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

Overview

We continue to execute our Customer First, People Led and Innovation Driven strategy to grow in the most attractive parts of the market including healthcare, small and medium-sized businesses ("SMBs") and International.

During the third quarter and first nine months ( the "year-to-date") periods of 2025, we took several steps in furtherance of this strategy, including continuing our deliberate shift in our business to increase our focus on higher yielding volume. As previously disclosed, we intend to reduce volume from our largest customer by more than 50% by June 2026 from 2024 levels.

In the first half of 2025, we insourced our former SurePost product, using the UPS network for final mile delivery, and have since replaced it with Ground Saver, a new domestic economy service meant to complement our array of products used by our customers. The insourcing of this product pressured our operating results in both the third quarter and year-to-date periods as pickup and delivery costs were higher than last year. During the nine month period of 2025, we took pricing actions to manage Ground Saver volume and we are working to continue to reduce our costs related to this product.

In the first quarter of 2025, we completed the acquisition of Frigo-Trans and Biotech & Pharma Logistics ("Frigo-Trans"), an industry-leading, complex healthcare logistics provider based in Germany. The acquisition has increased our complex cold-chain logistics capabilities. In November 2025, we completed the previously announced acquisition of Andlauer Healthcare Group ("AHG"), a leading North American supply chain management company that offers customized third-party logistics and specialized cold chain transportation solutions for the healthcare sector. This acquisition will further extend our global portfolio of end-to-end cold chain capabilities with temperature-controlled and pharmaceutical logistics solutions.

Our Network of the Future initiative is intended to enhance the efficiency of our network through automation and operational sort consolidation in our U.S. Domestic network. In connection with our strategic execution of planned volume declines from our largest customer, we began our Network Reconfiguration initiative, which is an expansion of Network of the Future and has led and could lead to a reduction in the number of our facilities, vehicles and aircraft and workforce as well as an end-to-end process redesign. We launched our Efficiency Reimagined initiatives to undertake the end-to-end process redesign effort which will align our organizational processes to the network reconfiguration. See Supplemental Information - Items Affecting Comparability for additional discussion of this initiative.

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. Our financial results for both the third quarter and year-to-date periods of 2025 reflect the impact of a complex macro environment, driven by evolving trade policies, as well as the significant strategic actions we are taking.

Global trade policy changes including pending and enacted tariffs and the de minimis exclusions continued during the third quarter of 2025 and resulted in shifting trade lane volumes, particularly reducing volumes on our China to U.S. lane, pressuring our International segment margins during the third quarter and year-to-date periods.

Supply Chain Solutions revenue decreased in both the third quarter and year-to-date periods, driven by the impact of the third quarter 2024 divestiture of Coyote, decreases in Air and Ocean Forwarding revenue primarily related to volatility in global trade and declines within Mail Innovations. These decreases were partially offset by growth in certain of our healthcare and digital businesses.

During the nine months ended September 30, 2025, we returned cash to shareholders by completing our previously announced $1.0 billion of share repurchase program and paying dividends of $4.0 billion.

The macro environment remains uncertain. As a global carrier, the eventual outcomes of trade policy and tariff uncertainty could result in pressure in some parts of our business, while creating opportunities in others, such as our global brokerage capabilities.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

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
			2025						2024						$						%						2025						2024						$						%
Revenue (in millions)			$	21,415					$	22,245					$	(830)					(3.7)		%				$	64,182					$	65,769					$	(1,587)					(2.4)		%
Operating Expenses (in millions)			19,611						20,260						(649)						(3.2)		%				58,890						60,227						(1,337)						(2.2)		%
Operating Profit (in millions)			$	1,804					$	1,985					$	(181)					(9.1)		%				$	5,292					$	5,542					$	(250)					(4.5)		%
Operating Margin			8.4		%				8.9		%																8.2		%				8.4		%
Net Income (in millions)			$	1,311					$	1,539					$	(228)					(14.8)		%				$	3,781					$	4,061					$	(280)					(6.9)		%
Basic Earnings Per Share			$	1.55					$	1.80					$	(0.25)					(13.9)		%				$	4.46					$	4.74					$	(0.28)					(5.9)		%
Diluted Earnings Per Share			$	1.55					$	1.80					$	(0.25)					(13.9)		%				$	4.46					$	4.74					$	(0.28)					(5.9)		%
Operating Days			64						64																		190						191
Average Daily Package Volume (in thousands)			19,419						21,527												(9.8)		%				19,974						21,220												(5.9)		%
Average Revenue Per Piece			$	14.82					$	13.58					$	1.24					9.1		%				$	14.46					$	13.66					$	0.80					5.9		%

• Average daily package volume in our global small package operations decreased in both the quarter and year-to-date periods driven primarily by our strategic execution of planned volume declines from our largest customer and pricing actions taken on certain e-commerce customers, offset in part by growth in the International Package segment.

• Revenue declined in both the quarter and year-to-date periods, driven by the impact of the third quarter 2024 divestiture of Coyote, which contributed $465 million of revenue in the third quarter of 2024 ($1.6 billion year to date in 2024), average daily volume declines described above and decreases in our Mail Innovations business.

• The revenue impact of the overall declines in package volume in both periods was offset in part by growth in revenue per piece. Revenue in our global small package operations during the third quarter and year-to-date periods of 2025 also benefited from growth in air cargo revenue as we fully onboarded volume under our contract with USPS during the fourth quarter of 2024.

• Operating expenses decreased in both the third quarter and year-to-date periods, driven by decreases in purchased transportation, primarily attributable to the impact of the 2024 divestiture of Coyote, the insourcing of our Ground Saver product, a gain from sale-leaseback transactions involving real estate properties within Supply Chain Solution businesses and reduced costs in our Mail Innovations business. These decreases were partially offset by increases in compensation and benefits and other costs associated with pick up and delivery expenses driven by the insourcing of our Ground Saver product and the implementation of weekend delivery within Europe.

• Operating profit and operating margin decreased in both periods primarily due to the lower volumes in the U.S. Domestic Package segment, the increased pickup and delivery expenses and shifting international trade lanes related to trade policy challenges, partially offset by the impact of revenue quality efforts.

• We reported third quarter 2025 net income of $1.3 billion and diluted earnings per share of $1.55 ($3.8 billion and $4.46 per diluted share, year to date), including $0.30 per diluted share attributable to sale-leaseback transactions described in Supply Chain Solutions within Results of Operations - Segment Review. Non-GAAP adjusted diluted earnings per share for the third quarter of 2025 were $1.74 ($4.78 per diluted share, year to date) after adjusting for the after-tax impacts of:

◦transformation strategy costs of $250 million, or $0.29 per diluted share, in the third quarter ($351 million, or $0.41 per diluted share, year to date);

◦the reversal of an income tax valuation allowance of $86 million, or ($0.10) per diluted share, in the third quarter ($109 million, or ($0.13) per diluted share, year to date);

◦a gain on divestiture of $15 million, or ($0.02) per diluted share, in the year to date period; and

◦goodwill and asset impairment charges of $49 million, or $0.06 per diluted share, in the year-to-date period.

For additional operational results for the quarter specific to our segments, refer to Results of Operations - Segment Review below.

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RESULTS OF OPERATIONS

Supplemental Information - Items Affecting Comparability

We supplement the reporting of our financial information determined under generally accepted accounting principles ("GAAP") with certain non-GAAP adjusted financial measures.

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

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Non-GAAP adjusted amounts reflect the following (in millions):

			Three Months Ended September 30,												Nine Months Ended September 30,
Non-GAAP Adjustments			2025						2024						2025						2024
Operating Expenses:
Transformation Strategy Costs:
Transformation 2.0
Business Portfolio Review			$	—					$	34					$	(18)					$	29
Financial Systems			13						12						44						41
Transformation 2.0 Total			13						46						26						70
Fit to Serve			19						108						47						157
Network Reconfiguration and Efficiency Reimagined			296						—						387						—
Total Transformation Strategy Costs			328						154						460						227
Gain on Divestiture			—						(156)						(20)						(156)
One-Time Payment for International Regulatory Matter			—						—						—						88
Goodwill and Asset Impairment Charges			—						—						39						48
Expense for Regulatory Matter			—						—						—						45
Total Non-GAAP Adjustments to Operating Expenses			$	328					$	(2)					$	479					$	252
			Three Months Ended September 30,												Nine Months Ended September 30,
Non-GAAP Adjustments			2025						2024						2025						2024
Other Income and (Expense):
Goodwill and Asset Impairment Charges			$	—					$	—					$	19					$	—
One-Time Payment for Int'l Regulatory Matter			—						—						—						6
Total Non-GAAP Adjustments to Other Income and (Expense)			$	—					$	—					$	19					$	6
Total Non-GAAP Adjustments to Income Before Income Taxes			$	328					$	(2)					$	498					$	258
Income Tax (Benefit) Expense:
Transformation Strategy Costs:
Transformation 2.0
Business Portfolio Review			$	—					$	8					$	(5)					$	7
Financial Systems			3						3						11						10
Transformation 2.0 Total			3						11						6						17
Fit to Serve			4						27						10						38
Network Reconfiguration and Efficiency Reimagined			71						—						93						—
Total Transformation Strategy Costs			78						38						109						55
Gain on Divestiture			—						(4)						(5)						(4)
Goodwill and Asset Impairment Charges			—						—						9						13
Reversal of Income Tax Valuation Allowance			86						—						109						—
Total Non-GAAP Adjustments to Income Tax (Benefit) Expense			$	164					$	34					$	222					$	64
Total Non-GAAP Adjustments to Net Income			$	164					$	(36)					$	276					$	194

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

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RESULTS OF OPERATIONS

We supplement the presentation of operating profit, operating margin, other income and (expense), income before income taxes, net income and earnings per share with non-GAAP financial measures that exclude the impact of the following:

Transformation Strategy Costs

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

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

Our transformation strategy includes the following programs and initiatives:

Transformation 2.0: Based on a number of factors including evaluating efficiencies previously gained, and in connection with changes 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 identified 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. As of September 30, 2025, our remaining efforts under Transformation 2.0 include technology initiatives related to our financial systems. Previously completed initiatives within Transformation 2.0 are described in Supplemental Information - Items Affecting Comparability in our Annual Report on Form 10-K for the year ended December 31, 2024. 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. As of September 30, 2025, we have incurred $824 million of costs as part of Transformation 2.0, with anticipated remaining costs of approximately $15 million primarily related to completion of our technology initiatives. We expect any remaining costs to be incurred during the remainder of 2025. These technology initiatives are expected to provide enhanced reporting quality for both internal and external purposes in part through simplification and standardization of data to better enable migration into cloud-based tools and automation, including transitioning general ledger, consolidation, and planning tools along with U.S. payroll from older programs and software supporting our freight forwarding business. These efforts are expected to reduce the need for future investments and we began realizing benefits therefrom during the second quarter of 2025.

Fit to Serve: In 2023, a number of factors, including macroeconomic headwinds and volume diversion resulting from our labor negotiations with the International Brotherhood of Teamsters, contributed to volume declines in our U.S. Domestic Package business. In addition, our International Package and Supply Chain Solutions businesses were also negatively impacted by a number of challenging macroeconomic conditions during 2023. In response to these factors, we undertook our Fit to Serve initiative with the intent to right-size our business to create a more efficient operating model that was more responsive to market dynamics through a workforce reduction of approximately 14,000 positions, primarily within management. As of September 30, 2025, we have incurred total costs of $463 million under Fit to Serve, which primarily consist of benefit costs related to reductions in our workforce. We expect to incur remaining costs of approximately $10 million in 2025 as a part of this initiative, which should be complete in 2025. We have achieved savings of approximately $1.0 billion through this program via reductions in our compensation and benefit expense.

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Network Reconfiguration and Efficiency Reimagined: Our Network of the Future initiative is intended to enhance the efficiency of our network through automation and operational sort consolidation in our U.S. Domestic network. In connection with our strategic execution of planned volume declines from our largest customer, we began our Network Reconfiguration initiative, which is an expansion of Network of the Future and has led and could lead to a reduction in the number of our facilities, vehicles and aircraft and workforce as well as an end-to-end process redesign. We launched our Efficiency Reimagined initiatives to undertake the end-to-end process redesign effort which will align our organizational processes to the network reconfiguration. In connection therewith, we have reduced our U.S. operational workforce by approximately 34,000 positions and closed daily operations at 93 leased and owned buildings, 85 of which have been permanently closed in the first nine months of 2025. We continue to review expected changes in volume in our integrated air and ground network to identify additional buildings for closure. As of September 30, 2025, we have realized cost savings of approximately $2.2 billion and expect to achieve $3.5 billion total cost savings in 2025, from this initiative.

In connection with the Network Reconfiguration and Efficiency Reimagined programs, we expect to exclude between $400 and $650 million in non-GAAP adjusted expense during 2025, related primarily to third-party consulting fees, employee separation benefits and certain programmatic expenses. We expect the costs associated with these actions may increase should we determine to close additional buildings. As of September 30, 2025, we have incurred program costs to date of $422 million, including $387 million year to date. These initiatives are expected to conclude in 2027.

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

In addition, we have incurred and expect to continue to incur other costs and benefits associated with our Network Reconfiguration programs and anticipated lower volumes, including early asset retirement, lease related costs and gains from the sale of properties. It is our intention to exit or abandon leases, sell property and transfer or dispose of equipment associated with closed facilities. During the first nine months of 2025, we incurred $45 million in accelerated depreciation and asset retirement obligations related to closed facilities and abandoned equipment and $54 million in gains on sale of properties. We expect the costs associated with these actions may increase should we determine to close additional buildings.

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

Goodwill and Asset Impairment Charges

We exclude the impact of goodwill and certain asset impairment charges, including impairments of long-lived assets and equity method investments. We do not consider these non-cash charges when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards. For more information regarding goodwill and asset impairment charges, see note 5 and note 8 to the unaudited, consolidated financial statements.

Expense for Regulatory Matter

We have excluded the impact of an expense to settle a previously disclosed regulatory matter. We do not believe this is a component of our ongoing operations and we do not expect this or similar expenses to recur.

One-Time Payment for International Regulatory Matter

We have excluded the impact of a payment to settle a previously-disclosed international tax regulatory matter. We do not believe this payment was a component of our ongoing operations and we do not expect this or similar payments to recur. For more information regarding this matter, see note 10 in our Annual Report on Form 10-K for the year ended December 31, 2024.

Gain and Losses Related to Divestitures

We exclude the impact of gains (or losses) related to the divestiture of businesses. We do not consider these transactions to be a component of our ongoing operations, nor do we consider the impact of these transactions when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards.

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Reversal of Income Tax Valuation Allowance

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

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.

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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. Our allocation methodologies are refined periodically, or as necessary to reflect changes in our businesses. There were no significant changes to our allocation methodologies in the third quarter of 2025.

As a normal part of managing our air network, we routinely idle aircraft and engines temporarily for maintenance or to adjust network capacity. As of September 30, 2025, we had five aircraft temporarily idled for an average period of approximately eight months in order to better match capacity with current demand. Temporarily idled assets are classified as held-and-used, and we continue to record depreciation expense for these assets. We expect these aircraft to return to operational service during the fourth quarter of 2025. During the nine months ended September 30, 2025, we retired two fully depreciated MD-11s from operational service. We continue to evaluate possible retirements within our fleet and expect to retire one fully depreciated MD-11 from operational service in the fourth quarter of 2025.

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 annual goodwill impairment testing as of July 1, 2025 using both qualitative and quantitative methods. Our quantitative tests utilize a combination of the income and market approaches. We concluded that the fair values of our reporting units were in excess of their respective carrying values.

Approximately $877 and $726 million of our $4.8 billion consolidated goodwill balance is represented by our Global Freight Forwarding ("GFF") and HLD reporting units, respectively, 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. Both GFF and HLD are showing limited excess of fair value over their carrying values, primarily driven by current market conditions, volatility in global markets, early stages of our healthcare growth strategy and ongoing integration of recent acquisitions. Both GFF and HLD reporting units are included in Supply Chain Solutions.

Additionally, beginning in the first quarter of 2025, our Mail Innovations reporting unit experienced cost increases in excess of our expectations due to increases in purchased transportation rates, resulting from the expiration of a contract with our primary vendor. These cost increases began to dissipate in the second quarter of 2025 as we started utilizing alternative vendors. In the second quarter of 2025, we also took action to address the revenue quality in this business, and began to experience improvements therein. Depending on the outcome of these actions, our expectations for the future performance of this reporting unit could be materially affected. Approximately $295 million in goodwill is represented by our Mail Innovations reporting unit included in Supply Chain Solutions.

We continue 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, 2025, 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 a non-cash impairment charge in one or more of our reporting units during a future period.

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U.S. Domestic Package

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
2025						2024						$						%						2025						2024						$						%
Average Daily Package Volume (in thousands):
Next Day Air			1,422						1,596												(10.9)		%				1,456						1,582												(8.0)		%
Deferred			804						988												(18.6)		%				831						1,008												(17.6)		%
Ground			13,924						15,823												(12.0)		%				14,420						15,526												(7.1)		%
Total Average Daily Package Volume			16,150						18,407												(12.3)		%				16,707						18,116												(7.8)		%
Average Revenue Per Piece:
Next Day Air			$	26.16					$	23.46					$	2.70					11.5		%				$	25.43					$	23.24					$	2.19					9.4		%
Deferred			19.82						17.54						2.28						13.0		%				19.59						17.51						2.08						11.9		%
Ground			11.81						10.81						1.00						9.3		%				11.58						10.93						0.65						5.9		%
Total Average Revenue Per Piece			$	13.47					$	12.27					$	1.20					9.8		%				$	13.18					$	12.37					$	0.81					6.5		%
Operating Days in Period			64						64																		190						191
Revenue (in millions):
Next Day Air			$	2,381					$	2,396					$	(15)					(0.6)		%				$	7,035					$	7,021					$	14					0.2		%
Deferred			1,020						1,109						(89)						(8.0)		%				3,093						3,372						(279)						(8.3)		%
Ground			10,525						10,945						(420)						(3.8)		%				31,718						32,410						(692)						(2.1)		%
Cargo and Other			294						147						147						100.0		%				917						261						656						251.3		%
Total Revenue			$	14,220					$	14,597					$	(377)					(2.6)		%				$	42,763					$	43,064					$	(301)					(0.7)		%
Operating Expenses (in millions):
Operating Expenses			$	13,617					$	13,754					$	(137)					(1.0)		%				$	40,265					$	40,400					$	(135)					(0.3)		%
Non-GAAP Adjustments to Operating Expenses
Transformation Strategy Costs			(302)						(76)						(226)						297.4		%				(400)						(93)						(307)						330.1		%
Goodwill and Asset Impairment Charges			—						—						—						N/A						—						(5)						5						(100.0)		%
Non-GAAP Adjusted Operating Expenses			$	13,315					$	13,678					$	(363)					(2.7)		%				$	39,865					$	40,302					$	(437)					(1.1)		%
Operating Profit (in millions) and Operating Margin:
Operating Profit			$	603					$	843					$	(240)					(28.5)		%				$	2,498					$	2,664					$	(166)					(6.2)		%
Non-GAAP Adjusted Operating Profit			$	905					$	919					$	(14)					(1.5)		%				$	2,898					$	2,762					$	136					4.9		%
Operating Margin			4.2		%				5.8		%																5.8		%				6.2		%
Non-GAAP Adjusted Operating Margin			6.4		%				6.3		%																6.8		%				6.4		%

Revenue

The change in revenue was due to the following:

			Volume						Rates / Product Mix						Fuel Surcharge						Total Revenue Change
Revenue Change Drivers:
Third quarter 2025 vs. 2024			(12.3)		%				8.8		%				0.9		%				(2.6)		%
Year to date 2025 vs. 2024			(8.3)		%				7.2		%				0.4		%				(0.7)		%

Comparative results were impacted by one less operating day in the nine months ended September 30, 2025. The growth in rates and product mix shown above includes the growth in our air cargo product during both the third quarter and the year-to-date periods in 2025, as air cargo under our contract with the USPS was fully onboarded during the fourth quarter of 2024. Air cargo is measured by dimensional weight, not on a per piece basis, and therefore does not impact the volume and revenue per piece discussions below.

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RESULTS OF OPERATIONS

Volume

Average daily volume decreased for both the quarter and year-to-date periods, driven by our strategic execution of planned volume declines from our largest customer, challenging market conditions and decreases in our Ground Saver product as a result of pricing actions we are taking with respect to certain e-commerce volume.

Residential ("business-to-consumer") and commercial ("business-to-business") volume decreased for both the quarter and year-to-date periods. Business-to-business volume decreased 4.8% for the quarter (down 1.9% year to date), primarily driven by demand softness within the retail and manufacturing sectors. Business-to-consumer volume decreased 17.6% for the quarter (down 11.9% year to date), as a result of the planned volume declines and pricing actions discussed above. These overall declines were partially offset by continued growth from SMBs who leveraged our Digital Access Program.

Within our Air products, average daily volume decreased 13.9% for the quarter (down 11.7% year to date), driven by the continued execution of planned volume declines from our largest customer, partially offset by increased demand from customers in the healthcare and technology sectors.

Ground average daily volume decreased 12.0% for the quarter (down 7.1% year to date) driven by residential volume decreases of 17.4% for the quarter (down 11.2% year to date) which were primarily as a result of the pricing actions discussed above.

Revenue Per Piece

Revenue per piece increased 9.8% for the quarter (up 6.5% year to date), with increases in both Air and Ground products due to favorable trends in customer and product mix as a result of pricing actions we are taking. Changes in package characteristics and fuel surcharges also contributed to the increase in revenue per piece.

In December 2024, we implemented an average 5.9% net increase in base and accessorial rates for both our Air and Ground products, which also contributed to the increase.

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 $141 million for the quarter (up $166 million year to date), as pricing initiatives more than offset the impact of lower volume.

Operating Expenses

Operating expenses and non-GAAP adjusted operating expenses decreased for both the quarter and year-to-date periods primarily due to a decline of $398 million for the quarter (down $998 million year to date) in facility and transportation-related costs driven by the insourcing of our Ground Saver product.

These decreases were partially offset by:

• Compensation and benefits expense attributable to our Air and Ground products increased $141 million for the quarter (up $589 million year to date). The increases were primarily driven by increased hours resulting from additional stops as a result of the insourcing of our Ground Saver product. Increased seniority and contractual wage rate increases within our U.S. union workforce and workers' compensation expense also drove an increase to compensation and benefits expense. These increases were partially offset by reduced headcount resulting from the strategic execution of our Network Reconfiguration and Efficiency Reimagined initiatives.

• Air cargo expense increased $64 million for the quarter (up $490 million year to date) as we fully onboarded our contract with the USPS during the fourth quarter of 2024.

• Other expenses increased $56 million for the quarter (down $216 million year to date). For the year-to-date period, other expenses decreased driven by gains on real estate and aircraft engine sales and a reduction in costs resulting from the strategic execution of our Network Reconfiguration and Efficiency Reimagined initiatives.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Our non-GAAP adjusted operating expenses exclude the impact of transformation strategy costs of $302 and $76 million in the third quarters of 2025 and 2024, respectively, and $400 and $93 million in the 2025 and 2024 year-to-date periods, respectively. The 2024 year-to-date period non-GAAP adjusted operating expenses also excluded asset impairment charges of $5 million. Transformation strategy costs during both the 2025 and 2024 periods relate to our Fit to Serve and Transformation 2.0 programs. The costs in the 2025 periods also include costs related to our Network Reconfiguration and Efficiency Reimagined programs. Within these programs, we incurred compensation and benefits costs, as well as fees paid to outside professional service providers. See Supplemental Information - Items Affecting Comparability for additional discussion of transformation strategy costs excluded from our non-GAAP financial measures.

Cost per piece increased 12.3% during the third quarter of 2025 (up 7.2% year to date). Non-GAAP adjusted cost per piece increased 10.4% during the third quarter of 2025 (up 6.4% year to date). The increase in cost per piece was primarily driven by increased compensation and benefits costs from the insourcing of our Ground Saver product in addition to lower average daily volume. These impacts were not fully offset by the benefits of our cost-saving initiatives.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

International Package

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2025						2024						$						%						2025						2024						$						%
Average Daily Package Volume (in thousands):
Domestic			1,536						1,483												3.6		%				1,539						1,491												3.2		%
Export			1,733						1,637												5.9		%				1,728						1,613												7.1		%
Total Average Daily Package Volume			3,269						3,120												4.8		%				3,267						3,104												5.3		%
Average Revenue Per Piece:
Domestic			$	8.62					$	8.12					$	0.50					6.2		%				$	8.37					$	8.07					$	0.30					3.7		%
Export			32.87						33.24						(0.37)						(1.1)		%				32.21						33.33						(1.12)						(3.4)		%
Total Average Revenue Per Piece			$	21.48					$	21.30					$	0.18					0.8		%				$	20.98					$	21.20					$	(0.22)					(1.0)		%
Operating Days in Period			64						64																		190						191
Revenue (in millions):
Domestic			$	847					$	771					$	76					9.9		%				$	2,448					$	2,299					$	149					6.5		%
Export			3,646						3,482						164						4.7		%				10,574						10,269						305						3.0		%
Cargo and Other			180						158						22						13.9		%				509						469						40						8.5		%
Total Revenue			$	4,673					$	4,411					$	262					5.9		%				$	13,531					$	13,037					$	494					3.8		%
Operating Expenses (in millions):
Operating Expenses			$	3,997					$	3,613					$	384					10.6		%				$	11,542					$	10,865					$	677					6.2		%
Non-GAAP Adjustments to Operating Expenses
Transformation Strategy Costs			(15)						6						(21)						N/A						(38)						(36)						(2)						5.6		%
One-Time International Regulatory Matter			—						—						—						N/A						—						(88)						88						(100.0)		%
Asset Impairment Charges			—						—						—						N/A						—						(2)						2						(100.0)		%
Non-GAAP Adjusted Operating Expenses			$	3,982					$	3,619					$	363					10.0		%				$	11,504					$	10,739					$	765					7.1		%
Operating Profit (in millions) and Operating Margin:
Operating Profit			$	676					$	798					$	(122)					(15.3)		%				$	1,989					$	2,172					$	(183)					(8.4)		%
Non-GAAP Adjusted Operating Profit			$	691					$	792					$	(101)					(12.8)		%				$	2,027					$	2,298					$	(271)					(11.8)		%
Operating Margin			14.5		%				18.1		%																14.7		%				16.7		%
Non-GAAP Adjusted Operating Margin			14.8		%				18.0		%																15.0		%				17.6		%
Currency Benefit / (Cost) – (in millions)(1):
Revenue															$	71																							$	33
Operating Expenses															(80)																								(67)
Operating Profit															$	(9)																							$	(34)

(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 2025 vs. 2024			4.8		%				(1.4)		%				0.9		%				1.6		%				5.9		%
Year to date 2025 vs. 2024			4.6		%				(1.4)		%				0.3		%				0.3		%				3.8		%

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Comparative results were impacted by one less operating day in the year-to-date period ended September 30, 2025. Global trade policy changes, including the de minimis exclusions, resulted in shifting trade lane volumes and reduced segment margin in both 2025 periods.

Volume

Average daily volume increased for both the quarter and year-to-date periods, driven by increases in both domestic and export products, led by increases in Europe, Middle East and Africa ("EMEA") and the Americas region.

Domestic average daily volume increased 3.6% for the quarter (3.2% year to date), primarily driven by business-to-consumer retail customers in Canada.

Export average daily volume increased 5.9% for the quarter and 7.1% year to date due to our agility to adjust to changing trade lanes, and led by strength in SMBs between European countries. The Asia trade lanes continued to be negatively impacted by U.S. trade policy changes that took effect in the second quarter of 2025, which resulted in declines on our China-to-U.S. trade lane in both the quarter and year-to-date periods.

Revenue Per Piece

Revenue per piece increased 0.8% for the quarter (down 1.0% year to date). The increase in the quarter was primarily driven by favorable currency movements partially offset by lower demand-related surcharges and shifts in product mix to Transborder Standard from Worldwide products as customers traded down to economy products and those with slower time commitments. The decrease in the year to date period was due mostly to shifts in product mix. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market.

Domestic revenue per piece increased 6.2% for the quarter (up 3.7% year to date) primarily driven by revenue quality efforts in EMEA.

Export revenue per piece declined 1.1% for the quarter (down 3.4% year to date), primarily due to lower demand-related surcharges in Asia and unfavorable shift in product mix in EMEA in both periods.

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.

Operating Expenses

Operating expenses increased for both the quarter and year-to-date periods. Pickup and delivery expenses increased $156 million (up $396 million year to date), driven by increased volumes and merit compensation increases as well as the impact of the implementation of weekend delivery within Europe. Costs of operating our integrated air and ground network increased $123 million (up $211 million year to date) primarily due to unfavorable currency movements, increased aircraft maintenance, air charters and block hours as we aligned our network to meet higher volume demands.

Non-GAAP adjusted operating expenses exclude the impact of transformation strategy costs, which were $15 and ($6) million in the third quarters of 2025 and 2024, respectively, and $38 and $36 million in the 2025 and 2024 year-to-date periods, respectively. The 2024 year-to-date period excluded costs associated with a one-time international regulatory matter of $88 million and a $2 million asset impairment charge. Transformation strategy costs during both periods were related to our Fit to Serve and our Efficiency Reimagined programs. Within these programs, we incurred compensation and benefits costs, as well as fees paid to outside professional service providers. See Supplemental Information - Items Affecting Comparability for additional discussion of transformation strategy costs excluded from our non-GAAP adjusted financial measures.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Supply Chain Solutions ("SCS")

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2025						2024						$						%						2025						2024						$						%
Revenue (in millions):
Forwarding			$	730					$	1,307					$	(577)					(44.1)		%				$	2,188					$	3,902					$	(1,714)					(43.9)		%
Logistics			1,363						1,550						(187)						(12.1)		%				4,411						4,638						(227)						(4.9)		%
Other SCS			429						380						49						12.9		%				1,289						1,128						161						14.3		%
Total Revenue			$	2,522					$	3,237					$	(715)					(22.1)		%				$	7,888					$	9,668					$	(1,780)					(18.4)		%
Operating Expenses (in millions):
Operating Expenses			$	1,997					$	2,893					$	(896)					(31.0)		%				$	7,083					$	8,962					$	(1,879)					(21.0)		%
Non-GAAP Adjustments to Operating Expenses
Transformation Strategy Costs			(11)						(84)						73						(86.9)		%				(22)						(98)						76						(77.6)		%
Gain on Divestiture			—						156						(156)						(100.0)		%				20						156						(136)						(87.2)		%
Goodwill and Asset Impairment Charges			—						—						—						N/A						(39)						(41)						2						(4.9)		%
Expense for Regulatory Matter			—						—						—						N/A						—						(45)						45						(100.0)		%
Non-GAAP Adjusted Operating Expenses			$	1,986					$	2,965					$	(979)					(33.0)		%				$	7,042					$	8,934					$	(1,892)					(21.2)		%
Operating Profit (in millions) and Operating Margin:
Operating Profit			$	525					$	344					$	181					52.6		%				$	805					$	706					$	99					14.0		%
Non-GAAP Adjusted Operating Profit			$	536					$	272					$	264					97.1		%				$	846					$	734					$	112					15.3		%
Operating Margin			20.8		%				10.6		%																10.2		%				7.3		%
Non-GAAP Adjusted Operating Margin			21.3		%				8.4		%																10.7		%				7.6		%
Currency Benefit / (Cost) – (in millions)(1):
Revenue															$	30																							$	6
Operating Expenses															(31)																								1
Operating Profit															$	(1)																							$	7
(1) Amount represents the change in currency translation compared to the prior year.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

			Three Months Ended September 30,												Change						Nine Months Ended September 30,												Change
			2025						2024						$						2025						2024						$
Non-GAAP Adjustments to Operating Expenses (in millions):
Transformation Strategy Costs
Forwarding			$	8					$	28					$	(20)					$	23					$	35					$	(12)
Logistics			3						56						(53)						(1)						63						(64)
Total Transformation Strategy Costs			$	11					$	84					$	(73)					$	22					$	98					$	(76)
Gain on Divestiture
Forwarding			$	—					$	(156)					$	156					$	—					$	(156)					$	156
Other SCS			—						—						—						(20)						—						(20)
Total Gain on Divestiture			$	—					$	(156)					$	156					$	(20)					$	(156)					$	136
Goodwill and Asset Impairment Charges
Logistics			$	—					$	—					$	—					$	—					$	41					$	(41)
Other SCS			—						—						—						39						—						39
Total Goodwill and Asset Impairment Charges			$	—					$	—					$	—					$	39					$	41					$	(2)
Expense for Regulatory Matter
Other SCS			$	—					$	—					$	—					$	—					$	45					$	(45)
Total Expense for Regulatory Matter			$	—					$	—					$	—					$	—					$	45					$	(45)
Total non-GAAP Adjustments to Operating Expenses			$	11					$	(72)					$	83					$	41					$	28					$	13

Revenue

Total revenue in Supply Chain Solutions decreased for both the quarter and year-to-date periods primarily due to a decline in Forwarding and Logistics revenue, partially offset by a revenue increase in our other businesses.

Within our Forwarding businesses, revenue decreased $577 million (down $1.7 billion year to date), primarily driven by the impact of the third quarter 2024 divestiture of Coyote, which contributed $465 million of revenue in the 2024 third quarter ($1.6 billion in the 2024 year-to-date period). Revenue within our other Forwarding businesses also declined by a total of $110 million (down $146 million year to date), primarily driven by demand softness from changing trade policies and tariff uncertainty, particularly on the China-to-U.S. trade lane, which also negatively impacted both volume and rates.

Within our Logistics businesses, revenue decreased $187 million (down $227 million year to date). Revenue in our Mail Innovations business decreased $316 million (down $370 million year to date), driven by volume declines resulting from our initiatives to improve revenue quality. The declines in Mail Innovations revenue were partially offset by $118 million of revenue increases in our healthcare logistics business (up $147 million year to date), due to our January 2025 acquisition of Frigo-Trans and year-over-year growth in other healthcare businesses.

Revenue from our other businesses within Supply Chain Solutions increased $49 million for the quarter (up $161 million year to date) primarily driven by volume growth in both Roadie as well as UPS Capital within our digital businesses, which increased $50 million for the quarter (up $159 million year to date).

Operating Expenses

Total operating expenses and non-GAAP adjusted operating expenses within Supply Chain Solutions decreased for both the quarter and year-to-date periods driven primarily by the divestiture of Coyote of $468 million (down $1.6 billion year to date), sale-leaseback transactions involving real estate properties within Supply Chain Solutions of $330 million and volume declines and lower purchased transportation costs in our Mail Innovations business.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Non-GAAP adjusted operating expenses exclude the impact of transformation strategy costs, which were $11 and $84 million in the third quarters of 2025 and 2024, respectively, and $22 and $98 million in the 2025 and 2024 year-to-date periods, respectively. The 2025 year-to-date period also excludes a $20 million gain on divestiture and a $39 million impairment charge. The 2024 quarter and year-to-date periods exclude a $156 million gain related to the divestiture of Coyote. The 2024 year-to-date period also excludes a $41 million write-down related to certain trade names and a $45 million expense related to a regulatory matter.

Transformation strategy costs reflected within Supply Chain Solutions during the quarters and year-to-date periods are related to our Fit to Serve, Transformation 2.0 and Network Reconfiguration and Efficiency Reimagined programs. Within Transformation 2.0, we incurred costs related to financial system investments during both periods. Within Fit to Serve, we incurred severance costs in both the third quarter and year-to-date periods of 2025 and 2024. Within Efficiency Reimagined, we incurred costs related to end-to-end process redesign. See Supplemental Information - Items Affecting Comparability for additional discussion of items excluded from our non-GAAP adjusted financial measures.

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RESULTS OF OPERATIONS

Consolidated Operating Expenses

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2025						2024						$						%						2025						2024						$						%
Operating Expenses (in millions):
Compensation and benefits			$	12,118					$	11,955					$	163					1.4		%				$	35,571					$	35,097					$	474					1.4		%
Transformation Strategy Costs			(284)						(110)						(174)						158.2		%				(358)						(161)						(197)						122.4		%
Non-GAAP Adjusted Compensation and Benefits			$	11,834					$	11,845					$	(11)					(0.1)		%				$	35,213					$	34,936					$	277					0.8		%
Repairs and maintenance			$	803					$	713					$	90					12.6		%				$	2,290					$	2,165					$	125					5.8		%
Depreciation and amortization			926						905						21						2.3		%				2,774						2,690						84						3.1		%
Purchased transportation			2,463						3,375						(912)						(27.0)		%				7,715						9,894						(2,179)						(22.0)		%
Fuel			1,071						1,068						3						0.3		%				3,187						3,254						(67)						(2.1)		%
Other occupancy			548						517						31						6.0		%				1,699						1,573						126						8.0		%
Other expenses			1,682						1,727						(45)						(2.6)		%				5,654						5,554						100						1.8		%
Total Other Expenses			7,493						8,305						(812)						(9.8)		%				23,319						25,130						(1,811)						(7.2)		%
Gain on Divestiture			—						156						(156)						(100.0)		%				20						156						(136)						(87.2)		%
Transformation Strategy Costs			(44)						(44)						—						—		%				(102)						(66)						(36)						54.5		%
Goodwill and Asset Impairment Charges			—						—						—						N/A						(39)						(48)						9						(18.8)		%
Expense for Regulatory Matter			—						—						—						N/A						—						(45)						45						(100.0)		%
One-Time Payment for International Regulatory Matter			—						—						—						N/A						—						(88)						88						(100.0)		%
Non-GAAP Adjusted Total Other Expenses			$	7,449					$	8,417					$	(968)					(11.5)		%				$	23,198					$	25,039					$	(1,841)					(7.4)		%
Total Operating Expenses			$	19,611					$	20,260					$	(649)					(3.2)		%				$	58,890					$	60,227					$	(1,337)					(2.2)		%
Non-GAAP Adjusted Total Operating Expenses			$	19,283					$	20,262					$	(979)					(4.8)		%				$	58,411					$	59,975					$	(1,564)					(2.6)		%
Currency (Benefit) / Cost - (in millions)(1)															$	111																							$	66

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

			Three Months Ended September 30,												Change						Nine Months Ended September 30,												Change
			2025						2024						$						2025						2024						$
Non-GAAP Adjustments to Operating Expenses (in millions):
Transformation Strategy Costs:
Compensation			$	4					$	5					$	(1)					$	11					$	18					$	(7)
Benefits			280						105						175						347						143						204
Other expenses			44						44						—						102						66						36
Total Transformation Strategy Costs			$	328					$	154					$	174					$	460					$	227					$	233
Other expenses:
Gain on Divestiture			$	—					$	(156)					$	156					$	(20)					$	(156)					$	136
One-Time Payment for International Regulatory Matter			—						—						—						—						88						(88)
Expense for Regulatory Matter			—						—						—						—						45						(45)
Goodwill and Asset Impairment Charges			—						—						—						39						48						(9)
Total Non-GAAP Adjustments to Operating Expenses			$	328					$	(2)					$	330					$	479					$	252					$	227

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Compensation and Benefits

Total compensation expense decreased $20 million for the quarter (up $265 million year to date), and on a non-GAAP adjusted basis decreased $21 million for the quarter (up $271 million year to date). The principal factors contributing to the overall changes were:

• Direct labor costs increased $2 million for the quarter (up $464 million year to date) due to:

◦Wage rate growth increased $146 million for the quarter (up $406 million year to date) driven by increased seniority, contractual wage rate increases and overtime.

◦Higher international labor costs due to merit increases and weekend operations within Europe as well as an increase in flight operations payroll of $52 million for the quarter (up $169 million year to date).

◦Volume declines partially offset the increase in additional stops resulting from insourcing our Ground Saver decreasing labor costs by $179 million for the quarter (down $79 million year to date).

• Management compensation costs decreased $29 million for the quarter (down $220 million year to date), primarily due to lower overall headcount resulting from our transformation programs, partially offset by an increase in incentive compensation. Year to date, incentive compensation expense decreased. For additional information on our transformation strategy, see note 17 to the unaudited, consolidated financial statements.

Benefits costs increased $183 million for the quarter (up $209 million year to date) and, on a non-GAAP adjusted basis increased $10 million (up $6 million year to date). The principal factors driving these changes were:

• Separation costs increased $174 million for the quarter (up $215 million year to date) as we execute our transformation strategy.

• Workers' compensation expense increased $64 million for the quarter (up $74 million year to date) due to prior year claim developments and higher average claim cost, partially offset by a reduction in hours worked.

• Health and welfare costs increased $32 million for the quarter (up $97 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 decreased $46 million for the quarter (down $183 million year to date) driven by lower service cost resulting from higher discount rates and reduced multiemployer plan expense from lower participating headcount.

Non-GAAP adjusted operating expenses in the third quarter and year-to-date periods of 2025 and 2024 exclude the impact of costs incurred under our transformation strategy programs, Fit to Serve, Transformation 2.0 and Network Reconfiguration and Efficiency Reimagined initiatives, and primarily consisted of other employee benefits expense and related payroll tax expense. Compensation and benefits expenses under these programs during the third quarter of 2025 were $284 million ($358 million year to date), an increase of $174 million for the quarter (up $197 million year to date) as compared to the same period of 2024. See Supplemental Information - Items Affecting Comparability for additional discussion of items excluded from our non-GAAP financial measures.

Repairs and Maintenance

Repairs and maintenance cost increased in both the third quarter and year-to-date periods due to a number of factors including an increase in parts and labor for aircraft and rate increases for facility repairs.

Depreciation and Amortization

Depreciation and amortization expense increased in both the third quarter and year-to-date periods due to capital asset additions and building closures during the third quarter of 2025, which shortened useful lives and accelerated depreciation.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers decreased $912 million for the quarter (down $2.2 billion year to date). The changes were primarily driven by:

• Ground transportation decreased $782 million for the quarter (down $1.9 billion year to date) primarily due to the divestiture of Coyote in 2024, the impact of insourcing our Ground Saver and Mail Services products and lower overall volume.

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• Third-party fuel surcharges decreased $69 million for the quarter (down $251 million year to date) primarily due to the divestiture of Coyote.

Fuel Expense

Fuel expense increased $3 million in the quarter from increased usage, partially offset by lower prices. Fuel expense was down $67 million year to date. This was mainly attributable to lower prices for jet fuel, diesel and gasoline, partially offset by the impact of increases in flight activity. 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 $31 million for the quarter (up $126 million year to date) due to an increase in property rent expense from rising occupancy rates and an increase in electrical and power utilities. Other occupancy related expenses such as taxes and weather-related costs also contributed to the overall increase in the 2025 year-to-date period.

Other Expenses

Other expenses decreased $45 million for the quarter (up $100 million year to date) and, on a non-GAAP adjusted basis, decreased $201 million for the quarter (up $70 million year to date). The principal factors contributing to the overall changes were driven by higher gains of $164 million for the quarter (net gain of $244 million year to date) primarily from the $350 million gains from the third quarter of 2025 sale-leaseback transactions and sales of surplus real estate compared to the 2024 period gain of $156 million from the divestiture of Coyote. Other expenses increased $112 million for the quarter (up $301 million year to date) driven by increased third-party consulting and legal costs, commissions, customer credit losses and airline operation expenses.

Non-GAAP adjusted operating expenses exclude the following:

• In the 2025 year-to-date period we recognized an expense of $39 million related to the write down in the value of certain assets within our UPS Digital business. In the 2024 year-to-date period we recognized an expense of $48 million related to the impairment of trade names and software.

• In the 2025 year-to-date period we recognized a gain of $20 million from the divestiture of a business within UPS Digital. In the third quarter and year-to-date period of 2024 we recognized a gain of $156 million from the divestiture of Coyote.

• Transformation strategy costs of $44 million for the quarter ($102 million year to date) as a result of third-party consulting costs associated with our transformation initiatives.

• In the 2024 year-to-date period, we incurred a total of $133 million in expenses related to regulatory matters.

We expect to incur additional other expenses under our Fit to Serve, Transformation 2.0, Network Reconfiguration and Efficiency Reimagined programs during the remainder of 2025. See Supplemental Information - Items Affecting Comparability for additional discussion on the types, amounts and timing thereof.

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Other Income (Expense)

The following table sets forth investment income and other and interest expense for the three and nine months ended September 30, 2025 and 2024 (in millions):

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2025						2024						$						%						2025						2024						$						%
Investment Income and Other			$	94					$	155					$	(61)					(39.4)		%				$	251					$	410					$	(159)					(38.8)		%
Goodwill and Asset Impairment Charges			—						—						—						N/A						19						—						19						N/A
Non-GAAP Adjusted Investment Income and Other			94						155						(61)						(39.4)		%				270						410						(140)						(34.1)		%
Interest Expense			(291)						(230)						(61)						26.5		%				(751)						(637)						(114)						17.9		%
Interest Expense Associated with One-Time Payment for International Regulatory Matter			—						—						—						N/A						—						6						(6)						(100.0)		%
Non-GAAP Adjusted Interest Expense			$	(291)					$	(230)					$	(61)					26.5		%				$	(751)					$	(631)					$	(120)					19.0		%
Total Other Income (Expense)			$	(197)					$	(75)					$	(122)					162.7		%				$	(500)					$	(227)					$	(273)					120.3		%
Non-GAAP Adjusted Total Other Income (Expense)			$	(197)					$	(75)					$	(122)					162.7		%				$	(481)					$	(221)					$	(260)					117.6		%

Investment Income and Other

Investment income and other decreased by $61 million in the third quarter, primarily due to lower rates on lower average invested balances and a decline in pension income.

Year to date, investment income and other decreased by $159 million, driven by lower rates on lower average invested balances, changes in the fair value of certain non-current investments, and a decline in pension income. The decline in pension income was driven by an increase in interest costs from overall plan growth and higher discount rates, slightly offset by higher expected returns on pension assets.

For the 2025 year-to-date period, investment income includes a $19 million impairment charge related to an equity method investment. Excluding the impact of this impairment, non-GAAP adjusted investment income and other decreased by $140 million year to date.

Interest Expense

Interest expense increased for both the third quarter and year-to-date periods, due to higher average outstanding debt balances and lower capitalized interest.

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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, 2025 and 2024 (in millions):

			Three Months Ended September 30,												Change												Nine Months Ended September 30,												Change
			2025						2024						$						%						2025						2024						$						%
Income Tax Expense			$	296					$	371					$	(75)					(20.2)		%				$	1,011					$	1,254					$	(243)					(19.4)		%
Income Tax Impact of:
Transformation Strategy Costs:
Transformation 2.0
Business Portfolio Review			—						8						(8)						(100.0)		%				(5)						7						(12)						(171.4)		%
Financial Systems			3						3						—						—		%				11						10						1						10.0		%
Transformation 2.0 Total			3						11						(8)						(72.7)		%				6						17						(11)						(64.7)		%
Fit to Serve			4						27						(23)						(85.2)		%				10						38						(28)						(73.7)		%
Network Reconfiguration and Efficiency Reimagined			71						—						71						N/A						93						—						93						N/A
Total Transformation Strategy Costs			78						38						40						105.3		%				109						55						54						98.2		%
Gain on Divestiture			—						(4)						4						(100.0)		%				(5)						(4)						(1)						25.0		%
Goodwill and Asset Impairment Charges			—						—						—						N/A						9						13						(4)						(30.8)		%
Reversal of income tax valuation allowance			86						—						86						N/A						109						—						109						N/A
Non-GAAP Adjusted Income Tax Expense			$	460					$	405					$	55					13.6		%				$	1,233					$	1,318					$	(85)					(6.4)		%
Effective Tax Rate			18.4		%				19.4		%																21.1		%				23.6		%
Non-GAAP Adjusted Effective Tax Rate			23.8		%				21.2		%																23.3		%				23.6		%

In July 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. The income tax-related provisions of the OBBBA include revisions to international tax regimes, the repeal of mandatory capitalization of research and development expenditures, and the extension of bonus depreciation. The OBBBA has multiple effective dates, with certain provisions effective in future years. The estimated impact of the OBBBA is not material to our overall effective tax rate for the current year and has been reflected in our unaudited, consolidated financial statements during the three and nine months ended September 30, 2025. We are continuing to evaluate the expected impact in future years and expect a favorable impact to our effective tax rate and cash flows.

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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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, 2025, we had $6.8 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,
			2025						2024
Net income			$	3,781					$	4,061
Non-cash operating activities (1)			3,465						3,542
Pension and postretirement medical benefit plan contributions (company-sponsored plans)			(1,338)						(1,434)
Hedge margin receivables and payables			—						(90)
Income tax receivables and payables			(521)						27
Changes in working capital and other non-current assets and liabilities			(236)						758
Other operating activities			(3)						(57)
Net cash from operating activities			$	5,148					$	6,807

(1) Represents depreciation and amortization, gains and losses on derivative transactions, disposal of assets and businesses 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 $1.7 billion during the nine months ended September 30, 2025, driven by:

• An increase in accounts receivable primarily due to increased tariffs, duties and taxes to be paid by our customers.

• Higher incentive compensation payments.

• Higher income tax payments due to deferred payments resulting from Hurricane Helene relief.

• A decrease in net income.

These factors were partially offset by an increase in cash proceeds of $246 million from factoring certain accounts receivable during the three months ended September 30, 2025. For additional information on our factoring program, see note 3 to the unaudited, consolidated financial statements.

As of September 30, 2025, approximately $3.3 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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Cash Flows From Investing Activities

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

			Nine Months Ended September 30,
			2025						2024
Net cash (used in) from investing activities			$	(2,734)					$	840
Capital Expenditures:
Buildings, facilities and plant equipment			$	(1,744)					$	(1,098)
Aircraft and parts			(144)						(569)
Vehicles			(208)						(540)
Information technology			(873)						(604)
Total capital expenditures			$	(2,969)					$	(2,811)
Capital expenditures as a % of revenue			4.6		%				4.3		%
Other Investing Activities:
Proceeds from disposal of businesses, property, plant and equipment			$	585					$	1,070
Net (purchases) sales and maturities of marketable securities			$	139					$	2,673
Acquisitions, net of cash acquired			$	(479)					$	(66)
Other investing activities			$	(10)					$	(26)

For the nine months ended September 30, 2025, total capital expenditures slightly increased compared to the 2024 period, primarily driven by increased spending on buildings, facilities and plant equipment and information technology, as we execute our Network of the Future initiative and other operational efficiency initiatives.

These increases were partially offset by:

• Reduced spending on vehicles due to a focus on replacements at the end of their useful lives.

• Decreased aircraft expenditures as a result of utilizing finance lease alternatives.

Proceeds from the disposal of businesses, property, plant and equipment decreased compared to the prior period. During the nine months ended September 30, 2025, proceeds primarily related to sale-leaseback transactions totaling $465 million involving real estate properties within our Supply Chain Solutions businesses and a data center. During the nine months ended September 30, 2024, proceeds of $1.0 billion primarily related to the divestiture of Coyote.

Changes in marketable securities were largely driven by the liquidation of our portfolio of $2.7 billion during the nine months ended September 30, 2024 to provide additional resources for short-term and strategic operating needs.

Cash paid for acquisitions in the nine months ended September 30, 2025 was primarily attributable to the acquisition of Frigo-Trans, and reacquired development area rights for The UPS Store. In the nine months ended September 30, 2024, cash paid for acquisitions related to the purchase of development areas for The UPS Store.

Non-cash investing activities for the nine months ended September 30, 2025 included construction-in-progress of $64 million related to the capitalization of construction costs in connection with our build-to-suit financing obligation.

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We have commitments for pending acquisitions and for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement and enhancement of existing capacity and targeted growth. Our 2025 investment program anticipates investments in technology initiatives and enhanced network capabilities, including approximately $450 million of projects to support our environmental sustainability goals. It also provides for maintenance of buildings, facilities and equipment and replacement of certain aircraft within our fleet. We currently expect our capital expenditures will be approximately $3.5 billion for all of 2025, of which approximately 90 percent will be allocated to network enhancement projects and other technology initiatives. We regularly evaluate opportunities for cost effective financing of assets in order to reduce our capital spending. Future capital spending will depend on a variety of factors, including economic and industry conditions, and financing alternatives.

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Cash Flows From Financing Activities

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

			Nine Months Ended September 30,
2025						2024
Net cash used in financing activities			$	(1,947)					$	(5,003)
Share Repurchases:
Cash paid to repurchase shares			$	(1,000)					$	(500)
Number of shares repurchased			(8.6)						(3.9)
Shares outstanding at period end			848						853
Dividends:
Dividends declared per share			$	4.92					$	4.89
Cash paid for dividends			$	(4,045)					$	(4,049)
Borrowings:
Net borrowings (repayments) of debt principal			$	3,008					$	(431)
Other Financing Activities:
Cash received for common stock issuances			$	133					$	184
Other financing activities			$	(43)					$	(207)
Capitalization:
Total debt outstanding at period end			$	24,782					$	21,930
Total shareowners' equity at period end			15,848						16,884
Total capitalization			$	40,630					$	38,814

We repurchased 8.6 million shares of class B common stock for $1.0 billion under our share repurchase program during the nine months ended September 30, 2025. We do not anticipate further repurchases in 2025. We repurchased 3.9 million shares of class B common stock for $500 million under our share repurchase program during the nine months ended September 30, 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 $1.64 per share in 2025, compared to $1.63 per quarter in 2024.

Issuances of debt during the nine months ended September 30, 2025 consisted of fixed-rate and floating-rate senior notes of varying maturities totaling $4.2 billion. Repayments of debt during the nine months ended September 30, 2025 consisted of $1.1 billion of senior notes and finance lease obligations.

Issuances of debt during the nine months ended September 30, 2024 consisted of fixed-rate 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, 2025, we had €700 million of fixed-rate senior notes outstanding that mature in 2025. We intend to repay or refinance these amounts when due. 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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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 at quarter end ($)												Average balance outstanding ($)						Average interest rate
2025
USD									$	—											$	63					4.01		%
Total									$	—

As of September 30, 2025, we had no outstanding balances under our U.S. or European commercial paper programs.

Cash outflows from other financing activities decreased primarily driven by lower tax withholdings on employee stock compensation as a result of previously disclosed changes to the payout structure of our management incentive award program. Cash outflows for this purpose were approximately $14 and $200 million for the nine months ended September 30, 2025 and 2024, respectively. Cash outflows from other financing activities also included fees associated with finance leases for the nine months ended September 30, 2025.

During the nine months ended September 30, 2025, we entered into new leases, which required parent company guarantees of approximately $1.3 billion. For additional information on guarantees, see note 9 to the unaudited, consolidated financial statements.

Except as disclosed above and in our Annual Report on Form 10-K for the year ended December 31, 2024, we do not have 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 in our Annual Report on Form 10-K for the year ended December 31, 2024, except as described below.

Purchase commitments that are legally binding represent contractual agreements for certain capital expenditures and pending acquisitions, including contracts for aircraft, vehicles and facility construction projects. Certain aircraft purchase commitments included in our Annual Report on Form 10-K are now reflected as leases. See note 10 to the unaudited, consolidated financial statements for more information. We continue to evaluate available financing alternatives with respect to our aircraft purchase commitments.

The following table summarizes the expected cash outflows to satisfy our total purchase commitments as of September 30, 2025 (in millions):

Commitment Type			2025**(1)**						2026						2027						2028						2029						After 2029**(3)**						Total
Purchase Commitments(2)			$	2,121					$	897					$	1,655					$	1,259					$	430					$	860					$	7,222

(1) Purchase commitments for 2025 include amounts related to the pending acquisition of AHG. This acquisition was closed on November 1, 2025.

(2) Subsequent to September 30, 2025, we entered into six new aircraft leases which we expect to be treated as finance leases. We expect the existing aircraft purchase commitments included above will decrease and be reflected as leases.

(3) Includes a financing arrangement to be paid over 17 years.

For additional information on 2025 debt issuances and repayments, see note 9 to the unaudited, consolidated financial statements.

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Legal Proceedings and Contingencies

See 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.

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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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