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

Quarterly report [Sections 13 or 15(d)]

TRANSFORMATION STRATEGY COSTS

TRANSFORMATION STRATEGY COSTS

9 Months Ended

Sep. 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 nine months ended September 30, 2026 and 2025 (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2026		2025		2026		2025
Transformation Strategy Costs:
Compensation and benefits	$	113	$	284	$	1,261	$	358
Total other expenses	58		44		137		102
Total Transformation Strategy Costs	$	171	$	328	$	1,398	$	460

Income Tax Benefit from Transformation Strategy Costs (1)	(41)		(78)		(335)		(109)
After-Tax Transformation Strategy Costs	$	130	$	250	$	1,063	$	351

(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 first quarter of 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, final acceptances were determined and communicated to impacted employees in the second and third quarter of 2026, and recognition of separation costs related to the program was substantially complete in the third quarter of 2026.

Accruals for separation costs of $158 and $117 million were included in Other current liabilities in our consolidated balance sheets as of September 30, 2026 and December 31, 2025, respectively. During the nine months ended September 30, 2026, we recognized additional separation costs, including payroll taxes, of approximately $1.2 billion and made payments of approximately $1.1 billion.

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 nine months ended September 30, 2026 and 2025 (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2026		2025		2026		2025
Transformation Strategy Costs:

Transformation 2.0	$	—	$	13	$	—	$	26

Fit to Serve	—		19		—		47

Network Reconfiguration and Efficiency Reimagined	171		296		1,398		387

Total Transformation Strategy Costs	$	171	$	328	$	1,398	$	460

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 enhancing the efficiency of our U.S. Domestic Package network through automation and operational sort consolidation. In connection with our strategic execution of planned volume declines from our largest customer, we began our Network Reconfiguration initiative in the fourth quarter of 2024, which was an expansion of Network of the Future and under which we are further consolidating facilities, vehicles, aircraft and our workforce, as well as, executing an end-to-end process redesign through our Efficiency Reimagined initiative. Through these initiatives, in the first nine months of 2026, we closed 47 leased and owned buildings, 46 of which have been permanently closed. As of September 30, 2026, we had incurred costs to date of $1.9 billion, including $1.4 billion in 2026. While the planned volume reductions from our largest customer were completed in the second quarter of 2026, our Efficiency Reimagined initiative is not expected to conclude until the fourth quarter of 2027.