61](#sCD6857F0B0C9519F93D8D7FBBEF5680A)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s26F4792ADD2AB11C415E72554D48C765)] [added: Disclosure](#sDF3F0DC0EECE57A684A7427D9BE9EF5C)] | [removed: [130](#s26F4792ADD2AB11C415E72554D48C765)] [added: [126](#sDF3F0DC0EECE57A684A7427D9BE9EF5C)] |

| Item 9A. | [Controls and [removed: Procedures](#sA3B6AE717D7B1C215C7272554D877339)] [added: Procedures](#sE32561260D1D5D0D88D057CF34BAD7CB)] | [removed: [130](#sA3B6AE717D7B1C215C7272554D877339)] [added: [126](#sE32561260D1D5D0D88D057CF34BAD7CB)] |

| Item 9B. | [Other [removed: Information](#s2F62419B5242E313A31A72554DA6BFD4)] [added: Information](#sD5727FCADFBE55B68E4AE2B7F98EA8FE)] | [removed: [132](#s2F62419B5242E313A31A72554DA6BFD4)] [added: [128](#sD5727FCADFBE55B68E4AE2B7F98EA8FE)] |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#s5A6DBF329F6BABD858A072554DF4B287)] [added: Governance](#s8EF7049853DA5A468487E73D6B8BC1F2)] | [removed: [133](#s5A6DBF329F6BABD858A072554DF4B287)] [added: [129](#s8EF7049853DA5A468487E73D6B8BC1F2)] |

10-K 1 ups-12312017x10k.htm FORM 10-K

| 0.375% Senior Notes due 2023 | | New York Stock Exchange |

| 1.500% Senior Notes due 2032 | | New York Stock Exchange |

_________________________________

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | |

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.

| | [Overview](#sCE749F7E7877536598BF8622892B8D48) | [1](#sCE749F7E7877536598BF8622892B8D48) |

| | [Strategy](#s1426308C883F5711B60C93C54980F808) | [1](#s1426308C883F5711B60C93C54980F808) |

| | [Our People](#s3FCCD69353D554CC81A784B470263858) | [5](#s3FCCD69353D554CC81A784B470263858) |

| | [Competition](#s60310F6BFE8B53E9964307A8A61A59ED) | [5](#s60310F6BFE8B53E9964307A8A61A59ED) |

| | [Fleet](#s298CB0EB88CE5E06BB454ADFFAAD8126) | [17](#s298CB0EB88CE5E06BB454ADFFAAD8126) |

| | [Overview](#s62B1C0391AF5570B8B1D646EF65D26EF) | [21](#s62B1C0391AF5570B8B1D646EF65D26EF) |

| Item 16. | [Form 10-K Summary](#s89da9112e99d427fac938eb7289cc727) | [131](#sB44D34E6E79A58A481B52F3526451A1E) |

10-K 1 ups-12312016x10k.htm 10-K

__________________________________

(Exact Name of Registrant as Specified in Its Charter)

___________________________________

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | [Overview](#s54FB52C5E00C80B7134272553057D6DE) | [1](#s54FB52C5E00C80B7134272553057D6DE) |

| | [Business Strategy](#s634CDA9554DA47CE8F2B72554176D9D5) | [1](#s634CDA9554DA47CE8F2B72554176D9D5) |

| | [Technology](#s37068C2FAA7A818E41277255419523AE) | [4](#s37068C2FAA7A818E41277255419523AE) |

| | [Sustainability](#sFE0C0C68F183857B89AC725541F32577) | [8](#sFE0C0C68F183857B89AC725541F32577) |

| | [Community](#s35F7E4D44B00099CF5E3725542228151) | [9](#s35F7E4D44B00099CF5E3725542228151) |

| | [Reputation](#s835DAE6D1D2EC23B572A725542410265) | [9](#s835DAE6D1D2EC23B572A725542410265) |

| | [Employees](#sDA746AD63C583754A086725533D04BB2) | [9](#sDA746AD63C583754A086725533D04BB2) |

| | [Safety](#s2A1A4B240BEF08E6FEFC7255428FCBBA) | [10](#s2A1A4B240BEF08E6FEFC7255428FCBBA) |

| | [Competition](#s4425A9472E76DCCE4C3E725542BE5242) | [10](#s4425A9472E76DCCE4C3E725542BE5242) |

| | [Fleet](#s72AB9FCE8F60773277C072553086125C) | [20](#s72AB9FCE8F60773277C072553086125C) |

| | [Overview](#s695B49B99B0B6625F80E72552DB8B1F2) | [24](#s695B49B99B0B6625F80E72552DB8B1F2) |

We own our headquarters, which is located in Atlanta, Georgia and consists of about 745,000 square feet of office [removed: space in an office campus,] [added: space,] and our UPS Supply Chain Solutions group’s headquarters, which is located in Alpharetta, Georgia and consists of about 310,000 square feet of office space.

[removed: In total, we own or lease over 1,000 additional package operating facilities in the U.S.] The smaller of these facilities have vehicles and drivers stationed for the [removed: pick-up] [added: pickup] and delivery of packages, and capacity to sort and transfer packages.

The larger of these facilities also service our vehicles and equipment, and employ specialized mechanical installations for the sorting and handling of [removed: packages.We own or lease more than 800 facilities that support our international package operations.][added: packages.]

In addition, we own or lease more than 500 facilities, with approximately [removed: 33] [added: 34] million square feet of floor space, that support our freight forwarding and logistics operations.

We own and operate a logistics campus consisting of approximately [removed: 3.7] [added: 4] million square feet in Louisville, Kentucky.

The Worldport facility consists of over 5 million square feet and [removed: the site] includes [removed: approximately 600 acres with a sorting capacity of approximately 416,000 packages per hour and includes high-speed] [added: high speed] conveyor and computer control systems.

Our U.S. regional air hubs are located in [removed: Columbia, South Carolina;] Dallas, Texas; Ontario, California; Philadelphia, [removed: Pennsylvania;] [added: Pennsylvania] and Rockford, Illinois.

Our European air hub is located in Cologne, Germany, and we maintain [removed: Asia-Pacific] [added: Asia Pacific] air hubs in Shanghai, China; Shenzhen, [removed: China;] [added: China] and Hong Kong.

Our primary information technology operations are consolidated in a [removed: 443,600] [added: 444,000] square foot owned facility, the Ramapo Ridge facility, [removed: which is located on a 39-acre site] in Mahwah, New Jersey.

We also own a 175,000 square foot facility [removed: located on a 25-acre site] in Alpharetta, Georgia, which serves as a backup to the main information technology operations facility in New Jersey.

The following table shows information about our aircraft fleet as of December 31, [removed: 2016:][added: 2017:]

| Boeing [removed: MD-11F*] [added: MD-11F] | [removed: 38] [added: 37] | | | — | | | — | | | — | |

| Boeing 747-8F | [removed: —] [added: 3] | | | — | | | [removed: 14] [added: 11] | | | 14 | |

We operate a global ground fleet of approximately [removed: 114,000] [added: 119,000] package cars, vans, tractors and motorcycles.

Our ground support fleet consists of [removed: 34,000] [added: 35,000] pieces of equipment designed specifically to support our aircraft fleet, ranging from non-powered container dollies and racks to powered aircraft main deck loaders and cargo tractors.

We also have [removed: 40,000] [added: 45,000] containers used to transport cargo in our aircraft.

Our information technology headquarters is located in Parsippany, New Jersey, consisting of about 200,000 square feet of office space.

We own or lease over 1,000 package operating facilities in the U.S., with approximately 68 million square feet of floor space.

We own or lease approximately 800 facilities that support our international package operations, with approximately 20 million square feet of floor space.

We also own or lease regional air hubs globally, with over 4 million square feet of floor space.

In 2017, we announced seven new buildings and one expansion that total more than 5 million square feet.

| Boeing 767-300BCF | 2 | | | — | | | 1 | | | — | |

| Other | — | | | 340 | | | — | | | — | |

| Total | 241 | | | 340 | | | 12 | | | 14 | |

On February 1, 2018, we announced an order for 14 Boeing 747-8 freighters previously under option and four new Boeing 767 aircraft to be delivered between 2019 and 2022.

We own or lease 33 principal U.S. package operating facilities, which have floor space up to approximately 1.9 million square feet, the largest being our operating facility near Chicago, Illinois, which is designed to streamline shipments between East Coast and West Coast destinations.

The UPS International Air Hub at Pudong International Airport was built on land totaling 2.4 million square feet with a sorting capacity of 17,000 packages per hour.

This hub links all of China via Shanghai to UPS’s international network, and has direct service to the Americas, Europe and other parts of Asia; it also connects points served in China by UPS through a dedicated service provided by Yangtze River Express, a Chinese all-cargo airline.

We also have an intra-Asia air hub at Shenzhen Bao'an International Airport in China.

The Shenzhen facility, which was built on almost one million square feet of land, has a sorting capacity of 18,000 packages per hour and serves as our primary transit hub in Asia.

| Other | — | | | 420 | | | — | | | — | |

| Total | 237 | | | 420 | | | 14 | | | 14 | |

*Includes one Boeing MD-11F not in operation pending disposal

We maintain an inventory of spare engines and parts for each aircraft.

All the aircraft we own meet Stage IV federal noise regulations and can operate at airports that have aircraft noise restrictions.

We currently have 14 new Boeing 747-8F cargo aircraft on order to meet increased demand for our air shipping services.

The 14 aircraft are to be delivered between 2017 and 2020.

We also have options for 14 additional 747-8F cargo aircraft.

The following is a summary of our class B common stock price activity and dividend information for [removed: 2016] [added: 2017] and [removed: 2015.][added: 2016.]

As of February 8, [removed: 2017,] [added: 2018,] there were [removed: 153,902] [added: 154,033] and [removed: 18,637] [added: 18,863 shareowners of] record [removed: holders] of class A and class B common stock, respectively.

On February 8, [removed: 2017,] [added: 2018,] our Board declared a dividend of [removed: $0.83] [added: $0.91] per share, which is payable on March [removed: 8, 2017] [added: 7, 2018] to shareowners of record on February [removed: 21, 2017.][added: 20, 2018.]

This represents a [removed: 6%] [added: 10%] increase from the previous [removed: $0.78] [added: $0.83] quarterly dividend in [removed: 2016.][added: 2017.]

A summary of repurchases of our class A and class B common stock during the fourth quarter of [removed: 2016] [added: 2017] is as follows (in millions, except per share amounts):

| Total October 1—December 31 | [removed: 6.0] [added: 3.8] | | | [removed: 6.0] [added: 3.8] | | | $ | [removed: 113.83] [added: 120.71] | | | | | |

We anticipate repurchasing approximately [removed: $1.8] [added: $1.0] billion of shares in [removed: 2017.][added: 2018.]

The following graph shows a [removed: five year] [added: five-year] comparison of cumulative total shareowners’ returns for our class B common stock, the Standard & Poor’s 500 Index and the Dow Jones Transportation Average.

The comparison of the total cumulative return on investment, which is the change in the quarterly stock price plus reinvested dividends for each of the quarterly periods, assumes that $100 was invested on December 31, [removed: 2011] [added: 2012] in the Standard & Poor’s 500 Index, the Dow Jones Transportation Average and our class B common stock.

[removed: ][added: ]

| | [removed: 12/31/2011 | | | |] 12/31/2012 | | | | 12/31/2013 | | | | 12/31/2014 | | | | 12/31/2015 | | | | 12/31/2016 | | | [added: | 12/31/2017 | | |]

| 2017: | | | | | | | | | | | | | | | |

| First Quarter | $ | 118.19 | | | $ | 103.23 | | | $ | 107.30 | | | $ | 0.83 | |

| Second Quarter | $ | 111.55 | | | $ | 102.12 | | | $ | 110.59 | | | $ | 0.83 | |

| Third Quarter | $ | 120.42 | | | $ | 106.98 | | | $ | 120.09 | | | $ | 0.83 | |

| Fourth Quarter | $ | 125.16 | | | $ | 111.30 | | | $ | 119.15 | | | $ | 0.83 | |

| October 1—October 31 | 1.3 | | | 1.3 | | | $ | 119.28 | | | $ | 4,644 | |

| November 1—November 30 | 1.2 | | | 1.2 | | | 123.47 | | | | 4,490 | | |

| December 1—December 31 | 1.3 | | | 1.3 | | | 119.50 | | | | 4,339 | | |

| United Parcel Service, Inc. | $ | 100.00 | | | $ | 146.54 | | | $ | 159.23 | | | $ | 148.89 | | | $ | 182.70 | | | $ | 195.75 | |

| Standard & Poor’s 500 Index | $ | 100.00 | | | $ | 132.38 | | | $ | 150.49 | | | $ | 152.55 | | | $ | 170.79 | | | $ | 208.06 | |

| Dow Jones Transportation Average | $ | 100.00 | | | $ | 141.38 | | | $ | 176.83 | | | $ | 147.19 | | | $ | 179.37 | | | $ | 213.49 | |

| 2015: | | | | | | | | | | | | | | | |

| First Quarter | $ | 114.25 | | | $ | 96.59 | | | $ | 96.94 | | | $ | 0.73 | |

| Second Quarter | $ | 102.13 | | | $ | 95.38 | | | $ | 96.91 | | | $ | 0.73 | |

| Third Quarter | $ | 103.43 | | | $ | 94.46 | | | $ | 98.69 | | | $ | 0.73 | |

| Fourth Quarter | $ | 106.80 | | | $ | 96.23 | | | $ | 96.23 | | | $ | 0.73 | |

| October 1—October 31 | 1.2 | | | 1.2 | | | $ | 108.52 | | | $ | 6,706 | |

| November 1—November 30 | 3.5 | | | 3.5 | | | 114.35 | | | | 6,306 | | |

| December 1—December 31 | 1.3 | | | 1.3 | | | 117.14 | | | | 6,154 | | |

| United Parcel Service, Inc. | $ | 100.00 | | | $ | 103.84 | | | $ | 152.16 | | | $ | 165.35 | | | $ | 154.61 | | | $ | 189.72 | |

| Standard & Poor’s 500 Index | $ | 100.00 | | | $ | 115.99 | | | $ | 153.54 | | | $ | 174.54 | | | $ | 176.94 | | | $ | 198.09 | |

| Dow Jones Transportation Average | $ | 100.00 | | | $ | 107.49 | | | $ | 151.97 | | | $ | 190.07 | | | $ | 158.22 | | | $ | 192.80 | |

The following table sets forth selected financial data for each of the five years in the period ended December 31, [removed: 2016] [added: 2017] (in millions, except per share amounts).

| | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| U.S. Domestic Package | $ | [removed: 38,301] [added: 40,764] | | | $ | [removed: 36,747] [added: 38,301] | | | $ | [removed: 35,851] [added: 36,747] | | | $ | [removed: 34,074] [added: 35,851] | | | $ | [removed: 32,856] [added: 34,074] | |

| International Package | [removed: 12,350] [added: 13,338] | | | | [removed: 12,149] [added: 12,350] | | | | [removed: 12,988] [added: 12,149] | | | | [removed: 12,429] [added: 12,988] | | | | [removed: 12,124] [added: 12,429] | | |

| Supply Chain & Freight | [removed: 10,255] [added: 11,770] | | | | [removed: 9,467] [added: 10,255] | | | | [removed: 9,393] [added: 9,467] | | | | [removed: 8,935] [added: 9,393] | | | | [removed: 9,147] [added: 8,935] | | |

| Total Revenue | [removed: 60,906] [added: 65,872] | | | | [removed: 58,363] [added: 60,906] | | | | [removed: 58,232] [added: 58,363] | | | | [removed: 55,438] [added: 58,232] | | | | [removed: 54,127] [added: 55,438] | | |

| Compensation and benefits | [removed: 34,770] [added: 34,588] | | | | [removed: 31,028] [added: 34,770] | | | | [removed: 32,045] [added: 31,028] | | | | [removed: 28,557] [added: 32,045] | | | | [removed: 33,102] [added: 28,557] | | |

| Other | [removed: 20,669] [added: 23,755] | | | | [removed: 19,667] [added: 20,669] | | | | [removed: 21,219] [added: 19,667] | | | | [removed: 19,847] [added: 21,219] | | | | [removed: 19,682] [added: 19,847] | | |

| Total Operating Expenses | [removed: 55,439] [added: 58,343] | | | | [removed: 50,695] [added: 55,439] | | | | [removed: 53,264] [added: 50,695] | | | | [removed: 48,404] [added: 53,264] | | | | [removed: 52,784] [added: 48,404] | | |

| U.S. Domestic Package | [removed: 3,017] [added: 4,280] | | | | [removed: 4,767] [added: 3,017] | | | | [removed: 2,859] [added: 4,767] | | | | [removed: 4,603] [added: 2,859] | | | | [removed: 459] [added: 4,603] | | |

| International Package | [removed: 2,044] [added: 2,464] | | | | [removed: 2,137] [added: 2,044] | | | | [removed: 1,677] [added: 2,137] | | | | [removed: 1,757] [added: 1,677] | | | | [removed: 869] [added: 1,757] | | |

| Supply Chain and Freight | [removed: 406] [added: 785] | | | | [removed: 764] [added: 406] | | | | [removed: 432] [added: 764] | | | | [removed: 674] [added: 432] | | | | [removed: 15] [added: 674] | | |

| Total Operating Profit | [removed: 5,467] [added: 7,529] | | | | [removed: 7,668] [added: 5,467] | | | | [removed: 4,968] [added: 7,668] | | | | [removed: 7,034] [added: 4,968] | | | | [removed: 1,343] [added: 7,034] | | |

| Investment income | [removed: 50] [added: 72] | | | | [removed: 15] [added: 50] | | | | [removed: 22] [added: 15] | | | | [removed: 20] [added: 22] | | | | [removed: 24] [added: 20] | | |

| Interest expense | [removed: (381] [added: (453] | | ) | | [removed: (341] [added: (381] | | ) | | [removed: (353] [added: (341] | | ) | | [removed: (380] [added: (353] | | ) | | [removed: (393] [added: (380] | | ) |

| Income Before Income Taxes | [removed: 5,136] [added: 7,148] | | | | [removed: 7,342] [added: 5,136] | | | | [removed: 4,637] [added: 7,342] | | | | [removed: 6,674] [added: 4,637] | | | | [removed: 974] [added: 6,674] | | |

| Income Tax Expense | [removed: 1,705] [added: 2,238] | | | | [removed: 2,498] [added: 1,705] | | | | [removed: 1,605] [added: 2,498] | | | | [removed: 2,302] [added: 1,605] | | | | [removed: 167] [added: 2,302] | | |

| Net Income | $ | [removed: 3,431] [added: 4,910] | | | $ | [removed: 4,844] [added: 3,431] | | | $ | [removed: 3,032] [added: 4,844] | | | $ | [removed: 4,372] [added: 3,032] | | | $ | [removed: 807] [added: 4,372] | |

| Basic Earnings Per Share | $ | [removed: 3.89] [added: 5.64] | | | $ | [removed: 5.38] [added: 3.89] | | | $ | [removed: 3.31] [added: 5.38] | | | $ | [removed: 4.65] [added: 3.31] | | | $ | [removed: 0.84] [added: 4.65] | |

| Diluted Earnings Per Share | $ | [removed: 3.87] [added: 5.61] | | | $ | [removed: 5.35] [added: 3.87] | | | $ | [removed: 3.28] [added: 5.35] | | | $ | [removed: 4.61] [added: 3.28] | | | $ | [removed: 0.83] [added: 4.61] | |

| Dividends Declared Per Share | $ | [removed: 3.12] [added: 3.32] | | | $ | [removed: 2.92] [added: 3.12] | | | $ | [removed: 2.68] [added: 2.92] | | | $ | [removed: 2.48] [added: 2.68] | | | $ | [removed: 2.28] [added: 2.48] | |

| Basic | [removed: 883] [added: 871] | | | | [removed: 901] [added: 883] | | | | [removed: 916] [added: 901] | | | | [removed: 940] [added: 916] | | | | [removed: 960] [added: 940] | | |

| Diluted | [removed: 887] [added: 875] | | | | [removed: 906] [added: 887] | | | | [removed: 924] [added: 906] | | | | [removed: 948] [added: 924] | | | | [removed: 969] [added: 948] | | |

| Cash and marketable securities | $ | [removed: 4,567] [added: 4,069] | | | $ | [removed: 4,726] [added: 4,567] | | | $ | [removed: 3,283] [added: 4,726] | | | $ | [removed: 5,245] [added: 3,283] | | | $ | [removed: 7,924] [added: 5,245] | |

| Total assets | [removed: 40,377] [added: 45,403] | | | | [removed: 38,311] [added: 40,377] | | | | [removed: 35,440] [added: 38,311] | | | | [removed: 35,553] [added: 35,440] | | | | [removed: 38,818] [added: 35,553] | | |

| Long-term debt | [removed: 12,394] [added: 20,278] | | | | [removed: 11,316] [added: 12,394] | | | | [removed: 9,856] [added: 11,316] | | | | [removed: 10,824] [added: 9,856] | | | | [removed: 11,089] [added: 10,824] | | |

| Shareowners’ equity | [removed: 429] [added: 1,030] | | | | [removed: 2,491] [added: 429] | | | | [removed: 2,158] [added: 2,491] | | | | [removed: 6,488] [added: 2,158] | | | | [removed: 4,733] [added: 6,488] | | |

| | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | |

| [Report of Independent Registered Public Accounting [removed: Firm](#sDC7D626BD8FC82D5B4287255476F549A)] [added: Firm](#s0DB648F48A485ADD87515E42A3B81889)] | [removed: [65](#sDC7D626BD8FC82D5B4287255476F549A)] [added: [62](#s0DB648F48A485ADD87515E42A3B81889)] |

| [Consolidated Balance [removed: Sheets](#sDD96727AAA6143E967D27255189491AE)] [added: Sheets](#s50A22A6022F75F04A14FD1C620D312C4)] | [removed: [66](#sDD96727AAA6143E967D27255189491AE)] [added: [63](#s50A22A6022F75F04A14FD1C620D312C4)] |

| [Statements of Consolidated [removed: Income](#sE98846012A00DDE606B8725518B31E89)] [added: Income](#s8329DDF420B85FF4B41D654365C83805)] | [removed: [67](#sE98846012A00DDE606B8725518B31E89)] [added: [64](#s8329DDF420B85FF4B41D654365C83805)] |

| [Statements of Consolidated Comprehensive [removed: Income](#sA126E6ECE4C52492E4B9725518D2FAF9)] [added: Income](#s1E1546517B565CB4AED63753012ABF81)] | [removed: [67](#sA126E6ECE4C52492E4B9725518D2FAF9)] [added: [64](#s1E1546517B565CB4AED63753012ABF81)] |

| [Statements of Consolidated Cash [removed: Flows](#s991E6FFA6A89EDA9A0A1725518D22B8A)] [added: Flows](#sC56D020F12745AFFA81FE9E137BB6F6C)] | [removed: [68](#s991E6FFA6A89EDA9A0A1725518D22B8A)] [added: [65](#sC56D020F12745AFFA81FE9E137BB6F6C)] |

| [Notes to Consolidated Financial [removed: Statements](#s3F3EB419E88E3DCFD76072554868C27C)] [added: Statements](#s8E995F45E61558B483AD298BC1FACED7)] | [removed: [69](#s3F3EB419E88E3DCFD76072554868C27C)] [added: [66](#s8E995F45E61558B483AD298BC1FACED7)] |

| [Note 1—Summary of Accounting [removed: Policies](#sBF47C4352DA525298D717255190188BC)] [added: Policies](#s7BC96CA128B35363AE6FDAD6867907C0)] | [removed: [69](#sBF47C4352DA525298D717255190188BC)] [added: [66](#s7BC96CA128B35363AE6FDAD6867907C0)] |

| [Note 2—Cash and [removed: Investments](#s9DB4F8304B1845A1B52D725519118C2B)] [added: Investments](#s1D43E9B0E702581FBD7A0319D5144C7C)] | [removed: [75](#s9DB4F8304B1845A1B52D725519118C2B)] [added: [73](#s1D43E9B0E702581FBD7A0319D5144C7C)] |

| [Note 3—Property, Plant and [removed: Equipment](#sE594F07A44363280D4CB72551A681072)] [added: Equipment](#sBD83408856CB5BFDAEE05949BFB289E4)] | [removed: [80](#sE594F07A44363280D4CB72551A681072)] [added: [78](#sBD83408856CB5BFDAEE05949BFB289E4)] |

| [Note 4—Company-Sponsored Employee Benefit [removed: Plans](#s75584D1C63D8A3CFA69E72551A779B0E)] [added: Plans](#s4A9998CCDB5754929322E03BE8239E99)] | [removed: [80](#s75584D1C63D8A3CFA69E72551A779B0E)] [added: [78](#s4A9998CCDB5754929322E03BE8239E99)] |

| [Note 5—Multiemployer Employee Benefit [removed: Plans](#s39D2950B068DC479C8A872551D837850)] [added: Plans](#s417228134D425357A38562A789A90CC2)] | [removed: [91](#s39D2950B068DC479C8A872551D837850)] [added: [89](#s417228134D425357A38562A789A90CC2)] |

| [Note 6—Goodwill and Intangible [removed: Assets](#sC3F500BCC2236D185AD472551F387774)] [added: Assets](#sCEF7C5716C9157C8AD884FF677C37F98)] | [removed: [96](#sC3F500BCC2236D185AD472551F387774)] [added: [93](#sCEF7C5716C9157C8AD884FF677C37F98)] |

| [Note 7—Business [removed: Acquisitions](#sAB61F2B35735A31A68CD72551FA5BAE1)] [added: Acquisitions](#sC2DFB858706C54E3AA16D83380630D01)] | [removed: [98](#sAB61F2B35735A31A68CD72551FA5BAE1)] [added: [95](#sC2DFB858706C54E3AA16D83380630D01)] |

| [Note 8—Debt and Financing [removed: Arrangements](#sBF698D567F6B72943E7B72551FC45CEC)] [added: Arrangements](#s8A242BFBC6185B1AB4F03CF707CDFF76)] | [removed: [100](#sBF698D567F6B72943E7B72551FC45CEC)] [added: [96](#s8A242BFBC6185B1AB4F03CF707CDFF76)] |

| [Note 9—Legal Proceedings and [removed: Contingencies](#s9A581A512E90056AC40F7255213BB546)] [added: Contingencies](#sFE24FE6C1FE2561FA06F5A1E146880F5)] | [removed: [105](#s9A581A512E90056AC40F7255213BB546)] [added: [102](#sFE24FE6C1FE2561FA06F5A1E146880F5)] |

| [Note 10—Shareowners’ [removed: Equity](#sC6BABD55CB73E249E05C7255213B2C37)] [added: Equity](#s12EA40D198035AA3B6907DC223F49D01)] | [removed: [107](#sC6BABD55CB73E249E05C7255213B2C37)] [added: [104](#s12EA40D198035AA3B6907DC223F49D01)] |

| [Note 11—Stock-Based [removed: Compensation](#sD8BAF2062AE1CD47533C725521F66231)] [added: Compensation](#sF536F5B8BE7453D59B72A5A59C2EF8F2)] | [removed: [111](#sD8BAF2062AE1CD47533C725521F66231)] [added: [107](#sF536F5B8BE7453D59B72A5A59C2EF8F2)] |

| [Note 12—Segment and Geographic [removed: Information](#sA73BFB644F2226BDCC70725522D00577)] [added: Information](#sB5C81FA610675A769D0600AF78D5B4B3)] | [removed: [115](#sA73BFB644F2226BDCC70725522D00577)] [added: [111](#sB5C81FA610675A769D0600AF78D5B4B3)] |

| [Note 13—Income [removed: Taxes](#sFBE22DEAE6EFF79616B37255231EC17C)] [added: Taxes](#s123BBEBEA9BE5474B68A89C1904F13EE)] | [removed: [118](#sFBE22DEAE6EFF79616B37255231EC17C)] [added: [114](#s123BBEBEA9BE5474B68A89C1904F13EE)] |

| [Note 14—Earnings Per [removed: Share](#s99A228568CC24A1786027255237C0251)] [added: Share](#s14FD7A3D16C553E093974F90E0AF4092)] | [removed: [122](#s99A228568CC24A1786027255237C0251)] [added: [119](#s14FD7A3D16C553E093974F90E0AF4092)] |

| [Note 15—Derivative Instruments and Risk [removed: Management](#s48747CE42AFFC283807D7255237C256B)] [added: Management](#s534514A3D7115B1DABD68FD214704461)] | [removed: [122](#s48747CE42AFFC283807D7255237C256B)] [added: [119](#s534514A3D7115B1DABD68FD214704461)] |

| [Note 16—Quarterly Information [removed: (Unaudited)](#s8FCFCC353566ACBA5E12725524278851)] [added: (Unaudited)](#sF401F27E29C75BF7B7B733BCA7844831)] | [removed: [129](#s8FCFCC353566ACBA5E12725524278851)] [added: [125](#sF401F27E29C75BF7B7B733BCA7844831)] |

We have audited the accompanying consolidated balance sheets of United Parcel Service, Inc. and subsidiaries (the “Company”) as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related [added: consolidated] statements of [removed: consolidated] income, [removed: consolidated] comprehensive income, and [removed: consolidated] cash flows for each of the three years in the period ended December 31, [removed: 2016.][added: 2017, and the related notes (collectively referred to as the “financial statements”).]

Our responsibility is to express an opinion on [removed: these] [added: the Company's] financial statements based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: An audit includes] [added: Such procedures included] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

In our opinion, [removed: such consolidated] [added: the] financial statements present fairly, in all material respects, the financial position of [removed: United Parcel Service, Inc. and subsidiaries at] [added: the Company as of] December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended December 31, [removed: 2016,] [added: 2017,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (“PCAOB”),] the [removed: Company’s] [added: Company's] internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on [removed: the] criteria established in Internal [removed: Control—Integrated] [added: Control - Integrated] Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February [removed: 20, 2017] [added: 21, 2018,] expressed an unqualified opinion on the Company’s internal control over financial reporting.

[removed: February 20,] [added: |] 2017 [added: | | | | | | | | | | | | | | | |]

| | [added: 2017 | | | |] 2016 | | | | 2015 | | |

| Cash and cash equivalents | $ | [removed: 3,476] [added: 3,320] | | | $ | [removed: 2,730] [added: 3,476] | |

| Marketable securities | [removed: 1,091] [added: 749] | | | | [removed: 1,996] [added: 1,091] | | |

| Accounts receivable, net | [removed: 7,695] [added: 8,773] | | | | [removed: 7,134] [added: 7,695] | | |

| Other current assets | [removed: 1,587 | | | | 1,348] [added: 6] | | |

| Total Current Assets | [removed: 13,849] [added: 15,548] | | | | [removed: 13,208] [added: 13,849] | | |

| Property, Plant and Equipment, Net | [removed: 18,800] [added: 22,118] | | | | [removed: 18,352] [added: 18,800] | | |

| Goodwill | [removed: 3,757] [added: 3,872] | | | | [removed: 3,419] [added: 3,757] | | |

| Intangible Assets, Net | [removed: 1,758] [added: 1,964] | | | | [removed: 1,549] [added: 1,758] | | |

Opinion on the Financial Statements

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

February 21, 2018

We have served as the Company's auditor since 1969.

| | 2017 | | | | 2016 | | |

| Current income taxes receivable | 1,573 | | | | 633 | | |

| Net Income | $ | 4,910 | | | $ | 3,431 | | | $ | 4,844 | |

| Net income | $ | 4,910 | | | $ | 3,431 | | | $ | 4,844 | |

| Depreciation and amortization | 2,282 | | | | 2,224 | | | | 2,084 | | |

During the third quarter of 2017, we changed the measurement date of our annual goodwill impairment test from October 1st to July 1st.

This change better aligns the timing of the goodwill impairment test with our long-term business planning process.

The change was not material to our consolidated financial statements as it did not result in the delay, acceleration or avoidance of an impairment charge.

Trends in actual experience are a significant factor in the determination of such reserves.

Workers’ compensation, automobile liability and general liability insurance claims may take several years to completely settle.

Consequently, actuarial estimates are required to project the ultimate cost that will be incurred to fully resolve the claims.

A number of factors can affect the actual cost of a claim, including the length of time the claim remains open, trends in healthcare costs and the results of related litigation.

Furthermore, claims may emerge in future years for events that occurred in a prior year at a rate that differs from previous actuarial projections.

Changes in state legislation with respect to workers' compensation can affect the adequacy of our self-insurance accruals.

All of these factors can result in revisions to prior actuarial projections and produce a material difference between estimated and actual operating results.

Prior to 2017, outside actuarial studies were performed semi-annually and we used the studies to estimate the liability in intervening quarters.

Beginning in 2017, outside actuarial studies are now performed quarterly as we believe this provides us with better quarterly estimates of our outstanding workers' compensation liability.

We sponsor a number of health and welfare insurance plans for our employees.

These liabilities and related expenses are based on estimates of the number of employees and eligible dependents covered under the plans, anticipated medical usage by participants and overall trends in medical costs and inflation.

During June 2017, we amended the UPS Retirement Plan and Excess Coordinating Plans to cease accrual of additional benefits for future service for non-union participants effective January 1, 2023.

We remeasured plan assets and pension benefit obligations compensation for the affected pension plans as of June 30, 2017 to recognize the impact of this change.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Cuts and Jobs Act (the "Tax Act").

The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations.

The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election.

We elect to treat any potential GILTI inclusions as period costs.

We estimate forfeiture rates based on historical rates of forfeitures for awards with similar characteristics, historical rates of employee turnover and the nature and terms of the vesting conditions of the awards.

We reevaluate our forfeiture rates on an annual basis.

This new guidance became effective for us in the first quarter of 2017 and we adopted the statements of consolidated cash flows presentation on a prospective basis.

The impact to income tax expense in 2017 in the statements of consolidated income was a benefit of $71 million.

Additionally, we have elected to continue estimating forfeitures expected to occur to determine the amount of compensation cost to be recognized each period.

In February 2018, the FASB issued an accounting standards update that allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act.

The guidance will generally be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized.

We are currently evaluating this update to determine the full impact of its adoption.

In August 2017, the FASB issued an accounting standards update to enhance recognition of the economic results of hedging activities in the financial statements.

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effective July 1, 2016, the UPS Retirement Plan was closed to new non-union participants.

In November 2015, the Financial Accounting Standards Board ("FASB") issued an accounting standards update that simplifies the presentation of deferred tax assets and liabilities.

The update removes the requirement to separate deferred tax liabilities and assets into current and non-current amounts in a classified statement of financial position.

The update permits the entity to present deferred tax liabilities and assets as non-current in a classified statement of financial position.

We adopted this standard on a retrospective basis in the fourth quarter of 2015.

In April 2015, the FASB issued an accounting standards update to simplify the presentation of debt issuance costs.

This update amends existing guidance to require the presentation of debt issuance costs in the consolidated balance sheets as a direct deduction from the carrying amount of the associated debt liability instead of a deferred charge.

In August 2015, the FASB issued updated guidance pertaining to the presentation of debt issuance costs related to line-of-credit arrangements.

This update allows an entity to defer and present debt issuance costs as an asset, subsequently amortizing the deferred debt issuance costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

We elected to early adopt this standard in the fourth quarter of 2015 on a retrospective basis.

In May 2015, the FASB issued an accounting standards update that changes the disclosure requirement for reporting investments at fair value.

This update removes the requirement to categorize investments for which fair value is measured using the net asset value (“NAV”) per share practical expedient within the fair value hierarchy.

These disclosures are limited to investments for which the entity has elected to measure fair value using the practical expedient.

Substantially all of our Level 3 pension and postretirement benefit plan assets were measured using NAV as a practical expedient.

This guidance became effective for us in the first quarter of 2016 and did not have a material impact on our consolidated financial position or results of operations.

In June 2014, the FASB issued an accounting standards update for companies that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period.

This new guidance becomes effective for us in the first quarter of 2017.

We have evaluated adoption of this update and determined that the impact to income tax expense in the statements of consolidated income, for the first quarter of 2017, will be a benefit of approximately $60 million, which will result in a reclassification of approximately $60 million from net cash from financing activities to net cash from operating activities in the statements of consolidated cash flows.

We are currently evaluating this standard and the related updates, including which transition approach to use as well as the impact of adoption on policies, practices and systems.

We are currently quantifying the impact of this change to the statements of consolidated income.

We are currently quantifying the amount of revenue impacted by this change.

Additionally, contract reviews are ongoing, and more businesses could be impacted by the adoption of the standard.

Changes in Presentation

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

These reclassifications had no impact on our financial position or results of operations.

| 2015 | | | | | | | | | | | | | | | |

| Equity securities | — | | | | — | | | | — | | | | — | | | | — | | | | — | | |

| | 1,001 | | | | 999 | | |

| | $ | 1,083 | | | $ | 1,091 | |

| Non-U.S. government debt securities | — | | | | 366 | | | | — | | | | 366 | | |

| Total marketable securities | 691 | | | | 1,305 | | | | — | | | | 1,996 | | |

| Total | $ | 710 | | | $ | 1,305 | | | $ | 32 | | | $ | 2,047 | |

| | 43,674 | | | | 41,918 | | |

| | $ | 18,800 | | | $ | 18,352 | |

| Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Transition obligation | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | |

The curtailment and settlement loss in 2014 for the U.S. postretirement medical benefit plans is discussed further in note 5 under the section entitled "Accounting Impact of Health and Welfare Plan Changes".

| Effect on postretirement benefit obligation | $ | 71 | | | $ | (76 | ) |

There were no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, [removed: 2016] [added: 2017] that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, management has assessed the Company’s internal control over financial reporting as effective as of December 31, [removed: 2016.][added: 2017.]

The independent registered public accounting firm of Deloitte & Touche LLP, as auditors of the consolidated balance sheets of United Parcel Service, Inc. and its subsidiaries as of December 31, [removed: 2016] [added: 2017] and the related statements of consolidated income, consolidated comprehensive income and consolidated cash flows for the year ended December 31, [removed: 2016,] [added: 2017,] has issued an attestation report on the Company’s internal control over financial reporting, which is included herein.

We have audited the internal control over financial reporting of United Parcel Service, Inc. and subsidiaries (the "Company") as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission.][added: Commission (“COSO”).]

We conducted our audit in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

A [removed: company's] [added: company’s] internal control over financial reporting is a process designed [removed: by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel] to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.