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(1) Included within Other Non-Current Liabilities in our consolidated balance sheets.
Our total reserves related to prior year claims increased by $39 million in 2023 and decreased by $5 million in 2022 as a result of changes in estimated claim costs. A five percent deterioration or improvement in both the assumed claim severity and claim frequency rates used to estimate our self-insurance reserves would result in an increase or a decrease, respectively, of approximately $300 million in our reserves and expenses as of, and for the year ended, December 31, 2023.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pension and Other Postretirement Medical Benefits
Our pension and postretirement medical benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates, healthcare cost trend rates, inflation, compensation increases, expected returns on plan assets, mortality rates, regulatory requirements and other factors. The assumptions utilized in recording the obligations under our plans represent our best estimates. We believe that they are reasonable based on historical experience and performance, as well as factors that might cause future expectations to differ from past trends.
Differences in actual experience or changes in assumptions may affect our pension and postretirement medical benefit obligations and future expenses. The primary factors contributing to actuarial gains and losses each year are:
•Changes in the discount rate used to value pension and postretirement medical benefit obligations as of the measurement date;
•Differences between expected and actual returns on plan assets;
•Changes in demographic assumptions, including mortality;
•Differences in participant experience from demographic assumptions; and
•Changes in coordinating benefits with plans not sponsored by UPS.
We recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of a corridor (defined as 10% of the greater of the fair value of plan assets or the plans' projected benefit obligations) immediately within income upon remeasurement of a plan. Other components of pension expense (referred to as "net periodic benefit cost"), primarily service and interest costs and the expected return on plan assets, are reported on a quarterly basis.
The following sensitivity analysis shows the impact of a 25 basis point change in the assumed discount rate and return on assets for our pension and postretirement benefit plans, and the resulting increase (decrease) in our obligations and expense as of, and for the year ended, December 31, 2023 (in millions):
| | | | | | | | | | | |
| Pension Plans | 25 Basis Point
Increase | | 25 Basis Point
Decrease |
| Discount Rate: | | | |
| Effect on ongoing net periodic benefit cost | $ | (15) | | | $ | 16 | |
| Effect on net periodic benefit cost for amounts recognized outside the 10% corridor | (423) | | | 697 | |
| Effect on projected benefit obligation | (1,550) | | | 1,636 | |
| Return on Assets: | | | |
Effect on ongoing net periodic benefit cost(1) | (108) | | | 108 | |
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor(2) | $ | (54) | | | $ | 54 | |
| | | |
| Postretirement Medical Benefit Plans | | | |
| Discount Rate: | | | |
| Effect on ongoing net periodic benefit cost | $ | 2 | | | $ | (2) | |
| Effect on net periodic benefit cost for amounts recognized outside the 10% corridor | — | | | — | |
| Effect on accumulated postretirement benefit obligation | (34) | | | 39 | |
| Healthcare Cost Trend Rate: | | | |
| Effect on ongoing net periodic benefit cost | 1 | | | (1) | |
| Effect on net periodic benefit cost for amounts recognized outside the 10% corridor | — | | | — | |
| Effect on accumulated postretirement benefit obligation | $ | 9 | | | $ | (10) | |
(1)Amount calculated based on 25 basis point increase / decrease in the expected return on assets.
(2)Amount calculated based on 25 basis point increase / decrease in the actual return on assets.
Refer to note 5 to the audited, consolidated financial statements for information on our potential liability for coordinating benefits related to the Central States Pension Fund.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Depreciation, Residual Value and Impairment of Property, Plant and Equipment
As of December 31, 2023, we had $36.9 billion of net property, plant and equipment, the most significant category of which was aircraft. In accounting for property, plant and equipment, we make estimates of the expected useful lives and residual values to arrive at depreciation expense. We evaluate the useful lives of our property, plant and equipment based on our usage, maintenance and replacement policies, and taking into account physical and economic factors that may affect the useful lives of the assets. A reduction in expected useful life, or a decision to sell or abandon a long-lived asset before the end of its useful life, may increase depreciation expense. Our accounting policy for property, plant and equipment is set out in note 1 to the audited, consolidated financial statements.
We monitor our long-lived assets for indicators of impairment which may include, but are not limited to, a significant change in the extent to which an asset is utilized and operating or cash flow losses associated with the use of the asset. If circumstances are present that indicate the carrying value of our long-lived assets may not be recoverable, we perform impairment testing at the asset group level.
Asset groups represent the lowest level at which independent cash flows can be identified. Determining asset groups requires judgment and changes in the way asset groups are defined could have a material impact on the results of impairment testing. We perform recoverability testing by comparing the undiscounted cash flows of the asset group to its carrying value. If the carrying amount of the asset group is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash flows or external appraisals, as appropriate. Details of long-lived asset impairments are included in note 4 to the audited, consolidated financial statements.
In estimating the useful lives and expected residual values of aircraft, we consider actual experience with the same or similar aircraft types, multi-year volume projections for our air products and the types of aircraft required to efficiently operate our network. Adverse changes in volume could result in our current aircraft capacity exceeding projected demand, which may result in temporary idling of aircraft to better match capacity with demand. Temporarily idled assets are classified as held-and-used, and we continue to record depreciation expense for these assets. As a result of the reduction in volumes experienced during 2023, we temporarily idled nine aircraft for an average of approximately five months. As of December 31, 2023 all of these aircraft had re-entered operational service. Based on current volume projections, we anticipate that certain aircraft may be temporarily idled during part of 2024. Over a longer period, continued adverse changes in volume forecasts could lead to an excess of aircraft, resulting in an impairment charge or reduction in expected useful life that may result in increased depreciation expense.
Revisions to estimates of useful lives and residual values could also be caused by changes to our maintenance programs, governmental regulations, operational intentions, or market prices for new and used aircraft of the same or similar types. We periodically evaluate our estimates and assumptions, and adjust them, as necessary, on a prospective basis through depreciation expense. In 2022, we reduced the estimated residual value of our MD-11 aircraft and associated engines to zero based on updated operational plans for these aircraft and our expectations for their eventual disposal. In connection with this change in estimate, in 2022 we recorded a one-time depreciation charge to adjust the residual value of our fully-depreciated MD-11 aircraft. Refer to note 4 to the audited, consolidated financial statements for information on the impact to our results of operations.
Fair Value Measurements
In the normal course of business, we hold and issue financial instruments that contain elements of market risk, including derivatives, marketable securities and debt. Certain of these financial instruments are required to be recorded at fair value, principally derivatives, marketable securities and certain other investments. These financial instruments are measured and reported at fair value on a recurring basis based upon a fair value hierarchy (Levels 1, 2 and 3). Fair values are based on listed market prices (Level 1), when such prices are available. To the extent that listed market prices are not available, fair value is determined based on other relevant factors, including dealer price quotations (Level 2). If listed market prices or other relevant factors are not available, inputs are developed from unobservable data reflecting our own assumptions and include situations where there is little or no market activity for the asset or liability (Level 3). Certain financial instruments, including over-the-counter derivative instruments, are valued using pricing models that consider, among other factors, contractual and market prices, correlations, time value, credit spreads and yield curve volatility factors. Changes in the fixed income, foreign currency exchange and commodity markets will impact our estimates of fair value in the future, potentially affecting our results of
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
operations. Further information on our accounting policies relating to fair value measurements can be found in note 1 to the audited, consolidated financial statements.
As of December 31, 2023, the majority of our financial instruments were categorized as either Level 1 or Level 2. Refer to notes 3, 9 and 17 to the audited, consolidated financial statements for further information on these instruments. A quantitative sensitivity analysis of our exposure to changes in commodity prices, foreign currency exchange rates and interest rates is presented in the Quantitative and Qualitative Disclosures about Market Risk section of this report.
Our pension and postretirement plan assets include investments in hedge funds, as well as private debt, private equity and real estate funds, which are primarily measured using net asset value ("NAV") as a practical expedient for fair value, as appropriate. These investments were valued at $9.9 billion as of December 31, 2023. In order to estimate NAV, we evaluate audited and unaudited financial reports from fund managers and make adjustments for investment activity between the date of the financial reports and December 31. These investments are not actively traded, and their values can only be estimated using these assumptions. If our estimates of activity changed, this could have a material impact on the reported value of these investments and on the return on assets that we report. Refer to note 5 to the audited, consolidated financial statements for further information on our pension and postretirement plan assets.
Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis, including property, plant and equipment, goodwill and intangible assets. These assets are subject to fair value adjustments in certain circumstances, such as when there is evidence of an impairment or when an asset or disposal group is classified as held for sale.
In accounting for business acquisitions, we allocate the fair value of purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values. Estimating the fair value of assets acquired and liabilities assumed requires judgment, especially with respect to identified intangible assets as there may be limited or no observable transactions within the market, requiring us to develop internal models to estimate fair value. For example, estimating the fair value of identified intangible assets may require us to develop valuation assumptions, including but not limited to, future expected cash flows from these assets, synergies and the cost of capital. Certain inputs require us to determine assumptions that are reflective of a market participant view of fair value. Changes in any of these assumptions may materially impact the amount we recognize for identifiable assets and liabilities, in addition to the residual amount allocated to goodwill.
Income Taxes
We make certain estimates and judgments in determining income tax expense within our financial statements. These estimates and judgments occur in the calculation of income by legal entity and jurisdiction, tax credits, benefits and deductions, and in the calculation of deferred tax assets and liabilities arising from timing differences in the recognition of revenue and expense for tax and financial statement purposes, as well as tax, interest and penalties related to uncertain tax positions. Significant changes in these estimates may result in an increase or decrease to our tax expense in a subsequent period.
We assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we will ultimately recover a substantial majority of the deferred tax assets recorded in our consolidated balance sheets. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not likely.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. Once it is determined that the position meets the recognition threshold, the second step requires us to estimate and measure the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement. The difference between the amount of recognizable tax benefit and the total amount of tax benefit from positions filed or to be filed with the tax authorities is recorded as a liability for uncertain tax benefits. It is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various possible outcomes. We reevaluate uncertain tax positions quarterly based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or additional tax expense. In 2023, we recognized a net tax benefit of $102 million following resolution of certain global tax audits.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 7A.Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in certain commodity prices, foreign currency exchange rates, interest rates and equity prices. All of these market risks arise in the normal course of business, as we do not engage in speculative trading activities. In order to manage the risk arising from these exposures, we may utilize a variety of commodity, foreign currency exchange rate and interest rate forward contracts, options and swaps. A discussion of our accounting policy for derivative instruments is provided in note 1 to the audited, consolidated financial statements.
Commodity Price Risk
We are exposed to changes in the prices of refined fuels, principally jet-A, diesel and unleaded gasoline, as well as changes in the price of natural gas and other alternative fuels. Currently, the fuel surcharges that we apply to our domestic and international package services are the primary means of reducing the risk of adverse fuel price changes. In order to mitigate the impact of fuel surcharges imposed on us by outside carriers, we regularly adjust the rates we charge for our freight brokerage services. 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. Because of this, our operating results may be affected should the market price of fuel suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our results either positively or negatively in the short-term. As of December 31, 2023 and 2022, we had no commodity contracts outstanding.
Foreign Currency Exchange Rate Risk
We have foreign currency risks related to our revenue, operating expenses and financing transactions in currencies other than the local currencies in which we operate. We are exposed to currency risk from the potential changes in functional currency values of our foreign currency-denominated assets, liabilities and cash flows. Our most significant foreign currency exposures relate to the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We may use forward contracts as well as a combination of purchased and written options to hedge forecasted cash flow currency exposures. These derivative instruments generally cover forecasted foreign currency exposures for periods of 3 to 36 months. We may also utilize forward contracts to hedge portions of our anticipated cash settlements of intercompany transactions and interest payments on certain debt subject to foreign currency remeasurement.
Interest Rate Risk
We have issued debt instruments and have debt associated with finance leases that accrue expense at fixed and floating rates of interest. We may use interest rate swaps as part of our program to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing. We may also utilize forward starting swaps and similar instruments to lock in all or a portion of the borrowing cost of anticipated debt issuances. These instruments subject us to risk resulting from changes in short-term interest rates.
We are also subject to interest rate risk with respect to our defined benefit pension and postretirement medical benefit plan obligations, as changes in interest rates will effectively increase or decrease the obligations associated with these plans. This will result in changes to the amount of pension and postretirement benefit expense recognized in future periods and may also result in us being required to make contributions to the plans.
We hold investments in debt securities, as well as cash-equivalent instruments, some of which accrue income at variable rates of interest.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sensitivity Analysis
The following analysis provides quantitative information regarding our exposure to foreign currency exchange rate risk, interest rate risk and equity price risk embedded in our existing financial instruments. We utilize valuation models to evaluate the sensitivity of the fair value of financial instruments with exposure to market risk that assume instantaneous, parallel shifts in exchange rates, interest rate yield curves and commodity and equity prices. For options and instruments with non-linear returns, models appropriate to the instrument are utilized to determine the impact of market shifts.
There are certain limitations inherent in the sensitivity analyses presented, primarily due to the assumption that foreign currency exchange rates change in a parallel fashion and that interest rates change instantaneously. In addition, the analyses are unable to reflect the complex market reactions that normally would arise from the market shifts modeled. While this is our best estimate of the impact of the specified scenarios, these estimates should not be viewed as forecasts. We adjust the fixed and floating interest rate mix of our interest-rate-sensitive assets and liabilities in response to changes in market conditions. Additionally, changes in the fair value of foreign currency derivatives and commodity derivatives are offset by changes in the cash flows of the underlying hedged foreign currency and commodity transactions.
| | | | | | | | | | | |
| | Shock-Test Result as of December 31, |
| (in millions) | 2023 | | 2022 |
| Change in Fair Value: | | | |
Currency Derivatives(1) | $ | (649) | | | $ | (770) | |
| Change in Annual Interest Expense: | | | |
Variable Rate Debt(2) | $ | 41 | | | $ | 18 | |
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also sponsor a number of health and welfare insurance plans for our employees. Liabilities and expenses related to these plans are based on estimates of the number of employees and eligible dependents covered under the plans, global health events, anticipated medical usage by participants and overall trends in medical costs and inflation.
% of the greater of the fair value of plan assets or the plan's projected benefit obligation) in Investment income and other upon remeasurement of a plan. The remaining components of pension expense, primarily service and interest costs and the expected return on plan assets, are recorded ratably on a quarterly basis.We recognize expense for required contributions to defined contribution plans quarterly, and we recognize a liability for any contributions due and unpaid within Accrued group welfare and retirement plan contributions.
We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees covered under collective bargaining agreements. Our contributions to these plans are determined in accordance with the respective collective bargaining agreements. We recognize expense for the contractually required contribution for each period, and we recognize a liability for any contributions due and unpaid within Accrued group welfare and retirement plan contributions.
), $ and $() million in 2023, 2022 and 2021, respectively.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other accounting pronouncements issued, but not effective until after December 31, 2023, are not expected to have a material impact on our consolidated financial position, results of operations, cash flows or internal controls.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2.
Disaggregation of Revenue
| | $ | | | | $ | | |
| Deferred | | | | | | | | |
| Ground | | | | | | | | |
| U.S. Domestic Package | $ | | | | $ | | | | $ | | |
| | | | | |
| Domestic | $ | | | | $ | | | | $ | | |
| Export | | | | | | | | |
| Cargo & Other | | | | | | | | |
| International Package | $ | | | | $ | | | | $ | | |
| | | | | |
| Forwarding | $ | | | | $ | | | | $ | | |
| Logistics | | | | | | | | |
| Freight | | | | | | | | |
| Other | | | | | | | | |
| Supply Chain Solutions | $ | | | | $ | | | | $ | | |
| | | | | |
| Consolidated revenue | $ | | | | $ | | | | $ | | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | | | | | | |
| Contract Liabilities: | | | | | | |
| Short-term advance payments from customers | | Other current liabilities | | $ | | | | $ | | |
| Long-term advance payments from customers | | Other non-current liabilities | | $ | | | | $ | | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3.
| | $ | — | | | $ | — | | | $ | | | | Total trading marketable securities | | | | — | | | — | | | | |
| | | | | | | |
| Current available-for-sale marketable securities: | | | | | | | |
| U.S. government and agency debt securities | | | | | | | () | | | | |
| Mortgage and asset-backed debt securities | | | | | | | | | | | |
| Corporate debt securities | | | | | | | () | | | | |
| U.S. state and local municipal debt securities | | | | | | | | | | | |
| Non-U.S. government debt securities | | | | | | | | | | | |
| Total available-for-sale marketable securities | | | | | | | () | | | | |
| | | | | | | |
| Total current marketable securities | $ | | | | $ | | | | $ | () | | | $ | | |
| | | | | | | |
| Cost | | Unrealized
Gains | | Unrealized
Losses | | Estimated
Fair Value |
| 2022 | | | | | | | |
| Current trading marketable securities: | | | | | | | |
| Equity securities | $ | | | | $ | — | | | $ | — | | | $ | | |
| Total trading marketable securities | | | | — | | | — | | | | |
| | | | | | | |
| Current available-for-sale marketable securities: | | | | | | | |
| U.S. government and agency debt securities | | | | | | | () | | | | |
| Mortgage and asset-backed debt securities | | | | | | | | | | | |
| Corporate debt securities | | | | | | | () | | | | |
| U.S. state and local municipal debt securities | | | | | | | | | | | |
| Non-U.S. government debt securities | | | | | | | | | | | |
| Total available-for-sale marketable securities | | | | | | | () | | | | |
| | | | | | | |
| Total current marketable securities | $ | | | | $ | | | | $ | () | | | $ | | |
| | | | | | | |
Total current marketable securities that were pledged as collateral for our self-insurance requirements had estimated fair values of $ and $ million as of December 31, 2023 and 2022, respectively.
The gross realized gains on sales of available-for-sale marketable securities totaled $, $ and $ million in 2023, 2022 and 2021, respectively. The gross realized losses on sales of available-for-sale marketable securities totaled $, $ and $ million in 2023, 2022 and 2021, respectively.
There were no material impairment losses recognized on marketable securities during 2023, 2022 or 2021.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | () | | | $ | | | | $ | () | | | $ | | | | $ | () | | | Corporate debt securities | | | | () | | | | | | () | | | | | | () | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total marketable securities | $ | | | | $ | () | | | $ | | | | $ | () | | | $ | | | | $ | () | |
Maturity Information
| | $ | | | | Due after one year through three years | | | | | |
| Due after three years through five years | | | | | |
| Due after five years | | | | | |
| | | | | |
| Equity securities | | | | | |
| $ | | | | $ | | |
Non-Current Investments
We hold non-current investments that are reported within Other Non-Current Assets in our consolidated balance sheets. Cash paid for these investments, excluding investments obtained through business acquisitions, is included in Other investing activities in our statements of consolidated cash flows.
•Equity method investments: As of December 31, 2023 and 2022, equity securities accounted for under the equity method had a carrying value of $ and $ million, respectively. In 2023, we obtained an equity method investment as part of our acquisition of MNX Global Logistics. See note 8 for further discussion of business acquisitions. Cash paid for this investment is included in Acquisitions, net of cash acquired in our statement of consolidated cash flows. In 2022, we invested $ million in the parent company of CommerceHub, Inc., a software provider connecting retailers and brands with marketplaces, drop ship solutions and delivery providers. We determined there is no amortizable basis difference between the purchase price for our investment and the underlying books and records of the investee.
•Other equity securities: Certain equity securities that do not have readily determinable fair values are reported in accordance with the measurement alternative in Accounting Standards Codification Topic 321 Investments – Equity Securities. As of December 31, 2023 and 2022, we had equity securities of $ and $ million, respectively, accounted for under the measurement alternative.
•Other investments: We hold an investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan. The investment had a fair market value of $ and $ million as of December 31, 2023 and 2022, respectively.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | $ | | | | Mortgage and asset-backed debt securities | | | | | | | | | | | |
| Corporate debt securities | | | | | | | | | | | |
| U.S. state and local municipal debt securities | | | | | | | | | | | |
| Equity securities | | | | | | | | | | | |
| Non-U.S. government debt securities | | | | | | | | | | | |
| | | |
| | | |
| Total marketable securities | | | | | | | | | | | |
Other non-current investments(1) | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
(1)Represents a variable life insurance policy funding benefits for the UPS Excess Coordinating Benefit Plan. |
| | | | | | | |
| | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total |
| 2022 | | | | | | | |
| Marketable Securities: | | | | | | | |
| U.S. government and agency debt securities | $ | | | | $ | | | | $ | | | | $ | | |
| Mortgage and asset-backed debt securities | | | | | | | | | | | |
| Corporate debt securities | | | | | | | | | | | |
| U.S. state and local municipal debt securities | | | | | | | | | | | |
| Equity securities | | | | | | | | | | | |
| Non-U.S. government debt securities | | | | | | | | | | | |
| | | |
| | | |
| Total marketable securities | | | | | | | | | | | |
Other non-current investments(1) | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
(1)Represents a variable life insurance policy funding benefits for the UPS Excess Coordinating Benefit Plan. |
There were no transfers of investments into or out of Level 3 during 2023 or 2022.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4.
| | $ | | | | Aircraft | | | | | |
| Land | | | | | |
| Buildings | | | | | |
| Building and leasehold improvements | | | | | |
| Plant equipment | | | | | |
| Technology equipment | | | | | |
|
| Construction-in-progress | | | | | |
| | | | | |
| Less: Accumulated depreciation and amortization | () | | | () | |
| Property, Plant and Equipment, Net | $ | | | | $ | | |
Property, plant and equipment purchased on account was $ and $ million as of December 31, 2023 and 2022, respectively.
There were material impairment charges to property, plant or equipment during the years ended December 31, 2023 or 2022.
In 2022, we reduced the estimated residual value of our MD-11 aircraft to zero, incurring a one-time charge on our fully-depreciated aircraft. This resulted in an increase in depreciation expense of $ million, and a decrease in net income of $ million, or $ per share on a basic and diluted basis, for the year ended December 31, 2022. The change in estimate for the remainder of our MD-11 fleet is being accounted for over the remaining useful lives.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5.
national master agreement that contained wage and benefit rate increases for Teamsters employees in the UPS Pension Plan and UPS/IBT Full-Time Employee Pension Plan. The impacts of these increases were recognized as part of the year end measurement of these plans. The divestiture of UPS Freight in 2021 triggered an interim remeasurement of the plan assets and benefit obligations of the UPS Pension Plan, UPS Retirement Plan and UPS Retired Employee Health Care Plan as of April 30, 2021. The interim remeasurement resulted in an actuarial gain of $ billion, reflecting updated actuarial assumptions, and was recorded in other comprehensive income within the equity section of the consolidated balance sheet during the second quarter of 2021. An actuarial gain of $ million ($ million after tax) for a prior service credit related to the divested group and a $ million loss ($ million after tax) for certain plan amendments to the UPS Pension Plan were immediately recognized within Other expenses in the statement of consolidated income for the year ended December 31, 2021.
During 2021, we remeasured the UPS/IBT Full-Time Employee Pension Plan following the enactment into law of the American Rescue Plan Act, which is discussed below. The interim remeasurement resulted in a pre-tax mark-to-market gain of $ billion ($ billion after tax) during the year. The gain was included within Investment income and other in the statement of consolidated income for the year ended December 31, 2021.
International Pension Benefits
We also sponsor various defined benefit plans covering certain of our international employees. The majority of our international obligations are for defined benefit plans in Canada and the United Kingdom. In addition, many of our international employees are covered by government-sponsored retirement and pension plans. We are not directly responsible for providing benefits to participants of government-sponsored plans.
During 2022, we amended certain Canadian defined benefit pension plans to cease future benefit accruals effective December 31, 2023. We remeasured plan assets and benefit obligations for the plans, which resulted in curtailment gains of $ million ($ million after tax). These gains were included in Investment income and other in our statement of consolidated income for the year ended December 31, 2022.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defined Contribution Plans
We sponsor a defined contribution plan for employees not covered under collective bargaining agreements, and several smaller defined contribution plans for certain employees covered under collective bargaining agreements. We match, in cash, a portion of the participating employees’ contributions. Matching contributions charged to expense were $, $ and $ million for 2023, 2022 and 2021, respectively.
Beginning in 2023, non-union employees, including those previously accruing benefits in the UPS Retirement Plan, receive a retirement contribution of % to % (% to % prior to 2023 for employees hired after July 1, 2016) of eligible compensation to the UPS 401(k) Savings Plan based on years of vesting service. Retirement contributions charged to expense were $, $ and $ million for 2023, 2022 and 2021, respectively. In addition, the UPS 401(k) Savings Plan provides for transition contributions to certain participants hired prior to 2008. The amount charged to expense for transition contributions in 2023 was $ million. There were transition contributions in previous years.
Contributions under this plan are subject to maximum compensation and contribution limits for a tax-qualified defined contribution plan as prescribed by the IRS. The UPS Restoration Savings Plan is a non-qualified plan that provides benefits to certain participants in the UPS 401(k) Savings Plan for amounts that exceed these benefit limits.
Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements. Amounts charged to expense were $, $ and $ million for 2023, 2022 and 2021, respectively.
We also sponsor certain international defined contribution plans, which are not individually material.
Net Periodic Benefit Cost
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Interest cost | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expected return on plan assets | () | | | () | | | () | | | () | | | () | | | () | | | () | | | () | | | () | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Amortization of prior service cost | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actuarial (gain) loss | | | | () | | | () | | | | | | | | | | | | () | | | () | | | () | |
| Curtailment and settlement (gain) loss | | | | | | | | | | | | | | | | | | | | | | () | | | | |
| | | | | | | | | | | | | |
| Net periodic benefit cost | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
% | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | Interest cost discount rate | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % |
| Rate of compensation increase | | % | | | % | | | % | | N/A | | N/A | | N/A | | | % | | | % | | | % |
| Expected return on plan assets | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % | | | % |
| Cash balance interest credit rate | | % | | | % | | | % | | N/A | | N/A | | N/A | | | % | | | % | | | % |
The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Pension Benefits | | U.S. Postretirement
Medical Benefits | | International
Pension Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Discount rate | | % | | | % | | | % | | | % | | | % | | | % |
| Rate of compensation increase | | % | | | % | | N/A | | N/A | | | % | | | % |
| Cash balance interest credit rate | | % | | | % | | N/A | | N/A | | | % | | | % |
A discount rate is used to determine the present value of our future benefit obligations. To determine the discount rate for our U.S. pension and postretirement benefit plans, we use a bond matching approach to select specific bonds that would satisfy our projected benefit payments. We believe the bond matching approach reflects the process we would employ to settle our pension and postretirement benefit obligations. For our international plans, the discount rate is determined by matching the expected cash flows of the plan, where available, or of a sample plan of similar duration, to a yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date. These assumptions are updated each measurement date, which is typically annually.
) | | $ | () | | | One basis point decrease in discount rate | $ | | | | $ | | |
The Society of Actuaries ("SOA") published mortality tables and improvement scales are used in developing the best estimate of mortality for our U.S. plans. In October 2023, the SOA elected to not release a new mortality improvement scale. Based on our perspective of future longevity, we elected to maintain the MP 2021 mortality scale assumption for purposes of measuring pension and other postretirement benefit obligations.
Assumptions for the expected return on plan assets are used to determine a component of net periodic benefit cost for the year. The assumption for our U.S. plans is developed using a long-term projection of returns for each asset class. Our asset allocation targets are reviewed annually and, if necessary, updated taking into consideration plan changes, funded status and actual performance. The expected return for each asset class is a function of passive, long-term capital market assumptions and excess returns generated from active management. The capital market assumptions used are provided by independent investment advisors, while excess return assumptions are supported by historical performance, fund mandates and investment expectations. As a result of our long-term U.S. capital market assumptions and investment objectives for pension assets, the weighted-average long-term expected rate of return on assets increased from % during 2022 to % in 2023.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The passage of the ARPA triggered a remeasurement of the UPS/IBT Plan under ASC Topic 715. Accordingly, we remeasured the plan assets and pension benefit obligation as of March 31, 2021, which resulted in an actuarial gain of $ billion, reflecting a reduction of the liability for coordinating benefits of $ billion and a gain from other updated actuarial assumptions of $ billion. We recorded a gain of $ billion in accumulated other comprehensive income within the equity section of our consolidated balance sheet and a mark-to-market gain of $ billion within Investment income and other in our statement of consolidated income during the first quarter of 2021.
We account for the potential obligation to pay coordinating benefits under ASC Topic 715, which requires us to provide a best estimate of various actuarial assumptions in measuring our pension benefit obligation at the December 31 measurement date. As of December 31, 2023, our best estimate of coordinating benefits that may be required to be paid by the UPS/IBT Plan after SFA funds have been exhausted was immaterial.
The value of our estimate for future coordinating benefits will continue to be influenced by a number of factors, including interpretations of the ARPA, future legislative actions, actuarial assumptions and the ability of the CSPF to sustain its long-term commitments. Actual events may result in a change in our best estimate of the projected benefit obligation. We will continue to assess the impact of these uncertainties in accordance with ASC Topic 715.
Other Actuarial Assumptions
Healthcare cost trends are used to project future postretirement medical benefits payable from our plans. For purposes of measuring our U.S. plan obligations as of December 31, 2023, a % annual rate of increase in postretirement medical benefit costs was assumed; the rate was assumed to decrease gradually to % by 2035 and to remain at that level thereafter.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Benefit obligation | () | | | () | | | () | | | () | | | () | | | () | |
| Funded status | $ | () | | | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | | |
| Funded Status Recognized in our Balance Sheet: | | | | | | | | | | | |
| Other non-current assets | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Other current liabilities | () | | | () | | | () | | | () | | | () | | | () | |
| Pension and postretirement benefit obligations | () | | | () | | | () | | | () | | | () | | | () | |
| Net asset (liability) | $ | () | | | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | | |
Amounts Recognized in AOCI(1): | | | | | | | | | | | |
| Unrecognized net prior service cost | $ | () | | | $ | () | | | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| Unrecognized net actuarial gain (loss) | () | | | | | | | | | | | | | | | | |
| Gross unrecognized cost | () | | | () | | | | | | | | | | | | | |
| Deferred tax assets (liabilities) | | | | | | | () | | | () | | | () | | | () | |
| Net unrecognized cost | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | |
(1) Accumulated Other Comprehensive Income (Loss)
The accumulated benefit obligation for our pension plans as of December 31, 2023 and 2022 was $ and $ billion, respectively. The accumulated benefit obligation for our postretirement medical benefit plans as of both December 31, 2023 and 2022 was $ billion.
Benefit payments under the pension plans include $ and $ million paid from employer assets for the years ended December 31, 2023 and 2022, respectively. Benefit payments (net of participant contributions) under the postretirement medical benefit plans include $ and $ million paid from employer assets for the years ended December 31, 2023 and 2022, respectively. Such benefit payments from employer assets are also categorized as employer contributions.
| | $ | | | | $ | | | | $ | | | | Accumulated benefit obligation | | | | | | | | | | | |
| Fair value of plan assets | | | | | | | | | | | |
| International Pension Benefits: | | | | | | | |
| Projected benefit obligation | $ | | | | $ | | | | $ | | | | $ | | |
| Accumulated benefit obligation | | | | | | | | | | | |
| Fair value of plan assets | | | | | | | | | | | |
The accumulated postretirement benefit obligation presented in the funded status table exceeds plan assets for all U.S. postretirement medical benefit plans.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Service cost | | | | | | | | | | | | | | | | | |
| Interest cost | | | | | | | | | | | | | | | | | |
| Gross benefits paid | () | | | () | | | () | | | () | | | () | | | () | |
| Plan participants’ contributions | | | | | | | | | | | | | | | | | |
Plan amendments(1) | | | | | | | | | | | | | | | | | |
| Actuarial (gain)/loss | | | | () | | | | | | () | | | | | | () | |
| Foreign currency exchange rate changes | | | | | | | | | | | | | | | | () | |
| Curtailments and settlements | | | | | | | | | | | | | () | | | () | |
| Other | | | | | | | | | | | | | | | | | |
| Projected benefit obligation at end of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | |
| | U.S. Pension Benefits | | U.S. Postretirement
Medical Benefits | | International
Pension Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Fair Value of Plan Assets: | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Actual return on plan assets | | | | () | | | () | | | () | | | | | | () | |
| Employer contributions | | | | | | | | | | | | | | | | | |
| Plan participants’ contributions | | | | | | | | | | | | | | | | | |
| Gross benefits paid | () | | | () | | | () | | | () | | | () | | | () | |
| Foreign currency exchange rate changes | | | | | | | | | | | | | | | | () | |
| Curtailments and settlements | | | | | | | | | | | | | () | | | () | |
| Other | | | | | | | | | | | | | | | | | |
| Fair value of plan assets at end of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
(1) Plan amendments in 2023 and 2022 were related to collective bargaining agreements with the Teamsters and the Independent Pilots Association, respectively.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•Discount Rates ($ billion pre-tax loss): The weighted-average discount rate for our pension and postretirement medical plans decreased from % as of December 31, 2022 to % as of December 31, 2023, primarily due to a decrease in credit spreads on AA-rated corporate bonds.
•Demographic and Assumption Changes ($ billion pre-tax loss): This represents the difference between actual and estimated participant data and demographic factors, including healthcare cost trends, compensation changes, rates of termination, retirement, mortality and other changes.
2022 - $ billion pre-tax actuarial gain related to benefit obligations:
•Discount Rates ($ billion pre-tax gain): The weighted-average discount rate for our pension and postretirement medical plans increased from % as of December 31, 2021 to % as of December 31, 2022, primarily due to an increase in U.S. treasury yields, as well as an increase in credit spreads on AA-rated corporate bonds.
•Demographic and Assumption Changes ($ billion pre-tax loss): This represents the difference between actual and estimated participant data and demographic factors, including healthcare cost trends, compensation changes, rates of termination, retirement, mortality and other changes.
Pension and Postretirement Plan Assets
Pension assets are invested in accordance with applicable laws and regulations, as well as investment guidelines established by plan trustees. The strategic asset mixes are specifically tailored for each plan given distinct factors, including liability and liquidity needs. Equities, alternative investments, and other higher-yielding assets are utilized to generate returns and promote growth. Derivatives, repurchase/reverse repurchase agreements and fixed income securities are utilized as tools for duration management, mitigating interest rate risk, and minimizing funded status volatility.
The primary long-term investment objectives for pension assets are to provide for a reasonable amount of long-term capital growth to meet future obligations while minimizing risk exposures and reducing funded status volatility. To meet these objectives, investment managers are engaged to actively manage assets within the guidelines and strategies set forth by our investment committee. Active managers are monitored regularly and their performance is compared to applicable benchmarks.
Fair Value Measurements
Plan assets valued utilizing Level 1 inputs include equity investments, corporate debt instruments, U.S. government securities, derivatives and other instruments. Fair values were determined by closing prices for those securities traded on national stock exchanges, while securities traded in the over-the-counter market and listed securities for which no sale was reported on the valuation date are valued at the mean between the last reported bid and ask prices.
Level 2 assets include fixed income securities that are valued based on yields currently available on comparable securities of other issues with similar credit ratings; mortgage-backed securities that are valued based on cash flow and yield models using acceptable modeling and pricing conventions; certain investments that are pooled with other investments in a commingled fund; and derivatives and other instruments primarily valued using pricing models that rely on market observable inputs such as yield curves, foreign currency exchange rates and investment forward price. We value our investments in commingled funds by taking the percentage ownership of the underlying assets, each of which has a readily determinable fair value.
Fair value estimates for certain investments are based on unobservable inputs that are not corroborated by observable market data and are thus classified as Level 3.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•Real Estate, Private Debt and Private Equity Funds: Plan assets are invested in limited partnership interests in various private equity, private debt and real estate funds. Limited provisions exist for the redemption of these interests by the limited partners that invest in these funds until the end of the term of the partnerships, typically ranging between and years from the date of inception. An active secondary market exists for similar partnership interests, although no particular value (discount or premium) can be guaranteed. As of December 31, 2023, unfunded commitments to such limited partnerships totaling approximately $ billion are expected to be contributed over the remaining investment period, typically ranging between three and .
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | $ | | | | | % | | -% | | Equity Securities: | | | | | | | | | | | |
| U.S. Large Cap | | | | | | | | | | | | | | | |
| U.S. Small Cap | | | | | | | | | | | | | | | |
| Emerging Markets | | | | | | | | | | | | | | | |
| Global Equity | | | | | | | | | | | | | | | |
| International Equity | | | | | | | | | | | | | | | |
| Total Equity Securities | | | | | | | | | | | | | | | | - |
| Fixed Income Securities: | | | | | | | | | | | |
U.S. Government Securities | | | | | | | | | | | | | | | |
| Corporate Bonds | | | | | | | | | | | | | | | |
| Global Bonds | | | | | | | | | | | | | | | |
| Municipal Bonds | | | | | | | | | | | | | | | |
| Total Fixed Income Securities | | | | | | | | | | | | | | | | - |
| Other Investments: | | | | | | | | | | | |
| Hedge Funds | | | | | | | | | | | | | | | | - |
| Private Equity | | | | | | | | | | | | | | | | - |
| Private Debt | | | | | | | | | | | | | | | | - |
| Real Estate | | | | | | | | | | | | | | | | - |
Structured Products(2) | | | | | | | | | | | | | | | | - |
| Total Other Investments | | | | | | | | | | | | | | | |
| Derivatives and Other Instruments: | | | | | | | | | | | |
| Equity Risk | () | | | | | | () | | | | | | () | | | |
| Interest Rate Risk | () | | | () | | | () | | | | | | () | | | |
Other Risk(3) | | | | () | | | | | | | | | | | | |
| Total Derivatives and Other Instruments | () | | | | | | () | | | | | | | | |
| Total U.S. Plan Assets | $ | | | | $ | | | | $ | | | | $ | | | | | % | | |
| Asset Category (International Plans): | | | | | | | | | | | |
Cash and Cash Equivalents | $ | | | | $ | | | | $ | () | | | $ | | | | | % | | - |
| Equity Securities: | | | | | | | | | | | |
| Local Markets Equity | | | | | | | | | | | | | | | |
| U.S. Equity | | | | | | | | | | | | | | | |
| Emerging Markets | | | | | | | | | | | | | | | |
| International / Global Equity | | | | | | | | | | | | | | | |
| Total Equity Securities | | | | | | | | | | | | | | | | - |
| Fixed Income Securities: | | | | | | | | | | | |
| Local Government Bonds | | | | | | | | | | | | | | | |
| Corporate Bonds | | | | | | | | | | | | | | | |
| Global Bonds | | | | | | | | | | | | | | | |
| Total Fixed Income Securities | | | | | | | | | | | | | | | | - |
| Other Investments: | | | | | | | | | | | |
Real Estate(1) | | | | | | | | | | | | | | | | - |
Other(1) | | | | | | | | | | | | | | | | - |
| Total International Plan Assets | $ | | | | $ | | | | $ | | | | $ | | | | | % | | |
| Total Plan Assets | $ | | | | $ | | | | $ | | | | $ | | | | | | |
(1) Includes certain investments that are measured at NAV per share (or its equivalent).
(2) Represents mortgage and asset-backed securities.
(3) Includes credit risk, foreign currency exchange risk and commodity risk.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | $ | | | | | % | | -% | | Equity Securities: | | | | | | | | | | | |
| U.S. Large Cap | | | | | | | | | | | | | | | |
| U.S. Small Cap | | | | | | | | | | | | | | | |
| Emerging Markets | | | | | | | | | | | | | | | |
| Global Equity | | | | | | | | | | | | | | | |
| International Equity | | | | | | | | | | | | | | | |
| Total Equity Securities | | | | | | | | | | | | | | | | - |
| Fixed Income Securities: | | | | | | | | | | | |
U.S. Government Securities | | | | | | | | | | | | | | | |
| Corporate Bonds | | | | | | | | | | | | | | | |
| Global Bonds | | | | | | | | | | | | | | | |
| Municipal Bonds | | | | | | | | | | | | | | | |
| Total Fixed Income Securities | | | | | | | | | | | | | | | | - |
| Other Investments: | | | | | | | | | | | |
| Hedge Funds | | | | | | | | | | | | | | | | - |
| Private Equity | | | | | | | | | | | | | | | | - |
| Private Debt | | | | | | | | | | | | | | | | - |
| Real Estate | | | | | | | | | | | | | | | | - |
Structured Products(2) | | | | | | | | | | | | | | | | - |
| Total Other Investments | | | | | | | | | | | | | | | |
| Derivative and Other Instruments: | | | | | | | | | | | |
| Equity Risk Contracts | () | | | () | | | () | | | | | | () | | | |
| Interest Rate Risk Contracts | () | | | () | | | () | | | | | | () | | | |
Other Risk(3) | | | | () | | | | | | | | | | | | |
| Total Derivative and Other Instruments | () | | | () | | | () | | | | | | | | |
| Total U.S. Plan Assets | $ | | | | $ | | | | $ | | | | $ | | | | | % | | |
| Asset Category (International Plans): | | | | | | | | | | | |
Cash and Cash Equivalents | $ | | | | $ | | | | $ | | | | $ | | | | | % | | - |
| Equity Securities: | | | | | | | | | | | |
| Local Markets Equity | | | | | | | | | | | | | | | |
| U.S. Equity | () | | | | | | () | | | | | | | | |
| Emerging Markets | | | | | | | | | | | | | | | |
| International / Global Equity | | | | | | | | | | | | | | | |
| Total Equity Securities | | | | | | | | | | | | | | | | - |
| Fixed Income Securities: | | | | | | | | | | | |
| Local Government Bonds | | | | | | | | | | | | | | | |
| Corporate Bonds | | | | | | | | | | | | | | | |
| Global Bonds | | | | | | | | | | | | | | | |
| Total Fixed Income Securities | | | | | | | | | | | | | | | | - |
| Other Investments: | | | | | | | | | | | |
Real Estate(1) | | | | | | | | | | | | | | | | - |
| | | | | | | |
Other(1) | | | | | | | | | | | | | | | | - |
| Total International Plan Assets | $ | | | | $ | | | | $ | | | | $ | | | | | % | | |
| Total Plan Assets | $ | | | | $ | | | | $ | | | | $ | | | | | | |
(1) Includes certain investments that are measured at NAV per share (or its equivalent).
(2) Represents mortgage and asset-backed securities.
(3) Includes credit risk, foreign currency exchange risk and commodity risk.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | Actual Return on Assets: | | | | | |
| Assets Held at End of Year | | | | () | | | () | |
| Assets Sold During the Year | () | | | | | | () | |
| Purchases | | | | | | | | |
| Sales | () | | | () | | | () | |
| |
| Transfers Into (Out of) Level 3 | () | | | | | | () | |
| Balance as of December 31, 2022 | $ | | | | $ | | | | $ | | |
| Actual Return on Assets: | | | | | |
| Assets Held at End of Year | | | | | | | | |
| Assets Sold During the Year | | | | | | | | |
| Purchases | | | | | | | | |
| Sales | () | | | () | | | () | |
| |
| Transfers Into (Out of) Level 3 | | | | | | | | |
| Balance as of December 31, 2023 | $ | | | | $ | | | | $ | | |
There were shares of UPS class A or class B common stock directly held in plan assets as of December 31, 2023 or 2022.
Expected Cash Flows
| | $ | | | | $ | | | | 2024 to plan participants | | | | | | | | |
| Expected Benefit Payments: | | | | | |
| 2024 | $ | | | | $ | | | | $ | | |
| 2025 | | | | | | | | |
| 2026 | | | | | | | | |
| 2027 | | | | | | | | |
| 2028 | | | | | | | | |
| 2029 - 2033 | | | | | | | | |
Our funding policy guideline for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations. International plans will be funded in accordance with local regulations. Additional discretionary contributions may be made when deemed appropriate to meet the long-term obligations of the plans. Expected benefit payments for pensions will be paid primarily from plan trusts. Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6.
employees in the U.S. employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters. These agreements were scheduled to expire on July 31, 2023. In September 2023, a new national master agreement with the Teamsters was ratified. This agreement contains wage and health and welfare benefit rate increases for our covered part-time and full-time Teamster employees. We have approximately employees in Canada employed under a collective bargaining agreement with the Teamsters which runs through July 31, 2025.
We have approximately pilots who are employed under a collective bargaining agreement with the Independent Pilots Association. This collective bargaining agreement becomes amendable September 1, 2025.
We have approximately airline mechanics who are covered by a collective bargaining agreement with Teamsters Local 2727 which becomes amendable November 1, 2026. In addition, approximately of our auto and maintenance mechanics who are not employed under agreements with the Teamsters are employed under collective bargaining agreements with the International Association of Machinists and Aerospace Workers ("IAM"). The collective bargaining agreement with the IAM runs through July 31, 2024.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The FIP / RP Status Pending / Implemented column indicates whether a financial improvement plan ("FIP") for yellow/orange zone plans, or a rehabilitation plan ("RP") for red zone plans, is either pending or has been implemented. As of December 31, 2023, all plans that have either a FIP or RP requirement have had the respective plan implemented. Our collectively-bargained contributions satisfy the requirements of all implemented FIPs and RPs and do not currently require the payment of any surcharges. In addition, minimum contributions outside of the agreed-upon contractual rates are not required.
For the plans detailed in the following table, the expiration date of the associated collective bargaining agreements is July 31, 2028, with the exception of the IAM National Pension Fund / National Pension Plan, which has a July 31, 2024 associated expiration date. For all plans detailed in the following table, we provided more than % of the total plan contributions from all employers for 2023, 2022 and 2021, as disclosed in the annual filing with the Department of Labor for each respective plan.
Certain plans have been aggregated in the All Other Multiemployer Pension Plans line in the following table, as contributions to each of these plans are not individually material.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | Yes | | | | | | | | | | | | | | Central Pennsylvania Teamsters Defined Benefit Plan | | | | | | | No | | | | | | | | | |
| Eastern Shore Teamsters Pension Fund | | | | | | | No | | | | | | | | | | | | |
| Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund | | | | | | | Yes | | | | | | | | | |
| Hagerstown Motor Carriers and Teamsters Pension Fund | | | | | | | No | | | | | | | | | |
| I.A.M. National Pension Fund / National Pension Plan | | | | | | | Yes | | | | | | | | | | | | |
| International Brotherhood of Teamsters Union Local No. 710 Pension Fund | | | | | | | No | | | | | | | | | | | | |
| Local 705, International Brotherhood of Teamsters Pension Plan | | | | | | | No | | | | | | | | | | | | |
| Local 804 I.B.T. & Local 447 I.A.M.—UPS Multiemployer Retirement Plan | | | | | | | No | | | | | | | | | | | | |
| Milwaukee Drivers Pension Trust Fund | | | | | | | No | | | | | | | | | | | | |
| New England Teamsters & Trucking Industry Pension Fund | | | | | | | Yes | | | | | | | | | | | | |
| New York State Teamsters Conference Pension and Retirement Fund | | | | | | | Yes | | | | | | | | | | | | |
| Teamster Pension Fund of Philadelphia and Vicinity | | | | | | | No | | | | | | | | | | | | |
| Teamsters Joint Council No. 83 of Virginia Pension Fund | | | | | | | No | | | | | | | | | | | | |
| Teamsters Local 639—Employers Pension Trust | | | | | | | No | | | | | | | | | | | | |
| Teamsters Negotiated Pension Plan | | | | | | | No | | | | | | | | | | | | |
| Truck Drivers and Helpers Local Union No. 355 Retirement Pension Plan | | | | | | | No | | | | | | | | | | | | |
| United Parcel Service, Inc.—Local 177, I.B.T. Multiemployer Retirement Plan | | | | | | | No | | | | | | | | | | | | |
| Western Conference of Teamsters Pension Plan | | | | | | | No | | | | | | | | | | | | |
| Western Pennsylvania Teamsters and Employers Pension Fund | | | | | | | Yes | | | | | | | | | | | | |
| All Other Multiemployer Pension Plans | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Total Contributions | | $ | | | | $ | | | | $ | | | | |
Agreement with the New England Teamsters and Trucking Industry Pension Fund
In 2012, we reached an agreement with the New England Teamsters and Trucking Industry Pension Fund ("NETTI Fund"), a multiemployer pension plan in which UPS is a participant, to restructure the pension liabilities for approximately UPS employees represented by the Teamsters. As of December 31, 2023 and 2022, we had $ and $ million, respectively, recognized in Other Non-Current Liabilities and $ and $ million, respectively, recorded in Other current liabilities in our consolidated balance sheets, representing the remaining balance of the NETTI Fund withdrawal liability. This liability is payable in equal monthly installments over a remaining term of approximately years. Based on the borrowing rates currently available to us for long-term financing of a similar maturity, the fair value of the NETTI Fund withdrawal liability as of December 31, 2023 and 2022 was $ and $ million, respectively. We utilized Level 2 inputs in the fair value hierarchy to determine the fair value of this liability.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | Central Pennsylvania Teamsters Health & Pension Fund | | | | | | | | |
| Central States, South East & South West Areas Health and Welfare Fund | | | | | | | | |
| Delta Health Systems—East Bay Drayage Drivers | | | | | | | | |
| Joint Council #83 Health & Welfare Fund | | | | | | | | |
| Local 401 Teamsters Health & Welfare Fund | | | | | | | | |
| Local 804 Welfare Trust Fund | | | | | | | | |
| Milwaukee Drivers Pension Trust Fund—Milwaukee Drivers Health and Welfare Trust Fund | | | | | | | | |
| New York State Teamsters Health & Hospital Fund | | | | | | | | |
| Northern California General Teamsters (DELTA) | | | | | | | | |
| Northern New England Benefit Trust | | | | | | | | |
| Oregon / Teamster Employers Trust | | | | | | | | |
| Teamsters 170 Health & Welfare Fund | | | | | | | | |
| Teamsters Benefit Trust | | | | | | | | |
| Teamsters Local 175 & 505 Health and Welfare Fund | | | | | | | | |
| Teamsters Local 191 Health Fund | | | | | | | | |
| Teamsters Local 251 Health & Insurance Plan | | | | | | | | |
| Teamsters Local 638 Health Fund | | | | | | | | |
| Teamsters Local 639—Employers Health & Pension Trust Funds | | | | | | | | |
| Teamsters Local 671 Health Services & Insurance Plan | | | | | | | | |
| Teamsters Union 25 Health Services & Insurance Plan | | | | | | | | |
| Teamsters Western Region & Local 177 Health Care Plan | | | | | | | | |
| Truck Drivers and Helpers Local 355 Baltimore Area Health & Welfare Fund | | | | | | | | |
| Utah-Idaho Teamsters Security Fund | | | | | | | | |
| Washington Teamsters Welfare Trust | | | | | | | | |
| All Other Multiemployer Health and Welfare Plans | | | | | | | | |
| Total Contributions | $ | | | | $ | | | | $ | | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7.
| | $ | | | | $ | | | | $ | | | | Acquired | | | | | | | | | | | |
| | | |
| Currency / Other | | | | () | | | () | | | () | |
| Balance as of December 31, 2022 | $ | | | | $ | | | | $ | | | | $ | | |
| Acquired | | | | | | | | | | | |
| Impairments | | | | | | | () | | | () | |
| Currency / Other | | | | | | | | | | | |
| Balance as of December 31, 2023 | $ | | | | $ | | | | $ | | | | $ | | |
2023 Goodwill Activity
Goodwill acquired during 2023 was primarily associated with our acquisitions of MNX Global Logistics and Happy Returns, which are both reported within Supply Chain Solutions. It also reflects the 2023 completion of purchase accounting allocations from our 2022 acquisition of Bomi Group and other immaterial transactions completed during 2023. See note 8 for further discussion of business acquisitions.
As described in more detail below, during 2023 we recorded non-cash goodwill impairment charges of $ million, comprised of: $ million related to our Roadie reporting unit, $ million related to our Delivery Solutions reporting unit, which represented all of the goodwill associated with that reporting unit, and an immaterial charge resulting from the closure of a trade management services business within Supply Chain Solutions.
The remaining changes were due to the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances.
2022 Goodwill Activity
Goodwill acquired during 2022 was primarily associated with our acquisitions of Delivery Solutions and Bomi Group. Goodwill associated with Delivery Solutions was reported in Supply Chain Solutions as of December 31, 2022. Goodwill associated with Bomi Group is reported in International Package and Supply Chain Solutions.
The remaining changes were due to the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances.
Goodwill Impairment
We complete our annual goodwill impairment test as of July 1 on a reporting unit basis. In developing our valuation assumptions underlying the annual impairment test in 2023, we determined that the cost of capital for our Roadie and Delivery Solutions reporting units had increased, driven by increases in the risk-free interest rate and volatility of the stock prices of market comparables. The results of our annual test using these assumptions indicated that the carrying values of our Roadie and Delivery Solutions reporting units exceeded their estimated fair values and as a result, we recorded the impairment charges described above.
In addition to our annual impairment test, we are also required to conduct interim impairment tests when changes in circumstances indicate an impairment may have occurred between annual tests. In connection with matters resulting in the Coyote trade name impairment discussed below, we performed an interim test of the goodwill associated with our Coyote reporting unit as of December 31, 2023. While this interim test did not indicate an impairment, we continue to monitor this reporting unit and may be required to perform additional interim tests in future periods as facts and circumstances evolve.
Within our consolidated goodwill balance of $ billion as of December 31, 2023, approximately $ billion was represented by certain reporting units within Supply Chain Solutions, including Coyote and Roadie, that had a limited excess of fair value as of the most recent valuation.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
| | $ | () | | | $ | | | | | | Licenses | | | | () | | | | | | |
| Franchise rights | | | | () | | | | | | |
| Customer relationships | | | | () | | | | | | |
| Trade name | | | | () | | | | | | |
| Trademarks, patents and other | | | | () | | | | | | |
| Amortizable intangible assets | $ | | | | $ | () | | | $ | | | | |
| Indefinite-lived intangible assets | | | | — | | | | | | |
| Total Intangible Assets | $ | | | | $ | () | | | $ | | | | |
| December 31, 2022 | | | | | | | |
| Capitalized software | $ | | | | $ | () | | | $ | | | | |
| Licenses | | | | () | | | | | | |
| Franchise rights | | | | () | | | | | | |
| Customer relationships | | | | () | | | | | | |
| Trade name | | | | () | | | | | | |
| Trademarks, patents and other | | | | () | | | | | | |
| Amortizable intangible assets | $ | | | | $ | () | | | $ | | | | |
| Indefinite-lived intangible assets | | | | — | | | | | | |
| Total Intangible Assets | $ | | | | $ | () | | | $ | | | | |
A trade name and licenses with carrying values of $ and $ million, respectively, as of December 31, 2023 are deemed to be indefinite-lived intangible assets, and therefore are not amortized. These assets are reported within Supply Chain Solutions. Impairment tests for indefinite-lived intangible assets are performed annually, or more frequently if required. Our annual test as of July 1 indicated that the fair value of the Coyote trade name was in excess of its carrying value, although the excess was less than 10 percent.
Since the July 1 testing date, our truckload brokerage business continued to be negatively impacted by market conditions, which resulted in revenue declines. In response, during the fourth quarter of 2023, we began to evaluate strategic alternatives for this business. As a result, we tested the Coyote trade name for impairment as of December 31, 2023, using forecasts that reflected updated market conditions and our evaluation of strategic alternatives related to this business. We concluded that the carrying value of the trade name exceeded its estimated fair value and recorded an impairment charge of $ million within Other expenses in our statement of consolidated income. The revised carrying value of this trade name as of December 31, 2023 was $ million. The trade name continues to be indefinite-lived.
All of our other recorded intangible assets are deemed to be finite-lived and are amortized over their estimated useful lives. Impairment tests for these assets are performed when a triggering event occurs that may indicate that the carrying value of the intangible asset may not be recoverable. Additionally, a decision to sell or abandon an intangible asset before the end of its useful life may result in an impairment charge. Impairments of finite-lived intangible assets were $, $ and $ million in 2023, 2022, and 2021, respectively.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
, $ and $ million in each of 2023, 2022 and 2021, respectively. Expected amortization of finite-lived intangible assets recorded as of December 31, 2023 for the next five years is as follows (in millions): 2024—$; 2025—$; 2026—$; 2027—$; 2028—$. Amortization expense in future periods will be affected by business acquisitions and divestitures, software development, licensing agreements, purchases of development areas or similar franchise rights and other factors.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8.
billion, net of cash acquired. Acquisitions were funded using cash from operations. The estimated fair values of assets acquired and liabilities assumed are subject to change based on completion of our purchase accounting. Certain areas, including the fair value of equity method investments included within Other Non-Current Assets and our estimates of tax positions, are preliminary as of December 31, 2023. The preliminary purchase price allocation for acquired companies can be modified for up to one year from the date of acquisition.
| | Accounts receivable | | |
| Other current assets | | |
Property, Plant and Equipment | | |
| Operating Lease Right-Of-Use Assets | | |
| Goodwill | | |
Intangible Assets(1) | | |
Other Non-Current Assets | | |
| Accounts Payable and other current liabilities | () | |
| Non-Current Operating Leases | () | |
| Deferred Income Tax Liabilities | () | |
| Total purchase price | $ | | |
(1) Includes $ million for acquisitions of development areas for The UPS Store.
Goodwill recognized upon acquisition of approximately $ million is attributable to expected synergies from future growth. We assigned $ million of goodwill to Supply Chain Solutions and $ million to our International Package segment. A portion of the goodwill acquired is expected to be deductible for income tax purposes.
Intangible assets acquired of approximately $ million consist of $ million of customer relationships (amortized over a weighted average of years), $ million of franchise rights (amortized over years), $ million of developed technology and software (amortized over a weighted average of years), $ million of trade names (amortized over a weighted average of years) and $ million of other intangible assets (amortized over a weighted average of years). The carrying value of accounts receivable approximates fair value.
Acquisition-related costs in 2023 were approximately $ million. These were expensed as incurred and included in Other expenses within our statement of consolidated income.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | Accounts receivable | | |
| Other current assets | | |
Property, Plant and Equipment | | |
| Operating Lease Right-Of-Use Assets | | |
| Goodwill | | |
Intangible Assets(1) | | |
| Accounts Payable and other current liabilities | () | |
| Non-Current Operating Leases | () | |
| Long-Term Debt and Finance Leases | () | |
| Deferred Income Tax Liabilities | () | |
| Total purchase price | $ | | |
(1) Includes $ million for acquisitions of development areas for The UPS Store.
Goodwill recognized of approximately $ million, including immaterial measurement period adjustments, was attributable to expected synergies from future growth, including synergies in our International Package segment. We allocated $ and $ million of goodwill to reporting units within International Package and Supply Chain Solutions, respectively. Deductible goodwill for income tax purposes was not material.
Intangible assets acquired of approximately $ million consisted of $ million of customer relationships (amortized over a weighted average of years), $ million of franchise rights (amortized over years), $ million of trade names (amortized over a weighted average of years), $ million of technology (amortized over a weighted average of years) and $ million in other intangibles (amortized over a weighted average of years). The carrying value of accounts receivable approximated fair value.
Acquisition-related costs in 2022 were approximately $ million. These were expensed as incurred and included in Other expenses within the statement of consolidated income.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | Accounts receivable | | |
| Goodwill | | |
Intangible Assets | | |
Deferred Income Tax Liabilities | () | |
| Total purchase price | $ | | |
Goodwill recognized of approximately $ million was attributable to expected synergies from future growth, including synergies in our U.S. Domestic Package segment. We allocated $ and $ million of the recognized goodwill to Supply Chain Solutions and U.S. Domestic Package, respectively. of the goodwill is deductible for income tax purposes.
Intangible assets acquired of approximately $ million primarily consisted of $ million of technology (amortized over years), $ million of trade name (amortized over years) and $ million in other intangibles (amortized over an average of years). The carrying value of accounts receivable approximated fair value.
Acquisition-related costs were not material, and were expensed as incurred and included in Other expenses within our statement of consolidated income.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9.
| | 2024 | | $ | | | | $ | | | | Fixed-rate senior notes: | | | | | | | |
% senior notes | | | | 2023 | | | | | | |
% senior notes | | | | 2024 | | | | | | |
% senior notes | | | | 2024 | | | | | | |
% senior notes | | | | 2025 | | | | | | |
% senior notes | | | | 2026 | | | | | | |
% senior notes | | | | 2027 | | | | | | |
% senior notes | | | | 2029 | | | | | | |
% senior notes | | | | 2029 | | | | | | |
% senior notes | | | | 2030 | | | | | | |
% senior notes | | | | 2033 | | | | | | |
% senior notes | | | | 2038 | | | | | | |
% senior notes | | | | 2040 | | | | | | |
% senior notes | | | | 2040 | | | | | | |
% senior notes | | | | 2042 | | | | | | |
% senior notes | | | | 2046 | | | | | | |
% senior notes | | | | 2047 | | | | | | |
% senior notes | | | | 2049 | | | | | | |
% senior notes | | | | 2049 | | | | | | |
% senior notes | | | | 2050 | | | | | | |
% senior notes | | | | 2053 | | | | | | |
| Floating-rate senior notes: | | | | | | | |
| Floating-rate senior notes | | | | 2023 | | | | | | |
| Floating-rate senior notes | | | | 2049-2073 | | | | | | |
| Debentures: | | | | | | | |
% debentures | | | | 2030 | | | | | | |
| Pound Sterling Notes: | | | | | | | |
% notes | | | | 2031 | | | | | | |
% notes | | | | 2050 | | | | | | |
| Euro Senior Notes: | | | | | | | |
% senior notes | | | | 2023 | | | | | | |
% senior notes | | | | 2025 | | | | | | |
% senior notes | | | | 2028 | | | | | | |
% senior notes | | | | 2032 | | | | | | |
| Canadian senior notes: | | | | | | | |
% senior notes | | | | 2024 | | | | | | |
Finance lease obligations (see note 11) | | | | 2024 – 2046 | | | | | | |
| Facility notes and bonds | | | | 2029 – 2045 | | | | | | |
| Other debt | | | | 2024 – 2025 | | | | | | |
| Total debt | $ | | | | | | | | | | |
| Less: current maturities | | | | | () | | | () | |
| Long-term debt | | | | | $ | | | | $ | | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Classification
As of December 31, 2023, we continued to classify our % senior notes with a principal balance of $ million that mature in September 2024 as long-term debt in our consolidated balance sheet based on our intent and ability to refinance the debt.
Debt Repayments
On April 1, 2023, our % senior notes with a principal balance of $ billion and our floating-rate senior notes with a principal balance of $ million matured and were repaid in full. On November 15, 2023, our % Euro senior notes with a principal balance of € million ($ million) matured and were repaid in full. Additionally, during 2023, we repaid $ million of debt assumed in the Bomi Group acquisition.
Debt Issuances
On February 23, 2023, we issued series of notes in the principal amounts of $ million and $ billion. These notes bear interest at % and %, respectively, and mature on March 3, 2033, and March 3, 2053, respectively. Interest on the notes is payable semi-annually, beginning September 2023. Each series of notes is callable at our option at a redemption price equal to the greater of % of the principal amount, or the sum of the present values of scheduled payments of principal and interest, plus accrued and unpaid interest.
On March 7, 2023, we issued floating rate senior notes with a principal balance of $ million. These notes bear interest at a rate equal to the compounded Secured Overnight Financing Rate ("SOFR") less % per year and mature on March 15, 2073. Interest on the notes is payable quarterly, beginning June 2023. These notes are callable at various times after years at a stated percentage of par value and are redeemable at the option of the note holders at various times after one year at a stated percentage of par value.
Fixed-Rate Senior Notes
All of our fixed-rate notes pay interest semi-annually and allow for redemption by us at any time by paying the greater of the principal amount or a "make-whole" amount, plus accrued interest. We subsequently entered into interest rate swaps on certain of these notes, which effectively converted the fixed interest rates on the notes to variable interest rates.
% senior notes | | | 2022 | | | % | | | % | There were no outstanding interest rate swaps as of December 31, 2023.
Reference Rate Reform
Our floating-rate senior notes that mature between 2049 and 2067 initially bore interest at rates that referenced the London Interbank Offer Rate ("LIBOR") for U.S. Dollars. As part of a broader program of reference rate reform, U.S. Dollar LIBOR rates ceased to be published after June 2023. Beginning July 1, 2023, we transitioned these notes to an alternative reference rate, SOFR, which was adopted in accordance with recommendations of the Alternative Reference Rates Committee.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our outstanding floating-rate senior notes with principal amounts totaling $ billion bear interest at either thirty-day, ninety-day or compounded SOFR, less a spread ranging from to basis points. These notes have maturities ranging from 2049 through 2073. Interest is payable monthly for notes maturing through 2053 and quarterly for notes maturing from 2064 through 2073.
The average interest rate on the outstanding floating-rate senior notes for 2023 and 2022 was % and %, respectively. These notes are callable at various times after years at a stated percentage of par value, and redeemable at the option of the note holders at various times after at a stated percentage of par value. We have classified these floating-rate senior notes as long-term liabilities in our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised.
% Debentures
The $ million debentures have a maturity of April 1, 2030. These debentures are redeemable in whole or in part at any time at our option. The redemption price is equal to the greater of the principal amount plus accrued interest, or the present value of remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark treasury yield plus basis points, plus accrued interest. Interest is payable semi-annually in April and October, and the debentures are not subject to sinking fund requirements.
Pound Sterling Notes
The Pound Sterling notes consist of separate tranches, as follows:
•Notes with a principal amount of £ million accrue interest at a fixed rate of % and are due in February 2031. Interest is payable semi-annually and these notes are not callable.
•Notes with a principal amount of £ million accrue interest at a fixed rate of % and are due in February 2050. Interest is payable semi-annually. These notes are callable at our option at a redemption price equal to the greater of the principal amount plus accrued interest, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark U.K. government bond yield plus basis points, plus accrued interest.
Euro Senior Notes
The Euro notes consist of three separate issuances, as follows:
•Notes with a principal amount of € million accrue interest at a fixed rate of % and are due in November 2025. Interest is payable annually. These notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark German government bond yield plus basis points, plus accrued interest.
•Notes with a principal amount of € million accrue interest at a fixed rate of % and are due in November 2028. Interest is payable annually. These notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable German government bond yield plus basis points, plus accrued interest.
•Notes with a principal amount of € million accrue interest at a fixed rate of % and are due in November 2032. Interest is payable annually. The notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable government bond yield plus basis points, plus accrued interest.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Finance Lease Obligations
We have certain property, plant and equipment subject to finance leases. For additional information on finance lease obligations, see note 11.
Facility Notes and Bonds
We have entered into agreements with certain municipalities or related entities to finance the construction of, or improvements to, facilities that support our operations in the United States. These facilities are located around airport properties in Louisville, Kentucky; Dallas, Texas; and Philadelphia, Pennsylvania. Under these arrangements, we enter into a lease or loan agreement that covers the debt service obligations on the bonds issued by these entities, as follows:
•Bonds with a principal balance of $ million issued by the Louisville Regional Airport Authority associated with our Worldport facility in Louisville, Kentucky. The bonds are due in January 2029 and bear interest at a variable rate that is payable monthly. The average interest rates for 2023 and 2022 were % and %, respectively.
•Bonds with a principal balance of $ million issued by the Louisville Regional Airport Authority associated with our airfreight facility in Louisville, Kentucky. The bonds are due in November 2036 and bear interest at a variable rate that is payable monthly. The average interest rates for 2023 and 2022 were % and %, respectively.
•Bonds with a principal balance of $ million issued by the Dallas/Fort Worth International Airport Facility Improvement Corporation associated with our Dallas, Texas airport facilities. The bonds are due in May 2032 and bear interest at a variable rate that is payable quarterly. The variable cash flows on this obligation were swapped to a fixed rate of % until July 2023, when the interest rate swap was terminated. The average interest rate for 2023 was %.
•Bonds with a principal balance of $ million issued by the Delaware County, Pennsylvania Industrial Development Authority associated with our Philadelphia, Pennsylvania airport facilities. These bonds are due in September 2045 and bear interest at a variable rate that is payable monthly. The average interest rates for 2023 and 2022 were % and %, respectively.
Contractual Commitments
| | $ | | | | 2025 | | | | | |
| 2026 | | | | | |
| 2027 | | | | | |
| 2028 | | | | | |
| After 2028 | | | | | |
| Total | $ | | | | $ | | |
(1) Purchase commitments include estimates of future amounts yet to be recognized in our financial statements.
Purchase commitments represent contractual agreements for capital expenditures that are legally binding, including contracts for aircraft, vehicles and facility construction projects.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revolving Credit Facilities
We maintain credit agreements with a consortium of banks. The first of these agreements provides revolving credit facilities of $ billion and expires on December 3, 2024. Amounts outstanding under this agreement bear interest at a periodic fixed rate equal to the term SOFR rate, plus % per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of December 31, 2023 was %. Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (2) the Federal Funds effective rate plus %; or (3) the Adjusted Term SOFR Rate for a one month interest period plus %, may be used at our discretion.
The second agreement provides revolving credit facilities of $ billion and expires on December 7, 2026. Amounts outstanding under this facility bear interest at a periodic fixed rate equal to the term SOFR rate plus % per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of December 31, 2023 was %. Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (2) the Federal Funds effective rate plus %; and (3) the Adjusted Term SOFR Rate for a one-month interest period plus %, plus an applicable margin, may be used at our discretion.
If the credit ratings established by Standard & Poor's and Moody’s differ, the higher rating will be used, except in cases where the lower rating is two or more levels lower. In these circumstances, the rating one step below the higher rating will be used. We are also able to request advances under these facilities based on competitive bids for the applicable interest rate. There were amounts outstanding under our revolving credit facilities as of December 31, 2023.
Debt Covenants
Our existing debt instruments and credit facilities subject us to certain financial covenants. As of December 31, 2023 and for all prior periods presented, we have satisfied these financial covenants. These covenants limit the amount of secured indebtedness that we may incur, and limit the amount of attributable debt in sale-leaseback transactions, to % of net tangible assets. As of December 31, 2023, % of net tangible assets is equivalent to $ billion; however, we have no covered sale-leaseback transactions or secured indebtedness outstanding. We do not expect these covenants to have a material impact on our financial condition or liquidity.
Fair Value of Debt
Based on the borrowing rates currently available to us for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $ and $ billion as of December 31, 2023 and 2022, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of all of our debt instruments.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10.
companies in the commercial delivery and parcel industry, including UPS, related to alleged nonaggression agreements to allocate customers. In May 2017, we received a Statement of Objections issued by the CNMC. In July 2017, we received a Proposed Decision from the CNMC. In March 2018, the CNMC adopted a final decision, finding an infringement and imposing an immaterial fine on UPS. We appealed the decision. In December 2022, a trial court ruled against us. We have filed an appeal before the Spanish Supreme Court. We are vigorously defending ourselves and believe that we have a number of meritorious defenses. There are also unresolved questions of law that could be important to the ultimate resolution of this matter. We do not believe that any loss from this matter would have a material impact on our operations or financial condition.We do not believe that the eventual resolution of any other matters (either individually or in the aggregate), including any reasonably possible losses in excess of current accruals, will have a material impact on our operations or financial condition.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11.
| | $ | | | | $ | | | | Finance lease costs: | | | | | |
| Amortization of assets | $ | | | | $ | | | | $ | | |
| Interest on lease liabilities | | | | | | | | |
| Total finance lease costs | | | | | | | | |
| Variable lease costs | | | | | | | | |
| Short-term lease costs | | | | | | | | |
Total lease costs(1) | $ | | | | $ | | | | $ | | |
(1) This table excludes sublease income for all periods presented as it was not material.
In addition to the lease costs disclosed in the table above, we monitor all lease categories for any indicators that the carrying value of the assets may not be recoverable. There were material impairments recognized for the years ended December 31, 2023, 2022 or 2021.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | | | |
| Current maturities of operating leases | $ | | | | $ | | |
| Non-current operating leases | | | | | |
| Total operating lease obligations | $ | | | | $ | | |
| | | |
| Finance Leases: | | | |
| Property, plant and equipment, net | $ | | | | $ | | |
| | | |
| Current maturities of long-term debt, commercial paper and finance leases | $ | | | | $ | | |
| Long-term debt and finance leases | | | | | |
| Total finance lease obligations | $ | | | | $ | | |
| | | |
| Weighted average remaining lease term (in years): | | | |
| Operating leases | | | |
| Finance leases | | | |
| | | |
| Weighted average discount rate: | | | |
| Operating leases | | % | | | % |
| Finance leases | | % | | | % |
| | $ | | | | Operating cash flows from finance leases | | | | | |
| Financing cash flows from finance leases | | | | | |
| | | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
| Operating leases | $ | | | | $ | | |
| Finance leases | $ | | | | $ | | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | 2025 | | | | | |
| 2026 | | | | | |
| 2027 | | | | | |
| 2028 | | | | | |
| Thereafter | | | | | |
| Total lease payments | | | | | |
| Less: Imputed interest | () | | | () | |
| Total lease obligations | | | | | |
| Less: Current obligations | () | | | () | |
| Long-term lease obligations | $ | | | | $ | | |
As of December 31, 2023, we had additional leases which have not commenced of $ million. These leases will commence between 2024 and 2025 when we are granted access to the property, such as when leasehold improvements are completed by the lessor or a certificate of occupancy is obtained.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12.
classes of common stock, which are distinguished from each other primarily by their respective voting rights. Class A shares of UPS are entitled to votes per share, whereas class B shares are entitled to vote per share. Class A shares are primarily held by UPS employees and retirees, as well as trusts and descendants of the Company's founders, and these shares are fully convertible into class B shares at any time. Class B shares are publicly traded on the New York Stock Exchange ("NYSE") under the symbol "UPS". Class A and B shares both have a $ par value, and as of December 31, 2023, there were billion class A shares and billion class B shares authorized to be issued. Additionally, there are million preferred shares authorized to be issued, with a par value of $ per share. As of December 31, 2023, preferred shares had been issued. | | $ | | | | | | | $ | | | | | | | $ | | | | Stock award plans | | | | | | | | | | | | | | | | | |
| Common stock issuances | | | | | | | | | | | | | | | | | |
| Conversions of class A to class B common stock | () | | | | | | () | | | | | | () | | | | |
| Class A shares issued at end of year | | | | $ | | | | | | | $ | | | | | | | $ | | |
| Class B Common Stock: | | | | | | | | | | | |
| Balance at beginning of year | | | | $ | | | | | | | $ | | | | | | | $ | | |
| Common stock purchases | () | | | | | | () | | | | | | () | | | | |
| Conversions of class A to class B common stock | | | | | | | | | | | | | | | | | |
| Class B shares issued at end of year | | | | $ | | | | | | | $ | | | | | | | $ | | |
| Additional Paid-In Capital: | | | | | | | | | | | |
| Balance at beginning of year | | | $ | | | | | | $ | | | | | | $ | | |
| Stock award plans | | | | | | | | | | | | | | |
| Common stock purchases | | | () | | | | | () | | | | | () | |
| Common stock issuances | | | | | | | | | | | | | | |
Other (1) | | | () | | | | | | | | | | | |
| Balance at end of year | | | $ | | | | | | $ | | | | | | $ | | |
| Retained Earnings: | | | | | | | | | | | |
| Balance at beginning of year | | | $ | | | | | | $ | | | | | | $ | | |
| Net income attributable to controlling interests | | | | | | | | | | | | | | |
Dividends ($, $ and $ per share) (2) | | | () | | | | | () | | | | | () | |
| Common stock purchases | | | () | | | | | () | | | | | | |
| Other | | | | | | | | | | | | | () | |
| Balance at end of year | | | $ | | | | | | $ | | | | | | $ | | |
| Non-Controlling Interests: | | | | | | | | | | | |
| Balance at beginning of year | | | $ | | | | | | $ | | | | | | $ | | |
| Change in non-controlling interests | | | () | | | | | | | | | | | |
| Balance at end of year | | | $ | | | | | | $ | | | | | | $ | | |
(1) Includes a % excise tax applicable to share repurchases.
(2) The dividend per share amount is the same for both class A and class B common stock. Dividends include $, $ and $ million for 2023, 2022 and 2021, respectively, that were settled in shares of class A common stock.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•In August 2021, the Board of Directors authorized the company to repurchase up to $ billion of class A and class B common stock (the "2021 Authorization"). The share repurchases discussed above for the years ended December 31, 2022 and 2021, were completed under this authorization. For the year ended December 31, 2023, we repurchased million shares of class B common stock for $ million under this authorization.
•In January 2023, the Board of Directors terminated the 2021 Authorization and approved a new share repurchase authorization for $ billion of class A and class B common stock (the "2023 Authorization"). For the year ended December 31, 2023, we repurchased million shares for $ billion under the 2023 Authorization. As of December 31, 2023, we had $ billion available under this repurchase authorization.
Future share repurchases may be in the form of accelerated share repurchase programs, open market purchases or other methods we deem appropriate. The timing of share repurchases will depend upon market conditions. Unless terminated earlier by the Board of Directors, this program will expire when we have purchased all shares authorized for repurchase under the program.
Movements in additional paid-in capital in respect of stock award plans comprise accruals for unvested awards, offset by adjustments for awards that vest during the period.
Accumulated Other Comprehensive Income (Loss)
We recognize activity in other comprehensive income for foreign currency translation adjustments, unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized pension and postretirement benefit costs.
) | | $ | () | | | $ | () | | Translation adjustment (net of tax effect of $(), $() and $) | | | | () | | | () | |
Reclassification to earnings (net of tax effect of $, $ and $) | | | | | | | | |
| Balance at end of year | $ | () | | | $ | () | | | $ | () | |
| Unrealized Gain (Loss) on Marketable Securities, Net of Tax: | | | | | |
| Balance at beginning of year | $ | () | | | $ | () | | | $ | | |
Current period changes in fair value (net of tax effect of $, $() and $) | | | | () | | | () | |
Reclassification to earnings (net of tax effect of $, $ and $) | | | | | | | () | |
| Balance at end of year | $ | () | | | $ | () | | | $ | () | |
| Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax: | | | | | |
| Balance at beginning of year | $ | | | | $ | () | | | $ | () | |
Current period changes in fair value (net of tax effect of $(), $ and $) | () | | | | | | | |
Reclassification to earnings (net of tax effect of $(), $() and $()) | () | | | () | | | () | |
| Balance at end of year | $ | () | | | $ | | | | $ | () | |
| Unrecognized Pension and Postretirement Benefit Costs, Net of Tax: | | | | | |
| Balance at beginning of year | $ | () | | | $ | () | | | $ | () | |
Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $(), $ and $) | () | | | | | | | |
Reclassification to earnings (net of tax effect of $, $() and $()) | | | | () | | | () | |
| Balance at end of year | $ | () | | | $ | () | | | $ | () | |
| Accumulated other comprehensive income (loss) at end of year | $ | () | | | $ | () | | | $ | () | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | () | | | $ | | | | Other expenses | | Income tax (expense) benefit | | | | | | | | | | Income tax expense |
| Impact on net income | $ | () | | | $ | () | | | $ | | | | Net income |
| Unrealized Gain (Loss) on Marketable Securities: | | | | | | | |
| Realized gain (loss) on sale of securities | $ | () | | | $ | () | | | $ | | | | Investment income and other |
| Income tax (expense) benefit | | | | | | | | | | Income tax expense |
| Impact on net income | $ | () | | | $ | () | | | $ | | | | Net income |
| Unrealized Gain (Loss) on Cash Flow Hedges: | | | | | | | |
| Interest rate contracts | $ | () | | | $ | () | | | $ | () | | | Interest expense |
| Foreign currency exchange contracts | | | | | | | | | | Revenue |
| Foreign currency exchange contracts | () | | | () | | | | | | Investment income and other |
| Income tax (expense) benefit | () | | | () | | | () | | | Income tax expense |
| Impact on net income | $ | | | | $ | | | | $ | | | | Net income |
| Unrecognized Pension and Postretirement Benefit Costs: | | | | | | |
| Prior service costs | $ | () | | | $ | () | | | $ | () | | | Investment income and other |
| Prior service credit for divested business | | | | | | | | | | Other expenses |
| Plan amendments for divested business | | | | | | | () | | | Other expenses |
| Remeasurement of benefit obligation | () | | | | | | | | | Investment income and other |
| Curtailments and settlements of benefit obligations | () | | | | | | | | | Investment income and other |
| Income tax (expense) benefit | | | | () | | | () | | | Income tax expense |
| Impact on net income | $ | () | | | $ | | | | $ | | | | Net income |
| Total amount reclassified for the year | $ | () | | | $ | | | | $ | | | | Net income |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | $ | | | | | | $ | | | | Reinvested dividends | | | | | | | | | | | | | | |
| Benefit payments | | | () | | | | | () | | | | | () | |
| Balance at end of year | | | $ | | | | | | $ | | | | | | $ | | |
| Treasury Stock: | | | | | | | | | | | |
| Balance at beginning of year | | | | $ | () | | | | | | $ | () | | | | | | $ | () | |
| Reinvested dividends | | | | | | | | | | () | | | | | | () | |
| Benefit payments | | | | | | | | | | | | | | | | | |
| Balance at end of year | | | | $ | () | | | | | | $ | () | | | | | | $ | () | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13.
million shares. Each award issued in the form of Restricted Units, stock options and other permitted awards reduces the share reserve by share. We had million shares available to be issued under the Plan as of December 31, 2023.Our primary equity compensation programs are the UPS Long-Term Incentive Performance Award program (the "LTIP") and the UPS Stock Option program. We also grant Restricted Units to our Board of Directors (the "Board") as a component of their annual compensation and, from time to time, to individual employees as a retention mechanism. Beginning in 2023, awards earned under the UPS Management Incentive Award Program (the "MIP") are fully electable, at the option of the recipient, in the form of cash or unrestricted shares of class A common stock. The total expense recognized in our statements of consolidated income under all stock compensation programs during 2023, 2022 and 2021 was $, $ and $ billion, respectively. The associated income tax benefit recognized in our statements of consolidated income during 2023, 2022 and 2021 was $, $ and $ million, respectively. The cash income tax benefit received from the exercise of stock options and conversion of Restricted Units to class A shares during 2023, 2022 and 2021 was $, $ and $ million, respectively.
Management Incentive Award Program
Non-executive management eligibility under the MIP is determined annually by the executive officers of UPS. Executive officer eligibility is determined annually by the Compensation and Human Capital Committee of the Board (the "Compensation Committee"). Prior to 2023, MIP awards were generally paid in one-half to two-thirds RPUs, depending upon the recipient's level of seniority. The remainder of the award was electable in the form of cash or unrestricted shares of class A common stock, and was fully vested at the time of grant. Upon conversion, RPUs resulted in the issuance of an equivalent number of shares of class A common stock after required tax withholdings.
MIP RPUs granted between 2019 and prior to 2022, vested over following the grant date conditioned upon continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurred). The grant value was expensed on a straight-line basis (less estimated forfeitures) over the requisite service period (except in the case of death, disability or retirement, in which case immediate expensing occurred). MIP RPUs granted prior to 2019 vested over a period with approximately % of the award vesting and converting to class A common stock each anniversary of the grant date. As of December 31, 2023, all outstanding MIP RPUs had fully vested.
During 2022, the Compensation Committee amended and restated the terms and conditions governing 2022 MIP RPUs to provide that such awards would fully vest as of December 31, 2022. The elimination of a future service requirement for this award resulted in the recognition of an additional $ million of stock compensation expense in 2022, of which approximately $ million was recorded in U.S. Domestic Package. In 2022, this award was classified as a compensation obligation and recorded in Accrued wages and withholdings in our consolidated balance sheet. In 2023, the Compensation Committee approved the 2022 MIP awards and the compensation obligation was relieved. The RPUs granted were recorded as additional paid-in capital on the measurement date.
Dividends earned on Restricted Units are reinvested in additional Restricted Units at each dividend payable date until conversion to class A shares occurs.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | Vested | () | | | | |
| Granted | | | | | |
| Reinvested Dividends | | | | N/A |
| Forfeited / Expired | () | | | | |
| Non-vested as of December 31, 2023 | | | | $ | | | The fair value of these Restricted Units is the NYSE closing price of class B common stock on the date of grant. The weighted-average grant date fair value of Restricted Units, other than awards granted under the LTIP, which are discussed below, granted during 2023, 2022 and 2021 was $, $ and $, respectively. The total fair value of these RPUs vested was $, $ and $ billion in 2023, 2022 and 2021, respectively. During 2023, all outstanding MIP Restricted Units fully vested. As of December 31, 2023, there was $ million of total unrecognized compensation cost related to non-vested Restricted Units, other than awards granted under the LTIP, which are discussed below. That cost is expected to be recognized over a weighted-average period of and two months.
Long-Term Incentive Performance Award Program ("LTIP")
LTIP RPUs vest at the end of a performance period, assuming continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurs on a prorated basis). The number of RPUs earned is based on achievement of performance targets established on the grant date.
For LTIP awards with a performance period ended December 31, 2021, the performance targets were equally weighted among consolidated operating return on invested capital ("ROIC"), growth in currency-constant consolidated revenue and total shareholder return ("RTSR") relative to a peer group of companies. For the two-thirds of the award related to ROIC and growth in currency-constant consolidated revenue, we recognized the grant date fair value of these RPUs (less estimated forfeitures) as compensation expense ratably over the vesting period, based on the number of awards expected to be earned. The remaining one-third of the award was valued using a Monte Carlo model. We recognized the grant date fair value of this portion of the award (less estimated forfeitures) as compensation expense ratably over the vesting period.
For LTIP awards with a performance period ending in 2022 or later, the performance targets are equally weighted between adjusted earnings per share and adjusted cumulative free cash flow. The final number of RPUs earned will then be subject to adjustment based on RTSR relative to the Standard & Poor's 500 Index. We determine the grant date fair value of these RPUs using a Monte Carlo model and recognize compensation expense (less estimated forfeitures) ratably over the vesting period, based on the number of awards expected to be earned.
% | | | % | | | % |
| Expected volatility | | % | | | % | | | % |
| Weighted-average fair value of units granted | $ | | | | $ | | | | $ | | |
| Share payout | | % | | | % | | | % |
There is no expected dividend yield as units earn dividend equivalents.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | Vested | () | | | | |
| Granted | | | | | |
| Reinvested Dividends | | | | N/A |
| Forfeited / Expired | () | | | | |
| Non-vested as of December 31, 2023 | | | | $ | | | The fair value of each LTIP RPU is based on the NYSE closing price of class B common stock on the date of grant. The weighted-average grant date fair value of LTIP RPUs granted during 2023, 2022 and 2021 was $, $ and $, respectively. The total fair value of LTIP RPUs vested during 2023, 2022 and 2021was $, $ and $ million, respectively. As of December 31, 2023, there was $ million of total unrecognized compensation cost related to non-vested LTIP RPUs. That cost is expected to be recognized over a weighted-average period of one year and nine months.
Non-qualified Stock Options
Stock options may be granted under the Plan, and must have an exercise price at least equal to the NYSE closing price of UPS class B common stock on the date the option is granted.
We grant non-qualified stock options to a limited group of eligible senior management employees annually, in which the value granted is determined as a percentage of salary. Stock option grants vest over a period with approximately % of the award vesting at each anniversary of the grant date (except in the case of death, disability or retirement, in which case immediate vesting occurs). Option grants expire years after the date of the grant. Option holders may exercise their options via the payment of cash or class A common stock; new class A shares are issued upon exercise.
| | $ | | | | | | |
| Exercised | () | | | | | | | | |
| Granted | | | | | | | | | |
| Forfeited / Expired | () | | | N/A | | | | |
| Outstanding as of December 31, 2023 | | | | $ | | | | | | $ | | |
| Options Vested and Expected to Vest | | | | $ | | | | | | $ | | |
| Exercisable as of December 31, 2023 | | | | $ | | | | | | $ | | |
% | | | % | | | % | | Risk-free interest rate | | % | | | % | | | % |
| Expected life in years | | | | | |
| Expected volatility | | % | | | % | | | % |
| Weighted-average fair value of options granted | $ | | | | $ | | | | $ | | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Discounted Employee Stock Purchase Plan
We maintain an employee stock purchase plan for all eligible employees. Under this plan, shares of UPS class A common stock may be purchased at quarterly intervals at % of the NYSE closing price of UPS class B common stock on the last day of each quarterly period. Employees purchased , and million shares at average prices of $, $ and $ per share, during 2023, 2022 and 2021, respectively. This plan is not considered to be compensatory, and therefore no compensation cost is incurred for the employees’ purchase rights.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14.
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. Global small package operations represent our most significant business and are broken down into regional operations around the world. Regional operations managers are responsible for both domestic and export products within their geographic area. Supply Chain Solutions comprises the results of non-reportable operating segments that do not meet the quantitative and qualitative criteria of a reportable segment as defined under ASC Topic 280.U.S. Domestic Package
U.S. Domestic Package operations include the time-definite delivery of letters, documents and packages throughout the United States.
International Package
International Package operations include delivery to more than countries and territories worldwide, including shipments wholly outside the United States, as well as shipments with either origin or destination outside the United States. Our International Package reporting segment includes our operations in Europe, the Indian sub-continent, Middle East and Africa (together "EMEA"), Canada and Latin America (together "Americas") and Asia.
Supply Chain Solutions
Supply Chain Solutions includes our Forwarding, Logistics, digital and other businesses. Our Forwarding and Logistics businesses provide services in more than countries and territories worldwide and include international air and ocean freight forwarding, truckload brokerage, customs brokerage, mail services, healthcare logistics, distribution and post-sales services. Our digital businesses leverage technology to enable a range of on-demand services such as same-day delivery, end-to-end return services and integrated supply chain and high-value shipment insurance solutions.
In evaluating financial performance, we focus on operating profit as a segment’s measure of profit or loss. Operating profit is before investment income and other, interest expense and income tax expense. Certain expenses are allocated between the 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 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, as necessary, to reflect changes in our businesses. In 2021, we updated our cost allocation methodology for aircraft engine maintenance expense to better align with aircraft utilization by segment, resulting in an immaterial reallocation of expense from our U.S. Domestic Package segment to our International Package segment.
As we operate an integrated, global multimodal network, we evaluate many of our capital expenditure decisions at a network level. Accordingly, expenditures on property, plant and equipment by segment are not presented. Unallocated assets are comprised primarily of cash and marketable securities.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | International Package | | | | | | | | |
| Supply Chain Solutions | | | | | | | | |
| Consolidated revenue | $ | | | | $ | | | | $ | | |
| Operating Profit: | | | | | |
| U.S. Domestic Package | $ | | | | $ | | | | $ | | |
| International Package | | | | | | | | |
| Supply Chain Solutions | | | | | | | | |
| Consolidated operating profit | $ | | | | $ | | | | $ | | |
| Assets: | | | | | |
| U.S. Domestic Package | $ | | | | $ | | | | $ | | |
| International Package | | | | | | | | |
| Supply Chain Solutions | | | | | | | | |
| Unallocated | | | | | | | | |
| Consolidated assets | $ | | | | $ | | | | $ | | |
| Depreciation and Amortization Expense: | | | | | |
| U.S. Domestic Package | $ | | | | $ | | | | $ | | |
| International Package | | | | | | | | |
| Supply Chain Solutions | | | | | | | | |
| Consolidated depreciation and amortization expense | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | Deferred | | | | | | | | |
| Ground | | | | | | | | |
| Total U.S. Domestic Package | | | | | | | | |
| International Package: | | | | | |
| Domestic | | | | | | | | |
| Export | | | | | | | | |
| Cargo | | | | | | | | |
| Total International Package | | | | | | | | |
| Supply Chain Solutions: | | | | | |
| Forwarding | | | | | | | | |
| Logistics | | | | | | | | |
| Freight | | | | | | | | |
| Other | | | | | | | | |
| Total Supply Chain Solutions | | | | | | | | |
| Consolidated revenue | $ | | | | $ | | | | $ | | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | Long-lived assets | $ | | | | $ | | | | $ | | |
| International: | | | | | |
| Revenue | $ | | | | $ | | | | $ | | |
| Long-lived assets | $ | | | | $ | | | | $ | | |
| Consolidated: | | | | | |
| Revenue | $ | | | | $ | | | | $ | | |
| Long-lived assets | $ | | | | $ | | | | $ | | |
Long-lived assets include property, plant and equipment, pension and postretirement benefit assets, long-term investments, goodwill and intangible assets.
No countries outside of the United States accounted for 10% or more of consolidated revenue for the years ended December 31, 2023, 2022 or 2021. For the years ended December 31, 2023, 2022 and 2021, Amazon.com, Inc. and its affiliates ("Amazon") represented %, % and % of our consolidated revenues, respectively. Substantially all of this revenue was attributed to U.S. Domestic Package. Amazon accounted for approximately %, % and % of Accounts receivable, net, included within our consolidated balance sheets as of December 31, 2023, 2022 and 2021, respectively.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15.
| | $ | | | | $ | | | | U.S. State and Local | | | | | | | | |
| Non-U.S. | | | | | | | | |
| Total Current | | | | | | | | |
| Deferred: | | | | | |
| U.S. Federal | | | | | | | | |
| U.S. State and Local | | | | | | | | |
| Non-U.S. | | | | | | | | |
| Total Deferred | | | | | | | | |
| Total Income Tax Expense | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | Non-U.S. | | | | | | | | |
| Total Income Before Income Taxes: | $ | | | | $ | | | | $ | | |
% | | | % | | | % | U.S. state and local income taxes (net of federal benefit) | | | | | | | | |
| Non-U.S. tax rate differential | () | | | | | | | |
| U.S. federal tax credits | () | | | () | | | () | |
| Goodwill and other asset impairments | | | | | | | | |
| Net uncertain tax positions | () | | | | | | | |
| Other | | | | () | | | () | |
| Effective income tax rate | | % | | | % | | | % |
Our effective tax rate is affected by recurring factors, such as statutory tax rates in the jurisdictions in which we operate and the relative amounts of taxable income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year, but may not be consistent from year to year.
Our effective tax rate was % in 2023, compared with % and % in 2022 and 2021, respectively, primarily due to the effects of the aforementioned recurring factors and the following discrete tax items.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We recognized an income tax benefit of $ million related to pre-tax defined benefit pension and postretirement medical benefit plan losses of $ million. This income tax benefit was generated at a higher average tax rate than the 2023 U.S. federal statutory tax rate because it included the effect of U.S. state and local and foreign taxes.
We recorded goodwill and indefinite-lived intangible asset impairment charges of $ million. As a result, we recorded an additional income tax benefit of $ million. This income tax benefit was generated at a lower average tax rate than the 2023 U.S. federal statutory tax rate due to certain impairment charges not being deductible for tax purposes.
We recorded a pre-tax expense of $ million in connection with a one-time compensation payment made during the year. As a result, we recorded an additional income tax benefit of $ million. This income tax benefit was generated at a higher average tax rate than the 2023 U.S. federal statutory tax rate due to the effect of U.S. state and local taxes.
The recognition of excess tax benefits and deficiencies related to share-based compensation in income tax expense did not impact our effective tax rate for the year ended December 31, 2023.
2022 Discrete Items
We recognized an income tax expense of $ million related to pre-tax defined benefit pension and postretirement medical plan gains of $ billion. This income tax expense was generated at a higher average tax rate than the 2022 U.S. federal statutory tax rate because it included the effect of U.S. state and local and foreign taxes.
We recorded pre-tax Transformation strategy costs of $ million. As a result, we recorded an additional income tax benefit of $ million. This income tax benefit was generated at a lower average tax rate than the 2022 U.S. federal statutory tax rate due to the effect of foreign taxes.
We recorded pre-tax expenses of $ million in connection with incentive compensation program design changes. As a result, we recorded an additional income tax benefit of $ million. This income tax benefit was generated at a higher average tax rate than the 2022 U.S. federal statutory tax rate due to the effect of U.S. state and local and foreign taxes.
We recorded pre-tax expenses of $ million as a result of a reduction in estimated residual value for certain aircraft. As a result, we recorded an additional income tax benefit of $ million. This income tax benefit was generated at a higher average tax rate than the 2022 U.S. federal statutory tax rate due to the effect of U.S. state and local taxes.
The recognition of excess tax benefits and deficiencies related to share-based compensation in income tax expense resulted in a net tax benefit of $ million and reduced our effective tax rate by % during the year ended December 31, 2022.
2021 Discrete Items
We recognized an income tax expense of $ million related to pre-tax defined benefit pension and postretirement medical plan gains of $ billion. This income tax expense was generated at a higher average tax rate than the 2021 U.S. federal statutory tax rate because it included the effect of U.S. state and local and foreign taxes.
We recorded pre-tax Transformation strategy costs of $ million. As a result, we recorded an additional income tax benefit of $ million. This income tax benefit was generated at a higher average tax rate than the 2021 U.S. federal statutory tax rate due to the effect of U.S. state and local and foreign taxes.
We recorded a pre-tax gain of $ million related to the divestiture of UPS Freight. As a result, we recorded an additional income tax expense of $ million. This income tax expense was generated at a higher average tax rate than the 2021 U.S. federal statutory tax rate due to the effect of U.S. state and local taxes.
The recognition of excess tax benefits and deficiencies related to share-based compensation in income tax expense resulted in a net tax benefit of $ million and reduced our effective tax rate by % during the year ended December 31, 2021.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | () | | |
| Operating lease right-of-use assets | () | | | () | |
| Other | () | | | () | |
| Deferred tax liabilities | () | | | () | |
| | | |
| Pension and postretirement benefits | | | | | |
| Loss and credit carryforwards | | | | | |
| Insurance reserves | | | | | |
|
| Stock compensation | | | | | |
| Accrued employee compensation | | | | | |
| Operating lease liabilities | | | | | |
| Other | | | | | |
| Deferred tax assets | | | | | |
| Deferred tax assets valuation allowance | () | | | () | |
| Deferred tax asset (net of valuation allowance) | | | | | |
| | | |
| Net deferred tax asset (liability) | $ | () | | | $ | () | |
| | | |
Amounts recognized in our consolidated balance sheets: | | | |
|
|
| Deferred tax assets | $ | | | | $ | | |
| Deferred tax liabilities | () | | | () | |
| Net deferred tax asset (liability) | $ | () | | | $ | () | |
The valuation allowance decreased by $ million and increased by $ and $ million during the years ended December 31, 2023, 2022 and 2021, respectively.
We have a U.S. federal capital loss carryforward of $ million as of December 31, 2023, less than $ million of which expires on December 31, 2025, $ million of which expires on December 31, 2026 and the remainder of which expires on December 31, 2027.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | U.S. state and local credit carryforwards | $ | | | | $ | | |
The U.S. state and local operating loss carryforwards and credits can be carried forward for periods ranging from three years to indefinitely. We also have non-U.S. loss carryforwards of $ million as of December 31, 2023, the majority of which may be carried forward indefinitely. As indicated in the table above, we have established a valuation allowance for certain U.S. federal, state and non-U.S. carryforwards due to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions and other limitations.
Undistributed earnings and profits ("E&P") of our foreign subsidiaries amounted to $ billion as of December 31, 2023. Currently, $ million of the undistributed E&P of our foreign subsidiaries is considered to be indefinitely reinvested and, accordingly, no deferred income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to U.S. state and local taxes and withholding taxes payable in various jurisdictions. Determination of the amount of unrecognized deferred income tax liability is not practicable because of the complexities associated with its hypothetical calculation.
In December 2017, the United States enacted into law the Tax Cuts and Jobs Act (the "Tax Act"), requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. We elected to pay the tax over eight years based on an installment schedule outlined in the Tax Act. The remaining liability of $ million is reflected in current and non-current liabilities in our consolidated balance sheets based on the timing of payment. This balance will be paid between 2024 and 2026.
Additionally, the Organization for Economic Co-operation and Development ("OECD") has introduced a framework to implement a global minimum corporate tax of 15%, referred to as Pillar Two or the minimum tax directive. Many aspects of the minimum tax directive will be effective beginning in 2024, with certain remaining impacts to be effective beginning in 2025. While it is uncertain whether the U.S. will enact legislation to adopt the minimum tax directive, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation, to implement the minimum tax directive. While we do not currently expect the minimum tax directive to have a material impact on our effective tax rate, our analysis is ongoing as the OECD continues to release additional guidance and countries implement legislation. To the extent additional changes take place in the countries in which we operate, it is possible that these legislative changes and efforts may increase uncertainty and have an adverse impact on our effective tax rates or operations.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | $ | | | | $ | | | | Additions for tax positions of the current year | | | | | | | | |
| Additions for tax positions of prior years | | | | | | | | |
| Reductions for tax positions of prior years for: | | | | | |
| Changes based on facts and circumstances | () | | | () | | | () | |
| Settlements during the period | () | | | () | | | | |
| Lapses of applicable statute of limitations | | | | | | | | |
Balance as of December 31, 2021 | | | | | | | | |
| Additions for tax positions of the current year | | | | | | | | |
| Additions for tax positions of prior years | | | | | | | | |
| Reductions for tax positions of prior years for: | | | | | |
| Changes based on facts and circumstances | () | | | () | | | | |
| Settlements during the period | () | | | () | | | | |
| Lapses of applicable statute of limitations | () | | | () | | | | |
Balance as of December 31, 2022 | | | | | | | | |
| Additions for tax positions of the current year | | | | | | | | |
| Additions for tax positions of prior years | | | | | | | | |
| Reductions for tax positions of prior years for: | | | | | |
| Changes based on facts and circumstances | () | | | () | | | () | |
| Settlements during the period | () | | | () | | | | |
| Lapses of applicable statute of limitations | () | | | | | | | |
Balance as of December 31, 2023 | $ | | | | $ | | | | $ | | |
The total amount of gross uncertain tax positions as of December 31, 2023, 2022, and 2021 that, if recognized, would affect the effective tax rate was $, $, and $ million, respectively. Our continuing policy is to recognize interest and penalties associated with income tax matters as a component of income tax expense.
We file income tax returns in the U.S. federal jurisdiction, most U.S. state and local jurisdictions, and many non-U.S. jurisdictions. We have substantially resolved all U.S. federal income tax matters for tax years prior to 2016.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16.
| | $ | | | | $ | | | | Denominator: | | | | | |
| Weighted-average shares | | | | | | | | |
| Deferred compensation obligations | | | | | | | | |
| Vested portion of restricted shares | | | | | | | | |
| Denominator for basic earnings per share | | | | | | | | |
| Effect of Dilutive Securities: | | | | | |
Restricted performance units and contingent shares(1) | | | | | | | | |
| Stock options | | | | | | | | |
| Denominator for diluted earnings per share | | | | | | | | |
| Basic Earnings Per Share | $ | | | | $ | | | | $ | | |
| Diluted Earnings Per Share | $ | | | | $ | | | | $ | | |
(1) Contingent shares relate to MIP awards that may be settled in cash or Class A common stock at the employees' election - see note 13.
Diluted earnings per share for the years ended December 31, 2023, 2022 and 2021 exclude the effect of , and million shares, respectively, of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17.
and $ million, respectively, under these agreements. This collateral is included in Cash and cash equivalents in our consolidated balance sheets and is unrestricted. As of December 31, 2023 we were required to post $ million with our counterparties. As of December 31, 2022, collateral was required to be posted with our counterparties. Types of Hedges
Commodity Risk Management
Currently, the fuel surcharges that we apply in our domestic and international package businesses are the primary means of reducing the risk of adverse fuel price changes on our business. In order to mitigate the impact of fuel surcharges imposed on us by outside carriers, we regularly adjust the rates we charge for our freight brokerage services.
Foreign Currency Risk Management
To protect against the reduction in value of forecasted foreign currency cash flows from our international package business, we maintain a foreign currency cash flow hedging program. Our most significant foreign currency exposures relate to the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We generally designate and account for these contracts as cash flow hedges of anticipated foreign currency denominated revenue.
We may also hedge portions of our anticipated cash settlements of principal and interest on certain foreign currency denominated debt. We generally designate and account for these contracts as cash flow hedges of forecasted foreign currency denominated transactions.
We hedge our net investment in certain foreign operations with foreign currency denominated debt instruments.
Interest Rate Risk Management
We may use a combination of derivative instruments to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing.
We generally designate and account for interest rate swaps that convert fixed-rate interest payments into floating-rate interest payments as fair value hedges of the associated debt instruments. We designate and account for interest rate swaps that convert floating-rate interest payments into fixed-rate interest payments as cash flow hedges of the forecasted payment obligations.
We may periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings by using forward starting interest rate swaps, interest rate locks or similar derivatives.
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | British Pound Sterling | GBP | | | | | | |
| Canadian Dollar | CAD | | | | | | |
| Hong Kong Dollar | HKD | | | | | | |
| |
| |
| |
| | | | | |
| Interest rate hedges: | | | | | |
| Floating to Fixed Interest Rate Swaps | USD | | | | | | |
| |
| $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | |
|
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
|
|
| |
|
|
Income Statement Recognition of Non-Designated Derivative Instruments
Derivative instruments that are not designated as hedges are recorded at fair value with unrealized gains and losses reported in earnings each period. Cash flows from the settlement of derivative instruments appear in the statement of consolidated cash flows within the same categories as the cash flows of the hedged item.
We may periodically terminate interest rate swaps and foreign currency exchange forward contracts or enter into offsetting swap and foreign currency positions with different counterparties. As part of this process, we de-designate our original hedge relationship.
) | | $ | () | |
| | |
| Total | | | | $ | () | | | $ | () | |
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18.
positions and create a more efficient operating model to enhance responsiveness to changing market dynamics.As of December 31, 2023, we recorded an accrual for separation costs, primarily related to U.S. separations, of $ million in our consolidated balance sheet, all of which we expect to pay in 2024. We expect to incur additional expense for U.S. and international separations during 2024.
| | $ | | | | $ | | | | Total other expenses | | | | | | | | | |
| Total Transformation Strategy Costs | | $ | | | | $ | | | | $ | | |
| | | | | | |
| Income Tax Benefit from Transformation Strategy Costs | | () | | | () | | | () | |
| After-Tax Transformation Strategy Costs | | $ | | | | $ | | | | $ | | |
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our Principal Executive Officer and Principal Financial and Accounting Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We continue to monitor and assess the effects of remote and hybrid work on our internal controls to minimize the impact on their design and operating effectiveness.
Management’s Report on Internal Control Over Financial Reporting
UPS management is responsible for establishing and maintaining adequate internal control over financial reporting for United Parcel Service, Inc. and its subsidiaries (the "Company"). Based on the criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, management has assessed our internal control over financial reporting as effective as of December 31, 2023. The independent registered public accounting firm of Deloitte & Touche LLP, as auditors of the consolidated balance sheets of United Parcel Service, Inc. and its subsidiaries as of December 31, 2023 and the related statements of consolidated income, consolidated comprehensive income and consolidated cash flows for the year ended December 31, 2023, has issued an attestation report on our internal control over financial reporting, which is included herein.
Report of Independent Registered Public Accounting Firm
To the Shareowners and Board of Directors of
United Parcel Service, Inc.
Atlanta, Georgia
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of United Parcel Service, Inc. and subsidiaries (the "Company") as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 20, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 20, 2024
Item 9B.Other Information
Insider Trading Arrangements and Policies
.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information about our Executive Officers | | | | | | | | | | | | | | |
| Name and Office | | Age | | Principal Occupation and Employment For the Last Five Years |
Carol B.Tomé Chief Executive Officer | | 67 | | | Chief Executive Officer (2020 - present), Chief Financial Officer, The Home Depot, Inc. (2001 - 2019). |
Norman M. Brothers, Jr. Executive Vice President; Chief Legal and Compliance Officer and Corporate Secretary | | 56 | | | Chief Legal and Compliance Officer and Corporate Secretary (2020 - present), Senior Vice President, General Counsel and Corporate Secretary (2016 - 2020). |
Nando Cesarone
Executive Vice President; President, U.S. | | 52 | | | President, U.S. (2020 - present), President, UPS International (2018 - 2020), Europe Region Manager (2016 - 2018). |
Darrell Ford Executive Vice President; Chief Human Resources Officer and Chief Diversity, Equity and Inclusion Officer | | 59 | | | Chief Human Resources Officer and Chief Diversity, Equity and Inclusion Officer (2022 - present), Chief Human Resources Officer (2021 - 2022), Chief Human Resources Officer, DuPont (2018 - 2020), Chief Human Resources Officer, Xerox Corporation (2015 - 2018). |
Matt Guffey Executive Vice President; Chief Commercial and Strategy Officer
| | 45 | | | Chief Commercial and Strategy Officer (present), Senior Vice President, Global Strategy (2020 - 2023), President, Corporate Strategy (2020), Marketing Department Manager (2019 - 2020), Product Management Senior Director (2018). |
Kate M. Gutmann Executive Vice President; President International, Healthcare and Supply Chain Solutions
| | 55 | | | President International, Healthcare and Supply Chain Solutions (2022 - present), Chief Sales and Solutions Officer, Executive Vice President, UPS Global Healthcare (2020 - 2022), Chief Sales and Solutions Officer; Senior Vice President The UPS Store and UPS Capital (2017 - 2019). |
Laura Lane Executive Vice President; Chief Corporate Affairs, Communications and Sustainability Officer | | 57 | | | Chief Corporate Affairs, Communications and Sustainability Officer (2020 - present), Chief Corporate Affairs and Communications Officer (August 2020 - October 2020), President, Global Public Affairs (2011 - 2020). |
Brian Newman Executive Vice President; Chief Financial Officer
| | 55 | | | Chief Financial Officer (2021 - present), Chief Financial Officer and Treasurer (2019 - 2021), Executive Vice President, Finance and Operations, Latin America, PepsiCo, Inc. (2017 - 2019). |
Bala Subramanian Executive Vice President; Chief Digital and Technology Officer | | 52 | | | Chief Digital and Technology Officer (2022 - present), Chief Digital Officer, AT&T Inc. (2018 - 2022), Chief Digital Officer, Best Buy Co., Inc. (2017 - 2018). |
| | | | |
| | | | |
Information about our directors will be presented under the caption "Our Board of Directors" in our definitive proxy statement for our meeting of shareowners to be held on May 2, 2024 (the "Proxy Statement") and is incorporated herein by reference.
Information about our Audit Committee will be presented under the caption "Our Board of Directors - Committees of the Board of Directors" and "Audit Committee Matters" in our Proxy Statement and is incorporated herein by reference.
Information about our Code of Business Conduct is presented under the caption "Where You Can Find More Information" in Part I, Item 1 of this report.
Information with respect to compliance with Section 16(a) of the Exchange Act will be presented under the caption "Ownership of Our Securities - Delinquent Section 16(a) Reports" in our Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
Information about our board and executive compensation will be presented under the captions "Our Board of Directors - Director Compensation" and "Executive Compensation" in our Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information about security ownership will be presented under the caption "Ownership of Our Securities - Securities Ownership of Certain Beneficial Owners and Management" in our Proxy Statement and is incorporated herein by reference.
Information about our equity compensation plans will be presented under the caption "Executive Compensation - Equity Compensation Plans" in our Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information about transactions with related persons will be presented under the caption "Corporate Governance - Conflicts of Interest and Related Person Transactions" in our Proxy Statement and is incorporated herein by reference.
Information about director independence will be presented under the caption "Our Board of Directors - Director Independence" in our Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information about aggregate fees billed to us by our principal accountant will be presented under the caption "Audit Committee Matters - Principal Accounting Firm Fees" in our Proxy Statement and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as a part of this report:
1. Financial Statements.
See Item 8 for the financial statements filed with this report.
2. Financial Statement Schedules.
None.
3. Exhibits.
See the Exhibit Index below for a list of the exhibits incorporated by reference into or filed with this report.
(b) Exhibits Required To Be Filed
See Item 15(a) 3 above.
(c) Financial Statement Schedules Required To Be Filed
See Item 15(a) 2 above.
Item 16.Form 10-K Summary
None.
EXHIBIT INDEX
| | | | | | | | |
Exhibit No. | | Description |
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| 3.1 | — | |
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| 3.2 | — | |
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| 4.1 | — | |
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| 4.2 | — | |
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| 4.3 | — | |
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| 4.4 | — | |
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| 4.5 | — | |
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| 4.6 | — | |
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| 4.7 | — | |
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| 4.8 | — | |
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| 4.9 | — | |
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| 4.10 | — | |
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| 4.11 | — | |
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| 4.12 | — | |
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| 4.13 | — | |
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| 4.14 | — | |
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| 4.15 | — | |
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| 4.16 | — | |
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| 4.17 | — | |
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| 4.18 | — | |
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| 4.19 | — | |
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| 4.20 | — | |
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| 4.21 | — | |
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| 4.22 | — | |
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| 4.23 | — | |
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| 4.24 | — | |
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| 4.25 | — | |
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| 4.26 | — | |
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| 4.27 | — | |
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| 4.28 | — | |
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| 4.29 | — | |
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| 4.30 | — | |
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| 4.31 | — | |
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| 4.32 | — | |
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| 4.33 | — | |
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| 4.34 | — | |
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| 4.35 | — | |
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| 4.36 | — | |
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| 4.37 | — | |
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| 4.38 | — | |
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| 4.39 | — | |
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| 10.1 | — | |
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| 10.1(a) | — | |
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| 10.1(b) | — | |
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| 10.2 | — | |
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| 10.3 | — | |
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| 10.4 | — | |
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| 10.4(a) | — | |
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| 10.5 | — | |
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| 10.5(a) | — | |
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| 10.5(b) | — | |
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| 10.6 | — | |
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| 10.6(a) | — | |
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| 10.7 | — | |
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| 10.8 | — | |
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| 10.9 | — | |
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| 10.10 | — | |
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| 10.11 | — | |
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| 10.12 | — | |
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| 10.13 | — | |
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| 10.14 | — | |
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| 10.15 | — | |
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| 10.16 | — | |
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| 10.17 | — | |
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| 10.18 | — | |
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| 10.19 | — | |
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| 10.20 | — | |
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| 10.21 | — | |
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| 10.22 | — | |
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| 10.23 | — | |
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| 21 | — | |
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| 23 | — | |
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| 31.1 | — | |
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| 31.2 | — | |
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| 32.1 | — | |
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| 32.2 | — | |
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| 97 | — | |
| | |
| 101 | — | The following financial information from the Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. |
| | |
| 104 | — | Cover Page Interactive Data File - The cover page from this Annual Report on Form 10-K for the year ended December 31, 2023 is formatted in iXBRL (included as Exhibit 101). |
__________________________
| | | | | |
| (1) | Filed in paper format. |
* | Management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, United Parcel Service, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| UNITED PARCEL SERVICE, INC. |
| (REGISTRANT) |
| | |
| By: | | /S/ CAROL B. TOMÉ |
| | Carol B. Tomé |
| | Chief Executive Officer (Principal Executive Officer) |
Date: February 20, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /S/ CAROL B. TOMÉ | | Chief Executive Officer | | February 20, 2024 |
| Carol B. Tomé | | (Principal Executive Officer) | | |
| | | | |
| /S/ BRIAN O. NEWMAN | | Executive Vice President and Chief Financial Officer | | February 20, 2024 |
| Brian O. Newman | | (Principal Financial and Accounting Officer) | | |
| | | | |
| /S/ RODNEY C. ADKINS | | Director | | February 20, 2024 |
| Rodney C. Adkins | | | | |
| | | | |
| /S/ EVA C. BORATTO | | Director | | February 20, 2024 |
| Eva C. Boratto | | | | |
| | | | |
| /S/ MICHAEL J. BURNS | | Director | | February 20, 2024 |
| Michael J. Burns | | | | |
| | | | |
| /S/ WAYNE M. HEWETT | | Director | | February 20, 2024 |
| Wayne M. Hewett | | | | |
| | | | |
| /S/ ANGELA HWANG | | Director | | February 20, 2024 |
| Angela Hwang | | | | |
| | | | |
| /S/ KATE E. JOHNSON | | Director | | February 20, 2024 |
| Kate E. Johnson | | | | |
| | | | |
| /S/ WILLIAM R. JOHNSON | | Director | | February 20, 2024 |
| William R. Johnson | | | | |
| | | | |
| /S/ FRANCK J. MOISON | | Director | | February 20, 2024 |
| Franck J. Moison | | | | |
| | | | |
| /S/ CHRISTIANA SMITH SHI | | Director | | February 20, 2024 |
| Christiana Smith Shi | | | | |
| | | | |
| /S/ RUSSELL STOKES | | Director | | February 20, 2024 |
| Russell Stokes | | | | |
| | | | |
| /S/ KEVIN M. WARSH | | Director | | February 20, 2024 |
| Kevin M. Warsh | | | | |
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