United Parcel Service, Inc. Quarterly report [Sections 13 or 15(d)]

Quarterly report [Sections 13 or 15(d)]

TRANSFORMATION STRATEGY COSTS

TRANSFORMATION STRATEGY COSTS

6 Months Ended

Jun. 30, 2026

Restructuring and Related Activities [Abstract]

As previously disclosed, we are undertaking an enterprise-wide transformation of our organization that includes various projects and initiatives, including workforce reductions and changes in processes and technology, that impact our global direct and indirect operating costs.

The table below presents transformation strategy costs for the three and six months ended June 30, 2026 and 2025 (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2026		2025		2026		2025
Transformation Strategy Costs:
Compensation and benefits	$	1,117	$	50	$	1,148	$	74
Total Other expenses	55		24		79		58
Total Transformation Strategy Costs	$	1,172	$	74	$	1,227	$	132

Income Tax Benefit from Transformation Strategy Costs (1)	(281)		(17)		(294)		(31)
After-Tax Transformation Strategy Costs	$	891	$	57	$	933	$	101

(1) 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.

Compensation and benefit costs under these programs primarily consist of severance costs incurred in conjunction with reductions in our workforce. We are primarily accounting for these reductions in workforce under ASC Topic 712 as they have been, or will be, carried out under a plan which provides a contractual termination benefit to impacted employees. The nature of our separation initiatives has resulted in a relatively short period of time, typically less than one year, between the point at which the separation meets the criteria for recognition as an accrual and the point at which the separation is completed. In the six months ended June 30, 2026, we offered a voluntary separation program, the Driver Choice Program, to all full-time drivers in the United States. The program election window closed in the first quarter of 2026, and final acceptances were determined and communicated to impacted employees in the second quarter of 2026.

Accruals for separation costs of $180 and $117 million were included in Other current liabilities in our consolidated balance sheets as of June 30, 2026 and December 31, 2025, respectively. During the six months ended June 30, 2026, we recognized additional separation costs, including payroll taxes, of approximately $1.1 billion and made payments of approximately $1.0 billion. We expect to record approximately $100 million in related separation costs, including payroll taxes, in the third quarter of 2026.

Other costs incurred in furtherance of our transformation strategy are primarily fees paid to third-party service providers. Any costs incurred as a result of restructuring, exit or disposal activities were not significant and, as period costs, do not give rise to significant restructuring, exit or disposal liabilities.

Transformation strategy costs during the periods presented related to our Transformation 2.0, Fit to Serve, and Network Reconfiguration and Efficiency Reimagined initiatives. Total costs by initiative are shown in the table below for the three and six months ended June 30, 2026 and 2025 (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2026		2025		2026		2025
Transformation Strategy Costs:

Transformation 2.0	$	—	$	(3)	$	—	$	13

Fit to Serve	—		9		—		28

Network Reconfiguration and Efficiency Reimagined	1,172		68		1,227		91

Total Transformation Strategy Costs	$	1,172	$	74	$	1,227	$	132

Our transformation strategy activities have spanned several years and are designed to fundamentally change the spans and layers of our organization structure, processes, technologies and the composition of our business portfolio. Our transformation strategy has included initiatives within our Transformation 2.0, Fit to Serve, and Network Reconfiguration and Efficiency

Reimagined initiatives. Previously completed initiatives within Transformation 2.0 and Fit to Serve are described in note 18 to the audited, consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2025.

Network Reconfiguration and Efficiency Reimagined: Our Network of the Future initiative is intended to enhance the efficiency of our network through automation and operational sort consolidation in our U.S. Domestic Package network. In connection with our strategic execution of planned volume declines from our largest customer, we began our Network Reconfiguration initiative, which is an expansion of Network of the Future and has led, and will continue to lead to further reductions in our facilities, vehicles, aircraft and workforce, as well as an end-to-end process redesign. We launched our Efficiency Reimagined initiatives to undertake the end-to-end process redesign effort which will align our organizational processes to the network reconfiguration and enhance our business performance and profitability beyond ordinary ongoing efforts. In connection therewith, we have closed daily operations at 45 leased and owned buildings, 44 of which have been permanently closed during the first six months of 2026. As of June 30, 2026, we had incurred costs to date of $1.8 billion, including $1.2 billion in 2026. These initiatives are expected to conclude by 2027.

In addition, we have incurred and expect to continue to incur other costs and benefits associated with our Network Reconfiguration initiative and anticipated lower volumes, including early asset retirement, lease-related costs and gains from the sale of properties. It is our intention to exit or abandon leases, sell property and transfer or dispose of equipment associated with closed facilities. During the six months ended June 30, 2026, we recorded $60 million in gains on sales of properties related to this initiative. We expect the costs and benefits associated with these actions may increase should we determine to close additional buildings.