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 12 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. During the nine months ended September 30, 2026, there were no significant changes to our allocation methodologies.

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, 2026, we had one aircraft temporarily idled for approximately seven 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 this aircraft to return to operational service during the fourth quarter of 2026. Following the permanent grounding and retirement of our MD-11 fleet in the fourth quarter of 2025, we increased third-party lease utilization to address capacity constraints. During the nine months ended September 30, 2026, we took delivery ofnine Boeing 767-300 aircraft, which were accounted for as finance leases, and began to reduce the associated third-party aircraft leases.

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 fair value of a reporting unit is less than its carrying amount. Testing goodwill for impairment requires that we make a number of significant assumptions, including assumptions related to projections of amounts and timing of future revenues, costs, capital expenditures, working capital, our cost of capital, long-term growth rates, market comparables, discount rates and other factors. 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, 2026 using both qualitative and quantitative methods. Our quantitative tests utilize a combination of the income and market approaches. In developing our valuation assumptions underlying the annual impairment testing, we determined that the estimated fair value of our HLD reporting unit within SCS was adversely impacted by an increase in the cost of capital, driven by higher discount rates from lower financial performance within our European healthcare logistics operations. The results of our testing using these revised assumptions indicated that the carrying value of our HLD reporting unit exceeded its estimated fair value. At the July 1, 2026 testing date, approximately $1.6 billion of our $5.8 billion consolidated goodwill balance was represented by our HLD reporting unit.

As a result, for the third quarter of 2026, we recorded a goodwill impairment charge of $182 million within Other expenses in our statement of consolidated income. For additional information on goodwill, see note 7 to the unaudited consolidated financial statements.

U.S. Domestic Package

Revenue

The change in revenue was due to the following:

Comparative results were impacted by one more operating day in 2026 compared to 2025. The growth in rates and product mix and fuel surcharge shown above includes contributions from our air cargo product, which is measured by dimensional weight rather than 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, primarily due to lower volume from our largest customer, reflecting the impact of planned volume reductions completed in the second quarter of 2026. The overall declines were partially offset by continued growth from SMBs who leveraged our Digital Access Program ("DAP").

Residential ("business-to-consumer") and commercial ("business-to-business") volume declined. Business-to-consumer volume decreased 2.1% for the quarter (down 5.4% year to date) as a result of the planned volume declines discussed above, partially offset by growth in the technology and healthcare sectors. Business-to-business volume decreased 4.7% for the quarter (down 4.3% year to date) primarily driven by the retail sector, partially offset by continued growth in the technology sector.

Air average daily volume decreased 6.7% for the quarter (down 6.0% year to date), driven by the volume reductions from our largest customer, partially offset by growth from SMB customers and the healthcare sector.

Ground average daily volume decreased 2.7% for the quarter (down 4.8% year to date), driven primarily by the residential and commercial volume reductions discussed above. The decline was partially offset by residential volume growth from SMB customers.

Revenue Per Piece

Revenue per piece increased 6.1% during the quarter (up 7.4% year to date), driven by an average 5.9% net increase in base and accessorial rates implemented throughout 2025, higher fuel surcharges and favorable customer mix.

Fuel Surcharges

Our contracts include provisions designed to help offset cost volatility resulting from changes in fuel prices. The fuel surcharges represent one of many components of our pricing structure that can impact our overall revenue and revenue per piece. Revenue from these surcharges contributed 2.9% and 2.6% to the change in revenue for the quarter and year-to-date periods, respectively, primarily as a result of increases in fuel prices, partially offset by the impact of lower volume.

Operating expenses increased for both the quarter and year-to-date periods as a result of higher facility and transportation expenses, separation costs related to the Driver Choice Program within compensation and benefits and higher fuel costs. These increases were partially offset by cost reductions from the execution of our Network Reconfigurationand Efficiency Reimagined initiatives.

The change in operating expenses included the following:

•Compensation and benefits expense decreased $336 million for the quarter (up $136 million year to date). The decrease for the quarter was driven by fewer labor hours resulting from the outsourcing of our Ground Saver product, lower volume from our largest customer, reductions in headcount as we executed our Network Reconfiguration and Efficiency Reimagined initiatives and lower pension and health and welfare costs within our U.S. union workforce. These decreases were partially offset by contractual wage rate increases and higher workers' compensation costs, reflecting unfavorable development in prior year claims and higher current year claim costs. The year-to-date increase also reflected separation costs related to the Driver Choice Program, most of which were recognized in the second quarter, and additional labor costs in the first quarter associated with outsourcing our Ground Saver product.

•Facility and transportation related costs increased $661 million for the quarter (up $1.8 billion year to date), primarily due to higher fees paid to USPS associated with outsourcing our Ground Saver product, higher fuel costs charged to us by third-party transportation providers and higher third-party aircraft lease expense, net of vendor recoveries, to address capacity constraints resulting from fourth quarter 2025 aircraft retirements.

•Other expenses decreased $16 million for the quarter (up $186 million year to date). The decrease for the quarter was driven by gains on sales of real estate and aircraft parts, partially offset by higher fuel costs and higher auto liability costs, reflecting unfavorable development in prior year claims and higher current year claim costs. The year-to-date increase also reflected higher expenses associated with growth in DAP.

Non-GAAP adjusted operating expenses exclude transformation strategy costs of $171 million and $302 million in the third quarters of 2026 and 2025, respectively and $1.4 billion and $400 million in the 2026 and 2025 year-to-date periods, respectively. Third quarter 2026 non-GAAP adjusted operating expenses also exclude $43 million of gains from the sale of certain previously impaired aircraft parts. Transformation strategy costs in the second and third quarters of 2026 primarily consist of separation costs related to the Driver Choice Program. Transformation strategy costs during the year-to-date 2026 and 2025 periods relate to our Network Reconfiguration and Efficiency Reimagined initiatives. The 2025 period also included costs related to our Transformation 2.0 and Fit to Serve programs. These primarily consisted of 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 and other costs and gains excluded from our non-GAAP financial measures.

Cost per piece increased 4.1% during the quarter (up 10.2% year to date) primarily driven by higher fees paid to USPS associated with outsourcing our Ground Saver product, higher fuel costs, contractual wage rate increases and the impact of lower average daily volume and stops. The year-to-date increase also includes the impact of separation costs related to the Driver Choice Program, most of which were recognized in the second quarter. These increases were partially offset by the impact of increased productivity and operational efficiencies from our Network Reconfiguration efforts and gains on sales of assets. Non-GAAP adjusted cost per piece increased 5.5% during the quarter (up 7.7% year to date).