UNITED PARCEL SERVICE INC

The results and discussions that follow are reflective of how management monitors and evaluates the performance of our segments as defined in note 13 to the unaudited, consolidated financial statements.

Certain operating expenses are allocated between our reporting segments using activity-based costing methods. These activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed to each segment. Our allocation methodologies are refined periodically, or as necessary to reflect changes in our businesses. There were no significant changes to our allocation methodologies in the third quarter of 2025.

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

We test goodwill for impairment annually at July 1 and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying value thereof may be impaired. Testing goodwill for impairment requires that we make a number of significant assumptions, including assumptions related to future revenues, costs, capital expenditures, working capital, our cost of capital, long-term growth rates and market comparables. We are also required to make assumptions relating to our overall business and operating strategy, and the regulatory and market environment.

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

Approximately $877 and $726 million of our $4.8 billion consolidated goodwill balance is represented by our Global Freight Forwarding ("GFF") and HLD reporting units, respectively, which, based on our annual impairment evaluation, are exhibiting a limited excess of fair value above carrying value and reflect a greater risk of an impairment occurring in future periods. Both GFF and HLD are showing limited excess of fair value over their carrying values, primarily driven by current market conditions, volatility in global markets, early stages of our healthcare growth strategy and ongoing integration of recent acquisitions. Both GFF and HLD reporting units are included in Supply Chain Solutions.

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

We continue to monitor our reporting units subsequent to the annual test and while we do not believe it is more likely than not that our reporting units' fair values are less than their carrying values as of September 30, 2025, challenging macroeconomic and uncertain geopolitical conditions, actual reporting unit performance, revisions to our forecasts of future performance or other factors, including market comparables, may negatively impact certain estimates and assumptions that we use in determining our reporting units' fair values. Such impacts may be more pronounced for reporting units whose fair values do not significantly exceed their carrying values. These factors or a combination thereof could result in a non-cash impairment charge in one or more of our reporting units during a future period.

U.S. Domestic Package

Revenue

The change in revenue was due to the following:

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

Volume

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

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

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

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

Revenue Per Piece

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

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

Fuel Surcharges

We apply a fuel surcharge on our domestic air and ground services that adjusts weekly. Our air fuel surcharge is based on the U.S. Department of Energy's ("DOE") Gulf Coast spot price for a gallon of kerosene-type fuel, and our ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel price.

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

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

These decreases were partially offset by:

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

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

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

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

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