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Table of Contents
United States
Securities and Exchange Commission
Washington, D.C. 20549
_____________________________________ 
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             
Commission file number 001-15451
_____________________________________ 
ups-20220331_g1.jpg
United Parcel Service, Inc.
(Exact name of registrant as specified in its charter)
Delaware 58-2480149
(State or Other Jurisdiction of
Incorporation or Organization)
 (IRS Employer
Identification No.)
55 Glenlake Parkway N.E. ,Atlanta, Georgia30328
(Address of Principal Executive Offices) (Zip Code)
(404) 828-6000
(Registrant’s telephone number, including area code)
____________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Class B common stock, par value $0.01 per shareUPSNew York Stock Exchange
0.375% Senior Notes due 2023UPS23ANew York Stock Exchange
1.625% Senior Notes due 2025UPS25New York Stock Exchange
1% Senior Notes due 2028UPS28New York Stock Exchange
1.500% Senior Notes due 2032UPS32New York Stock Exchange
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
There were 139,328,843 Class A shares, and 734,437,505 Class B shares, with a par value of $0.01 per share, outstanding at April 22, 2022.


Table of Contents
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.



Table of Contents
PART I. FINANCIAL INFORMATION

Cautionary Statement About Forward-Looking Statements
This report, our Annual Report on Form 10-K for the year ended December 31, 2021 and our other filings with the Securities and Exchange Commission contain and in the future may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than those of current or historical fact, and all statements accompanied by terms such as “will,” “believe,” “project,” “expect,” “estimate,” “assume,” “intend,” “anticipate,” “target,” “plan” and similar terms, are intended to be forward-looking statements. Forward-looking statements are made subject to the safe harbor provisions of the federal securities laws pursuant to Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
From time to time, we also include written or oral forward-looking statements in other publicly disclosed materials. Such statements may relate to our intent, belief, forecasts of, or current expectations about our strategic direction, prospects, future results, or future events; they do not relate strictly to historical or current facts. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any forward-looking statements because such statements speak only as of the date when made and the future, by its very nature, cannot be predicted with certainty.
Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or anticipated results. These risks and uncertainties, include, but are not limited to: continued uncertainties related to the impact of the COVID-19 pandemic on our business and operations, financial performance and liquidity, our customers and suppliers, and on the global economy; changes in general economic conditions, in the United States (U.S.) or internationally; significant competition on a local, regional, national and international basis; changes in our relationships with our significant customers; changes in the regulatory environment in the U.S. or internationally; increased or more complex physical or data security requirements; legal, regulatory or market responses to global climate change; results of negotiations and ratifications of labor contracts; strikes, work stoppages or slowdowns by our employees; the effects of changing prices of energy, including gasoline, diesel and jet fuel, and interruptions in supplies of these commodities; changes in exchange rates or interest rates; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; our ability to maintain our brand image; our ability to attract and retain qualified employees; breaches in data security; disruptions to the Internet or our technology infrastructure; interruptions in or impacts on our business from natural or man-made events or disasters including terrorist attacks, epidemics or pandemics; our ability to accurately forecast our future capital investment needs; exposure to changing economic, political and social developments in international and emerging markets; changes in business strategy, government regulations, or economic or market conditions that may result in impairment of our assets; increases in our expenses or funding obligations relating to employee health, retiree health and/or pension benefits; potential additional U.S. or international tax liabilities; potential claims or litigation related to labor and employment, personal injury, property damage, business practices, environmental liability and other matters; our ability to realize the anticipated benefits from acquisitions, dispositions, joint ventures or strategic alliances; our ability to realize the anticipated benefits from our transformation initiatives; cyclical and seasonal fluctuations in our operating results; our ability to manage insurance and claims expenses; and other risks discussed in our filings with the Securities and Exchange Commission from time to time, including our Annual Report on Form 10-K for the year ended December 31, 2021, this report and subsequently filed reports. You should consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements. We do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations, or the occurrence of unanticipated events after the date of those statements, except as required by law.

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Item 1. Financial Statements
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2022 (unaudited) and December 31, 2021 (in millions)
March 31,
2022
December 31,
2021
ASSETS
Current Assets:
Cash and cash equivalents$12,208 $10,255 
Marketable securities337 338 
Accounts receivable11,335 12,669 
Less: Allowance for credit losses(136)(128)
Accounts receivable, net 11,199 12,541 
Other current assets1,857 1,800 
Total Current Assets25,601 24,934 
Property, Plant and Equipment, Net33,595 33,475 
Operating Lease Right-Of-Use Assets3,481 3,562 
Goodwill3,668 3,692 
Intangible Assets, Net2,465 2,486 
Investments and Restricted Cash22 26 
Deferred Income Tax Assets173 176 
Other Non-Current Assets1,108 1,054 
Total Assets$70,113 $69,405 
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt, commercial paper and finance leases$2,141 $2,131 
Current maturities of operating leases579 580 
Accounts payable7,036 7,523 
Accrued wages and withholdings3,418 3,819 
Self-insurance reserves1,025 1,048 
Accrued group welfare and retirement plan contributions922 1,038 
Other current liabilities1,721 1,430 
Total Current Liabilities16,842 17,569 
Long-Term Debt and Finance Leases19,740 19,784 
Non-Current Operating Leases2,970 3,033 
Pension and Postretirement Benefit Obligations8,203 8,047 
Deferred Income Tax Liabilities3,356 3,125 
Other Non-Current Liabilities3,568 3,578 
Shareowners’ Equity:
Class A common stock (140 and 138 shares issued in 2022 and 2021)
2 2 
Class B common stock (734 and 732 shares issued in 2022 and 2021)
7 7 
Additional paid-in capital1,231 1,343 
Retained earnings17,433 16,179 
Accumulated other comprehensive loss(3,257)(3,278)
Deferred compensation obligations12 16 
Less: Treasury stock (0.3 shares in both 2022 and 2021)
(12)(16)
Total Equity for Controlling Interests15,416 14,253 
Noncontrolling interests18 16 
Total Shareowners’ Equity15,434 14,269 
Total Liabilities and Shareowners’ Equity$70,113 $69,405 
See notes to unaudited, consolidated financial statements.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In millions, except per share amounts)
(unaudited)
 
 Three Months Ended
 March 31,
20222021
Revenue$24,378 $22,908 
Operating Expenses:
Compensation and benefits11,616 11,483 
Repairs and maintenance626 619 
Depreciation and amortization764 722 
Purchased transportation4,600 4,243 
Fuel1,220 807 
Other occupancy491 466 
Other expenses1,810 1,803 
Total Operating Expenses21,127 20,143 
Operating Profit3,251 2,765 
Other Income and (Expense):
Investment income and other315 3,616 
Interest expense(174)(177)
Total Other Income and (Expense)141 3,439 
Income Before Income Taxes3,392 6,204 
Income Tax Expense730 1,412 
Net Income$2,662 $4,792 
Basic Earnings Per Share$3.05 $5.50 
Diluted Earnings Per Share$3.03 $5.47 

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In millions)
(unaudited)
 
 Three Months Ended
 March 31,
 20222021
Net Income$2,662 $4,792 
Change in foreign currency translation adjustment, net of tax(40)(82)
Change in unrealized gain (loss) on marketable securities, net of tax(6)(4)
Change in unrealized gain (loss) on cash flow hedges, net of tax43 114 
Change in unrecognized pension and postretirement benefit costs, net of tax24 2,426 
Comprehensive Income (Loss)$2,683 $7,246 
                
See notes to unaudited, consolidated financial statements.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions)
(unaudited)
 Three Months Ended
 March 31,
 20222021
Cash Flows From Operating Activities:
Net income$2,662 $4,792 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization764 722 
Pension and postretirement benefit (income) expense201 (3,024)
Pension and postretirement benefit contributions(45)(215)
Self-insurance reserves(45)4 
Deferred tax (benefit) expense209 942 
Stock compensation expense386 315 
Other (gains) losses44 57 
Changes in assets and liabilities, net of effects of business acquisitions:
Accounts receivable1,227 435 
Other assets7 363 
Accounts payable(743)(261)
Accrued wages and withholdings(343)199 
Other liabilities173 180 
Other operating activities(17)22 
Net cash from operating activities4,480 4,531 
Cash Flows From Investing Activities:
Capital expenditures(548)(834)
Proceeds from disposal of businesses, property, plant and equipment 10 
Purchases of marketable securities(68)(78)
Sales and maturities of marketable securities60 134 
Net change in finance receivables5 11 
Cash paid for business acquisitions, net of cash and cash equivalents acquired1 (3)
Other investing activities(22)(6)
Net cash used in investing activities(572)(766)
Cash Flows From Financing Activities:
Net change in short-term debt 697 
Proceeds from long-term borrowings  
Repayments of long-term borrowings(18)(1,528)
Purchases of common stock(254) 
Issuances of common stock67 78 
Dividends(1,284)(858)
Other financing activities(481)(334)
Net cash used in financing activities(1,970)(1,945)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash15 1 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash1,953 1,821 
Cash, Cash Equivalents and Restricted Cash:
Beginning of period10,255 5,910 
End of period$12,208 $7,731 
                
See notes to unaudited, consolidated financial statements.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Principles of Consolidation
The accompanying interim unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These interim unaudited, consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly our financial position as of March 31, 2022 and our results of operations and cash flows for the three months ended March 31, 2022 and 2021. The results reported in these interim unaudited, consolidated financial statements should not be regarded as indicative of results that may be expected for any other period or the entire year. The interim unaudited, consolidated financial statements should be read in conjunction with the audited, consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Fair Value of Financial Instruments
The carrying amounts of our cash and cash equivalents, accounts receivable, finance receivables and accounts payable approximate fair value as of March 31, 2022 and December 31, 2021. The fair values of our investment securities are disclosed in note 5, our recognized multiemployer pension withdrawal liabilities in note 7, our short- and long-term debt in note 9 and our derivative instruments in note 15. We apply a fair value hierarchy (Levels 1, 2 and 3) when measuring and reporting items at fair value. 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). We utilized Level 1 inputs in the fair value hierarchy to determine the fair value of our cash and cash equivalents, and Level 2 inputs to determine the fair value of our accounts receivable, finance receivables and accounts payable.
Use of Estimates
The preparation of the accompanying interim unaudited, consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of these financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Although our estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. As a result, our accounting estimates and assumptions may change significantly over time.
For interim unaudited, consolidated financial statement purposes, we provide for accruals under our various company-sponsored employee benefit plans for each three month period based on one quarter of the estimated annual expense.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Standards
Accounting pronouncements adopted during the periods covered by the unaudited, consolidated financial statements did not have a material impact on our consolidated financial position, results of operations or cash flows. For accounting standards adopted in the period ended March 31, 2021, refer to note 1 to our audited, consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
Accounting Standards Issued But Not Yet Effective
Accounting pronouncements issued before, but not effective until after, March 31, 2022, are not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. REVENUE RECOGNITION
Revenue Recognition
Substantially all of our revenues are from contracts associated with the pickup, transportation and delivery of packages and freight (“transportation services”) domestically or internationally. These services may be carried out by or arranged by us, and generally occur over a short period of time. Additionally, we provide value-added logistics services to customers, both domestically and internationally, through our global network of company-owned and leased distribution centers and field stocking locations.
Disaggregation of Revenue
Three Months Ended
 March 31,
20222021
Revenue:
Next Day Air$2,594 $2,331 
Deferred 1,420 1,260 
Ground11,110 10,419 
     U.S. Domestic Package15,124 14,010 
Domestic851 928 
Export3,778 3,493 
Cargo & Other247 186 
    International Package4,876 4,607 
Forwarding2,589 2,072 
Logistics1,251 1,104 
Freight 767 
Other538 348 
    Supply Chain Solutions4,378 4,291 
Consolidated revenue$24,378 $22,908 
We account for a contract when both parties have approved the contract and are committed to perform their obligations, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the basis of revenue recognition in accordance with GAAP. To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as a single contract, and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires judgment, and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.
Within most of our contracts, the customer contracts with us to provide distinct services, such as transportation services. The vast majority of our contracts with customers for transportation services include only one performance obligation; the transportation services themselves. However, if a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We frequently sell standard transportation services with observable standalone sales prices. In these instances, the observable standalone sales are used to determine the standalone selling price.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In certain business units, such as Logistics, we sell customized, customer-specific solutions in which we integrate a complex set of tasks and components into a single capability (even if that single capability results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. In these cases, we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.
Satisfaction of Performance Obligations
We generally recognize revenue over time as we perform the services in the contract because of the continuous transfer of control to the customer. Our customers receive the benefit of our services as the goods are transported from one location to another. Further, if we were unable to complete delivery to the final location, another entity would not need to reperform the transportation service already performed.
As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We use the cost-to-cost measure of progress for our package delivery contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including ancillary or accessorial fees and reductions for estimated customer incentives, are recorded proportionally as costs are incurred. Costs to fulfill include labor and other direct costs and an allocation of indirect costs. For our freight forwarding contracts, an output method of progress based on time-in-transit is utilized as the timing of costs incurred does not best depict the transfer of control to the customer. In our Logistics business, we have a right to consideration from customers in an amount that corresponds directly with the value to the customers of our performance completed to date, and as such, we recognize revenue in the amount to which we have a right to invoice the customer.
Variable Consideration
It is common for our contracts to contain customer incentives, guaranteed service refunds or other provisions that can either increase or decrease the transaction price. These variable amounts are generally dependent upon achievement of certain incentive tiers or performance metrics. We estimate variable consideration at the most likely amount to which we expect to be entitled. We include estimated amounts of revenue, which may be reduced by incentives or other contract provisions, in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of anticipated customer spending and all information (historical, current and forecasted) that is reasonably available to us.
Contract Modifications
Contracts are often modified to account for changes in the rates we charge our customers or to add additional distinct services. We consider contract modifications to exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Contract modifications that add additional distinct goods or services are treated as separate contracts. Contract modifications that do not add distinct goods or services typically change the price of existing services. These contract modifications are accounted for prospectively as the remaining performance obligations are distinct.
Payment Terms
Under the typical payment terms of our customer contracts, the customer pays at periodic intervals, which are generally seven days within our U.S. Domestic Package business, for shipments included on invoices received. Invoices are generated each week on the week-ending day, which is Saturday for the majority of our U.S. Domestic Package business, but could be another day depending on the business unit or the specific agreement with the customer. It is not customary business practice to extend payment terms past 90 days, and as such, we do not have a practice of including a significant financing component within our contracts with customers.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Principal vs. Agent Considerations
In our transportation businesses, we utilize independent contractors and third-party carriers in the performance of some transportation services. GAAP requires us to evaluate, using a control model, whether our businesses themselves promise to transfer services to the customer (as the principal) or to arrange for services to be provided by another party (as the agent). Based on our evaluation of the control model, we determined that all of our major businesses act as the principal rather than the agent within their revenue arrangements. Revenue and the associated purchased transportation costs are both reported on a gross basis within our statements of consolidated income.
Accounts Receivable, Net
Accounts receivable, net, include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. Losses on accounts receivable are recognized when reasonable and supportable forecasts affect the expected collectability. This requires us to make our best estimate of the current expected losses inherent in our accounts receivable at each balance sheet date. These estimates require consideration of historical loss experience, adjusted for current conditions, forward looking indicators, trends in customer payment frequency and judgments about the probable effects of relevant observable data, including present and future economic conditions and the financial health of specific customers and market sectors. Our risk management process includes standards and policies for reviewing major account exposures and concentrations of risk.
Our allowance for credit losses as of March 31, 2022 and December 31, 2021 was $136 and $128 million, respectively. Amounts for credit losses charged to expense, before recoveries, during the three months ended March 31, 2022 and 2021 were $54 and $41 million, respectively.
Contract Assets and Liabilities
Contract assets include billed and unbilled amounts resulting from in-transit packages, as we have an unconditional right to payment only once all performance obligations have been completed (i.e. packages have been delivered) and our right to payment is not solely based on the passage of time. Amounts may not exceed their net realizable value. Contract assets are generally classified as current and the full balance is converted each quarter based on the short-term nature of the transactions.
Contract liabilities consist of advance payments and billings in excess of revenue as well as deferred revenue. Advance payments and billings in excess of revenue represent payments received from our customers that will be earned over the contract term. Deferred revenue represents the amount of consideration due from customers related to in-transit shipments that has not yet been recognized as revenue based on our selected measure of progress. We classify advance payments and billings in excess of revenue as either current or long-term, depending on the period over which the advance payment will be earned. We classify deferred revenue as current based on the timing of when we expect to recognize revenue, which typically occurs within a short window after period-end. The full balance of deferred revenue is converted each quarter based on the short-term nature of the transactions. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that deferred revenue balance.
Contract assets related to in-transit packages were $336 and $304 million as of March 31, 2022 and December 31, 2021, respectively, net of deferred revenue related to in-transit packages of $359 and $314 million as of March 31, 2022 and December 31, 2021, respectively. Contract assets are included within Other current assets in the consolidated balance sheets. Short-term contract liabilities related to advance payments from customers were $10 and $27 million as of March 31, 2022 and December 31, 2021, respectively. Short-term contract liabilities are included within Other current liabilities in the consolidated balance sheets. Long-term contract liabilities related to advance payments from customers were $26 and $25 million as of March 31, 2022 and December 31, 2021, respectively. Long-term contract liabilities are included within Other Non-Current Liabilities in the consolidated balance sheets.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. STOCK-BASED COMPENSATION
We issue share-based awards under various incentive compensation plans, including non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units ("RSUs") and restricted performance shares and performance units ("RPUs", collectively with RSUs, "Restricted Units"). Upon vesting, Restricted Units result in the issuance of the equivalent number of UPS class A common shares after required tax withholdings. Dividends accrued on Restricted Units are reinvested in additional Restricted Units at each dividend payable date and are subject to the same vesting and forfeiture conditions as the underlying Restricted Units upon which they are earned.
Our primary equity compensation programs are the UPS Management Incentive Award program (the "MIP"), the UPS Long-Term Incentive Performance Award program (the "LTIP") and the UPS Stock Option program. We also maintain an employee stock purchase plan which allows eligible employees to purchase shares of UPS class A common stock at a discount. Our matching contributions to our primary employee defined contribution savings plan are made in shares of UPS class A common stock.
Management Incentive Award Program ("MIP")
RPUs issued under the MIP vest one year following the grant date based on continued employment with the Company (except in the case of death, disability or retirement, in which case immediate vesting occurs). The grant value is 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 occurs).
Based on the date of Compensation Committee approval of the 2021 MIP award, we determined the award measurement dates to be February 9, 2022 (for U.S.-based employees and executive management) and March 21, 2022 (for international employees). The RPUs issued under the MIP were valued for stock compensation expense purposes using the closing New York Stock Exchange ("NYSE") prices of $225.07 and $218.56 on those dates.
Long-Term Incentive Performance Award Program ("LTIP")
RPUs issued under the LTIP vest at the end of a three-year 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 actual number of RPUs earned is based on achievement of the performance targets established on the grant date.
The performance targets are equally weighted between adjusted earnings per share and adjusted cumulative free cash flow. The actual number of RPUs earned is subject to adjustment based on total shareholder return relative to the Standard & Poors 500 Index ("S&P 500"). We determine the grant date fair value of the 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.
Based on the date of Compensation Committee approval of the 2022 LTIP award performance targets, we determined March 23, 2022 to be the award measurement date and the target RPUs awarded were valued at $230.67.

The weighted-average assumptions used and the weighted-average fair values of the LTIP awards granted in 2022 and 2021 are as follows:
20222021
Risk-free interest rate2.29 %0.19 %
Expected volatility31.90 %30.70 %
Weighted-average fair value of RPUs granted $230.67 $168.05 
Share payout107.50 %102.39 %
There is no expected dividend yield as units earn dividend equivalents.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Non-Qualified Stock Options
We grant non-qualified stock options to a limited group of eligible senior management employees under the UPS Stock Option program. Stock option awards vest over a five-year period with approximately 20% 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). The option grants expire 10 years after the date of the grant. In the first quarter of 2022, we granted 0.1 million stock options at an exercise price of $214.58, which was the NYSE closing price on the date of grant.
The fair value of each option grant is estimated using the Black-Scholes option pricing model. The weighted-average assumptions used and the weighted-average fair values of options granted in 2022 and 2021 are as follows:
20222021
Expected dividend yield2.35 %3.31 %
Risk-free interest rate2.39 %0.84 %
Expected life (in years)7.57.5
Expected volatility25.04 %23.15 %
Weighted-average fair value of options granted$48.45 $23.71 
Pre-tax compensation expense for share-based awards recognized in Compensation and benefits on the statements of consolidated income for the three months ended March 31, 2022 and 2021 was $386 and $315 million, respectively.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. CASH AND INVESTMENTS
The following is a summary of marketable securities classified as trading and available-for-sale as of March 31, 2022 and December 31, 2021 (in millions):
CostUnrealized
Gains
Unrealized
Losses
Estimated
Fair Value
March 31, 2022:
Current trading marketable securities:
Equity securities$2 $ $ $2 
Total trading marketable securities2   2 
Current available-for-sale securities:
U.S. government and agency debt securities203  (4)199 
Mortgage and asset-backed debt securities6   6 
Corporate debt securities125  (3)122 
U.S. state and local municipal debt securities5   5 
Non-U.S. government debt securities3   3 
Total available-for-sale marketable securities342  (7)335 
Total current marketable securities$344 $ $(7)$337 
 CostUnrealized
Gains
Unrealized
Losses
Estimated
Fair Value
December 31, 2021:
Current trading marketable securities:
Equity securities$2 $ $ $2 
Total trading marketable securities2   2 
Current available-for-sale securities:
U.S. government and agency debt securities199 2 (1)200 
Mortgage and asset-backed debt securities7   7 
Corporate debt securities121   121 
U.S. state and local municipal debt securities5   5 
Non-U.S. government debt securities3   3 
Total available-for-sale marketable securities335 2 (1)336 
Total current marketable securities$337 $2 $(1)$338 
Investment Impairments
We have concluded that no material impairment losses existed as of March 31, 2022. In making this determination, we considered the financial condition and prospects of each issuer, the magnitude of the losses compared with the cost, the probability that we will be unable to collect all amounts due according to the contractual terms of the security, the credit rating of the security and our ability and intent to hold these investments until the anticipated recovery in market value occurs.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Maturity Information
The amortized cost and estimated fair value of marketable securities as of March 31, 2022 by contractual maturity are shown below (in millions). Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations with or without prepayment penalties.
CostEstimated
Fair Value
Due in one year or less$34 $34 
Due after one year through three years307 300 
Due after three years through five years1 1 
Due after five years  
342 335 
Equity securities2 2 
$344 $337 
Non-Current Investments and Restricted Cash
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 $21 million and $23 million as of March 31, 2022 and December 31, 2021, respectively. Changes in fair value are recognized in Investment income and other in the statements of consolidated income. Additionally, we held cash in escrow related to the acquisition and disposition of certain assets of $1 million and $3 million as of March 31, 2022 and December 31, 2021, respectively. These amounts are classified as Investments and Restricted Cash in the consolidated balance sheets.
A reconciliation of cash and cash equivalents and restricted cash from the consolidated balance sheets to the statements of consolidated cash flows is shown below (in millions):
March 31, 2022December 31, 2021March 31, 2021
Cash and cash equivalents$12,208 $10,255 $7,731 
Restricted cash   
Total cash, cash equivalents and restricted cash$12,208 $10,255 7,731 
Fair Value Measurements
Marketable securities valued utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds, and most U.S. government debt securities, as these securities all have quoted prices in active markets. Marketable securities valued utilizing Level 2 inputs include asset-backed securities, corporate bonds and municipal bonds. These securities are valued using market corroborated pricing, matrix pricing or other models that utilize observable inputs such as yield curves.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information about our investments measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in millions):
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance 
March 31, 2022:
Marketable Securities:
U.S. government and agency debt securities$199 $ $ $199 
Mortgage and asset-backed debt securities 6  6 
Corporate debt securities 122  122 
U.S. state and local municipal debt securities 5  5 
Equity securities 2  2 
Non-U.S. government debt securities 3  3 
Total marketable securities199 138  337 
Other non-current investments21   21 
Total$220 $138 $ $358 

December 31, 2021:
Marketable Securities:
U.S. government and agency debt securities$200 $ $ $200 
Mortgage and asset-backed debt securities 7  7 
Corporate debt securities 121  121 
U.S. state and local municipal debt securities 5  5 
Equity securities 2  2 
Non-U.S. government debt securities 3  3 
Total marketable securities200 138  338 
Other non-current investments23   23 
Total$223 $138 $ $361 
There were no transfers of investments between Level 1 and Level 2 during the three months ended March 31, 2022 or 2021.
    

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of March 31, 2022 and December 31, 2021 consisted of the following (in millions):
20222021
Vehicles$10,083 $10,018 
Aircraft22,286 21,973 
Land2,135 2,140 
Buildings5,865 5,802 
Building and leasehold improvements5,004 5,010 
Plant equipment15,715 15,650 
Technology equipment2,848 2,798 
Construction-in-progress1,474 1,418 
65,410 64,809 
Less: Accumulated depreciation and amortization(31,815)(31,334)
Property, Plant and Equipment, Net$33,595 $33,475 
Property, plant and equipment purchased on account was $511 and $248 million as of March 31, 2022 and December 31, 2021, respectively. 
We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aviation fuel prices and other factors. Additionally, we monitor all other property, plant and equipment categories for any indicators that the carrying value of the assets may not be recoverable. There were no impairment charges during the three months ended March 31, 2022. We recorded impairment charges of $24 million during the three months ended March 31, 2021, due to the reevaluation of certain facility projects.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. EMPLOYEE BENEFIT PLANS
Company-Sponsored Benefit Plans
Information about the net periodic benefit (income) cost for our company-sponsored pension and postretirement benefit plans for the three months ended March 31, 2022 and 2021 is as follows (in millions):
 U.S. Pension BenefitsU.S. Postretirement
Medical Benefits
International
Pension Benefits
202220212022202120222021
Three Months Ended March 31:
Service cost$506 $553 $8 $7 $18 $19 
Interest cost488 488 20 19 12 10 
Expected return on assets(820)(846)(1)(2)(20)(17)
Amortization of prior service cost23 33  2   
Actuarial (gain) loss (3,290)    
Settlement and curtailment (gain) loss    (33) 
Net periodic benefit (income) cost$197 $(3,062)$27 $26 $(23)$12 
The components of net periodic benefit (income) cost other than current service cost are presented within Investment income and other in the statements of consolidated income.
During the first quarter of 2022, we amended the UPS Canada Ltd. Retirement Plan to cease future benefit accruals effective December 31, 2023. We remeasured plan assets and pension benefit obligations for this plan as of March 31, 2022, resulting in a curtailment gain of $33 million ($24 million after-tax). The gain is included in Investment income and other in the statements of consolidated income for the quarter ended March 31, 2022.
During the first three months of 2022, we contributed $31 and $14 million to our company-sponsored pension and U.S. postretirement medical benefit plans, respectively. We expect to contribute approximately $2.0 billion and $264 million over the remainder of the year to our pension and U.S. postretirement medical benefit plans, respectively.
Multiemployer Benefit Plans
We contribute to a number of multiemployer defined benefit and health and welfare plans under the terms of collective bargaining agreements that cover our union-represented employees. Our current collective bargaining agreements set forth the annual contribution increases allotted to the plans that we participate in, and we are in compliance with these contribution rates. These limitations on annual contribution rates will remain in effect throughout the terms of the existing collective bargaining agreements.
As of March 31, 2022 and December 31, 2021, we had $828 and $830 million, respectively, recorded in Other Non-Current Liabilities on our consolidated balance sheets and $8 million as of March 31, 2022 and December 31, 2021, recorded in Other current liabilities on our consolidated balance sheets associated with our previous withdrawal from the New England Teamsters and Trucking Industry Pension Fund. This liability is payable in equal monthly installments over a remaining term of approximately 41 years. Based on the borrowing rates currently available to us for long-term financing of a similar maturity, the fair value of this withdrawal liability as of March 31, 2022 and December 31, 2021 was $849 and $963 million, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.
UPS was a contributing employer to the Central States Pension Fund (“CSPF”) until 2007 at which time UPS withdrew from the CSPF and paid a $6.1 billion withdrawal liability to satisfy our allocable share of unfunded vested benefits. Under a collective bargaining agreement with the International Brotherhood of Teamsters (“IBT”), UPS agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 (“the UPS Transfer Group”) in the event that benefits are lawfully reduced by the CSPF in the future consistent with the terms of our withdrawal agreement with the CSPF. Under this withdrawal agreement, benefits to the UPS Transfer Group cannot be reduced without our consent and can only be reduced in accordance with applicable law. The financial crisis of 2008 created extensive asset losses at the CSPF, contributing to the plan’s projected insolvency, at which time benefits would be reduced to the legally permitted Pension Benefit Guaranty Corporation ("PBGC") limits, triggering the coordination of benefits provision in the collective bargaining agreement.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In 2014, Congress passed the Multiemployer Pension Reform Act (“MPRA”). This change in law for the first time permitted multiemployer pension plans to reduce benefit payments to retirees, subject to specific guidelines in the statute and government approval. In 2015, the CSPF submitted a proposed pension benefit reduction plan to the U.S. Department of the Treasury (“Treasury”). In 2016, Treasury rejected the proposed plan submitted by the CSPF. In light of its financial difficulties, the CSPF had stated that it believed a legislative solution to its funded status would be necessary or that it would become insolvent in 2025, at which time benefits would be reduced to the applicable PBGC benefit levels.
We account for the potential obligation to pay coordinating benefits to the UPS Transfer Group under ASC 715, which requires us to provide a best estimate of various actuarial assumptions, including the eventual outcome of this matter, in measuring our pension benefit obligation at the December 31st measurement date and at interim periods when a significant event occurs. ASC 715 does not permit anticipation of changes in law when developing a best estimate.
At the December 31, 2020 measurement date, we developed our best estimate for the potential obligation to pay coordinating benefits to the UPS Transfer Group using a deterministic cash flow projection that reflected estimated CSPF cash flows and investment earnings, the lack of legislative action having been taken, the expectation of payment of guaranteed benefits by the PBGC and the lack of a benefit reduction plan under MPRA having been filed by the CSPF. As a result, our best estimate at that time of the obligation for coordinating benefits that may have been required to be directly provided by the UPS/IBT Plan to the UPS Transfer Group was $5.5 billion.
In March 2021, the American Rescue Plan Act (“ARPA”) was enacted into law. The ARPA contains provisions that allow for qualifying financially distressed multiemployer pension plans to apply for special financial assistance ("SFA") from the PBGC, which will be funded by Treasury. Following approval of an application, a qualifying multiemployer pension plan will receive a lump sum payment to enable it to continue paying unreduced benefits through 2051. The multiemployer plan is not obligated to repay the SFA. The ARPA is intended to prevent both the PBGC and certain financially distressed multiemployer pension plans, including the CSPF, from becoming insolvent through 2051. On July 9, 2021, the PBGC issued interim final regulations implementing the SFA program established under the ARPA. On April 28, 2022, the CSPF submitted an application to the PBGC for SFA. The PBGC has up to 120 days from the date of submission to review the application.
The passage of the ARPA and the expected receipt of SFA by the CSPF currently suspends our obligation to provide additional coordinating benefits to the UPS Transfer Group through 2051. These matters also triggered a plan remeasurement under ASC 715. Accordingly, we remeasured the plan assets and pension benefit obligation of the UPS/IBT Plan as of March 31, 2021 resulting in an actuarial gain of $6.4 billion, reflecting a reduction of the liability for coordinating benefits of $5.1 billion and a gain from other updated actuarial assumptions of $1.3 billion.
The future value of this estimate 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 PBGC to sustain its 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 715.
Collective Bargaining Agreements
We have approximately 327,000 employees employed under a national master agreement and various supplemental agreements with local unions affiliated with the IBT. These agreements run through July 31, 2023.
We have approximately 3,200 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association ("IPA"). This collective bargaining agreement becomes amendable September 1, 2023.
We have approximately 1,700 airline mechanics who are covered by a collective bargaining agreement with Teamsters Local 2727 which becomes amendable November 1, 2023. In addition, approximately 3,300 of our auto and maintenance mechanics who are not employed under agreements with the IBT 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.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. GOODWILL AND INTANGIBLE ASSETS
The following table indicates the allocation of goodwill as of March 31, 2022 and December 31, 2021 (in millions):
U.S. Domestic
Package
International
Package
Supply Chain SolutionsConsolidated
December 31, 2021:$847 $403 $2,442 $3,692 
Acquired    
Currency / Other
 (7)(17)(24)
March 31, 2022:$847 $396 $2,425 $3,668 
The change in goodwill for both International Package and Supply Chain Solutions was primarily due to the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances.
The following is a summary of intangible assets as of March 31, 2022 and December 31, 2021 (in millions):
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
March 31, 2022:
Capitalized software$4,950 $(3,315)$1,635 
Licenses43 (18)25 
Franchise rights118 (37)81 
Customer relationships727 (423)304 
Trade name67 (3)64 
Trademarks, patents and other157 (5)152 
Amortizable intangible assets$6,062 $(3,801)$2,261 
Indefinite-lived intangible assets204 — 204 
Total Intangible Assets, Net$6,266 $(3,801)$2,465 
December 31, 2021:
Capitalized software$4,910 $(3,275)$1,635 
Licenses58 (27)31 
Franchise rights119 (37)82 
Customer relationships733 (408)325 
Trade name67 (1)66 
Trademarks, patents and other158 (15)143 
Amortizable intangible assets$6,045 $(3,763)$2,282 
Indefinite-lived intangible assets204 — 204 
Total Intangible Assets, Net$6,249 $(3,763)$2,486 
As of March 31, 2022, we had a trade name with a carrying value of $200 million and licenses with a current carrying value of $4 million, which are deemed to be indefinite-lived intangible assets and are included in the table above. Our annual impairment testing of these assets indicated that the fair value of the trade name, which is associated with our truckload brokerage business, remained greater than its carrying value as of our July 1 testing date, although this excess was less than 10 percent. There were no events or changes in circumstances during the first quarter of 2022 that would indicate the carrying amount of our indefinite-lived intangible assets may be impaired as of the date of this report.
Impairment tests for finite-lived intangible assets are performed when a triggering event occurs that may indicate that the carrying value of the intangible asset may not be recoverable. There were no impairment charges for finite-lived intangible assets during the three months ended March 31, 2022. We recorded $6 million in impairment charges for finite-lived intangible assets during the three months ended March 31, 2021.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. DEBT AND FINANCING ARRANGEMENTS
The carrying value of our outstanding debt obligations as of March 31, 2022 and December 31, 2021 consists of the following (in millions):
Principal
Amount
Carrying Value
Maturity20222021
Commercial paper$ $ $ 
Fixed-rate senior notes:
2.450% senior notes
1,000 20221,002 1,010 
2.350% senior notes
600 2022600 600 
2.500% senior notes
1,000 2023999 998 
2.800% senior notes
500 2024498 498 
2.200% senior notes
400 2024399 399 
3.900% senior notes
1,000 2025996 996 
2.400% senior notes
500 2026499 498 
3.050% senior notes
1,000 2027994 994 
3.400% senior notes
750 2029746 746 
2.500% senior notes
400 2029397 397 
4.450% senior notes
750 2030744 744 
6.200% senior notes
1,500 20381,484 1,484 
5.200% senior notes
500 2040494 494 
4.875% senior notes
500 2040491 491 
3.625% senior notes
375 2042368 368 
3.400% senior notes
500 2046492 492 
3.750% senior notes
1,150 20471,137 1,137 
4.250% senior notes
750 2049743 743 
3.400% senior notes
700 2049688 688 
5.300% senior notes
1,250 20501,231 1,231 
Floating-rate senior notes:
Floating-rate senior notes400 2022400 400 
Floating-rate senior notes500 2023500 500 
Floating-rate senior notes1,039 2049-20671,027 1,027 
Debentures:
7.620% debentures
276 2030280 280 
Pound Sterling Notes:
5.500% notes
87 203186 89 
5.125% notes
596 2050566 583 
Euro Senior Notes:
0.375% senior notes
776 2023774 791 
1.625% senior notes
776 2025773 791 
1.000% senior notes
554 2028551 564 
1.500% senior notes
554 2032551 564 
Canadian senior notes:
2.125% senior notes
601 2024600 585 
Finance lease obligations448 2022-2062448 408 
Facility notes and bonds320 2029-2045320 320 
Other debt3 2022-20253 5 
Total debt$22,055 21,881 21,915 
Less: current maturities(2,141)(2,131)
Long-term debt$19,740 $19,784 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Commercial Paper
We are authorized to borrow up to $10.0 billion under a U.S. commercial paper program and €5.0 billion (in a variety of currencies) under a European commercial paper program. As of March 31, 2022, we had no outstanding balances under our commercial paper programs.
Debt Classification
We have classified certain floating-rate senior notes that are redeemable at the option of the note holder as long-term liabilities on our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised.
Reference Rate Reform
Our floating-rate senior notes with maturities ranging from 2049 through 2067 bear interest at rates that reference the London Interbank Offer Rate ("LIBOR") for U.S. Dollars. As part of a broader program of reference rate reform, it is expected that U.S. Dollar LIBOR rates will cease to be published after June 2023. We are currently working to transition these notes to an alternative reference rate, and we anticipate that the Secured Overnight Financing Rate ("SOFR") will be adopted in accordance with recommendations of the Alternative Reference Rates Committee.
Sources of Credit
We maintain two credit agreements with a consortium of banks. The first of these agreements provides revolving credit facilities of $1.0 billion, and expires on December 6, 2022. Amounts outstanding under this agreement bear interest at a periodic fixed rate equal to the term SOFR rate, plus0.10% per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of March 31, 2022 was 0.875%. 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 0.50%; or (3) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00%, may be used at our discretion.
The second agreement provides revolving credit facilities of $2.0 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 0.10% per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of March 31, 2022 was 0.875%. 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 0.50%; or (3) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00%, plus an applicable margin, may be used at our discretion.
If the credit ratings established by Standard & Poors 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 no amounts outstanding under these facilities as of March 31, 2022.
Debt Covenants
Our existing debt instruments and credit facilities subject us to certain financial covenants. As of March 31, 2022, 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 10% of net tangible assets. As of March 31, 2022, 10% of net tangible assets was equivalent to $4.7 billion and we had 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 $23.3 and $25.1 billion as of March 31, 2022 and December 31, 2021, 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.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. LEASES
We have finance and operating leases for package centers, airport facilities, warehouses, office space, aircraft, aircraft engines, information technology equipment (primarily mainframes, servers and copiers), vehicles and various other equipment used in operating our business. Certain leases for real estate and aircraft contain options to purchase, extend or terminate the lease.
We recognize a right-of-use ("ROU") asset and lease obligation for all leases greater than twelve months. Some of our leases contain both lease and non-lease components, which we have elected to treat as a single lease component. We have also elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase options, of twelve months or less in our consolidated balance sheets for all classes of underlying assets. Lease costs for short-term leases are recognized on a straight-line basis over the lease term.
Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease obligation for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and whether the optional period and payments should be included in the calculation of the associated ROU asset and lease obligation. In making this determination, we consider all relevant economic factors that would compel us to exercise or not exercise an option.
When our leases contain future payments that are dependent on an index or rate, such as the consumer price index, we initially measure the lease obligation and ROU asset using the index or rate at the commencement date. In subsequent periods, lease payments dependent on an index or rate are not remeasured. Rather, changes to payments due to a change in an index or rate are recognized in our statements of consolidated income in the period of the change.
When available, we use the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of our leases. For these leases, we use an estimate of our incremental borrowing rate to discount lease payments based on information available at lease commencement. The incremental borrowing rate is derived using multiple inputs including our credit rating, the impact of full collateralization, lease term and denominated currency. The remaining lease terms vary from 1 month to 138 years.
Aircraft
In addition to the aircraft that we own, we have leases for 317 aircraft. Of these leased aircraft, 21 are classified as finance leases, 18 are classified as operating leases and the remaining 278 are classified as short-term leases. A majority of the obligations associated with the aircraft classified as finance leases have been legally defeased. A majority of our long-term aircraft operating leases are operated by a third party to handle package and cargo volume in geographic regions where, due to government regulations, we are restricted from operating an airline.
In order to meet customers' needs, we charter aircraft to handle package and cargo volume on certain international trade lanes and domestic routes. Due to the nature of these agreements, primarily being that either party can cancel the agreement with short notice, we have classified these as short-term leases. Additionally, the lease payments associated with these charter agreements are variable in nature based on the number of hours flown.
Real Estate
We have operating and finance leases for package centers, airport facilities, warehouses, office space and expansion facilities utilized during peak shipping periods. Many of our leases contain charges for common area maintenance or other expenses that are updated based on landlord estimates. Due to this variability, the cash flows associated with these charges are not included in the minimum lease payments used in determining the ROU asset and associated lease obligation.
Some of our real estate leases contain options to renew or extend the lease or terminate the lease before the expiration date. These options are factored into the determination of the lease term and lease payments when their exercise is considered to be reasonably certain.
We also enter into real estate leases that contain lease incentives, such as tenant improvement allowances or move-in allowances, that are received or receivable at lease commencement. These incentives reduce lease payments for classification purposes and reduce the initial ROU asset. When lease incentives are receivable at lease commencement, they also reduce the initial lease obligation.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
From time to time, we enter into leases with the intention of purchasing the property, either through purchase options with a fixed price or a purchase agreement negotiated contemporaneously with the lease agreement. We classify these leases as finance leases and include the purchase date and purchase price in the determination of the lease term and lease payments, respectively, when the option to exercise or purchase is reasonably certain.
Transportation equipment and other equipment
We enter into both long-term and short-term leases for transportation equipment to supplement our capacity or meet contractual demands. Some of these assets are leased on a month-to-month basis and the leases can be terminated without penalty. The lease term for these types of leases is determined by the length of the underlying customer contract or based on the judgment of the business unit. We also enter into multi-year leases for trailers to increase capacity during periods of high demand, which are typically only used for 90-120 days during the year. These leases are treated as short-term as the cumulative right of use is less than 12 months over the term of the contract.
The remainder of our leases are primarily related to equipment used in our air operations, vehicles required to meet capacity needs during periods of higher demand for our shipping services, technology equipment and office equipment used in our facilities.
Some of our transportation and technology equipment leases require us to make additional lease payments based on the underlying usage of the assets. Due to the variable nature of these costs, these are expensed as incurred and are not included in the ROU asset and associated lease obligation.
The components of lease expense for the three months ended March 31, 2022 and 2021 were as follows (in millions):
20222021
Operating lease costs$183 $175 
Finance lease costs:
Amortization of assets28 23 
Interest on lease liabilities4 4 
Total finance lease costs32 27 
Variable lease costs68 65 
Short-term lease costs302 279 
Total lease costs$585 $546 
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 no impairments recognized during the three months ended March 31, 2022 and 2021.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental information related to leases and location within our consolidated balance sheets are as follows (in millions, except lease term and discount rate):
March 31,
2022
December 31,
2021
Operating Leases:
Operating lease right-of-use assets$3,481 $3,562 
Current maturities of operating leases$579 $580 
Non-current operating leases2,970 3,033 
Total operating lease obligations$3,549 $3,613 
Finance Leases:
Property, plant and equipment, net$1,134 $1,225 
Current maturities of long-term debt, commercial paper and finance leases$140 $129 
Long-term debt and finance leases308 279 
Total finance lease obligations$448 $408 
Weighted average remaining lease term (in years):
Operating leases11.511.7
Finance leases7.68.0
Weighted average discount rate:
Operating leases1.95 %1.94 %
Finance leases2.71 %2.79 %

Supplemental cash flow information related to leases is as follows (in millions):
Three Months Ended March 31,
20222021
Cash paid for amounts included in measurement of obligations:
Operating cash flows from operating leases$176 $171 
Operating cash flows from finance leases1 1 
Financing cash flows from finance leases18 13 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$119 $174 
Finance leases59 23 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Maturities of lease obligations as of March 31, 2022 are as follows (in millions):
Finance LeasesOperating Leases
2022$137 $478 
202376 595 
202452 497 
202539 441 
202633 395 
Thereafter197 1,663 
Total lease payments534 4,069 
Less: Imputed interest(86)(520)
Total lease obligations448 3,549 
Less: Current obligations(140)(579)
Long-term lease obligations$308 $2,970 
As of March 31, 2022, we had $347 million of additional leases which had not commenced. These leases will commence between 2022 and 2023 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.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. LEGAL PROCEEDINGS AND CONTINGENCIES
We are involved in a number of judicial proceedings and other matters arising from the conduct of our business.
Although there can be no assurances as to the ultimate outcome, we have generally denied, or believe we have meritorious defenses and will deny, liability in all pending matters, including (except as otherwise noted herein) the matters described below, and we intend to vigorously defend each matter. We accrue amounts associated with legal proceedings when and to the extent a loss becomes probable and can be reasonably estimated. The actual costs of resolving legal proceedings may be substantially higher or lower than the amounts accrued on those claims.
For matters as to which we are not able to estimate a possible loss or range of losses, we are not able to determine whether any such loss will have a material impact on our operations or financial condition. For these matters, we have described the reasons that we are unable to estimate a possible loss or range of losses.
Judicial Proceedings
We are a defendant in a number of lawsuits filed in state and federal courts containing various class action allegations under state wage-and-hour laws. At this time, we do not believe that any loss associated with any such matter will have a material impact on our operations or financial condition. One of these matters, Hughes v. UPS Supply Chain Solutions, Inc. and United Parcel Service, Inc. had previously been certified as a class action in Kentucky state court. In the second quarter of 2019, the court granted our motion for judgment on the pleadings related to the wage-and-hour claims. The plaintiffs' appeal of this decision was denied; however, in the second quarter of 2022 the plaintiffs were granted discretionary review of these claims by the Kentucky Supreme Court.
Other Matters
In October 2015, the Department of Justice ("DOJ") informed us of an industry-wide inquiry into the transportation of mail under the United States Postal Service International Commercial Air contracts. We cooperated with the DOJ in connection with its inquiry and, in the first quarter of 2022, resolved this matter for an immaterial amount.
In August 2016, Spain’s National Markets and Competition Commission ("CNMC") announced an investigation into 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. On March 8, 2018, the CNMC adopted a final decision, finding an infringement and imposing an immaterial fine on UPS. We appealed the decision and, in September 2018, obtained a suspension of the implementation of the decision (including payment of the fine). The appeal is pending. We do not believe that any loss from this matter would have a material impact on our operations or financial condition. We are vigorously defending ourselves and believe that we have a number of meritorious legal defenses. There are also unresolved questions of law and fact that could be important to the ultimate resolution of this matter.
In November 2021, the Environmental Protection Agency (the "EPA") sent us an information request related to hazardous waste regulatory compliance at certain of our facilities. The EPA has indicated that it is investigating potential recordkeeping violations of the Resource Conservation and Recovery Act at those facilities. We are cooperating with the EPA. An immaterial accrual with respect to this matter is included in our consolidated balance sheets. We do not believe that any loss from this matter would have a material impact on our operations or financial condition, although we are unable to predict what action, if any, might be taken in the future by the EPA as a result of this request.
We are a party in various other matters that arose in the normal course of business. We do not believe that the eventual resolution of these 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.


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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. SHAREOWNERS' EQUITY
Capital Stock, Additional Paid-In Capital, Retained Earnings and Non-Controlling Minority Interests
We are authorized to issue two classes of common stock, which are distinguished from each other primarily by their respective voting rights. Class A shares of UPS are entitled to 10 votes per share, whereas class B shares are entitled to one 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 NYSE under the symbol “UPS”. Class A and B shares both have a $0.01 par value, and as of March 31, 2022, there were 4.6 billion class A shares and 5.6 billion class B shares authorized to be issued. Additionally, there are 200 million preferred shares authorized to be issued, with a par value of $0.01 per share. As of March 31, 2022, no preferred shares had been issued.
The following is a rollforward of our common stock, additional paid-in capital, retained earnings and non-controlling minority interests accounts for the three months ended March 31, 2022 and 2021 (in millions, except per share amounts):
20222021
 SharesDollarsSharesDollars
Class A Common Stock:
Balance at beginning of period138 $2 147 $2 
Common stock purchases   
Stock award plans4 4  
Common stock issuances1 1  
Conversions of class A to class B common stock(3)(4) 
Class A shares outstanding at end of period140 $2 148 $2 
Class B Common Stock:
Balance at beginning of period732 $7 718 $7 
Common stock purchases(1)  
Conversions of class A to class B common stock3 4  
Class B shares outstanding at end of period734 $7 722 $7 
Additional Paid-In Capital:
Balance at beginning of period$1,343 $865 
Common stock purchases(260) 
Stock award plans(35)30 
Common stock issuances183 154 
Balance at end of period$1,231 $1,049 
Retained Earnings:
Balance at beginning of period$16,179 $6,896 
Net income attributable to controlling interests2,662 4,792 
Dividends ($1.52 and $1.02 per share) (1)
(1,406)(938)
Other(2)(2)
Balance at end of period$17,433 $10,748 
Non-Controlling Interests:
Balance at beginning of period$16 $12 
Change in non-controlling interest2  
Balance at end of period$18 $12 
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $122 and $80 million as of March 31, 2022 and 2021, respectively, that were settled in shares of class A common stock.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In August 2021, the Board of Directors approved a share repurchase authorization for $5.0 billion of class A and class B common stock. During the first quarter of 2022, we repurchased 1.2 million shares of class B common stock for $260 million under this program ($254 million in repurchases is reported on the statement of consolidated cash flows due to the timing of settlements). As of March 31, 2022, we had $4.2 billion of our share repurchase authorization available. We anticipate our share repurchases will be approximately $2.0 billion for all of 2022.
Share repurchases may be in the form of accelerated share repurchase programs, open market purchases or other methods we deem appropriate. The timing of share repurchases will depend upon market conditions. Unless terminated earlier by the Board of Directors, this program will expire when we have purchased all shares authorized for repurchase under the program.
Movements in additional paid-in capital in respect of stock award plans comprise accruals for unvested awards, offset by adjustments for awards that vest during the period.
Accumulated Other Comprehensive Income (Loss)
We recognize activity in other comprehensive income for foreign currency translation adjustments, unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized pension and postretirement benefit costs. The activity in accumulated other comprehensive income for the three months ended March 31, 2022 and 2021 was as follows (in millions):
Three Months Ended March 31:20222021
Foreign currency translation gain (loss), net of tax:
Balance at beginning of period$(1,162)$(981)
Translation adjustment (net of tax effect of $0 and $30)
(40)(82)
Balance at end of period(1,202)(1,063)
Unrealized gain (loss) on marketable securities, net of tax:
Balance at beginning of period(1)6 
Current period changes in fair value (net of tax effect of $(2) and $0)
(6)(1)
Reclassification to earnings (net of tax effect of $0 and $0)
 (3)
Balance at end of period(7)2 
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of period(17)(223)
Current period changes in fair value (net of tax effect of $23 and $39)
72 124 
Reclassification to earnings (net of tax effect of $(9) and $(3))
(29)(10)
Balance at end of period26 (109)
Unrecognized pension and postretirement benefit costs, net of tax:
Balance at beginning of period(2,098)(5,915)
Net actuarial gain (loss) resulting from remeasurements of plan assets and liabilities (net of tax effect of $11 and $1,544)
31 4,901 
Reclassification to earnings (net of tax effect of $(3) and $(780))
(7)(2,475)
Balance at end of period(2,074)(3,489)
Accumulated other comprehensive income (loss) at end of period$(3,257)$(4,659)


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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the three months ended March 31, 2022 and 2021 is as follows (in millions):
Amount Reclassified from AOCIAffected Line Item in the Income Statement
Three Months Ended March 31:20222021
Unrealized gain (loss) on marketable securities:
Realized gain (loss) on sale of securities$ $3 Investment income and other
Income tax (expense) benefit  Income tax expense
Impact on net income 3 Net income
Unrealized gain (loss) on cash flow hedges:
Interest rate contracts(3)(2)Interest expense
Foreign currency exchange contracts41 15 Revenue
Income tax (expense) benefit(9)(3)Income tax expense
Impact on net income29 10 Net income
Unrecognized pension and postretirement benefit costs:
Prior service costs(23)(35)Investment income and other
Remeasurement of benefit obligation 3,290 Investment income and other
Curtailment of benefit obligation33  Investment income and other
Income tax (expense) benefit(3)(780)Income tax expense
Impact on net income7 2,475 Net income
Total amount reclassified for the period$36 $2,488 Net income
Deferred Compensation Obligations and Treasury Stock
We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer the gains on stock option exercises by deferring the shares received upon exercise into a rabbi trust. The shares held in this trust are classified as treasury stock, and the liability to participating employees is classified as Deferred compensation obligations in the Shareowners’ Equity section of the consolidated balance sheets. The number of shares needed to settle the liability for deferred compensation obligations is included in the denominator in both the basic and diluted earnings per share calculations. Employees are generally no longer able to defer the gains from stock options exercised subsequent to December 31, 2004.
Activity in the deferred compensation program for the three months ended March 31, 2022 and 2021 was as follows (in millions):
20222021
Three Months Ended March 31:SharesDollarsSharesDollars
Deferred Compensation Obligations:
Balance at beginning of period$16 $20 
Reinvested dividends  
Benefit payments(4)(5)
Balance at end of period$12 $15 
Treasury Stock:
Balance at beginning of period $(16) $(20)
Reinvested dividends    
Benefit payments 4  5 
Balance at end of period $(12) $(15)

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. SEGMENT INFORMATION
We have two reportable segments: U.S. Domestic Package and International Package, which are together referred to as our global small package operations. Our remaining businesses are reported as Supply Chain Solutions. 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 – Segment Reporting.
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 220 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, Asia, Americas and Indian Sub-Continent, Middle East and Africa.
Supply Chain Solutions
Supply Chain Solutions includes our Forwarding, Logistics, Coyote, Marken, UPS Mail Innovations and other businesses. Our Forwarding, Logistics and UPS Mail Innovations units provide services in more than 200 countries and territories worldwide and include international air and ocean freight forwarding, customs brokerage, distribution and post-sales services, mail and consulting services. Coyote offers truckload brokerage services primarily in the United States. Marken is a global provider of supply chain solutions to the healthcare and life sciences industry, specializing in clinical trials logistics. Other businesses within this segment include The UPS Store, UPS Capital and Roadie. UPS Freight was included within this segment until its divestiture in the second quarter of 2021.
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 that require us to make estimates that impact the amount of each expense category that is attributed to each segment. Changes in these estimates would directly impact the expense allocated to each segment, and therefore the operating profit of each reporting segment. We periodically refine our allocation methodologies to reflect changes in our business.
Results of operations for the three months ended March 31, 2022 and 2021 are as follows (in millions):
 Three Months Ended
 March 31,
 20222021
Revenue:
U.S. Domestic Package$15,124 $14,010 
International Package4,876 4,607 
Supply Chain Solutions4,378 4,291 
Consolidated revenue$24,378 $22,908 
Operating Profit:
U.S. Domestic Package$1,662 $1,359 
International Package1,116 1,085 
Supply Chain Solutions473 321 
Consolidated operating profit$3,251 $2,765 

 
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. EARNINGS PER SHARE
The earnings per share amounts are the same for class A and class B common shares as the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.
The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2022 and 2021 (in millions, except per share amounts):
 Three Months Ended
 March 31,
20222021
Numerator:
Net income attributable to common shareowners$2,662$4,792
Denominator:
Weighted average shares871867
Vested portion of restricted units35
Denominator for basic earnings per share874872
Effect of dilutive securities:
Restricted units43
Stock options11
Denominator for diluted earnings per share879876
Basic earnings per share$3.05$5.50
Diluted earnings per share$3.03$5.47
Diluted earnings per share for the three months ended March 31, 2022 and 2021 excluded the effect of 0.1 and 0.2 million shares of common stock, respectively, that may be issued upon the exercise of employee stock options because such effect would have been antidilutive.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
Risk Management Policies
Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations and we actively monitor these exposures. To manage the impact of these exposures, we may enter into a variety of derivative financial instruments. Our objective is to manage, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates, commodity prices and interest rates. It is our policy and practice to use derivative financial instruments only to the extent necessary to manage exposures. As we use price-sensitive instruments to hedge a certain portion of our existing and anticipated transactions, we expect that any loss in value from those instruments generally would be offset by increases in the value of those hedged transactions. We do not hold or issue derivative financial instruments for trading or speculative purposes.
Credit Risk Management
The forward contracts, swaps and options discussed below contain an element of risk that the counterparties may be unable to meet the terms of the agreements; however, we seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines and by monitoring counterparties to prevent concentrations of credit risk with any single counterparty.
 As of March 31, 2022 and December 31, 2021, we had agreements with all of our active counterparties (covering all of our derivative positions) which contained early termination rights and/or zero threshold bilateral collateral provisions whereby cash is required based on the net fair value of derivatives associated with those counterparties.
As of March 31, 2022 and December 31, 2021, we held cash collateral of $253 and $260 million, respectively, under these agreements. This collateral is included in Cash and cash equivalents in the consolidated balance sheets and our use of it is not restricted. As of March 31, 2022, we were required to post $2 million of cash collateral with our counterparties. As of December 31, 2021, no collateral was required to be posted with our counterparties.
Events such as a counterparty credit rating downgrade (depending on the ultimate rating level) could also allow us to take additional protective measures such as the early termination of trades. Alternatively, we could be required to provide additional collateral or terminate transactions with certain counterparties in the event of a downgrade of our credit rating. The amount of collateral required would be determined by the net fair value of the associated derivatives with each counterparty. We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default.
Types of Hedges
Commodity Risk Management
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 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 hedge portions of our forecasted revenue denominated in foreign currencies with forward contracts. We normally designate and account for these contracts as cash flow hedges of anticipated foreign currency denominated revenue and, therefore, the resulting gains and losses from these hedges are recognized as a component of international package revenue when the underlying sales transactions occur.
We also hedge portions of our anticipated cash settlements of intercompany transactions and interest payments on certain debt subject to foreign currency remeasurement using foreign currency forward contracts. We normally designate and account for these contracts as cash flow hedges of forecasted foreign currency denominated transactions; therefore, the resulting gains and losses from these hedges are recognized as a component of Investment income and other when the underlying transactions are subject to currency remeasurement.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
We hedge our net investment in certain foreign operations with foreign currency denominated debt instruments. The use of foreign denominated debt as the hedging instrument allows the debt to be remeasured to foreign currency translation adjustment within other comprehensive income to offset the translation risk from those investments. Balances in the foreign currency translation adjustment accounts remain until the sale or substantially complete liquidation of the foreign entity, upon which they are recognized as a component of Investment income and other.
Interest Rate Risk Management
Our indebtedness under our various financing arrangements creates interest rate risk. We use a combination of derivative instruments 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. Interest rate swaps allow us to maintain a target range of floating-rate debt within our capital structure. The notional amount, interest payment date and maturity date of the swaps match the terms of the associated debt being hedged.
We have designated and account for the majority of our interest rate swaps that convert fixed-rate interest payments into floating-rate interest payments as fair value hedges of the associated debt instruments. Therefore, the gains and losses resulting from fair value adjustments to the interest rate swaps and fair value adjustments to the associated debt instruments are recorded to interest expense in the period in which the gains and losses occur. We have designated 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. The gains and losses resulting from fair value adjustments to these interest rate swaps are recorded to other comprehensive income.
We 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. These agreements effectively lock a portion of our interest rate exposure between the time the agreement is entered into and the date when the debt offering is completed, thereby mitigating the impact of interest rate changes on future interest expense. These derivatives are settled commensurate with the issuance of the debt, and any gain or loss upon settlement is amortized as an adjustment to the effective interest yield on the debt.
Outstanding Positions
As of March 31, 2022 and December 31, 2021, the notional amounts of our outstanding derivative positions were as follows (in millions):
 March 31, 2022December 31, 2021
Currency hedges:
EuroEUR4,215 4,257 
British Pound SterlingGBP1,394 1,402 
Canadian DollarCAD1,672 1,633 
Hong Kong DollarHKD4,286 4,033 
Interest rate hedges:
Fixed to Floating Interest Rate SwapsUSD1,000 1,000 
Floating to Fixed Interest Rate SwapsUSD28 28 
As of March 31, 2022 and December 31, 2021, we had no outstanding commodity hedge positions.
Our fixed to floating interest rate swaps are designated as a fair value hedge of our 2.450% fixed rate notes that mature in October 2022. These instruments utilize LIBOR as the reference rate to determine the floating interest rate to be paid. As these instruments will settle before the applicable U.S. Dollar LIBOR rate ceases to be published in June 2023, we have not evaluated the application of ASC Topic 848 to these instruments.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet Recognition
The following table indicates the location in the consolidated balance sheets where our derivative assets and liabilities have been recognized, the fair value hierarchy level applicable to each derivative type and the related fair values of those derivatives.
We have master netting arrangements with substantially all of our counterparties giving us the right of offset for our derivative positions. However, we have not elected to offset the fair value positions of our derivative contracts recorded in the consolidated balance sheets. The columns labeled Net Amounts if Right of Offset had been Applied indicate the potential net fair value positions by type of contract and location in the consolidated balance sheets had we elected to apply the right of offset as of March 31, 2022 and December 31, 2021 (in millions):
Fair Value Hierarchy LevelGross Amounts Presented in Consolidated Balance SheetsNet Amounts if Right of
Offset had been Applied
Asset DerivativesBalance Sheet LocationMarch 31,
2022
December 31,
2021
March 31,
2022
December 31,
2021
Derivatives designated as hedges:
Foreign currency exchange contractsOther current assetsLevel 2$128 $100 $109 $82 
Interest rate contractsOther current assetsLevel 23 11 3 11 
Foreign currency exchange contractsOther non-current assetsLevel 2148 123 114 90 
Derivatives not designated as hedges:
Foreign currency exchange contractsOther current assetsLevel 21 2 1 2 
Total Asset Derivatives$280 $236 $227 $185 
Fair Value Hierarchy LevelGross Amounts Presented in
Consolidated Balance Sheets
Net Amounts if Right of
Offset had been Applied
Liability DerivativesBalance Sheet LocationMarch 31,
2022
December 31,
2021
March 31,
2022
December 31,
2021
Derivatives designated as hedges:
Foreign currency exchange contractsOther current liabilitiesLevel 2$19 $19 $ $1 
Foreign currency exchange contractsOther non-current liabilitiesLevel 234 33   
Interest rate contractsOther non-current liabilitiesLevel 28 10 8 10 
Total Liability Derivatives$61 $62 $8 $11 
Our foreign currency exchange, interest rate and investment market price derivatives are largely comprised of over-the-counter derivatives, which are primarily valued using pricing models that rely on market observable inputs such as yield curves, currency exchange rates and investment forward prices; therefore, these derivatives are classified as Level 2. As of March 31, 2022 and December 31, 2021 we did not have any derivatives that were classified as Level 1 or Level 3 within the fair value hierarchy.
Balance Sheet Location of Hedged Item in Fair Value Hedges    
The following table indicates the amounts that were recorded in the consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of March 31, 2022 and December 31, 2021 (in millions):
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is IncludedCarrying Amount
of Hedged Liabilities
Cumulative Amount
of Fair Value Hedge
Adjustments
Carrying Amount
of Hedged Liabilities
Cumulative Amount
 of Fair Value Hedge
Adjustments
March 31, 2022March 31, 2022December 31, 2021December 31, 2021
Long-term debt and finance leases$1,282 $8 $1,290 $16 
The cumulative amount of fair value hedging losses remaining for any hedged assets and liabilities for which hedge accounting has been discontinued as of March 31, 2022 is $5 million. These amounts will be recognized over the next 8 years.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Income Statement and AOCI Recognition
The following table indicates the amount of gains and (losses) that have been recognized in the statements of consolidated income for fair value and cash flow hedges, as well as the associated gain or (loss) for the underlying hedged item for fair value hedges for the three months ended March 31, 2022 and 2021 (in millions):
Three Months Ended March 31,


20222021
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging RelationshipsRevenueInterest ExpenseInvestment Income and OtherRevenueInterest ExpenseInvestment Income and Other
Gain or (loss) on fair value hedging relationships:
Interest Contracts:
Hedged items$ $8 $ $ $6 $ 
Derivatives designated as hedging instruments (8)  (6) 
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income (3)  (2) 
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income41   15   
Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded$41 $(3)$ $15 $(2)$ 
The following table indicates the amount of gains and (losses) that have been recognized in AOCI for the three months ended March 31, 2022 and 2021 for those derivatives designated as cash flow hedges (in millions):
Three Months Ended March 31:
Derivative Instruments in Cash Flow Hedging RelationshipsAmount of Gain (Loss) Recognized in AOCI on Derivatives
20222021
Interest rate contracts$3 $3 
Foreign currency exchange contracts92 160 
Total$95 $163 

As of March 31, 2022, there were $99 million of unrealized pre-tax gains related to cash flow hedges deferred in AOCI that are expected to be reclassified to income over the 12 month period ending March 31, 2023. The actual amounts that will be reclassified to income over the next 12 months will vary from this amount as a result of changes in market conditions. The maximum term over which we are hedging exposures to the variability of cash flows is approximately 10 years.
The following table indicates the amount of gains and (losses) that have been recognized in AOCI within foreign currency translation adjustment for the three months ended March 31, 2022 and 2021 for those instruments designated as net investment hedges (in millions):
Three Months Ended March 31:
Non-derivative Instruments in Net Investment Hedging RelationshipsAmount of Gain (Loss) Recognized in AOCI on Debt
20222021
Foreign denominated debt$46 $124 
Total$46 $124 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Additionally, we maintain foreign currency exchange forward contracts that are not designated as hedges. The foreign currency exchange forward contracts are intended to provide an economic offset to foreign currency remeasurement and settlement risk for certain assets and liabilities in our consolidated balance sheets.
We also periodically terminate foreign currency exchange forward contracts by entering into offsetting foreign currency exchange positions with different counterparties. As part of this process, we de-designate our original foreign currency exchange contracts. These transactions provide an economic offset that effectively eliminates the effects of changes in market valuation.
The following is a summary of the amounts recorded in the statements of consolidated income related to fair value changes and settlements of these foreign currency exchange forward contracts not designated as hedges for the three months ended March 31, 2022 and 2021 (in millions):
Three Months Ended March 31:
Derivative Instruments Not Designated in
Hedging Relationships
Location of Gain (Loss)
Recognized in Income
Amount of Gain (Loss) Recognized in Income
20222021
Foreign currency exchange contractsInvestment income and other$(28)$(6)
Total $(28)$(6)

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. INCOME TAXES
Our effective tax rate for the three months ended March 31, 2022 was approximately 21.5% compared with 22.8% in the same period of 2021. The recognition in income tax of excess tax benefits related to share-based compensation reduced our effective rate by 2.4% for the quarter compared to 1.1% in the same period of 2021. Other items that impacted our effective tax rate in the first quarter of 2022 compared to 2021 included unfavorable changes in uncertain tax positions and favorable changes in our jurisdictional earnings mix.
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, we have recognized liabilities for uncertain tax positions and we reevaluate these uncertain tax positions on a quarterly basis. A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months, however, an estimate of the range of reasonably possible outcomes cannot be made. Items that may cause changes to unrecognized tax benefits include the timing of interest deductions and the allocation of income and expense between tax jurisdictions. These changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of statutes of limitations or other unforeseen circumstances.
In the first quarter of 2022, we recognized an immaterial income tax expense related to a pre-tax curtailment gain of $33 million on the UPS Canada Ltd. Retirement Plan. This income tax expense was generated at a higher average tax rate than the U.S. federal statutory tax rate because it included the effect of foreign taxes.
In the first quarter of 2021, we recognized an income tax expense of $788 million related to a pre-tax mark-to-market gain of $3.3 billion on the UPS/IBT Full-Time Employee Pension Plan. This income tax expense was generated at a higher average tax rate than the U.S. federal statutory tax rate because it included the effect of U.S. state and local taxes.
As discussed in note 17, we recognized pre-tax transformation strategy costs of $55 million in the first quarter of 2022 compared to $118 million in the same period of 2021. As a result, we recorded an income tax benefit of $12 million in the first quarter compared to $28 million in the same period of 2021. The income tax benefit was generated at a higher average tax rate than the U.S. federal statutory tax rate primarily due to the effect of U.S. state and local taxes and foreign taxes. The 2021 benefit was generated at a higher average tax rate than the U.S. federal statutory tax rate primarily due to the effect of U.S. state and local taxes and foreign taxes.
We recorded a pre-tax valuation allowance against assets held for sale of $66 million during the first quarter of 2021, resulting in an additional income tax benefit of $16 million. This income tax benefit was generated at a higher average tax rate than the U.S. federal statutory tax rate due to the effect of U.S. state and local taxes.
Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations, which was effective through December 31, 2021. During the first quarter of 2022, the tax incentive was renegotiated and extended. The tax incentive is conditioned upon our meeting specific employment and investment thresholds, which we expect to meet. The impact of the tax incentive did not significantly change our effective tax rate for the first quarter of 2022 compared to the first quarter of 2021.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. TRANSFORMATION STRATEGY COSTS
In 2018, we launched a multi-year, enterprise-wide transformation strategy impacting our organization. The program includes investments, as well as changes in processes and technology, that impact global direct and indirect operating costs.
The table below presents transformation strategy costs for the three months ended March 31, 2022 and 2021 (in millions):
Three Months Ended
 March 31,
20222021
Transformation Strategy Costs:
Compensation and benefits$33 $76 
Total other expenses22 42 
Total Transformation Strategy Costs$55 $118 
Income Tax Benefit from Transformation Strategy Costs(12)(28)
After Tax Transformation Strategy Costs$43 $90 
The income tax effects of transformation strategy costs are calculated by multiplying the amount of the adjustments by the statutory tax rates applicable in each tax jurisdiction.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview
During the first quarter, we continued executing our Customer First, People Led, Innovation Driven strategy to realize further improvements in revenue quality, reductions in our cost to serve and growth in operating profit. Within the Customer First component of our strategy, we are continuing to leverage technology to make it faster and easier for small- and medium-sized businesses (SMBs) to ship with us, including first-quarter expansion of our Digital Access Program within the U.S. and internationally. Through our People Led strategic focus, we also realigned our executive leadership team to better serve our customers. Under Innovation Driven, we continued to deploy additional automation to increase productivity, including the introduction of smart facility technology. We also transitioned the two data centers which drive our global integrated network to renewable energy sources during the quarter.
During the first quarter, several factors contributed to a challenging operating environment, which is expected to persist, including global inflation, a surge in energy prices and upstream supply chain disruption. Additionally, the COVID-19 pandemic resulted in, and is expected to continue to result in, disruptions to our business, particularly in parts of Asia. In the first quarter, this drove a reduction in the number of flights we operated within the region relative to our expectations and negatively impacted demand for our services. Following Russia's invasion of Ukraine in February, we suspended all commercial operations in these countries, as well as in Belarus. Although these operations represent less than 1% of our consolidated revenues and the direct financial impact is not material to our business, we continue to monitor the evolving impact of the conflict on the broader economy. As a result of the aforementioned factors, we expect to continue to face certain pressures throughout the remainder of 2022.
In our U.S. Domestic Package reportable segment, volume decreased in the first quarter, driven by declines in residential volume. These declines were driven by a shift towards spending on services and a return to in-store shopping, as well as the impact of fiscal stimulus in the first quarter of 2021 that drove a surge in online consumer spending that did not repeat this year. Successful execution of our strategy resulted in growth in revenue per piece, which more than offset the impact of volume declines for the quarter.
Our International Package reportable segment was also impacted by the external factors discussed above, as well as lower e-commerce spending relative to the first quarter of 2021 when COVID-19 restrictions were in place in a number of countries, which resulted in a decrease in volume. This was offset by revenue per piece growth, driven by our continued focus on revenue quality as well as pricing changes which included fuel surcharge impacts. The growth in revenue per piece resulted in an increase in operating profit for the quarter.
Within Supply Chain Solutions, revenue growth was impacted by the second quarter 2021 divestiture of UPS Freight. Operating profit and operating margin increased, as global market demand continued to outpace supply in our international air and ocean freight forwarding businesses. Our truckload brokerage business benefited from revenue quality initiatives and growth remained strong in our healthcare operations.
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Highlights of our consolidated results, which are discussed in more detail below, include:
 Three Months Ended March 31,Change
 20222021$%
Revenue (in millions)$24,378 $22,908 $1,470 6.4 %
Operating Expenses (in millions)21,127 20,143 984 4.9 %
Operating Profit (in millions)$3,251 $2,765 $486 17.6 %
Operating Margin13.3 %12.1 %
Net Income (in millions)$2,662 $4,792 $(2,130)(44.4)%
Basic Earnings Per Share$3.05 $5.50 $(2.45)(44.5)%
Diluted Earnings Per Share$3.03 $5.47 $(2.44)(44.6)%
Operating Days64 63 
Average Daily Package Volume (in thousands)23,278 24,145 (3.6)%
Average Revenue Per Piece$13.26 $12.12 $1.14 9.4 %
Revenue increased in all segments, driven by strong growth in small package revenue per piece and the impact of an additional operating day.
Average daily package volume decreased in the first quarter, primarily due to business-to-consumer volume declines.
Operating expenses increased, driven by fuel and third-party transportation costs.
Operating profit increased in all segments and operating margin increased in U.S. Domestic and Supply Chain Solutions.
We reported net income of $2.7 billion and diluted earnings per share of $3.03 for the quarter. Adjusted diluted earnings per share was $3.05 for the quarter after adjusting for the after-tax impacts of:
transformation strategy costs of $43 million or $0.05 per diluted share; partially offset by
a defined benefit plan curtailment gain of $24 million or $0.03 per diluted share.
In the U.S. Domestic Package segment, revenue and revenue per piece increased, primarily due to fuel surcharges and base rate increases as well as favorable shifts in customer and product mix. Expense increased due to higher compensation and benefit costs and higher fuel prices.
The International Package segment experienced revenue and revenue per piece growth, primarily due to fuel surcharges and pricing structure changes, coupled with favorable shifts in customer and product mix. Expense increases were primarily driven by higher jet fuel prices.
In Supply Chain Solutions, revenue growth was driven by Forwarding and Logistics. Forwarding revenue growth was driven by market price increases, while Logistics continued to experience strong growth from healthcare operations. Expense decreased slightly in the first quarter, as higher transportation costs in Forwarding and Logistics were offset by a reduction in operating expenses due to the second quarter 2021 divestiture of UPS Freight.
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Supplemental Information - Items Affecting Comparability
We supplement the reporting of our financial information determined under generally accepted accounting principles in the United States ("GAAP") with certain non-GAAP financial measures. These include: "adjusted" compensation and benefits; operating expenses; operating profit; operating margin; other income and (expense); income before income taxes; income tax expense; effective tax rate; net income; and earnings per share. Adjusted financial measures may exclude the impact of period over period exchange rate changes and hedging activities, defined benefit plan gains and losses, transformation and other charges, goodwill and asset impairment charges, and divestitures, as described below.
We believe that these non-GAAP measures provide additional meaningful information to assist users of our financial statements in more fully understanding our financial results and assessing our ongoing performance, because they exclude items that may not be indicative of, or are unrelated to, our underlying operations, and may provide a useful baseline for analyzing trends in our underlying businesses. These non-GAAP measures are used internally by management for business unit operating performance analysis, business unit resource allocation and in connection with incentive compensation award determinations.
Adjusted financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our adjusted financial measures do not represent a comprehensive basis of accounting. Therefore, our adjusted financial measures may not be comparable to similarly titled measures reported by other companies.
Adjusted amounts reflect the following (in millions):
Three Months Ended March 31,
Non-GAAP Adjustments20222021
Operating Expenses:
Transformation Strategy Costs$55 $118 
Asset Impairment Charges and Divestitures— 66 
Total Adjustments to Operating Expenses$55 $184 
Other Income and (Expense):
Defined Benefit Plan (Gains) and Losses$(33)$(3,290)
Total Adjustments to Other Income and (Expense)$(33)$(3,290)
Total Adjustments to Income Before Income Taxes$22 $(3,106)
Income Tax (Benefit) Expense:
Transformation Strategy Costs$(12)$(28)
Asset Impairment Charges and Divestitures— (16)
Defined Benefit Plan (Gains) and Losses788 
Total Adjustments to Income Tax (Benefit) Expense$(3)$744 
Total Adjustments to Net Income$19 $(2,362)
Transformation and Other Charges, Goodwill and Asset Impairment Charges, and Divestitures
We supplement the presentation of our operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of charges related to transformation activities, goodwill and asset impairment charges, and divestitures. For more information regarding transformation activities, see note 17 to the unaudited, consolidated financial statements. For more information regarding asset impairment charges and divestitures, see note 4 to our audited, consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
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Changes in Foreign Currency Exchange Rates and Hedging Activities
We also supplement the reporting of revenue, revenue per piece and operating profit with adjusted measures that exclude the period-over-period impact of foreign currency exchange rate changes and hedging activities. We believe currency-neutral revenue, revenue per piece and operating profit information allows users of our financial statements to understand growth trends in our products and results. We evaluate the performance of International Package and Supply Chain Solutions on this currency-neutral basis.
Currency-neutral revenue, revenue per piece and operating profit are calculated by dividing current period reported U.S. dollar revenue, revenue per piece and operating profit by the current period average exchange rates to derive current period local currency revenue, revenue per piece and operating profit. The derived amounts are then multiplied by the average foreign currency exchange rates used to translate the comparable results for each month in the prior year period (including the period-over-period impact of foreign currency hedging activities). The difference between the current period reported U.S. dollar revenue, revenue per piece and operating profit and the derived current period U.S. dollar revenue, revenue per piece and operating profit is the period-over-period impact of currency fluctuations.
Defined Benefit Plan Gains and Losses
We incur certain employment-related expenses associated with pension and postretirement medical benefits. These pension and postretirement medical benefits costs for company-sponsored defined benefit plans are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation, compensation increase rates, mortality rates and coordination of benefits with plans not sponsored by UPS. Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim remeasurement of any of our plans.
We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor (defined as 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation), as well as gains and losses resulting from plan amendments, for our pension and postretirement defined benefit plans immediately as part of Investment income and other. We supplement the presentation of our income before income taxes, net income and earnings per share with adjusted measures that exclude the impact of these gains and losses and the related income tax effects. We believe excluding these defined benefit plan gains and losses provides important supplemental information by removing the volatility associated with plan amendments and short-term changes in market interest rates, equity values and similar factors.
During the first quarter of 2022, we amended the UPS Canada Ltd. Retirement Plan to cease future benefit accruals effective December 31, 2023. As a result, we remeasured the plan's assets and benefit obligations as of March 31, 2022, resulting in a curtailment gain of $33 million ($24 million after-tax).
During the first quarter of 2021, we remeasured the UPS/IBT Full Time Employee Pension Plan following enactment into law of the American Rescue Plan Act and recognized a pre-tax mark-to-market gain outside of the 10% corridor of $3.3 billion ($2.5 billion after-tax).
These gains are included in Investment income and other in the statements of consolidated income. For additional information, refer to note 7 to the unaudited, consolidated financial statements.
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Results of Operations - Segment Review
The results and discussions that follow are reflective of how management monitors and evaluates the performance of our segments as defined in note 13 to the unaudited, consolidated financial statements.
Certain operating expenses are allocated between our reporting segments using activity-based costing methods. These activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed to each segment. Changes in these estimates directly impact the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses. There were no significant changes to our allocation methodologies for the first quarter of 2022.
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U.S. Domestic Package
 Three Months Ended March 31,Change
20222021$%
Average Daily Package Volume (in thousands):
Next Day Air1,945 2,012 (3.3)%
Deferred1,509 1,513 (0.3)%
Ground16,287 16,827 (3.2)%
Total Average Daily Package Volume19,741 20,352 (3.0)%
Average Revenue Per Piece:
Next Day Air$20.84 $18.39 $2.45 13.3 %
Deferred14.70 13.22 1.48 11.2 %
Ground10.66 9.83 0.83 8.4 %
Total Average Revenue Per Piece$11.97 $10.93 $1.04 9.5 %
Operating Days in Period64 63 
Revenue (in millions):
Next Day Air$2,594 $2,331 $263 11.3 %
Deferred1,420 1,260 160 12.7 %
Ground11,110 10,419 691 6.6 %
Total Revenue$15,124 $14,010 $1,114 8.0 %
Operating Expenses (in millions):
Operating Expenses$13,462 $12,651 $811 6.4 %
Transformation and Other Charges(43)(104)61 (58.7)%
Adjusted Operating Expense$13,419 $12,547 $872 6.9 %
Operating Profit (in millions) and Operating Margin:
Operating Profit $1,662 $1,359 $303 22.3 %
Adjusted Operating Profit$1,705 $1,463 $242 16.5 %
Operating Margin11.0 %9.7 %
Adjusted Operating Margin11.3 %10.4 %
Revenue
The change in revenue was due to the following factors:
VolumeRates /
Product Mix
Fuel
Surcharge
Total Revenue
Change
Revenue Change Drivers:
First quarter 2022 vs. 2021(1.5)%5.2 %4.3 %8.0 %
Overall revenue also benefited from one additional operating day in the first quarter of 2022.
Volume
Average daily volume decreased, driven by a 7.4% decline in residential shipments. The decline in residential volume was attributable to rising inflation depressing consumer demand, a shift in consumer spending away from e-commerce towards services and in-store shopping and the impact of fiscal stimulus in the first quarter of 2021 that drove a surge in online consumer spending in that period. Business-to-consumer shipments represented approximately 57.4% of average daily volume for the quarter compared to 60.1% in 2021.
Business-to-business shipments increased 3.6% in the 2022 period, with growth primarily in our Ground commercial product which was driven by growth from SMB customers as we continued to execute on our strategy. Overall, we anticipate that average daily volume growth in the first half of 2022 will be negative and then improve in the second half of the year.
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Within our Air products, we experienced shifts in customer mix that resulted in overall declines in average daily volume. Deferred average daily volume remained relatively flat, while our Next Day Air average daily volume declined as we continued to execute within our Better Not Bigger strategic framework.
Within our Ground products, SurePost average daily volume decreased 10.5%, driven by a reduction in shipments from a number of large customers while Ground residential experienced volume declines in all customer segments. These declines were driven by lower consumer spending as discussed above. Ground commercial volume increased 4.1%, with growth from both large customers and SMBs.
Rates and Product Mix
Revenue per piece in both our Air and Ground products increased, driven by increases in base rates and fuel surcharges, as well as favorable changes in customer and product mix. Rates for Air and Ground products increased an average of 5.9% in December 2021, and our SurePost rates also increased at that time. In our Next Day Air and Deferred products, overall revenue per piece growth was slightly impacted by a reduction in average billable weight per piece.
Through continued execution of our strategy, we anticipate that revenue per piece will continue to grow faster than volume throughout the remainder of 2022.
Fuel Surcharges
We apply a fuel surcharge on our domestic air and ground services that is adjusted weekly. The air fuel surcharge is based on the U.S. Department of Energy's ("DOE") Gulf Coast spot price for a gallon of kerosene-type fuel, while the ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel price. Based on published rates, the average fuel surcharge rates for domestic Air and Ground products were as follows:
 Three Months Ended March 31,% Point Change
 202220212022 vs 2021
Next Day Air / Deferred14.4 %5.9 %8.5 %
Ground12.7 %7.2 %5.5 %
While fluctuations in fuel surcharges can be significant from period to period, fuel surcharges are only one of the many individual components of our market pricing strategy that impact our overall revenue and yield. Additional components include the mix of services sold, the base price and additional charges for these services and the pricing discounts offered.
Total domestic fuel surcharge revenue increased $601 million, driven by increases in fuel surcharges and pricing structure changes. We expect surcharges to remain elevated throughout the remainder of 2022.
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Operating Expenses
Operating expenses, and operating expenses excluding the year-over-year impact of transformation and other charges, increased, partly due to the impact of one additional operating day. Pickup and delivery costs increased $455 million and the cost of operating our integrated air and ground network increased $279 million. Package sorting costs increased $80 million and other indirect operating costs increased $58 million. These increases were impacted by:
Higher fuel costs, primarily attributable to increases in the price of jet fuel, diesel and gasoline, which we expect to persist.
Increases in employee benefits expense for our union workforce due to contractual rate increases for contributions to multiemployer benefit plans, as well as additional headcount becoming eligible for health, welfare and retirement benefits.
Higher compensation expense due to contractual rate increases, and cost of living and market-rate adjustments for our union workforce. These increases were partially offset by lower volumes, leading to a decrease in average daily union labor hours. Management payroll also increased, primarily due to wage rate adjustments for our part-time workforce and higher incentive compensation.
Increases in workers' compensation and automobile liability expense were primarily driven by adverse claims development.
Reallocation of Ground with Freight Pricing product expense following the second quarter 2021 divestiture of UPS Freight, which resulted in $69 million of increased segment operating expenses.
Total cost per piece, and adjusted cost per piece excluding the year-over-year impact of transformation and other charges, increased 8.0% and 8.5%, respectively. We anticipate that overall costs and cost per piece will continue to increase throughout the remainder of 2022 as a result of market factors, including expected increases in the cost of labor and inflation, as well as upstream supply chain disruptions.
Operating Profit and Margin
As a result of the factors described above, operating profit increased $303 million, with operating margin increasing 130 basis points to 11.0%. Excluding the year-over-year impact of transformation and other charges, adjusted operating profit increased $242 million, with adjusting operating margin increasing 90 basis points to 11.3%.
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International Package
 Three Months Ended March 31,Change
 20222021$%
Average Daily Package Volume (in thousands):
Domestic1,806 2,010 (10.1)%
Export1,731 1,783 (2.9)%
Total Average Daily Package Volume3,537 3,793 (6.7)%
Average Revenue Per Piece:
Domestic$7.36 $7.33 $0.03 0.4 %
Export34.10 31.10 3.00 9.6 %
Total Average Revenue Per Piece$20.45 $18.50 $1.95 10.5 %
Operating Days in Period64 63 
Revenue (in millions):
Domestic$851 $928 $(77)(8.3)%
Export3,778 3,493 285 8.2 %
Cargo and Other247 186 61 32.8 %
Total Revenue$4,876 $4,607 $269 5.8 %
Operating Expenses (in millions):
Operating Expenses$3,760 $3,522 $238 6.8 %
Transformation and Other Charges(4)(6)(33.3)%
Adjusted Operating Expenses$3,756 $3,516 $240 6.8 %
Operating Profit (in millions) and Operating Margin:
Operating Profit $1,116 $1,085 $31 2.9 %
Adjusted Operating Profit$1,120 $1,091 $29 2.7 %
Operating Margin22.9 %23.6 %
Adjusted Operating Margin23.0 %23.7 %
Currency Benefit / (Cost) – (in millions)*:
Revenue$(143)
Operating Expenses115 
Operating Profit$(28)
* Net of currency hedging; amount represents the change in currency translation compared to the prior year.

Revenue
The change in revenue was due to the following:
VolumeRates /
Product Mix
Fuel
Surcharge
CurrencyTotal Revenue
Change
Revenue Change Drivers:
First quarter 2022 vs. 2021(5.0)%7.8 %6.1 %(3.1)%5.8 %
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Volume
In the first quarter, average daily volume decreased for both domestic and export products. Volume declined from both large customers and SMBs, primarily in the retail and technology sectors. Business-to-consumer volume decreased 20.7%. This decrease was attributable to challenging global economic conditions, including inflation, geopolitical uncertainty and COVID-19 disruptions in Asia, as well as a reduction in consumer e-commerce spending relative to the first quarter of 2021 when COVID-19 restrictions were in place in a number of countries. Business-to-business volume increased 0.5% in the first quarter. We expect volume growth in the first half of the year to be negative, with improvement occurring in the second half of the year.
Export volume decreased in the first quarter, driven by impacts from Europe and Asia. European volume declines were highest on intra-Europe trade lanes, driven by overall economic conditions. These declines were partially offset by growth on the Europe to U.S. trade lane driven by the United Kingdom and Turkey. The decline in Asia export volume was primarily driven by COVID-19 disruptions, which resulted in fewer flights being operated during the first quarter and reduced business activity in certain areas within China during March.
Our premium Express products experienced a slight volume decline in the quarter, primarily due to disruptions to our business in Asia related to COVID-19 shutdowns. Volume for our non-premium export products decreased 2.3%, driven by reductions in our Worldwide Expedited and Worldwide Standard products. The decline in our Worldwide Standard product was due to the year-over-year impact of Brexit as customers continued to adjust their supply chains, while the decline in our Worldwide Expedited product resulted from shifts in customer preferences.
Domestic volume also declined in the first quarter, particularly in Canada and the United Kingdom, due to a decrease in residential volume driven by the reduction in e-commerce from the comparative period, as discussed above.
Rates and Product Mix
In December 2021, we implemented an average 5.9% net increase in base and accessorial rates for international shipments originating in the United States. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market. Additionally, we continue to apply demand-related surcharges on certain lanes.
Total revenue per piece increased 10.5% in the quarter, primarily due to fuel surcharges and pricing structure changes as well as favorable shifts in customer and product mix. Demand-related surcharges on certain export volume also contributed to the increase. This increase was partially offset by unfavorable currency movements. Excluding the impact of currency, revenue per piece increased 13.9%. We expect our overall revenue per piece to increase for 2022 as a result of our continuing revenue quality initiatives.
Export revenue per piece increased 9.6% in the quarter also for the reasons described above. Excluding the impact of currency, export revenue per piece increased 12.2%.
Domestic revenue per piece was also favorably impacted by the factors described above. However, this was offset by unfavorable currency movements, which resulted in domestic revenue per piece remaining relatively flat for the quarter. Excluding the impact of currency, domestic revenue per piece increased 6.8%.
Fuel Surcharges
The fuel surcharge for international air services originating inside or outside the U.S. is largely indexed to the DOE's Gulf Coast spot price for a gallon of kerosene-type jet fuel. The fuel surcharges for ground services originating outside the U.S. are indexed to fuel prices in the region or country where the shipment originates.
While fluctuations can be significant from period to period, fuel surcharges represent one of the many individual components of our market pricing strategy that impact our overall revenue and yield. Additional components include the mix of services sold, the base price, extra service charges and any pricing discounts offered. Total international fuel surcharge revenue increased by $259 million in the first quarter, driven by significant increases in fuel surcharge indices which were slightly offset by volume declines. We expect fuel surcharges to continue to remain elevated throughout the remainder of 2022.
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Operating Expenses
Operating expenses, and operating expenses excluding the year-over-year impact of transformation and other charges, increased in the first quarter. The costs of operating our integrated international air and ground network increased $295 million, primarily due to higher fuel prices, which we expect to persist through the remainder of 2022.
In addition to variability in usage, market prices and fuel costs passed on to us by third-party transportation providers, the manner in which we purchase fuel also influences the net impact of costs on our results. The majority of our contracts for fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential. While many of the indices are aligned, each index may fluctuate at a different pace, driving variability in the prices paid for fuel. 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 earnings either positively or negatively in the short-term.
Pickup and delivery costs decreased $38 million, primarily due to volume declines in the first quarter discussed above. Other indirect costs also decreased year over year, while package sorting costs remained relatively flat.
Operating Profit and Margin
As a result of the factors described above, operating profit increased $31 million for the first quarter, with operating margin decreasing 70 basis points to 22.9%. Excluding the year-over-year impact of transformation and other charges, adjusted operating profit increased $29 million in the first quarter, while adjusted operating margin decreased 70 basis points to 23.0%.
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Supply Chain Solutions
 Three Months Ended March 31,Change
 20222021$%
Revenue (in millions):
Forwarding$2,589 $2,072 $517 25.0 %
Logistics1,251 1,104 147 13.3 %
Freight— 767 (767)(100.0)%
Other538 348 190 54.6 %
Total Revenue$4,378 $4,291 $87 2.0 %
Operating Expenses (in millions):
Operating Expenses$3,905 $3,970 $(65)(1.6)%
Transformation Strategy Costs(8)(8)— — %
Asset Impairment Charges and Divestitures— (66)66 (100.0)%
Adjusted Operating Expenses:$3,897 $3,896 $— %
Operating Profit (in millions) and Operating Margin:
Operating Profit $473 $321 $152 47.4 %
Adjusted Operating Profit$481 $395 $86 21.8 %
Operating Margin10.8 %7.5 %
Adjusted Operating Margin11.0 %9.2 %
Currency Benefit / (Cost) – (in millions)*:
Revenue$(37)
Operating Expenses40 
Operating Profit$
* Amount represents the change in currency translation compared to the prior year.
 Three Months Ended March 31,Change
 20222021$%
Transformation Strategy Costs (in millions):
Forwarding$$$20.0 %
Logistics(1)(50.0)%
Freight— (1)(100.0)%
Other— N/A
Total Transformation Strategy Costs$$$— — %

Revenue
Total revenue for Supply Chain Solutions increased $87 million, as strong revenue growth across many of our businesses was largely offset by a $767 million decrease in revenue attributable to the second quarter 2021 divestiture of UPS Freight.
Forwarding revenue increased in the first quarter. In our international air freight business, revenue growth was driven by ongoing demand-related surcharges and elevated market rates, slightly offset by a reduction in Asia export volume. We anticipate that rates may moderate during the year as capacity returns to the market. Ocean freight forwarding revenue increased as market rates remained elevated, while volume declined slightly. We expect ocean rates to moderate below 2021 peak levels later in 2022. Revenue in our truckload brokerage business increased $146 million, which was primarily driven by revenue quality initiatives, slightly offset by a reduction in volume of approximately 10%.
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Within Logistics, our healthcare operations experienced strong business growth in the first quarter driven by pharmaceuticals, clinical trials and lab customers. Revenue in our mail services business increased slightly due to rate increases and a favorable shift in product characteristics, which were somewhat offset by lower volumes. Our other distribution operations experienced year-over-year revenue increases, driven by business growth, service expansion and higher demand for warehouse space.
Revenue from the other businesses within Supply Chain Solutions increased, driven by services provided to the acquirer of UPS Freight under certain transition services agreements, the acquisition of Roadie, Inc. and business growth in UPS Capital.
Operating Expenses
Total operating expenses in Supply Chain Solutions decreased slightly in the first quarter, which included a decrease of $784 million from the divestiture of UPS Freight. Operating expenses, excluding the year-over-year impact of transformation and other charges, were relatively unchanged.
Forwarding operating expenses increased $392 million, driven by an increase in purchased transportation expense. This increase was primarily due to higher fuel costs and capacity constraints driving higher rates in our international airfreight, ocean freight forwarding and truckload brokerage businesses. We expect these rates to moderate during 2022.
Logistics operating expenses increased $126 million, driven by higher purchased transportation costs due to business growth in our healthcare operations and carrier rate increases in mail services. Business growth also resulted in higher compensation and benefits expense within our healthcare operations, while market wage pressures drove increased compensation costs in mail services. We anticipate that a tight labor market and inflation may result in higher compensation costs throughout the remainder of 2022.
Expense in the other businesses within Supply Chain Solutions increased, largely due to transportation and other costs incurred under the transition services agreements with the acquirer of UPS Freight and additional third-party transportation costs resulting from the acquisition of Roadie, Inc..
Operating Profit and Margin
As a result of the factors described above, operating profit increased $152 million in the first quarter, with operating margin increasing 330 basis points to 10.8%. Excluding the year-over-year impact of transformation and other charges, adjusted operating profit increased $86 million, with adjusted operating margin increasing 180 basis points to 11.0%.
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Consolidated Operating Expenses
 Three Months Ended March 31,Change
 20222021$%
Operating Expenses (in millions):
Compensation and benefits$11,616 $11,483 $133 1.2 %
Transformation and Other Charges(33)(76)43 (56.6)%
Adjusted Compensation and benefits$11,583 $11,407 $176 1.5 %
Repairs and maintenance$626 $619 $1.1 %
Depreciation and amortization764 722 42 5.8 %
Purchased transportation4,600 4,243 357 8.4 %
Fuel1,220 807 413 51.2 %
Other occupancy491 466 25 5.4 %
Other expenses1,810 1,803 0.4 %
Total Other expenses9,511 8,660 851 9.8 %
Transformation and Other Charges(22)(42)20 (47.6)%
Asset impairment charges and divestitures— (66)66 (100.0)%
Adjusted Total Other expenses$9,489 $8,552 937 11.0 %
Total Operating Expenses$21,127 $20,143 $984 4.9 %
Adjusted Total Operating Expenses$21,072 $19,959 $1,113 5.6 %
Currency (Benefit) / Cost - (in millions)*$(155)
* Amount represents the change in currency translation compared to the prior year.
 Three Months Ended March 31,Change
 20222021$%
Adjustments to Operating Expenses (in millions):
Transformation Strategy Costs:
Compensation$16 $$10 166.7 %
Benefits17 70 (53)(75.7)%
Other occupancy— (1)(100.0)%
Other expenses22 41 (19)(46.3)%
Total Transformation Strategy Costs$55 $118 $(63)(53.4)%
Asset impairment charges and divestitures:
Other expenses$— $66 $(66)(100.0)%
Total Adjustments to Operating Expenses$55 $184 $(129)(70.1)%
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Compensation and Benefits
Total compensation and benefits, and total compensation and benefits excluding the year-over-year impact of transformation and other charges, increased in the first quarter.
Total compensation costs increased $31 million or 0.5%. Excluding the year- over-year impact of transformation and other charges, adjusted total compensation costs increased $21 million. U.S. Domestic direct labor costs increased, driven by increases in wage rates and cost of living adjustments for our union workforce. These wage increases were partially offset by a reduction in labor hours due to a 3.0% reduction in volume. Management compensation increased as a result of part-time management wage rate adjustments and additional incentive compensation. The increases were partially offset by a decrease of $235 million as a result of the second quarter 2021 divestiture of UPS Freight.
Benefits costs increased $102 million or 2.1%. Excluding the year-over-year impact of transformation and other charges, adjusted benefits costs increased $155 million or 3.2%. The primary drivers were as follows:
Vacation, excused absence, payroll taxes and other costs increased $109 million, driven by salary and wage increases and growth in the overall size of the workforce.
Health and welfare costs increased $40 million, driven by increased contributions to multiemployer plans as a result of growth in the eligible workforce and contractual rate increases. This was partly offset by the impact of divesting UPS Freight, which decreased cost $49 million year over year.
Workers' compensation costs increased $35 million, driven by adverse claims developments.
Pension and other postretirement benefits costs decreased by $37 million. Lower service costs and a reduction in defined contributions for company-sponsored plans were largely offset by higher contributions to multiemployer plans as a result of contractually-mandated contribution increases. The divestiture of UPS Freight decreased expense $36 million year over year.
Repairs and Maintenance
We incurred higher costs for aircraft engine maintenance in the first quarter of 2022 due to the timing of scheduled maintenance events. This increase was partially offset by a reduction in routine repairs and maintenance for our buildings and facilities.
Depreciation and Amortization
Depreciation and amortization expense increased as a result of additional expenses arising from facility automation projects coming into service, investments in internally developed software and the amortization of intangible assets acquired as part of the Roadie, Inc. acquisition in the fourth quarter of 2021.
Purchased Transportation
The overall increase in third-party transportation expense charged to us by air, ocean and ground carriers was primarily driven by:
Supply Chain Solutions expense increased $345 million, driven by market rate increases in our air and ocean freight and truckload brokerage businesses, as well as volume growth in our healthcare operations. The divestiture of UPS Freight resulted in a decrease of $187 million in expenses period over period, which was somewhat offset by the cost of transportation procured under transitional arrangements with the acquirer of the business.
International Package expense increased $13 million, as higher network costs were partially offset by favorable currency movements, primarily in Europe.
Fuel
The increase in fuel expense was primarily driven by higher prices for jet fuel, diesel and gasoline.
Other Occupancy
Other occupancy expense increased as a result of expenses from additional operating facilities coming into service and higher utilities costs.
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Other Expenses
Other expenses, and other expenses excluding the year-over-year impact of transformation and other charges, increased primarily as a result of the following:
Hosted software application fees and other technology costs increased $31 million.
The cost of goods provided under transitional service agreements to the acquirer of UPS Freight was $28 million. There was no similar cost in the 2021 period.
Auto liability insurance increased $22 million, driven by increases in the frequency and severity of claims.
Other increases included airline operational expenses, third-party commissions, payment processing fees and an increase in our allowance for credit losses.
These increases were partially offset by favorable developments in certain legal and tax contingencies and a reduction in asset impairment charges.
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Other Income and (Expense)
The following table sets forth investment income and other and interest expense for the three months ended March 31, 2022 and 2021 (in millions):
 Three Months Ended March 31,Change
 20222021$%
Investment Income and Other$315 $3,616 $(3,301)(91.3)%
Defined Benefit Plan (Gains) and Losses(33)(3,290)3,257 (99.0)%
Adjusted Investment Income and Other$282 $326 $(44)(13.5)%
Interest Expense(174)(177)(1.7)%
Total Other Income and (Expense)$141 $3,439 $(3,298)(95.9)%
Adjusted Other Income and (Expense)$108 $149 $(41)(27.5)%
Investment Income and Other
Investment income and other decreased $3.3 billion. We recognized a $3.3 billion defined benefit plan mark-to-market gain in the first quarter of 2021 and a $33 million defined benefit plan curtailment gain in the first quarter of 2022. Excluding the impact of these defined benefit plan gains, adjusted investment income and other decreased $44 million, primarily due to year-over-year changes in the fair value of certain non-current investments, as well as a decrease in other pension income. Other pension income decreased due to the following:
Expected returns on pension assets decreased as a result of a reduction in our rate of return assumption, partially offset by a higher asset base due to contributions and positive asset returns in 2021.
Pension interest cost decreased due to a reduction in projected benefit obligations, partially offset by the impact of higher discount rates and changes in demographic assumptions.
Prior service cost decreased as the cost base from certain plan amendments became fully amortized during 2021.
Interest Expense
Interest expense decreased due to lower average outstanding debt balances, partially offset by a reduction in the capitalization of interest.
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Income Tax Expense
The following table sets forth our income tax expense and effective tax rate for the three months ended March 31, 2022 and 2021 (in millions):
 Three Months Ended March 31,Change
 20222021$%
Income Tax Expense$730 $1,412 $(682)(48.3)%
   Income Tax Impact of:
Transformation Strategy Costs12 28 (16)(57.1)%
 Asset Impairment Charges and Divestitures— 16 (16)(100.0)%
Defined Benefit Plan (Gains) and Losses(9)(788)779 (98.9)%
Adjusted Income Tax Expense$733 $668 $65 9.7 %
Effective Tax Rate21.5 %22.8 %
Adjusted Effective Tax Rate21.5 %21.6 %
For additional information on our income tax expense and effective tax rate, see note 16 to the unaudited, consolidated financial statements.
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Liquidity and Capital Resources
As of March 31, 2022, we had $12.5 billion in cash, cash equivalents and marketable securities. We believe that these positions, expected cash from operations, access to commercial paper programs and capital markets and other available liquidity options will be adequate to fund our material short- and long-term cash requirements, including our business operations, planned capital expenditures and pension contributions, transformation strategy costs, debt obligations and planned shareowner returns. We regularly evaluate opportunities to optimize our capital structure, including through issuances of debt to refinance existing debt and to fund operations. We deploy a disciplined and balanced approach to capital allocation, including returns to shareowners through dividends and share repurchases.
Cash Flows From Operating Activities
The following is a summary of the significant sources (uses) of cash from operating activities (in millions):
 Three Months Ended March 31,
 20222021
Net income$2,662 $4,792 
Non-cash operating activities (a)
1,559 (984)
Pension and postretirement benefit plan contributions (company-sponsored plans)(45)(215)
Hedge margin receivables and payables(9)85 
Income tax receivables and payables379 353 
Changes in working capital and other non-current assets and liabilities(49)478 
Other operating activities(17)22 
Net cash from operating activities$4,480 $4,531 
___________________ 
(a)Represents depreciation and amortization, gains and losses on derivative transactions and foreign currency exchange, deferred income taxes, allowances for expected credit losses, amortization of operating lease assets, pension and postretirement benefit plan (income) expense, stock compensation expense, changes in casualty self-insurance reserves, goodwill and other asset impairment charges and other non-cash items.
Net cash from operating activities decreased $51 million in the first quarter, and was impacted by the following:
An increase in working capital, driven by the timing of payroll and other compensation-related items.
A decrease in contributions to our company-sponsored pension and U.S. postretirement medical benefit plans, which totaled $45 million in the first quarter of 2022 compared to $215 million in 2021. The reduction was driven by the timing of contributions to our U.S. postretirement medical plan.
A decrease in our net hedge margin collateral position of $94 million due to changes in the fair value of derivative contracts used in our currency and interest rate hedging programs.
As part of our ongoing efforts to improve our working capital efficiency, certain financial institutions offer a Supply Chain Finance ("SCF") program to certain of our suppliers. We agree to commercial terms with our suppliers, including prices, quantities and payment terms, regardless of whether the supplier elects to participate in the SCF program. Suppliers issue invoices to us based on the agreed-upon contractual terms. If they participate in the SCF program, our suppliers, at their sole discretion, determine which invoices, if any, to sell to the financial institutions. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms. No guarantees are provided by us under the SCF program. We have no economic interest in a supplier’s decision to participate, and we have no direct financial relationship with the financial institutions, as it relates to the SCF program.
Amounts due to our suppliers that participate in the SCF program are included in Accounts payable in our consolidated balance sheets. We have been informed by the participating financial institutions that as of March 31, 2022 and 2021, suppliers sold them $509 and $343 million, respectively, of our outstanding payment obligations. Amounts due to suppliers that participate in the SCF program may be reflected in cash flows from operating activities or cash flows from investing activities in our consolidated statements of cash flows. The amounts settled through the SCF program were approximately $308 and $267 million for the three months ended March 31, 2022 and 2021, respectively.
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As of March 31, 2022, approximately $3.4 billion of our total worldwide holdings of cash, cash equivalents and marketable securities were held by foreign subsidiaries. The amount of cash, cash equivalents and marketable securities held by our U.S. and foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts and disbursements in the normal course of business. Cash provided by operating activities in the U.S. continues to be our primary source of funds to finance domestic operating needs, capital expenditures, share repurchases, pension contributions and dividend payments to shareowners. All cash, cash equivalents and marketable securities held by foreign subsidiaries are generally available for distribution to the U.S. without any U.S. federal income taxes. Any such distributions may be subject to foreign withholding and U.S. state taxes. When amounts earned by foreign subsidiaries are expected to be indefinitely reinvested, no accrual for taxes is provided.
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Cash Flows From Investing Activities
Our primary sources (uses) of cash from investing activities were as follows (in millions):
 Three Months Ended March 31,
 20222021
Net cash used in investing activities$(572)$(766)
Capital Expenditures:
Buildings, facilities and plant equipment$(169)$(325)
Aircraft and parts(206)(239)
Vehicles(10)(135)
Information technology(163)(135)
Total Capital Expenditures$(548)$(834)
Capital Expenditures as a % of revenue2.2 %3.6 %
Other Investing Activities:
Proceeds from disposal of businesses, property, plant and equipment$— $10 
Net change in finance receivables$$11 
Net (purchases), sales and maturities of marketable securities$(8)$56 
Cash paid for business acquisitions, net of cash and cash equivalents acquired$$(3)
Other investing activities$(22)$(6)
We have commitments for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement of existing capacity and anticipated future growth. Future capital spending for anticipated growth and replacement assets will depend on a variety of factors, including economic and industry conditions. Our current investment program anticipates investments in technology initiatives and enhanced network capabilities, including over $1 billion of projects to support our environmental sustainability goals in 2022. It also provides for the maintenance of buildings, facilities and plant equipment and replacement of certain aircraft within our fleet. We currently expect that our capital expenditures will total approximately $5.5 billion in 2022, of which approximately 60 percent will be allocated to expansion projects.
Total capital expenditures decreased in the first quarter of 2022 compared to 2021:
Spending on buildings, facilities and plant equipment in our global small package business decreased as supply chain disruption resulted in delays to certain projects.
Aircraft expenditures decreased due to fewer payments associated with the delivery of aircraft, partially offset by increases in contract deposits on open aircraft orders.
Vehicle expenditures decreased due to the timing of deliveries and payments.
Information technology expenditures increased due to additional deployments of technology equipment.
The net change in finance receivables was primarily due to reductions in outstanding balances within our finance portfolios. Purchases and sales of marketable securities are largely determined by liquidity needs and the periodic rebalancing of investment types, and will fluctuate from period to period.
Cash paid for business acquisitions in the first quarter of 2021 related to the purchase of development areas for The UPS Store. Other investing activities were impacted by changes in our non-current investments, purchase contract deposits and various other items.
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Cash Flows From Financing Activities
Our primary sources (uses) of cash from financing activities were as follows (amounts in millions, except per share data):
 Three Months Ended March 31,
20222021
Net cash used in financing activities$(1,970)$(1,945)
Share Repurchases:
Cash paid to repurchase shares(254)— 
Number of shares repurchased1.2 — 
Shares outstanding at period end874 870 
Dividends:
Dividends declared per share$1.52 $1.02 
Cash paid for dividends$(1,284)$(858)
Borrowings:
Net borrowings (repayments) of debt principal$(18)$(831)
Other Financing Activities:
Cash received for common stock issuances$67 $78 
Other financing activities$(481)$(334)
Capitalization:
Total debt outstanding at period end21,881 23,727 
Total shareowners’ equity at period end15,434 7,159 
Total capitalization$37,315 $30,886 
We repurchased 1.2 million shares of class B common stock for $260 million under our stock repurchase program during the three months ended March 31, 2022 ($254 million in repurchases are reported on the statements of consolidated cash flows due to the timing of settlements). We did not repurchase any shares under this program during the three months ended March 31, 2021. We anticipate our share repurchases will total approximately $2.0 billion for all of 2022. For additional information on our share repurchase activities, see note 12 to the unaudited, consolidated financial statements.
In the first quarter of 2022, we declared a quarterly dividend of $1.52 per share. The declaration of dividends is subject to the discretion of the Board and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors.
There were no issuances of debt during the three months ended March 31, 2022. Repayments of debt during the first quarter of 2022 were related to scheduled principal payments on our finance lease obligations. In the first quarter of 2021, issuances of debt consisted of borrowings under our commercial paper program. Repayments included fixed-rate senior notes totaling $1.5 billion, commercial paper and scheduled principal payments on our finance lease obligations.
We have $2.0 billion of fixed and floating rate notes maturing in 2022 that we currently expect to repay at maturity with cash from operations. We consider the overall fixed and floating interest rate mix of our portfolio and the related overall cost of borrowing when planning for future issuances and non-scheduled repayments of debt.
The amount of commercial paper outstanding fluctuates throughout the year based on daily liquidity needs. As of March 31, 2022, we had no outstanding balances under our commercial paper programs.
Cash flows from other financing activities were driven by the repurchase of shares to satisfy tax withholding obligations on vested employee stock awards. Cash outflows were $479 and $330 million for the three months ended March 31, 2022 and 2021, respectively. The increase was driven by changes in payment amounts for certain awards.
Except as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, we do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.
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Sources of Credit
See note 9 to the unaudited, consolidated financial statements for a discussion of our available credit and the financial covenants that we are subject to as part of our credit agreements.
Contractual Commitments
There have been no material changes to the contractual commitments described in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Legal Proceedings and Contingencies
See note 7 and note 11 to the unaudited, consolidated financial statements for a discussion of judicial proceedings and other matters arising from the conduct of our business activities, and note 16 for a discussion of income tax related matters.
Collective Bargaining Agreements
Status of Collective Bargaining Agreements
See note 7 to the unaudited, consolidated financial statements for a discussion of the status of our collective bargaining agreements.
Multiemployer Benefit Plans
See note 7 to the unaudited, consolidated financial statements for a discussion of our participation in multiemployer benefit plans.
Recent Accounting Pronouncements
Adoption of New Accounting Standards
See note 2 to the unaudited, consolidated financial statements for a discussion of recently adopted accounting standards.
Accounting Standards Issued But Not Yet Effective
See note 2 to the unaudited, consolidated financial statements for a discussion of accounting standards issued, but not yet effective.
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Rate Adjustments
From time to time we adjust published rates applicable to our services. These rates, when published, are made available on our website at www.ups.com. We provide the address to our internet site solely for information. We do not intend for this address to be an active link or to otherwise incorporate the contents of any website into this or any other report we file with the Securities and Exchange Commission.
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Item 3.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 utilize a variety of commodity, foreign currency exchange and interest rate forward contracts, options and swaps. A discussion of our accounting policies for derivative instruments and further disclosures are provided in note 15 to the unaudited, consolidated financial statements.
The total net fair value asset (liability) of our derivative financial instruments is summarized in the following table (in millions):
March 31,
2022
December 31,
2021
Currency Derivatives$224 $173 
Interest Rate Derivatives(5)
$219 $174 
As of March 31, 2022 and December 31, 2021, we had no outstanding commodity hedge positions.
Our market risks, hedging strategies and financial instrument positions as of March 31, 2022 have not materially changed from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. In 2022, we entered into several foreign currency exchange forward contracts on the Euro, British Pound Sterling, Canadian Dollar and Hong Kong Dollar, and had forward contracts expire. The remaining fair value changes between December 31, 2021 and March 31, 2022 in the preceding table are primarily due to interest rate and foreign currency exchange rate fluctuations between those dates.
The foreign currency exchange forward contracts, swaps and options previously discussed contain an element of risk that the counterparties may be unable to meet the terms of the agreements; however, we minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines and by monitoring counterparty credit risk to prevent concentrations of credit risk with any single counterparty.
We have agreements with all of our active counterparties (covering all of our derivative positions) containing early termination rights and/or zero threshold bilateral collateral provisions whereby cash is required based on the net fair value of derivatives associated with those counterparties. Events such as a credit rating downgrade (depending on the ultimate rating level) could also allow us to take additional protective measures such as the early termination of trades. As of March 31, 2022, we held cash collateral of $253 million and were required to post cash collateral of $2 million with our counterparties under these agreements.
We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default.
The information concerning market risk in Item 7A under the caption “Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2021 is hereby incorporated by reference.
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Item 4.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 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")). 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 March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees continue to work remotely. As previously disclosed, in recent periods we have enhanced our oversight and monitoring during the closing and reporting processes and we continue to monitor and assess the effects of remote work on our internal controls to minimize the impact on their design and operating effectiveness.
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PART II. OTHER INFORMATION

Item 1.Legal Proceedings
For a discussion of material legal proceedings affecting the Company, see note 11 to the unaudited, consolidated financial statements included in this report.

Item 1A.Risk Factors
Except as set forth below, there have been no changes to the risk factors described in Part 1, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2021. The following risk factor corrects and supersedes the risk factor entitled “Global climate change presents challenges to our business which could materially adversely affect us,” and is being restated solely to correct an inadvertent typographical error contained in the originally presented risk factor.
Global climate change presents challenges to our business which could materially adversely affect us.
The effects of climate change create financial and operational risks to our business, both directly and indirectly. We have made several public statements regarding our intended reduction of carbon emissions, including our goal to achieve carbon neutrality in our global operations by 2050, and our other short- and mid-term environmental sustainability goals. We may be required to expend significant additional resources to acquire assets or on remediation efforts to meet these goals, which could significantly increase our operational costs. We could also be required to write down the carrying value of assets, which could result in impairment charges.
Further, there can be no assurance of the extent to which any of our goals will be achieved, or that any future investments we make will meet investor expectations or any legal standards regarding sustainability performance. In particular, our ability to meet our goals depends in part on significant technological advancements with respect to the development and availability of reliable, affordable and sustainable alternative solutions, including aviation fuel and alternative fuel vehicles. Moreover, we may determine that it is in our best interests to prioritize other business, social, governance or sustainable investments over the achievement of our current goals based on economic, regulatory or social factors, business strategy or other factors. If we do not meet these goals, then, in addition to regulatory and legal risks related to compliance, we could incur adverse publicity and reaction, which could adversely impact our reputation, and in turn adversely impact our results of operations. While we remain committed to being responsive to climate change and reducing our carbon footprint, there can be no assurance that our goals and strategic plans to achieve those goals will be successful, that the costs related to climate transition will not be higher than expected, that the necessary technological advancements will occur in the timeframe we expect, or at all, or that proposed regulation or deregulation related to climate change will not have a negative competitive impact, any one of which could have a material adverse effect on our capital expenditures, operating margins and results of operations.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) A summary of repurchases of our class A and class B common stock during the first quarter of 2022 is as follows (in millions, except per share amounts):
Total Number of Shares Purchased (1)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of a Publicly Announced ProgramApproximate Dollar Value of Shares that May Yet be Purchased Under the Program
January 1 - January 31, 20220.3 $208.14 0.3 $4,427 
February 1 - February 28, 20220.4 215.00 0.4 4,344 
March 1 - March 31, 20220.5 211.52 0.5 $4,240 
Total January 1 - March 31, 20221.2 $211.65 1.2 
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(1)Includes shares repurchased through our publicly announced share repurchase programs and shares tendered to pay the exercise price and tax withholding on employee stock options.
In August 2021, the Board of Directors approved a share repurchase authorization for $5.0 billion of class A and class B common stock. We repurchased 1.2 million shares of class B common stock for $260 million under this program during the three months ended March 31, 2022. As of March 31, 2022, we had $4.2 billion available under this authorization. We anticipate our share repurchases will be approximately $2.0 billion for all of 2022.
For additional information on our share repurchase activities, see note 12 to the unaudited, consolidated financial statements.
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Item 6.Exhibits
3.1    
3.2    
10.1
10.2
31.1    
31.2    
32.1    
32.2    
101    The following unaudited financial information from this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 is formatted in Inline XBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Statements of Consolidated Income, (iii) the Statements of Consolidated Comprehensive Income (Loss), (iv) the Statements of Consolidated Cash Flows, and (v) the Notes to the Consolidated Financial Statements.
104Cover Page Interactive Data File - The cover page from this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 is formatted in Inline XBRL (included as Exhibit 101).


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
UNITED PARCEL SERVICE, INC.
(Registrant)
Date:May 4, 2022By:  
/S/    BRIAN O. NEWMAN       
  Brian O. Newman
  
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


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