Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We continue to execute our Customer First, People Led, Innovation Driven strategy by focusing on growth in the most attractive areas of the market and driving efficiency across our network. During the third quarter of 2024, our execution contributed to growth in volume, revenue and operating profit on a consolidated basis.

During the third quarter, we took a number of organic and inorganic steps in support of our strategic execution. On September 10, 2024, we entered into an agreement to acquire Frigo-Trans, an industry-leading, complex healthcare logistics provider based in Germany that is expected to further enhance our temperature-controlled and time-critical capabilities across Europe. This transaction is expected to close in 2025, subject to customary regulatory reviews and approvals. On September 16, 2024, we completed the previously announced divestiture of our truckload brokerage business ("Coyote").

Internationally, we expanded residential Saturday delivery to the eight largest markets in Europe and sped up deliveries to over 35 countries across Asia, Africa and the Middle East as we focus on our customers’ need for speed. Our Digital Access Program surpassed six million merchants globally, which supports our efforts to make our products and services even more accessible to small- and medium-sized businesses ("SMBs"). We saw revenue growth from our healthcare customers during the third quarter in both domestic and international markets. Separately, we have now completed the onboarding of new air cargo volumes from the United States Postal Service ("USPS") and under our agreement, UPS is the primary air cargo provider for the USPS within the United States.

We have two reportable segments: U.S. Domestic Package and International Package, which are together referred to as our global small package operations. Our remaining businesses are reported as Supply Chain Solutions.

Despite continued weakness in the macro environment, we experienced volume growth in our global small package operations during both the third quarter and year-to-date periods. Within the U.S., we captured growth from Enterprise and SMB customers, including growth from several e-commerce customers and from our Digital Access Program which, together with our efforts to drive revenue quality by making strategic pricing adjustments to align with the value we provide and cost initiatives, including operational closures completed under our Network of the Future initiative, contributed to increases in operating profit for the quarter and helped offset year-to-date declines in operating profit. Internationally, we experienced declines in total average daily volume during both quarter and year-to-date periods due to challenging economic conditions and geopolitical factors, which were more prevalent during the first half of the year. However, we continued to see growth in key export markets worldwide, which drove increases in both revenue and operating profit for the quarter.

In Supply Chain Solutions, revenue increased in both quarter and year-to-date periods, driven primarily by the impact of the acquisition of MNX Global Logistics in the fourth quarter of 2023, additional air cargo volumes from our agreement with the USPS, and revenue growth in our freight forwarding business during the third quarter. Supply Chain Solutions operating profit increased during the third quarter and was flat year to date as a result of the gain recognized from the divestiture of Coyote.

During both the three and nine month periods of 2024, we continued to execute on various initiatives under our previously disclosed transformation strategy programs, Transformation 2.0 and Fit to Serve, which are contributing to fundamental changes to our back-office technologies and organizational structure. We realized benefits from our Fit to Serve initiative during the three and nine months ended September 30, 2024, which contributed to improvements in operating profit for the quarter, and year to date, helped offset declines in operating profit.

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RESULTS OF OPERATIONS

We expect continued growth in consolidated revenue and operating profit in the fourth quarter due to anticipated volume growth and our focus on revenue quality in our global small package operations. During the third quarter, growth in our union wage-rate decreased from what we experienced in the first half of the year as we entered into the second year of our contract with the International Brotherhood of Teamsters ("IBT"). Additionally, we expect that we will further benefit from the impact of our Fit to Serve initiative. We anticipate using our network planning tools, leveraging our automated facilities and flexible staffing to manage our network during this year's holiday shipping season.

During the third quarter and year-to-date periods of 2024, we also returned cash to shareholders by completing our previously announced $500 million of share repurchases and paid dividends of $1.63 per share and $4.89 per share, respectively. Through September 30, 2024, total capital expenditures were approximately $2.8 billion. For the full year in 2024, capital expenditures are expected to be approximately $4.0 billion and total dividends are expected to be $5.4 billion, subject to Board approval.

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Highlights of our consolidated results, which are discussed in more detail below, include:

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2024						2023						$						%						2024						2023						$						%
Revenue (in millions)			$	22,245					$	21,061					$	1,184					5.6		%				$	65,769					$	66,041					$	(272)					(0.4)		%
Operating Expenses (in millions)			20,260						19,718						542						2.7		%				60,227						59,377						850						1.4		%
Operating Profit (in millions)			$	1,985					$	1,343					$	642					47.8		%				$	5,542					$	6,664					$	(1,122)					(16.8)		%
Operating Margin			8.9		%				6.4		%																8.4		%				10.1		%
Net Income (in millions)			$	1,539					$	1,127					$	412					36.6		%				$	4,061					$	5,103					$	(1,042)					(20.4)		%
Basic Earnings Per Share			$	1.80					$	1.31					$	0.49					37.4		%				$	4.74					$	5.93					$	(1.19)					(20.1)		%
Diluted Earnings Per Share			$	1.80					$	1.31					$	0.49					37.4		%				$	4.74					$	5.92					$	(1.18)					(19.9)		%
Operating Days			64						63																		191						191
Average Daily Package Volume (in thousands)			21,527						20,425												5.4		%				21,220						21,109												0.5		%
Average Revenue Per Piece			$	13.58					$	13.81					$	(0.23)					(1.7)		%				$	13.66					$	13.82					$	(0.16)					(1.2)		%

• Average daily package volume in our global small package operations increased for the quarter and year-to-date periods for Enterprise and SMB customers, primarily as a result of new e-commerce customers and our Digital Access Program, in our U.S. Domestic package segment. Continued challenging macroeconomic conditions partially offset the overall volume increases and drove average daily package volume declines in our International package segment.

• Revenue increased for the quarter primarily driven by the impact of volume increases. Year-to-date declines in revenue were primarily due to decreased revenue per piece in U.S. Domestic Package due in part to unfavorable changes in product mix driven by customers selecting our economy products.

• Operating expenses increased in the quarter and year-to-date periods, primarily due to increased compensation and benefits expense in our U.S. Domestic Package segment as a result of higher wage and benefit rates specified in our IBT contract, as well as increases in purchased transportation as a result of additional SurePost volume. These increases were partially offset in the year-to-date period by decreases in fuel and workers compensation expenses, the impact of production initiatives and benefits from Fit to Serve, as well as a gain related to divestiture of Coyote.

• Operating profit and operating margin increased for the quarter, as revenue growth exceeded operating expense growth in this period. Operating profit and operating margin decreased year to date as revenue decreased and did not offset operating expense increases.

• We reported net income of $1.5 billion and diluted earnings per share of $1.80 ($4.1 billion and $4.74 per share, year to date) for the third quarter. Non-GAAP adjusted diluted earnings per share were $1.76 for the third quarter ($4.97 per share, year to date) after adjusting for the after-tax impacts of:

◦a gain on the divestiture of Coyote of $152 million or ($0.18) per diluted share in the quarter and year-to-date periods;

◦a payment to settle a one-time international regulatory matter of $94 million, or $0.11 per diluted share, including interest, in the year-to-date period;

◦non-cash asset impairment charges of $35 million, or $0.04 per diluted share in the year-to-date period;

◦transformation strategy costs of $116 million, or $0.14 per diluted share in the quarter ($172 million, or $0.21 per diluted share, year to date); and

◦an expense accrual related to a regulatory matter unrelated to our ongoing operations of $45 million, or $0.05 per diluted share in the year-to-date period.

For additional operational results for the quarter and year-to-date periods specific to our segments: U.S. Domestic Package, International Package and Supply Chain Solutions refer to Results of Operations - Segment Review below.

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Supplemental Information - Items Affecting Comparability

We supplement the reporting of our financial information determined under generally accepted accounting principles in the United States ("GAAP") with certain non-GAAP adjusted financial measures. Management views and evaluates business performance on both a GAAP basis and by excluding costs and benefits associated with these non-GAAP adjusted financial measures. As a result, we believe the presentation and discussion of these non-GAAP adjusted financial measures better enables users of our financial information to view and evaluate underlying business performance from the same perspective as management.

Non-GAAP adjusted financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our non-GAAP adjusted financial measures do not represent a comprehensive basis of accounting and therefore may not be comparable to similarly titled measures reported by other companies. Non-GAAP adjusted amounts reflect the following (in millions):

			Three Months Ended September 30,												Nine Months Ended September 30,
Non-GAAP Adjustments			2024						2023						2024						2023
Operating Expenses:
Transformation Strategy Costs:
Transformation 1.0			$	—					$	(3)					$	—					$	(10)
Transformation 2.0
Spans and Layers			—						—						—						(86)
Business Portfolio Review			(34)						(2)						(29)						(31)
Financial Systems			(12)						(12)						(41)						(30)
Other Initiatives			—						(1)						—						(3)
Transformation 2.0 Total			(46)						(15)						(70)						(150)
Fit to Serve			(108)						(76)						(157)						(76)
Total Transformation Strategy Costs			(154)						(94)						(227)						(236)
Gain on Divestiture of Coyote			156						—						156						—
One-Time Payment for International Regulatory Matter			—						—						(88)						—
Goodwill and Asset Impairment Charges			—						(117)						(48)						(125)
One-Time Compensation Payment			—						(61)						—						(61)
Expense for Regulatory Matter			—						—						(45)						—
Total Adjustments to Non-GAAP Operating Expenses			$	2					$	(272)					$	(252)					$	(422)

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			Three Months Ended September 30,												Nine Months Ended September 30,
Other Income and (Expense):			2024						2023						2024						2023
Interest Expense Associated with One-Time Payment for International Regulatory Matter			—						—						6						—
Total Adjustments to Non-GAAP Other Income and (Expense)			$	—					$	—					$	6					$	—
Total Adjustments to Non-GAAP Income Before Income Taxes			$	(2)					$	272					$	258					$	422
Income Tax (Benefit) Expense:
Transformation Strategy Costs:
Transformation 1.0			$	—					$	1					$	—					$	2
Transformation 2.0
Spans and Layers			—						—						—						21
Business Portfolio Review			8						1						7						7
Financial Systems			3						3						10						8
Other Initiatives			—						—						—						—
Transformation 2.0 Total			11						4						17						36
Fit to Serve			27						19						38						19
Total Transformation Strategy Costs			38						24						55						57
Gain on Divestiture of Coyote			(4)						—						(4)						—
One-Time Payment for International Regulatory Matter			—						—						—						—
Goodwill and Asset Impairment Charges			—						14						13						16
One-Time Compensation Payment			—						15						—						15
Expense for Regulatory Matter			—						—						—						—
Total Adjustments to Non-GAAP Income Tax (Benefit) Expense			$	34					$	53					$	64					$	88
Total Adjustments to Non-GAAP Net Income			$	(36)					$	219					$	194					$	334

The income tax impacts of these items are calculated at the statutory tax rates applicable in each tax jurisdiction.

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Transformation Strategy Costs

We supplement the presentation of operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of charges related to activities within our transformation strategy. Programs within our transformation strategy have been designed to fundamentally change our organization structure, processes, technologies and the composition of our business portfolio. Various circumstances have precipitated the projects and initiatives under these programs, including identification and reprioritization of investments as a result of executive leadership changes, developments and changes in competitive landscapes, inflationary pressures, consumer behaviors, and other factors including post-COVID normalization and volume diversions attributed to our 2023 labor negotiations. We do not consider the related costs to be ordinary because each program and its initiatives and projects involve separate and distinct activities that may span multiple periods and are strategic in nature as opposed to operational efforts to drive incremental profitability. These initiatives are in addition to ordinary, ongoing efforts to enhance business performance.

Our transformation strategy has included the following programs and initiatives:

Transformation 1.0: In the first quarter of 2018, we announced and began implementation of a multi-year, enterprise-wide program contemplating a reduction in non-operations management personnel, investments impacting global direct and indirect operating costs, and changes in processes and technology, which were undertaken and completed as multiple discrete initiatives (such projects, collectively, “Transformation 1.0”). In 2018, we announced that we expected to achieve approximately $1.0 billion in savings, which would benefit earnings, from Transformation 1.0. On a cumulative basis and net of amounts reinvested into the business, we had substantially achieved the expected benefits associated with Transformation 1.0 as of the second quarter of 2020. Transformation 1.0 was substantially completed in 2022.

Transformation 2.0: Based on a number of factors including evaluating efficiencies gained as a part of Transformation 1.0, and in connection with changes in our executive leadership in 2020, we identified and reprioritized certain then-current and future investments, including additional investments in our workforce, portfolio of businesses and technology (such projects, collectively, “Transformation 2.0”). Specifically, we undertook an organizational structure review designed to identify opportunities to reduce spans and layers of management, began a review of our business portfolio and identified opportunities to invest in certain technologies, including financial reporting and certain schedule, time and pay systems to reduce global indirect operating costs, provide better visibility, and reduce reliance on legacy systems and coding languages. Our organizational structure review indicated an opportunity to realize initial savings of approximately $400 million with potential opportunities to save up to an additional $240 million through the reduction of spans and layers of management with an anticipation that these savings would be recurring. The business portfolio review was expanded in 2022. As a result thereof, we determined to exit certain businesses that were not aligned with our corporate strategy and determined to make new investments into certain businesses, including healthcare-focused businesses, better aligned to our strategic targets. In connection therewith, we incurred costs primarily consisting of outside professional fees related to these reviews and other costs associated with these transactions. Lastly, our review of our systems and technologies identified certain areas of our business that were reliant on outdated technologies. Our reviews determined that continued use of these legacy technologies would likely increase maintenance costs and that investments into new technologies would enhance our ability to leverage our data and allow us to establish a more flexible system architecture. As of December 31, 2023, we substantially completed our initiatives to reduce spans and layers of management and achieved savings in line with our anticipated benefits. Our ongoing efforts under Transformation 2.0 include initiatives related to our financial systems and our business portfolio review. As of September 30, 2024, we have incurred $785 million of costs as part of Transformation 2.0. Transformation 2.0 initiatives are expected to conclude during 2025 with anticipated remaining costs of approximately $115 million primarily related to completion of our technology initiatives. Costs associated with Transformation 2.0 have primarily consisted of compensation and benefit costs related to reductions in our workforce and fees paid to third-party consultants. Additional detail relating to the projects, initiatives and timing of costs as a part of Transformation 2.0 are contained in the table above. Investments in technology are expected to provide enhanced quality of reporting for both internal and external purposes in part through simplification and standardization of data to better enable migration into cloud-based tools and automation of manual activities, including transitioning its general ledger, consolidation, and planning tools along with U.S. payroll from older programs and software supporting our freight forwarding business. These efforts to enhance our technology are expected to reduce the need for future investments; we expect to begin to realize benefits therefrom in 2025. Investments in our business portfolio review are expected to lead to better alignment of our businesses in support of our corporate strategy. We are realigning businesses within Supply Chain Solutions to better execute our strategy; the operational performance of these businesses is included in our GAAP and non-GAAP adjusted results.

Fit to Serve: In 2023, a number of factors, including macroeconomic headwinds and volume diversion resulting from our labor negotiations with the International Brotherhood of Teamsters, contributed to volume declines in our U.S. Domestic

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Package business. In addition, our International Package and Supply Chain Solutions businesses were also negatively impacted by a number of challenging macroeconomic conditions during 2023. In response to these factors, we announced and began to undertake our Fit to Serve initiative with the intent to right-size our business to create a more efficient operating model that was more responsive to market dynamics through a workforce reduction of approximately 12,000 positions throughout 2024. We have incurred total costs of approximately $370 million under Fit to Serve, which primarily consist of compensation and benefit costs related to reductions in our workforce. We expect to complete this initiative during 2025 with expected remaining costs of approximately $100 million to be incurred primarily during the fourth quarter of 2024 and first quarter of 2025. We have achieved savings of $625 million under Fit to Serve for the nine months ended September 30, 2024, and expect to realize savings of approximately $1.0 billion for the full year 2024 through reductions in our compensations and benefit expense. Incremental savings of approximately $100 million are expected when Fit to Serve is completed.

For more information regarding transformation strategy costs, see note 17 to the unaudited, consolidated financial statements.

Gain on Divestiture of Coyote

On September 16, 2024, we completed the previously announced divestiture of Coyote. In connection therewith, we recorded a pre-tax gain of $156 million ($152 million after tax) during the three and nine months ended September 30, 2024. The gain was recognized within Other expenses in the statements of consolidated income. We supplement the presentation of operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of this gain as it is not a component of our ongoing operations and is not expected to recur. For more information regarding the gain on divestiture of Coyote, see note 18 to the unaudited, consolidated financial statements.

One-Time Payment for International Regulatory Matter

In the second quarter of 2024, we made a payment of $94 million of previously restricted cash to settle a previously-disclosed challenge by Italian tax authorities to the deductibility of Value Added Tax payments by UPS to certain third-party service providers, a review of which was launched in the fourth quarter of 2023. We supplement the presentation of operating profit, operating margin, interest expense, total other income (expense), income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of this payment. We do not believe this is a component of our ongoing operations and we do not expect this or similar payments to recur.

Goodwill and Asset Impairment Charges

We supplement the presentation of operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of noncash goodwill and asset impairment charges. We believe excluding the impact of these charges provides management and investors with a measure that increases the comparability of underlying operating results. For more information regarding goodwill and current year asset impairment charges, see note 8 to the unaudited, consolidated financial statements.

One-Time Compensation Payment

We supplement the presentation of operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of a one-time payment made to certain U.S.-based, non-union part-time supervisors following the ratification of our labor agreement with the Teamsters in 2023. We do not expect this or similar payments to recur.

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Expense for Regulatory Matter

We supplement the presentation of operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of an accrual for a regulatory matter that we consider to be unrelated to our ongoing operations and that we do not expect to recur. For more information regarding this regulatory matter, see note 11 to the unaudited, consolidated financial statements.

Non-GAAP Adjusted Cost per Piece

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

Defined Benefit Pension and Postretirement Medical Plan Gains and Losses

We incur certain employment-related expenses associated with pension and postretirement medical benefits. These pension and postretirement medical benefits costs for company-sponsored defined benefit plans are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation, compensation increase rates, mortality rates and coordination of benefits with plans not sponsored by UPS. Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim remeasurement of any of our plans.

We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor (defined as 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation), as well as gains and losses resulting from plan curtailments and settlements, for our pension and postretirement defined benefit plans immediately as part of Investment income and other in the statements of consolidated income. We supplement the presentation of our income before income taxes, net income and earnings per share with adjusted measures that exclude the impact of these gains and losses and the related income tax effects. We believe excluding these defined benefit pension and postretirement medical plan gains and losses provides important supplemental information by removing the volatility associated with plan amendments and short-term changes in market interest rates, equity values and similar factors.

For additional information, see note 7 to the unaudited, consolidated financial statements.

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Results of Operations - Segment Review

The results and discussions that follow are reflective of how management monitors and evaluates the performance of our segments as defined in note 13 to the unaudited, consolidated financial statements.

Certain operating expenses are allocated between our reporting segments using activity-based costing methods. These activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed to each segment. Changes in these estimates would directly impact the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. Our allocation methodologies are refined periodically, or as necessary to reflect changes in our businesses. While there were no significant changes to our allocation methodologies in the third quarter of 2024, the costs allocated to Supply Chain Solutions increased. The air network expense allocated to Supply Chain Solutions increased by $182 million (up $204 million year to date) primarily driven by block hours associated with air cargo volume and associated ramp up costs from our previously-announced agreement with the USPS, as we continued to onboard this volume. We anticipate this expense will increase in the remainder of the year as the related volume attributable to this agreement increases.

As a normal part of managing our air network, we routinely idle aircraft and engines temporarily for maintenance or to adjust network capacity. As a result of the reduction in air volumes, we temporarily idled certain aircraft within our network in order to better match capacity with current demand. Temporarily idled assets are classified as held-and-used, and we continue to record depreciation expense for these assets. As of September 30, 2024, we had five aircraft temporarily idled for an average period of approximately six months. We expect these aircraft to return to revenue service in the fourth quarter of 2024.

We test goodwill for impairment annually at July 1 and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying value thereof may be impaired. Testing goodwill for impairment requires that we make a number of significant assumptions, including assumptions related to future revenues, costs, capital expenditures, working capital, our cost of capital, long-term growth rates and market comparables. We are also required to make assumptions relating to our overall business and operating strategy, and the regulatory and market environment.

We conducted our most recent goodwill impairment testing as of July 1, 2024 and concluded that the fair values of our reporting units were in excess of their respective carrying values. Approximately $1.2 billion of our consolidated goodwill balance of $4.4 billion is represented by our Global Freight Forwarding, Roadie and Global Logistics and Distribution reporting units which, based on our annual impairment evaluation, are exhibiting a limited excess of fair value above carrying value and reflect a greater risk of an impairment occurring in future periods. We do not expect any impairment would have a significant impact on our consolidated financial position, results of operations or cash flows.

We continued to monitor our reporting units subsequent to the annual test and while we do not believe it is more likely than not that our reporting units' fair values are less than their carrying values as of September 30, 2024, challenging macroeconomic and uncertain geopolitical conditions, actual reporting unit performance, revisions to our forecasts of future performance or other factors, including market comparables, may negatively impact certain estimates and assumptions that we use in determining our reporting units' fair values. Such impacts may be more pronounced for reporting units whose fair values do not significantly exceed their carrying values. These factors or a combination thereof could result in an impairment charge in one or more of our reporting units during a future period. We continue to monitor business performance and external factors affecting our reporting units.

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U.S. Domestic Package

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
2024						2023						$						%						2024						2023						$						%
Average Daily Package Volume (in thousands):
Next Day Air			1,596						1,679												(4.9)		%				1,582						1,699												(6.9)		%
Deferred			988						1,078												(8.3)		%				1,008						1,102												(8.5)		%
Ground			15,823						14,529												8.9		%				15,526						15,102												2.8		%
Total Average Daily Package Volume			18,407						17,286												6.5		%				18,116						17,903												1.2		%
Average Revenue Per Piece:
Next Day Air			$	23.46					$	22.42					$	1.04					4.6		%				$	23.24					$	22.31					$	0.93					4.2		%
Deferred			17.54						16.61						0.93						5.6		%				17.51						16.59						0.92						5.5		%
Ground			10.81						11.10						(0.29)						(2.6)		%				10.93						11.20						(0.27)						(2.4)		%
Total Average Revenue Per Piece			$	12.27					$	12.54					$	(0.27)					(2.2)		%				$	12.37					$	12.59					$	(0.22)					(1.7)		%
Operating Days in Period			64						63																		191						191
Revenue (in millions):
Next Day Air			$	2,396					$	2,372					$	24					1.0		%				$	7,021					$	7,240					$	(219)					(3.0)		%
Deferred			1,109						1,128						(19)						(1.7)		%				3,372						3,491						(119)						(3.4)		%
Ground			10,945						10,160						785						7.7		%				32,410						32,312						98						0.3		%
Total Revenue			$	14,450					$	13,660					$	790					5.8		%				$	42,803					$	43,043					$	(240)					(0.6)		%
Operating Expenses (in millions):
Operating Expenses			$	13,552					$	13,089					$	463					3.5		%				$	40,091					$	39,404					$	687					1.7		%
Non-GAAP adjustments to operating expenses
Transformation Strategy Costs			(76)						(33)						(43)						130.3		%				(93)						(134)						41						(30.6)		%
One-Time Compensation Payment			—						(61)						61						(100.0)		%				—						(61)						61						(100.0)		%
Goodwill and Asset Impairment Charges			—						—						—						N/A						(5)						—						(5)						N/A
Non-GAAP Adjusted Operating Expenses			$	13,476					$	12,995					$	481					3.7		%				$	39,993					$	39,209					$	784					2.0		%
Operating Profit (in millions) and Operating Margin:
Operating Profit			$	898					$	571					$	327					57.3		%				$	2,712					$	3,639					$	(927)					(25.5)		%
Non-GAAP Adjusted Operating Profit			$	974					$	665					$	309					46.5		%				$	2,810					$	3,834					$	(1,024)					(26.7)		%
Operating Margin			6.2		%				4.2		%																6.3		%				8.5		%
Non-GAAP Adjusted Operating Margin			6.7		%				4.9		%																6.6		%				8.9		%

Revenue

The change in revenue was due to the following:

			Volume						Rates / Product Mix						Fuel Surcharge						Total Revenue Change
Revenue Change Drivers:
Third quarter 2024 vs. 2023			8.1		%				(2.4)		%				0.1		%				5.8		%
Year to date 2024 vs. 2023			1.2		%				(1.4)		%				(0.4)		%				(0.6)		%

Comparative results were impacted by one additional operating day in the third quarter of 2024.

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RESULTS OF OPERATIONS

Volume

For the quarter, we had strong volume growth, the highest growth rate in more than three years. In addition, the average daily volume increased across all major customer segments, despite the expected decline of our largest customer. In both the quarter and year-to-date periods, the increase in volume occurred in multiple industries and was led by additional e-commerce customers and SMBs leveraging our Digital Access Program. Challenging macroeconomic conditions, including continued weakness in manufacturing output, partially offset the volume increases. We anticipate that average daily volume will increase in the fourth quarter relative to the comparative period, primarily driven by volume from SMBs, including those leveraging our Digital Access Program.

Business-to-consumer volume increased 11.0% in the quarter (up 4.5% year to date), due primarily to volume from the additional e-commerce customers noted above, and continued growth in online consumer spending.

Business-to-business volume increased 0.8% for the quarter (down 3.2% year to date). An increase in retail and healthcare volume drove the overall increase in business-to-business volume for the quarter but was more than offset year to date by declines in volume attributable to challenging macroeconomic factors and slowdown in manufacturing activity.

Within our Air products, average daily volume decreased in both the quarter and year-to-date periods, driven by the continued execution under the contract terms with our largest customer. The impact of other large customers making trade-offs to our ground products also contributed to the decline for the year-to-date period.

Ground commercial shipment average daily volume increased 1.1% for the quarter (down 3.1% year to date), primarily driven by an increase in volume from SMBs for the quarter, including continued growth within our Digital Access Program. Overall Ground residential volumes increased 15.4% for the quarter (up 7.6% year to date), primarily due to an increase in SurePost volume from new e-commerce customers.

Revenue Per Piece

Revenue per piece declined 2.2% for the quarter due to customer and product mix, lighter weight, and increase in shorter zone shipments. There was a 40-basis-point sequential improvement in the revenue per piece growth rate from the second quarter, supported by pricing actions we took to address revenue quality.

Revenue per piece from our Air products increased for both the quarter and year-to-date periods, while revenue per piece from our Ground products declined for both periods. In December 2023, we implemented an average 5.9% net increase in base and accessorial rates for both our Air and Ground products, which favorably impacted revenue per piece. In addition to these rate changes, revenue per piece for Air and Ground products were also impacted by decreases in average billable weight per piece for Air and Ground products and an increase in shorter zone shipments, unfavorable shifts in product mix and decreases in fuel surcharge revenue for Ground products.

We anticipate the year-over-year revenue per piece growth rate will improve in the fourth quarter due in part to delivery surcharges on both Air and Ground products, while base rates, fuel, and product and customer mix impact are expected to be neutral in total.

Fuel Surcharges

We apply a fuel surcharge on our domestic air and ground services that adjusts weekly. Our air fuel surcharge is based on the U.S. Department of Energy's ("DOE") Gulf Coast spot price for a gallon of kerosene-type fuel, and our ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel price.

Fuel surcharge revenue increased $12 million for the quarter (down $184 million year to date). Increases in volume and the impact of our pricing initiatives contributed to the increase in fuel surcharge revenue for the quarter, which were more than offset by the decrease in price per gallon for the year-to-date period.

Based on the current commodity market outlook, we expect fuel surcharge revenue to increase year over year during the fourth quarter of 2024.

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Operating Expenses

Operating expenses and non-GAAP adjusted operating expenses increased for both the quarter and year-to-date periods. Pickup and delivery costs increased $401 million in the quarter (up $1.1 billion year to date), package sortation costs increased $101 million in the quarter (up $267 million year to date) and other operating costs increased $51 million for the quarter (down $201 million year to date). In addition to the impact from one additional operating day and the average daily volume increase of 6.5% during the third quarter, these increases were driven by:

• An increase in compensation and benefits expense in both periods (partially offset by a decrease in worker's compensation expense in both periods) which was driven by the impact of wage rate increases for our union workforce under our IBT contract (became effective August 1, 2023), as well as an increase in direct labor hours driven by additional volume. During the quarter, union wage-rate growth slowed to 5.2% year over year. We anticipate compensation and benefits expense growth will continue to moderate in the fourth quarter of 2024 as union wage rate increases in the IBT contract as of August 1, 2024 are lower than in the prior year period.

• An increase in purchased transportation expense primarily due to higher third-party delivery expense required to deliver increased SurePost volume.

These increases were partially offset by a decrease of $72 million in the costs of operating our integrated air and ground network in the quarter (down $370 million year to date), and a decrease in other operating costs of $200 million year to date. These reductions were primarily driven by:

• Actions we took to drive productivity partially offset the increase in compensation and benefits expense discussed above. For example, through our Network of the Future initiative, this year we have completed 45 operational closures, contributing to an improvement in pieces per workforce hour. Production improvements offset approximately 50% of the union wage rate increase.

• A reduction in aircraft block hours for both periods resulting from lower air volume and network optimization.

• The positive impact of our ground network optimization initiatives, for example, the enhancements we made to our proximity matching algorithm which enables us to redirect more SurePost packages into our network, driving delivery density which reduces the incremental cost of delivery.

• A reduction in fuel expense for both periods, driven by decreases in the cost and consumption for jet and ground fuels,

• Benefits from our Fit to Serve initiative, and a reduction in expenses allocated to the business in the year-to-date period, offset by a reduction in gains on real estate sales relative to the comparative period.

Our non-GAAP adjusted operating expenses exclude the impact of transformation strategy costs which were $76 million for the quarter ($93 million year to date) for U.S. Domestic Package. Transformation strategy costs reflected within U.S. Domestic during these periods are related to our Fit to Serve and Transformation 2.0 programs. Within both programs, we incurred compensation and benefits costs related to workforce reductions as we right-size our business. Within Transformation 2.0, we incurred fees paid to outside professional service providers. See Supplemental Information - Items Affecting Comparability for additional discussion of items excluded from our non-GAAP financial measures.

Cost per piece decreased 4.3% for the quarter (up 0.6% year to date), and non-GAAP adjusted cost per piece decreased 4.1% for the quarter (up 0.8% year to date). The decrease in cost per piece for the quarter was primarily driven by higher average daily volume compared to the same period of 2023, combined with slower union wage-rate growth under the terms of the IBT contract, additional benefits from the network optimization efforts and a decrease in workers' compensation as discussed above. For the year-to-date period, higher wage rate increases for our union workforce led to an increase in cost per piece, partially offset by decreases in workers' compensation and changes in average daily volume discussed above. We anticipate the cost per piece growth rate will moderate for the remainder of the year based on our anticipated increase in average daiily volume as discusses above and lower wage rate increases as compared to the prior period, now that we have entered the second year of the IBT contract.

Operating Profit and Margin

As a result of the factors described above, operating profit increased $327 million for the quarter (down $927 million year to date), with operating margin increasing 200 basis points to 6.2% (down 220 basis points to 6.3% year to date). Non-GAAP adjusted operating profit increased $309 million for the quarter (down $1.0 billion year to date), with non-GAAP adjusted operating margin increasing 180 basis points to 6.7% (down 230 basis points to 6.6% year to date). Non-GAAP adjusted operating profit excludes the impact of operating expense adjustments discussed above.

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International Package

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2024						2023						$						%						2024						2023						$						%
Average Daily Package Volume (in thousands):
Domestic			1,483						1,524												(2.7)		%				1,491						1,571												(5.1)		%
Export			1,637						1,615												1.4		%				1,613						1,635												(1.3)		%
Total Average Daily Package Volume			3,120						3,139												(0.6)		%				3,104						3,206												(3.2)		%
Average Revenue Per Piece:
Domestic			$	8.12					$	7.73					$	0.39					5.0		%				$	8.07					$	7.66					$	0.41					5.4		%
Export			33.24						33.09						0.15						0.5		%				33.33						33.26						0.07						0.2		%
Total Average Revenue Per Piece			$	21.30					$	20.78					$	0.52					2.5		%				$	21.20					$	20.72					$	0.48					2.3		%
Operating Days in Period			64						63																		191						191
Revenue (in millions):
Domestic			$	771					$	742					$	29					3.9		%				$	2,299					$	2,299					$	—					—		%
Export			3,482						3,367						115						3.4		%				10,269						10,387						(118)						(1.1)		%
Cargo and Other			158						158						—						—		%				469						539						(70)						(13.0)		%
Total Revenue			$	4,411					$	4,267					$	144					3.4		%				$	13,037					$	13,225					$	(188)					(1.4)		%
Operating Expenses (in millions):
Operating Expenses			$	3,613					$	3,637					$	(24)					(0.7)		%				$	10,865					$	10,884					$	(19)					(0.2)		%
Non-GAAP adjustments to operating expenses
Transformation Strategy Costs			6						(45)						51						N/A						(36)						(42)						6						(14.3)		%
One-Time Payment for International Regulatory Matter			—						—						—						N/A						(88)						—						(88)						N/A
Asset Impairment Charges			—						—						—						N/A						(2)						—						(2)						N/A
Non-GAAP Adjusted Operating Expenses			$	3,619					$	3,592					$	27					0.8		%				$	10,739					$	10,842					$	(103)					(1.0)		%
Operating Profit (in millions) and Operating Margin:
Operating Profit			$	798					$	630					$	168					26.7		%				$	2,172					$	2,341					$	(169)					(7.2)		%
Non-GAAP Adjusted Operating Profit			$	792					$	675					$	117					17.3		%				$	2,298					$	2,383					$	(85)					(3.6)		%
Operating Margin			18.1		%				14.8		%																16.7		%				17.7		%
Non-GAAP Adjusted Operating Margin			18.0		%				15.8		%																17.6		%				18.0		%
Currency Benefit / (Cost) – (in millions)(1):
Revenue															$	(4)																							$	(90)
Operating Expenses															6																								38
Operating Profit															$	2																							$	(52)

(1) Net of currency hedging; amount represents the change in currency translation compared to the prior year.

Revenue

The change in revenue was due to the following:

			Volume						Rates / Product Mix						Fuel Surcharge						Currency						Total Revenue Change
Revenue Change Drivers:
Third quarter 2024 vs. 2023			1.5		%				2.1		%				(0.1)		%				(0.1)		%				3.4		%
Year to date 2024 vs. 2023			(3.2)		%				2.5		%				—		%				(0.7)		%				(1.4)		%

Comparative results were impacted by one additional operating day in the third quarter of 2024.

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Volume

Total average daily volume decreased for both the quarter and year-to-date periods. Average daily volume increased in the quarter for our export products, with all regions having positive average daily volume growth, with the increase offset by declines in domestic products mainly in Europe. Year to date, average daily volumes for both export and domestic products declined, primarily impacted by challenging economic conditions more prevalent during the first half of the year and continue to be compressed due to geopolitical uncertainty. Increased customer demand in certain areas was primarily responsible for the third quarter growth in our export products. During the quarter, average daily volume from large customers increased while volume from SMBs declined 1.8% primarily in Europe domestic products. Year-to-date volumes from both large customers and SMBs declined primarily within the European retail sector and manufacturing sector in various regions, partially offset by growth from customers in the healthcare sector. Business-to-business volume decreased 3.6% for the quarter (down 3.7% year to date), while business-to-consumer volume increased 7.7% during the quarter (down 1.7% year to date) primarily in Europe. We expect year-over-year average daily volume to improve in the fourth quarter relative to the comparative period, due to expected improvements in macroeconomic conditions.

The increase in export volume during the quarter was primarily due to continued growth in the Asia to U.S. and U.S. export trade lanes. Growth in Asia to U.S. trade lanes was driven by additional volume from technology and retail customers while growth in the U.S. export trade lanes was driven by volume from retail customers. Improvements in the intra-Europe trade lanes also slightly contributed to the growth in export volume during the quarter, driven primarily by healthcare customers. Year to date, declines in the intra-Europe trade lanes offset the growth in the Asia to U.S. and Americas to U.S. trade lanes.

Premium product volume remained relatively flat for the quarter (down 5.2% year to date). The year-to-date decline was primarily driven by reductions in our Worldwide Express product volumes as customers made trade-offs toward our economy products, primarily in the earlier part of the year. The quarterly decline was mostly offset by growth in our Transborder and Worldwide Express Saver products. Volume in our non-premium products increased 4.0% for the quarter (increased 0.9% year to date), driven by increases in our Transborder Standard and Worldwide Expedited products. Increases in our Transborder Express Saver and Standard products were driven by customers in the diversified vehicles and parts and healthcare sectors in Europe. Increases in our Worldwide Express Saver and Worldwide Expedited products were driven by technology and retail customers in Asia, respectively.

Domestic volume decreased for both the quarter and year-to-date periods, driven by declines in several European markets, as economic conditions continued to impact consumer spending in the region. For the quarter, increases in Canada, driven by increased volume from retail customers, slightly offset these declines. Continued e-commerce growth in Mexico partially offset the declines in both the quarter and year-to-date periods.

Revenue Per Piece

Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market. For example, in December 2023, we implemented an average 5.9% net increase in base and accessorial rates for international shipments originating in the United States.

Total revenue per piece increased 2.5% for the quarter (up 2.3% year to date), primarily due to base rate increases and favorable shifts in product and geographic mix. These were partially offset by declines in demand-related surcharges. Currency had a negative impact of 10 basis points (70 basis points year to date) on revenue per piece. We anticipate overall revenue per piece will increase in the fourth quarter relative to the prior year as a result of our continuing revenue quality initiatives.

Export revenue per piece increased 0.5% for the quarter (up 0.2% year to date) driven by base rate increases and a favorable shift in product and geographic mix. Currency did not impact export revenue per piece for the quarter but had a negative impact of 60 basis points year to date.

Domestic revenue per piece increased 5.0% for the quarter (up 5.4% year to date), driven by base rate increases and favorable shifts in geographic mix. Currency had a negative impact of 70 basis points for the quarter (130 basis points year to date).

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Fuel Surcharges

The fuel surcharge we apply to international air services originating inside or outside the U.S. is largely indexed to the DOE's Gulf Coast spot price for a gallon of kerosene-type jet fuel. The fuel surcharges for ground services originating outside the U.S. are indexed to fuel prices in the region or country where the shipment originates.

Total international fuel surcharge revenue remained flat for the quarter, with the impacts of pricing initiatives and increased export volume mostly offsetting year-over-year fuel price declines. Year to date, fuel surcharge revenue decreased $8 million driven by volume declines in the first half of the year, partially offset by higher average fuel prices during the first quarter. We anticipate fuel surcharge revenue will decrease relative to the prior year fourth quarter, as lower fuel prices are expected to more than offset expected increases in year-over-year volume.

Operating Expenses

Operating expenses decreased slightly for both the third quarter and year-to-date periods. This quarterly decline was primarily due to a decrease in other benefits expense related to workforce reductions during the current period as compared to the prior year period and decreased other indirect costs from various transactions. This was somewhat offset by $47 million in higher pickup and delivery expenses, associated with increased volumes in certain regions and the impact of an additional operating day.

Year to date, the costs of operating our integrated air and ground network decreased $88 million due to lower average fuel prices and reductions in air charters and aircraft block hours in response to volume declines in the first half of the year. This decrease was mostly offset due to a payment to settle a one-time international regulatory matter in Italy.

Our non-GAAP adjusted operating expenses exclude the impact of activities associated with our transformation strategy, which were immaterial for the quarter (year to date $36 million). Transformation strategy activities reflected within International Package during these periods are primarily comprised of compensation and benefits related to workforce reductions under our Fit to Serve program. See Supplemental Information - Items Affecting Comparability for additional discussion.

We expect our operating expenses will increase during the fourth quarter of 2024, driven by expected volume growth.

Operating Profit and Margin

As a result of the factors described above, operating profit increased $168 million for the quarter (down $169 million year to date), with operating margin increasing 330 basis points to 18.1% (down 100 basis points to 16.7% year to date). Non-GAAP adjusted operating profit increased $117 million (down $85 million year to date) and non-GAAP adjusted operating margin increased 220 basis points to 18.0% (down 40 basis points to 17.6% year to date). Non-GAAP adjusted operating profit excludes the impact of operating expense adjustments discussed above.

During the third quarter, we completed the previously disclosed, pending liquidation of our Small Package subsidiaries in Russia and Belarus. The process to liquidate our Forwarding and Logistics subsidiaries in Russia are on-going and we expect to finalize the liquidation by the first quarter of 2025. Substantially all of our operations in Ukraine remain indefinitely suspended. These actions have not had, and are not expected to have, a material impact on us.

On July 22, 2024, we announced that we have entered into an agreement to acquire Estafeta, a leading domestic small package provider in Mexico that is expected to enhance our logistics orchestration capabilities in this market. The acquisition is targeted to close in the first half of 2025, subject to customary closing conditions and regulatory approvals.

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Supply Chain Solutions

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2024						2023						$						%						2024						2023						$						%
Revenue (in millions):
Forwarding			$	1,307					$	1,327					$	(20)					(1.5)		%				$	3,902					$	4,217					$	(315)					(7.5)		%
Logistics			1,550						1,430						120						8.4		%				4,638						4,271						367						8.6		%
Other			527						377						150						39.8		%				1,389						1,285						104						8.1		%
Total Revenue			$	3,384					$	3,134					$	250					8.0		%				$	9,929					$	9,773					$	156					1.6		%
Operating Expenses (in millions):
Operating Expenses			$	3,095					$	2,992					$	103					3.4		%				$	9,271					$	9,089					$	182					2.0		%
Gain on Divestiture of Coyote			156						—						156						N/A						156						—						156						N/A
Transformation Strategy Costs			(84)						(16)						(68)						425.0		%				(98)						(60)						(38)						63.3		%
Goodwill and Asset Impairment Charges			—						(117)						117						(100.0)		%				(41)						(125)						84						(67.2)		%
Expense for Regulatory Matter			—						—						—						N/A						(45)						—						(45)						N/A
Non-GAAP Adjusted Operating Expenses			$	3,167					$	2,859					$	308					10.8		%				$	9,243					$	8,904					$	339					3.8		%
Operating Profit (in millions) and Operating Margin:
Operating Profit			$	289					$	142					$	147					103.5		%				$	658					$	684					$	(26)					(3.8)		%
Non-GAAP Adjusted Operating Profit			$	217					$	275					$	(58)					(21.1)		%				$	686					$	869					$	(183)					(21.1)		%
Operating Margin			8.5		%				4.5		%																6.6		%				7.0		%
Non-GAAP Adjusted Operating Margin			6.4		%				8.8		%																6.9		%				8.9		%
Currency Benefit / (Cost) – (in millions)(1):
Revenue															$	(10)																							$	(52)
Operating Expenses															13																								62
Operating Profit															$	3																							$	10

(1) Amount represents the change in currency translation compared to the prior year.

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			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2024						2023						$						%						2024						2023						$						%
Non-GAAP adjustments to Operating Expenses (in millions):
Transformation Strategy Costs
Forwarding			$	28					$	14					$	14					100.0		%				$	35					$	38					$	(3)					(7.9)		%
Logistics			56						1						55						5,500.0		%				63						21						42						200.0		%
Other SCS			—						1						(1)						(100.0)		%				—						1						(1)						(100.0)		%
Total Transformation Strategy Costs			$	84					$	16					$	68					425.0		%				$	98					$	60					$	38					63.3		%
Gain on Divestiture of Coyote
Forwarding			$	(156)					$	—					$	(156)					N/A						$	(156)					$	—					$	(156)					N/A
Total Gain on Divestiture of Coyote			$	(156)					$	—					$	(156)					N/A						$	(156)					$	—					$	(156)					N/A
Goodwill and Asset Impairment Charges
Forwarding			$	—					$	—					$	—					N/A						$	—					$	8					$	(8)					(100.0)		%
Logistics			—						—						—						N/A						41						—						41						N/A
Other SCS			—						117						(117)						(100.0)		%				—						117						(117)						(100.0)		%
Total Goodwill and Asset Impairment Charges			$	—					$	117					$	(117)					N/A						$	41					$	125					$	(84)					(67.2)		%
Expense for Regulatory Matter
Other SCS			—						—						—						N/A						45						—						45						N/A
Total Expense for Regulatory Matter			$	—					$	—					$	—					N/A						$	45					$	—					$	45					N/A
Total non-GAAP Adjustments to Operating Expenses			$	(72)					$	133					$	(205)					N/A						$	28					$	185					$	(157)					(84.9)		%

Revenue

Total revenue in Supply Chain Solutions increased for both the third quarter and year-to-date periods, primarily due to growth in Logistics and certain of our other businesses, which more than offset declines in Forwarding, which were driven by reductions attributable to Coyote.

Within our Logistics businesses, revenue increased $120 million for the quarter (up $367 million year to date). The acquisition of MNX Global Logistics in the fourth quarter of 2023 contributed $91 million of the increase for the quarter ($269 million year to date), including revenue related to healthcare customers. Revenue in mail services increased $65 million for the quarter (up $59 million year to date) driven by new customer volume and rate increases in the third quarter. These increases more than offset a decline in our other logistics businesses during the quarter. We expect continued growth from MNX Global Logistics and mail services for the remainder of 2024.

Within our Forwarding businesses:

• International airfreight revenue increased approximately $50 million for the quarter (up $21 million year to date), due primarily to increases in market rates since the first quarter. Volume also grew during the quarter and year-to-date periods, particularly on the Asia export lanes, driven by e-commerce customers. We expect revenue growth to continue for the remainder of the year, with anticipated increases in e-commerce demand driving higher volumes and rates.

• Ocean freight forwarding revenue increased for both the quarter and year to date, driven by an increase in market rates during the second and third quarters resulting from improved market dynamics, more than offsetting lower year-to-date volumes and lower rates during the first quarter. We expect revenue growth to continue for the remainder of the year driven by these higher rates.

• Revenue from Coyote, decreased $152 million for the quarter (down $388 million year to date) due to lower volumes, continued softness in market rates, and completion of the previously announced divestiture on September 16, 2024.

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Revenue from other businesses within Supply Chain Solutions increased for both the quarter and year to date.

• Revenue attributable to volume from the USPS increased $111 million for the quarter, driven by increased volumes as we continued to onboard volume related to our April 2024 USPS air cargo agreement. Year to date, revenue attributable to the USPS increased $38 million, attributable to air cargo volume growth in the second and third quarters, which more than offset lower volumes in the first quarter. We expect revenue growth will continue in the fourth quarter, as the air cargo volume under our agreement is now fully onboarded.

• In our digital businesses, revenue increased $45 million for the quarter (up $124 million year to date), driven by volume growth at Roadie and the impact of Happy Returns, which was acquired in the fourth quarter of 2023.

• Revenue from transition services provided to the acquirer of UPS Freight continued to decrease in both the quarter and year-to-date periods as we continue to wind down these arrangements.

Operating Expenses

Total operating expenses and non-GAAP adjusted operating expenses within Supply Chain Solutions increased for both the third quarter and year-to-date periods for the reasons described below. For additional information on our non-GAAP adjustments, see Supplemental Information - Items Affecting Comparability.

Logistics operating expenses increased $184 million for the quarter (up $481 million year to date) and on a non-GAAP adjusted basis, operating expenses increased $129 million for the quarter (up $398 million year to date). Increases in operating expense were driven primarily by the impact of the acquisition of MNX Global Logistics which contributed $89 million of the increase for the quarter ($264 million year to date). Operating expenses in mail services increased $54 million for the quarter (up $60 million year to date) driven by third quarter volume growth and rate increases. Non-GAAP adjusted operating expense excludes the impact of $56 million for the quarter ($63 million year to date) in expense primarily related to projects within our healthcare operations undertaken as part of our transformation strategy and $41 million in expense also within our healthcare operations during the first quarter of 2024 to write down the value of certain trade names acquired as part of the Bomi Group acquisition.

Forwarding operating expenses decreased $189 million for the quarter (down $484 million year to date) and on a non-GAAP adjusted basis, operating expenses decreased $47 million for the quarter (down $317 million year to date), primarily due to a reduction in purchased transportation expense as a result of lower volumes and market rates in Coyote and the impact from divestiture. Operating expenses in our freight forwarding business increased $106 million for the quarter driven by higher market rates and volumes, in particular on our Asia to U.S. lanes, for both international airfreight and ocean freight. Year-to-date operating expenses in our freight forwarding businesses also increased, as lower market rates in the first half of the year were offset by higher market rates and volumes in the third quarter. We expect our Forwarding operating expenses will decrease in the fourth quarter driven by the impact of the Coyote divestiture, partially offset by continued growth in market rates in our freight forwarding businesses. Non-GAAP adjusted operating expense excludes the impact of $28 million for the quarter ($35 million year to date) in expense related to projects undertaken as part of our transformation strategy and a gain of $156 million related to the divestiture of Coyote recognized during the third quarter.

Expenses in our other Supply Chain Solutions businesses increased $108 million for the quarter (up $185 million year to date) and on a non-GAAP adjusted basis, operating expenses increased $226 million for the quarter (up $258 million year to date), primarily driven by the increase in expense associated with USPS volumes as we continued to onboard the air cargo volume during the third quarter driving additional aircraft block hours and associated ramp up costs. Year to date, these ramp up costs more than offset the first quarter cost decreases of $47 million attributable to decreases in other USPS volumes. Within our digital businesses, operating costs increased for the quarter driven by volume growth and the impact of acquiring Happy Returns in 2023. Costs incurred to procure transportation for, and provide transition services to, the acquirer of UPS Freight continued to decrease in both the quarter and year-to-date periods as we continued to wind down these arrangements. Year-to-date non-GAAP adjusted operating expense excludes the impact of $45 million in expense related to a regulatory matter. For the three and nine months ended September 30, 2023, non-GAAP adjusted operating expense excluded the impact of goodwill impairment charges of $117 and $125 million, respectively.

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RESULTS OF OPERATIONS

As discussed above, our non-GAAP adjusted operating expenses exclude the impact of transformation strategy costs which were $84 million for the quarter ($98 million year to date) for Supply Chain Solutions. Transformation strategy costs reflected within Supply Chain Solutions during these periods are related to our Fit to Serve and Transformation 2.0 programs. Within Transformation 2.0, we incurred impairment costs resulting from our business portfolio review and costs related to financial system investments in Forwarding. Within Fit to Serve, we incurred severance costs as we right-size our business.

Operating Profit and Margin

As a result of the factors described above, total operating profit increased $147 million for the quarter (down $26 million year to date), with operating margin increasing 400 basis points to 8.5% (down 40 basis points to 6.6% year to date). On a non-GAAP adjusted basis, operating profit decreased $58 million for the quarter (down $183 million year to date) with non-GAAP adjusted operating margin decreasing 240 basis points to 6.4% (down 200 basis points to 6.9% year to date). Non-GAAP adjusted operating profit excludes the impact of operating expense adjustments discussed above.

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RESULTS OF OPERATIONS

Consolidated Operating Expenses

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2024						2023						$						%						2024						2023						$						%
Operating Expenses (in millions):
Compensation and benefits			$	11,955					$	11,528					$	427					3.7		%				$	35,097					$	34,188					$	909					2.7		%
Transformation Strategy Costs			(110)						(80)						(30)						37.5		%				(161)						(178)						17						(9.6)		%
One-Time Compensation Payment			—						(61)						61						(100.0)		%				—						(61)						61						(100.0)		%
Non-GAAP Adjusted Compensation and Benefits			$	11,845					$	11,387					$	458					4.0		%				$	34,936					$	33,949					$	987					2.9		%
Repairs and maintenance			$	713					$	719					$	(6)					(0.8)		%				$	2,165					$	2,126					$	39					1.8		%
Depreciation and amortization			905						837						68						8.1		%				2,690						2,499						191						7.6		%
Purchased transportation			3,375						3,114						261						8.4		%				9,894						9,826						68						0.7		%
Fuel			1,068						1,132						(64)						(5.7)		%				3,254						3,493						(239)						(6.8)		%
Other occupancy			517						481						36						7.5		%				1,573						1,490						83						5.6		%
Other expenses			1,727						1,907						(180)						(9.4)		%				5,554						5,755						(201)						(3.5)		%
Total Other Expenses			8,305						8,190						115						1.4		%				25,130						25,189						(59)						(0.2)		%
Gain on Divestiture of Coyote			156						—						156						N/A						156						—						156						N/A
Transformation Strategy Costs			(44)						(14)						(30)						214.3		%				(66)						(58)						(8)						13.8		%
Goodwill and Asset Impairment Charges			—						(117)						117						(100.0)		%				(48)						(125)						77						(61.6)		%
One-Time Payment for International Regulatory Matter			—						—						—						N/A						(88)						—						(88)						N/A
Expense for Regulatory Matter			—						—						—						N/A						(45)						—						(45)						N/A
Non-GAAP Adjusted Total Other Expenses			$	8,417					$	8,059					$	358					4.4		%				$	25,039					$	25,006					33						0.1		%
Total Operating Expenses			$	20,260					$	19,718					$	542					2.7		%				$	60,227					$	59,377					$	850					1.4		%
Non-GAAP Adjusted Total Operating Expenses			$	20,262					$	19,446					$	816					4.2		%				$	59,975					$	58,955					$	1,020					1.7		%
Currency (Benefit) / Cost - (in millions)(1)															$	(18)																							$	(100)

(1) Amount represents the change in currency translation compared to the prior year.

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RESULTS OF OPERATIONS

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2024						2023						$						%						2024						2023						$						%
Non-GAAP Adjustments to Operating Expenses (in millions):
Transformation Strategy Costs
Compensation			$	5					$	5					$	—					—		%				$	18					$	15					$	3					20.0		%
Benefits			105						75						30						40.0		%				143						163						(20)						(12.3)		%
Other expenses			44						14						30						214.3		%				66						58						8						13.8		%
Total Transformation Strategy Costs			$	154					$	94					$	60					63.8		%				$	227					$	236					$	(9)					(3.8)		%
Gain on Divestiture of Coyote
Other expenses			$	(156)					$	—					$	(156)					N/A						$	(156)					$	—					$	(156)					N/A
Total Gain on Divestiture of Coyote			$	(156)					$	—					$	(156)					N/A						$	(156)					$	—					$	(156)					N/A
One-Time Payment for International Regulatory Matter
Other expenses			$	—					$	—					$	—					N/A						$	88					$	—					$	88					N/A
Total One-Time Payment for International Regulatory Matter			$	—					$	—					$	—					N/A						$	88					$	—					$	88					N/A
Goodwill and Asset Impairment Charges
Other expenses			$	—					$	117					$	(117)					(100.0)		%				$	48					$	125					$	(77)					(61.6)		%
Total Asset Impairment Charges			$	—					$	117					$	(117)					(100.0)		%				$	48					$	125					$	(77)					(61.6)		%
One-Time Compensation Payment
Benefits			$	—					$	61					$	(61)					(100.0)		%				$	—					$	61					$	(61)					(100.0)		%
Total One-Time Compensation Payment			$	—					$	61					$	(61)					(100.0)		%				$	—					$	61					$	(61)					(100.0)		%
Expense for Regulatory Matter
Other expenses			$	—					$	—					$	—					N/A						$	45					$	—					$	45					N/A
Total Expense for Regulatory Matter			$	—					$	—					$	—					N/A						$	45					$	—					$	45					N/A
Total Non-GAAP Adjustments to Operating Expenses			$	(2)					$	272					$	(274)					N/A						$	252					$	422					$	(170)					(40.3)		%

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

Compensation and Benefits

Total compensation and benefits and non-GAAP adjusted total compensation and benefits increased for both the quarter and year-to-date periods. Compensation costs increased $363 million for the quarter (up $719 million year to date), and on a non-GAAP adjusted basis increased $363 million for the quarter (up $716 million year to date). The principal factors contributing to the overall increase were:

• Direct labor costs increased $384 million for the quarter (up $933 million year to date). Contractual wage rate increases for our U.S. union workforce resulted in an increase in costs of $123 million for the quarter (up $750 million year to date). Productivity improvements reduced direct labor costs by $87 million for the quarter (down $116 million year to date). Volume growth increased direct labor expense by $238 million for the quarter and $46 million year to date, as growth during the third quarter more than offset decreases during the first half of 2024. The remaining increase for both the quarter and year-to-date periods was primarily due to increased seniority within our union workforce. We expect wage rate growth to moderate for the remainder of the year as a result of the terms of our IBT contract.

• Management compensation costs decreased $34 million for the quarter (down $188 million year to date) due to lower overall headcount, offset by higher incentive compensation expense.

Benefits costs increased $64 million for the quarter (up $190 million year to date) and on a non-GAAP adjusted basis increased $95 million for the quarter (up $271 million year to date). The principal factors driving the overall increase were:

• Workers' compensation expense decreased $102 million for the quarter (down $192 million year to date) due to favorable developments in prior year claims.

• Accruals for paid time off, payroll taxes and other costs increased $80 million for the quarter (up $274 million year to date), primarily due to contractual wage rate growth.

• Health and welfare costs increased $62 million for the quarter (up $152 million year to date), driven by increased contributions to multiemployer plans as a result of contractually-mandated rate increases.

• Pension and other postretirement benefits costs increased $40 million for the quarter (up $23 million year to date), due primarily to third quarter increases in both the cost of company-sponsored defined benefit plans, driven by service cost resulting from lower discount rates, and increased expense for the UPS 401(k) Savings Plan.

• Other employee benefits expense decreased $14 million for the quarter (down $66 million year to date) due to higher separation costs incurred in 2023 as we continued to right-size our business. On a non-GAAP adjusted basis, other employee benefits expense remained relatively flat.

Non-GAAP adjusted operating expenses exclude the impact of costs incurred under our transformation strategy programs, Fit to Serve and Transformation 2.0, and primarily impacted other employee benefits expense and related payroll tax expense as discussed above. Compensation and benefit expenses under these programs during the third quarter of 2024 were $110 million ($161 million year to date). These costs increased by $30 million (down $17 million year to date) as compared to the same periods of 2023. During 2023, non-GAAP adjusted operating expenses excluded a one-time compensation payment. See Supplemental Information - Items Affecting Comparability for additional discussion.

Repairs and Maintenance

Repairs and maintenance expense was relatively flat for the quarter, as higher vehicle maintenance expenses, driven by increased volume, were more than offset by lower aircraft and facilities expense due to the timing of required maintenance and revisions to 2024 contractual aircraft maintenance rates. Year-to-date repairs and maintenance expense increased, primarily attributable to higher routine repairs to buildings and facilities in the first half of the year.

Depreciation and Amortization

We incurred higher depreciation expense for both the quarter and year to date as a result of facility automation and expansion projects aligned with our strategic objectives. Amortization expense for capitalized software investments in support of our strategic initiatives increased for both the quarter and year to date, and we recorded additional amortization expense for intangible assets arising from the acquisitions of MNX Global Logistics and Happy Returns in the fourth quarter of 2023.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers increased for both the quarter and year to date. The increases were primarily driven by:

• U.S. Domestic expense increased $140 million for the quarter (up $58 million year to date). Volume growth in our SurePost product drove an increase in delivery costs of $116 million for the quarter (up $248 million year to date). For the quarter, volume increases also resulted in higher utilization of third-party ground and rail carriers. Year to date, third quarter increases more than offset decreases in the first half of the year, which were driven by the impact of network optimization initiatives resulting in lower utilization of third-party ground and rail carriers, and by volume declines in the first quarter.

• Supply Chain Solutions expense increased $85 million for the quarter (up $27 million year to date) as increased expense in our freight forwarding business during the third quarter more than offset lower expenses during the first half of the year. Within our Logistics businesses, expense increased $100 million for the quarter ($212 million year to date), primarily driven by the impact of the acquisition of MNX Global Logistics and volume growth in our healthcare operations, during the first half of the year, and in mail services, during the third quarter. In our freight forwarding business, expense increased $78 million for the quarter (up $29 million year to date) due to market rates increasing in the second and third quarters offsetting lower rates in the first quarter. Volume growth within our digital businesses also resulted in increased expense for both the quarter and year to date. These increases more than offset the impact of Coyote, the disposition of which was completed in September and which experienced volume declines and lower market rates prior to divestiture.

• International Package expense increased $36 million for the quarter but was relatively flat year to date. Higher utilization of third-party transportation services in the quarter, driven by an increase in volume in Europe and Asia, were more than offset by lower volumes in the first quarter resulting in lower expense for third-party transportation services.

Fuel

The decrease in fuel expense for the quarter was mainly attributable to lower prices for jet fuel, diesel and gasoline, which more than offset expense increases driven by volume growth. Year to date, overall fuel expense also decreased, driven by the combination of lower prices for jet fuel and the impact of volume declines in the first quarter, as well as lower prices for diesel and gasoline. Market prices and the manner in which we purchase fuel influence our costs. The majority of our fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential. While many of the indices are correlated, each index may respond differently to changes in underlying prices, which in turn can drive variability in our costs.

Other Occupancy

Other occupancy expense increased for both the quarter and year to date, primarily due to increases in property rents. A reduction in certain rebates and increases to temporary structural costs in the second and third quarters also contributed to the increase.

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Other Expenses

Other expenses decreased $180 million for the quarter (down $201 million year to date). During the quarter, we completed the divestiture of Coyote and recorded a pre-tax gain of $156 million. Transformation strategy costs increased $30 million for the quarter ($8 million year to date). We recorded an additional pre-tax expense of $45 million in the first half of 2024 related to a regulatory matter. Also in the first half of 2024, we recorded a $41 million pre-tax charge to write down the value of certain trade names acquired as part of our acquisition of Bomi Group as we consolidated our brands, a $7 million pre-tax impairment charge related to software licenses and a $94 million pre-tax payment, including interest, made to settle a previously-disclosed international regulatory matter.

On a non-GAAP adjusted basis, other expenses increased $63 million for the quarter (down $109 million year to date). These fluctuations were primarily driven by:

• A reduction in outsourcing and consulting fees of $9 million for the quarter (down $119 million year to date) driven by a decrease in project-based engagements and an increase in third-party costs related to software development projects that are eligible to be capitalized.

• Reductions in vehicle lease expense of $24 million for the quarter (down $121 million year to date), due to the impact of network optimization efforts and volume declines in the first quarter.

• Gains from the sale of surplus real estate decreased by $45 million during the quarter (down $55 million year to date).

• Credit losses increased $18 million for the quarter (up $83 million year to date) as a result of an increased number of customer bankruptcies in the first half of the year and increases in reserves.

• Commissions paid increased $23 million for the quarter (up $14 million year to date) primarily due to growth in our Digital Access Program.

Other expense movements for the current quarter included higher costs for software. Cost related to airline operations increased primarily due to increased flight activity. These were offset by lower marketing and advertising costs.

Non-GAAP adjusted operating expenses exclude the impact of costs incurred under our transformation strategy programs. Other expenses under our Fit to Serve and Transformation 2.0 programs during the third quarter of 2024 were $44 million ($66 million year to date). These costs increased by $30 million (up $8 million year to date) as compared to the same periods of 2023. We expect to incur additional other expenses under our Fit to Serve and Transformation 2.0 programs during 2024 and 2025 as we complete these programs. Other expenses incurred under these programs are primarily related to fees paid to outside professional service providers and impairment charges resulting from our business portfolio review. See Supplemental Information - Items Affecting Comparability for additional discussion.

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RESULTS OF OPERATIONS

Other Income (Expense)

The following table sets forth investment income and other and interest expense for the three and nine months ended September 30, 2024 and 2023 (in millions):

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2024						2023						$						%						2024						2023						$						%
Investment Income and Other			$	155					$	124					$	31					25.0		%				$	410					$	424					$	(14)					(3.3)		%
Interest Expense			(230)						(199)						(31)						15.6		%				(637)						(578)						(59)						10.2		%
Interest Expense Associated with One-Time Payment for International Regulatory Matter			—						—						—						N/A						6						—						6						N/A
Non-GAAP Adjusted Interest Expense			$	(230)					$	(199)					$	(31)					15.6		%				$	(631)					$	(578)					$	(53)					9.2		%
Total Other Income (Expense)			$	(75)					$	(75)					$	—					—		%				$	(227)					$	(154)					$	(73)					47.4		%
Non-GAAP Adjusted Total Other Income (Expense)			$	(75)					$	(75)					$	—					—		%				$	(221)					$	(154)					$	(67)					43.5		%

Investment Income and Other

Investment income and other increased $31 million for the third quarter but decreased $14 million year to date, with both periods negatively impacted by a reduction in average invested balances and year-over-year changes in certain non-current investments. In the third quarter, a reduction in foreign currency exchange losses relative to the prior year exceeded the impact of investment income declines.

Within Investment Income and Other, other pension income remained flat for both the quarter and year to date, as higher expected returns on pension assets were offset by an increase in interest cost as a result of plan growth and changes in demographic assumptions.

Interest Expense

Interest expense increased for both the third quarter and year to date, driven by the combination of higher average outstanding debt balances and higher interest rates on floating rate debt.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

Income Tax Expense

The following table sets forth our income tax expense and effective tax rate for the three and nine months ended September 30, 2024 and 2023 (in millions):

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2024						2023						$						%						2024						2023						$						%
Income Tax Expense			$	371					$	141					$	230					163.1		%				$	1,254					$	1,407					$	(153)					(10.9)		%
Income Tax Impact of:
Transformation Strategy Costs:
Transformation 1.0			—						1						(1)						(100.0)		%				—						2						(2)						(100.0)		%
Transformation 2.0
Spans and Layers			—						—						—						N/A						—						21						(21)						(100.0)		%
Business Portfolio Review			8						1						7						700.0		%				7						7						—						—		%
Financial Systems			3						3						—						—		%				10						8						2						25.0		%
Other Initiatives			—						—						—						N/A						—						—						—						N/A
Transformation 2.0 Total			11						4						7						175.0		%				17						36						(19)						(52.8)		%
Fit to Serve			27						19						8						42.1		%				38						19						19						100.0		%
Total Transformation Strategy Costs			38						24						14						58.3		%				55						57						(2)						(3.5)		%
Gain on Divestiture of Coyote			(4)						—						(4)						N/A						(4)						—						(4)						N/A
One-Time Payment for International Regulatory Matter			—						—						—						N/A						—						—						—						N/A
Goodwill and Asset Impairment Charges			—						14						(14)						(100.0)		%				13						16						(3)						(18.8)		%
One-Time Compensation Payment			—						15						(15)						(100.0)		%				—						15						(15)						(100.0)		%
Expense for Regulatory Matter			—						—						—						N/A						—						—						—						N/A
Non-GAAP Adjusted Income Tax Expense			$	405					$	194					$	211					108.8		%				$	1,318					$	1,495					$	(177)					(11.8)		%
Effective Tax Rate			19.4		%				11.1		%																23.6		%				21.6		%
Non-GAAP Adjusted Effective Tax Rate			21.2		%				12.6		%																23.6		%				21.6		%

For additional information on our income tax expense and effective tax rate, see note 16 to the unaudited, consolidated financial statements.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Liquidity and Capital Resources

We deploy a disciplined and balanced approach to capital allocation, including returns to shareowners through dividends and share repurchases. As of September 30, 2024, we had $6.1 billion in cash, cash equivalents and marketable securities. We believe that these positions, expected cash from operations, access to commercial paper programs and capital markets and other available liquidity options will be adequate to fund our material short- and long-term cash requirements, including our business operations, planned capital expenditures, pension contributions, planned acquisitions, transformation strategy costs, debt obligations and planned shareowner returns. We regularly evaluate opportunities to optimize our capital structure, including through issuances of debt to refinance existing debt and to fund operations.

Cash Flows From Operating Activities

The following is a summary of the significant sources (uses) of cash from operating activities (in millions):

			Nine Months Ended September 30,
			2024						2023
Net income			$	4,061					$	5,103
Non-cash operating activities (1)			3,542						3,911
Pension and postretirement medical benefit plan contributions (company-sponsored plans)			(1,434)						(1,363)
Hedge margin receivables and payables			(90)						(152)
Income tax receivables and payables			27						(728)
Changes in working capital and other non-current assets and liabilities			758						1,138
Other operating activities			(57)						(82)
Net cash from operating activities			$	6,807					$	7,827

(1) Represents depreciation and amortization, gains and losses on derivative transactions and foreign currency exchange, deferred income taxes, allowances for expected credit losses, amortization of operating lease assets, pension and postretirement medical benefit plan (income) expense, stock compensation expense, changes in casualty self-insurance reserves, goodwill and other asset impairment charges and other non-cash items.

Net cash from operating activities decreased $1.0 billion for the nine months ended September 30, 2024 from the prior year period primarily due to a reduction in net income and the impact of the decline in business in 2023.

Additional impacts to cash flows from operating activities included the following:

• An increase in income taxes payable during the 2024 period, compared to excess tax payments having been made in the prior year period.

• A prior year period payment for deferred employer payroll taxes that did not repeat.

• Partially offset by higher 401(k) plan contributions during the nine months ended September 30, 2024.

As of September 30, 2024, approximately $2.5 billion of our total worldwide holdings of cash, cash equivalents and marketable securities were held by foreign subsidiaries. The amount of cash, cash equivalents and marketable securities held by our U.S. and foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts, strategic operating needs and disbursements in the normal course of business. Cash provided by operating activities in the U.S. continues to be our primary source of funds to finance our business operations, planned capital expenditures, pension contributions, planned acquisitions, transformation strategy costs, debt obligations and planned shareowner returns. All cash, cash equivalents and marketable securities held by foreign subsidiaries are generally available for distribution to the U.S. without any U.S. federal income taxes. Any such distributions may be subject to foreign withholding and U.S. state taxes. When amounts earned by foreign subsidiaries are expected to be indefinitely reinvested, no accrual for taxes is provided.

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RESULTS OF OPERATIONS

Cash Flows From Investing Activities

Our primary sources (uses) of cash from investing activities were as follows (in millions):

			Nine Months Ended September 30,
			2024						2023
Net cash (used in) from investing activities			$	840					$	(3,929)
Capital Expenditures:
Buildings, facilities and plant equipment			$	(1,098)					$	(1,559)
Aircraft and parts			(569)						(364)
Vehicles			(540)						(518)
Information technology			(604)						(668)
Total Capital Expenditures			$	(2,811)					$	(3,109)
Capital Expenditures as a % of revenue			4.3		%				4.7		%
Other Investing Activities:
Proceeds from disposal of businesses, property, plant and equipment			$	1,070					$	167
Net (purchases) sales and maturities of marketable securities			$	2,673					$	(950)
Acquisitions, net of cash acquired			$	(66)					$	(39)
Other investing activities			$	(26)					$	2

We have commitments for pending acquisitions and for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement of existing capacity and anticipated future growth. Future capital spending for anticipated growth and replacement assets will depend on a variety of factors, including economic and industry conditions. Our full-year 2024 investment program anticipates investments in technology initiatives and enhanced network capabilities, including approximately $1.0 billion of projects that support our environmental sustainability goals. It also provides for the maintenance of buildings, facilities and equipment and replacement of certain aircraft within our fleet. We currently expect that our capital expenditures will total approximately $4.0 billion in 2024, of which 46 percent will be allocated to growth initiatives and network enhancement projects, including technology.

For the nine months ended September 30, 2024, total capital expenditures decreased compared to the 2023 period, primarily due to:

• Reduced spending on buildings, facilities and plant equipment, as we optimize our Network of the Future initiative; and

• A reduction in information technology expenditures driven by the purchase of certain licenses in the 2023 period that did not repeat.

These decreases were partially offset by:

• Aircraft expenditures driven by higher payments on open aircraft orders and the timing of final deliveries of aircraft; and

• Vehicle expenditure increases, driven by the timing of payments and availability of vehicle replacements.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

On September 16, 2024, we completed the previously announced divestiture of Coyote. We received cash proceeds of $1.002 billion.

We received cash proceeds of $2.7 billion from the sale of marketable securities in the first nine months of 2024 due to the liquidation of our portfolio to provide additional resources for short-term and strategic operating needs.

Cash paid for acquisitions in both the 2024 and 2023 periods related primarily to reacquired development area rights for The UPS Store. Other investing activities in the nine months ended September 30, 2024 were primarily driven by changes in our non-current investments.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Cash Flows From Financing Activities

Our primary sources (uses) of cash from financing activities were as follows (in millions, except per share data):

			Nine Months Ended September 30,
2024						2023
Net cash (used in) from financing activities			$	(5,003)					$	(5,185)
Share Repurchases:
Cash paid to repurchase shares			$	(500)					$	(2,250)
Number of shares repurchased			(3.9)						(12.8)
Shares outstanding at period end			853						852
Dividends:
Dividends declared per share			$	4.89					$	4.86
Cash paid for dividends			$	(4,049)					$	(4,034)
Borrowings:
Net borrowings (repayments) of debt principal			$	(431)					$	1,336
Other Financing Activities:
Cash received for common stock issuances			$	184					$	190
Other financing activities			$	(207)					$	(427)
Capitalization:
Total debt outstanding at period end			$	21,930					$	21,125
Total shareowners' equity at period end			16,884						19,180
Total capitalization			$	38,814					$	40,305

We repurchased 3.9 and 12.8 million shares of class B common stock for $500 million and $2.3 billion under our stock repurchase program during the nine months ended September 30, 2024 and 2023, respectively. We do not anticipate further repurchases in 2024. For additional information on our share repurchase activities, see note 12 to the unaudited, consolidated financial statements.

The declaration of dividends is subject to the discretion of the Board and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors. We increased our quarterly cash dividend to $1.63 per share in 2024, compared to $1.62 in 2023.

Issuances of debt during the nine months ended September 30, 2024 consisted of fixed- and floating-rate senior notes of varying maturities totaling $2.8 billion. Repayments of debt in the nine months ended September 30, 2024 consisted of $2.2 billion of short- and long-term commercial paper, our C$750 million and $400 million fixed-rate senior notes as well as scheduled principal payments on our finance lease obligations. As of September 30, 2024, we had $500 million of fixed-rate senior notes outstanding that mature in 2024. We intend to repay or refinance these amounts when due.

Issuances of debt during the nine months ended September 30, 2023 consisted of fixed- and floating-rate senior notes of varying maturities totaling $2.5 billion. Repayments of debt in the nine months ended September 30, 2023 period included $1.5 billion of fixed- and floating-rate senior notes, the repayment of debt assumed in the Bomi Group acquisition and scheduled principal payments on our finance lease obligations.

We consider the overall fixed and floating interest rate mix of our portfolio and the related overall cost of borrowing when planning for future issuances and non-scheduled repayments of debt.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The amount of commercial paper outstanding fluctuates based on daily liquidity needs. The following is a summary of our commercial paper program (in millions):

									Outstanding balance as of September 30, 2024 ($)												Average year-to-date balance outstanding ($)						Average interest rate
2024
USD									$	—											$	230					5.40		%
Total									$	—

As of September 30, 2024, we had no outstanding balances under our U.S. or European commercial paper programs.

The variation in cash received from common stock issuances was primarily driven by lower stock option exercises in the nine months ended September 30, 2024.

Other financing activities includes cash used to repurchase shares to satisfy tax withholding obligations on vested employee stock awards. Cash outflows for this purpose were approximately $200 and $400 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease was driven by changes in required repurchase amounts.

Except as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, we do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.

Sources of Credit

See note 9 to the unaudited, consolidated financial statements for a discussion of our available credit and the financial covenants that we are subject to as part of our credit agreements.

Contractual Commitments

There have been no material changes to the contractual commitments described in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, except as described below.

Purchase commitments represent contractual agreements to purchase assets, goods or services that are legally binding, including contracts for aircraft, construction of new or expanded facilities and vehicles. We also have commitments related to business acquisitions pending regulatory approvals.

The following table summarizes the expected cash outflows to satisfy our total purchase commitments as of September 30, 2024 (in millions):

Commitment Type			2024						2025						2026						2027						2028						After 2028						Total
Purchase Commitments(1)			$	352					$	2,410					$	464					$	49					$	29					$	8					$	3,312

(1) Purchase commitments for 2025 include amounts related to pending business acquisitions.

For additional information on 2024 debt issuances and repayments, see note 9 to the unaudited, consolidated financial statements.

Legal Proceedings and Contingencies

See note 7 and note 11 to the unaudited, consolidated financial statements for a discussion of judicial proceedings and other matters arising from the conduct of our business activities, and note 16 for a discussion of income tax related matters.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Collective Bargaining Agreements

Status of Collective Bargaining Agreements

See note 7 to the unaudited, consolidated financial statements for a discussion of the status of our collective bargaining agreements.

Multiemployer Benefit Plans

See note 7 to the unaudited, consolidated financial statements for a discussion of our participation in multiemployer benefit plans.

Recent Accounting Pronouncements

Adoption of New Accounting Standards

See note 2 to the unaudited, consolidated financial statements for a discussion of recently adopted accounting standards.

Accounting Standards Issued But Not Yet Effective

See note 2 to the unaudited, consolidated financial statements for a discussion of accounting standards issued, but not yet effective.

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