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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 September 30, 2020 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-20200930_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, Georgia 30328
(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 Class Trading Symbol Name of Each Exchange on Which Registered
Class B common stock, par value $0.01 per share UPS New York Stock Exchange
0.375% Senior Notes due 2023 UPS23A New York Stock Exchange
1.625% Senior Notes due 2025 UPS25 New York Stock Exchange
1% Senior Notes due 2028 UPS28 New York Stock Exchange
1.500% Senior Notes due 2032 UPS32 New 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 149,181,469 Class A shares, and 715,216,514 Class B shares, with a par value of $0.01 per share, outstanding at October 20, 2020.

TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
1
Item 1.
2
2
3
3
4
5
5
6
7
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.


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, 2019 and our other filings with the Securities and Exchange Commission contain and refer to “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 “believe,” “project,” “expect,” “estimate,” “assume,” “intend,” “anticipate,” “target,” “plan,” and variations thereof, 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 forward-looking statements in other publicly disclosed materials. Such statements may relate to our intent, belief and current expectations about our strategic direction, prospects and future results, and give our current expectations or forecasts of 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.
Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience, present expectations or anticipated results. These risks and uncertainties, many of which are outside of our control, include, but are not limited to: continued uncertainties related to the impact of the COVID-19 pandemic on our business and operations, financial condition, financial results and financial position, our customers and suppliers, and on the global economy; changes in general economic conditions, in the 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 complex and stringent regulation in the U.S. and internationally (including tax laws and regulations); increased physical or data security requirements or complexities; legal, regulatory or market responses to global climate change; results of negotiations and ratifications of labor contracts; employee strikes, work stoppages or slowdowns; 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; 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 asset impairments; increases in our expenses or funding obligations relating to employee health, retiree health and/or pension benefit plans; potential additional tax liabilities in the U.S. or internationally; the potential for various claims and 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, 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, 2019, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 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 information 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.

1
Item 1. Financial Statements
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2020 (unaudited) and December 31, 2019 (in millions)

September 30,
2020		 December 31,
2019
ASSETS
Current Assets:
Cash and cash equivalents $ 8,839  $ 5,238 
Marketable securities 402  503 
Accounts receivable 9,153  9,645 
Less: Allowance for credit losses (160) (93)
Accounts receivable, net 8,993  9,552 
Other current assets 1,696  1,810 
Total Current Assets 19,930  17,103 
Property, Plant and Equipment, Net 32,164  30,482 
Operating Lease Right-Of-Use Assets 3,022  2,856 
Goodwill 3,816  3,813 
Intangible Assets, Net 2,289  2,167 
Investments and Restricted Cash 25  24 
Deferred Income Tax Assets 277  330 
Other Non-Current Assets 883  1,082 
Total Assets $ 62,406  $ 57,857 
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt, commercial paper and finance leases $ 2,382  $ 3,420 
Current maturities of operating leases 560  538 
Accounts payable 5,609  5,555 
Accrued wages and withholdings 3,140  2,552 
Self-insurance reserves 1,128  914 
Accrued group welfare and retirement plan contributions 857  793 
Other current liabilities 1,780  1,641 
Total Current Liabilities 15,456  15,413 
Long-Term Debt and Finance Leases 23,336  21,818 
Non-Current Operating Leases 2,473  2,391 
Pension and Postretirement Benefit Obligations 9,630  10,601 
Deferred Income Tax Liabilities 2,145  1,632 
Other Non-Current Liabilities 3,760  2,719 
Shareowners’ Equity:
Class A common stock (150 and 156 shares issued in 2020 and 2019, respectively)
 2  2 
Class B common stock (714 and 701 shares issued in 2020 and 2019, respectively)
 7  7 
Additional paid-in capital 490  150 
Retained earnings 11,115  9,105 
Accumulated other comprehensive loss (6,022) (5,997)
Deferred compensation obligations 20  26 
Less: Treasury stock (0.4 shares in 2020 and 2019)
 (20) (26)
Total Equity for Controlling Interests 5,592  3,267 
Noncontrolling interests 14  16 
Total Shareowners’ Equity 5,606  3,283 
Total Liabilities and Shareowners’ Equity $ 62,406  $ 57,857 
See notes to unaudited, consolidated financial statements.
2
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In millions, except per share amounts)
(unaudited)
 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
2020 2019 2020 2019
Revenue $ 21,238  $ 18,318  $ 59,732  $ 53,526 
Operating Expenses:
Compensation and benefits 11,077  9,590  32,006  28,206 
Repairs and maintenance 576  485  1,693  1,392 
Depreciation and amortization 677  587  1,986  1,730 
Purchased transportation 3,937  2,984  10,584  8,950 
Fuel 618  824  1,878  2,451 
Other occupancy 376  346  1,114  1,039 
Other expenses 1,614  1,374  4,824  4,093 
Total Operating Expenses 18,875  16,190  54,085  47,861 
Operating Profit 2,363  2,128  5,647  5,665 
Other Income and (Expense):
Investment income and other 338 237 1,011  672
Interest expense (176) (159) (526) (487)
Total Other Income and (Expense) 162  78  485  185 
Income Before Income Taxes 2,525  2,206  6,132  5,850 
Income Tax Expense 568  456  1,442  1,304 
Net Income $ 1,957  $ 1,750  $ 4,690  $ 4,546 
Basic Earnings Per Share $ 2.25  $ 2.03  $ 5.42  $ 5.26 
Diluted Earnings Per Share $ 2.24  $ 2.01  $ 5.39  $ 5.23 

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In millions)
(unaudited)
 
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2020 2019 2020 2019
Net Income $ 1,957  $ 1,750  $ 4,690  $ 4,546 
Change in foreign currency translation adjustment, net of tax 65  (48) (66) (28)
Change in unrealized gain (loss) on marketable securities, net of tax (2) (3) 3  6 
Change in unrealized gain (loss) on cash flow hedges, net of tax (195) 206  (92) 270 
Change in unrecognized pension and postretirement benefit costs, net of tax 43  43  130  129 
Comprehensive Income $ 1,868  $ 1,948  $ 4,665  $ 4,923 
                
See notes to unaudited, consolidated financial statements.
3
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions)
(unaudited)
  Nine Months Ended
September 30,
  2020 2019
Cash Flows From Operating Activities:
Net income $ 4,690  $ 4,546 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 1,986  1,730 
Pension and postretirement benefit expense 481  566 
Pension and postretirement benefit contributions (1,307) (2,321)
Self-insurance reserves 388  (181)
Deferred tax (benefit) expense 566  43 
Stock compensation expense 508  716 
Other (gains) losses 164  46 
Changes in assets and liabilities, net of effects of business acquisitions:
Accounts receivable 352  843 
Other assets 391  778 
Accounts payable (450) (914)
Accrued wages and withholdings 1,330  (506)
Other liabilities 120  393 
Other operating activities 64  (46)
Net cash from operating activities 9,283  5,693 
Cash Flows From Investing Activities:
Capital expenditures (3,219) (4,336)
Proceeds from disposals of property, plant and equipment 10  61 
Purchases of marketable securities (202) (487)
Sales and maturities of marketable securities 309  817 
Net change in finance receivables 24  8 
Cash paid for business acquisitions, net of cash and cash equivalents acquired (13) (6)
Other investing activities (15) (84)
Net cash used in investing activities (3,106) (4,027)
Cash Flows From Financing Activities:
Net change in short-term debt (1,924) (1,100)
Proceeds from long-term borrowings 5,003  4,802 
Repayments of long-term borrowings (2,746) (2,411)
Purchases of common stock (224) (751)
Issuances of common stock 214  161 
Dividends (2,528) (2,397)
Other financing activities (351) (158)
Net cash used in financing activities (2,556) (1,854)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash (19) 6 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash 3,602  (182)
Cash, Cash Equivalents and Restricted Cash:
Beginning of period 5,238  4,367 
End of period $ 8,840  $ 4,185 
                
See notes to unaudited, consolidated financial statements.
4
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 September 30, 2020, our results of operations for the three and nine months ended September 30, 2020 and 2019 and our cash flows for the nine months ended September 30, 2020 and 2019. 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, 2019.
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 September 30, 2020 and December 31, 2019. 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 utilized Level 1 inputs in the fair value hierarchy of valuation techniques 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. In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic. The severity, magnitude and duration of the pandemic, and the resulting economic consequences, remain uncertain, rapidly changing and difficult to predict. As a result, our accounting estimates and assumptions may change over time.
Such changes could result in future impairments of goodwill, intangible assets, long-lived assets and investment securities, incremental credit losses on financial assets, decreases in the carrying amount of our tax assets, increases in our self-insurance liabilities or increases in our net pension and postretirement benefit obligations at the time of a measurement event.
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.

5
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Standards
In June 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standards update ("ASU") introducing an expected credit loss methodology for the measurement of financial assets not accounted for at fair value. The methodology replaced the probable, incurred loss model for those assets. We adopted this standard on January 1, 2020. Upon adoption, we updated our process for calculating our allowance for credit losses to include reasonable and supportable forecasts that could affect expected collectability. In the third quarter of 2020, we decreased our allowance for credit losses by $6 million (an increase of $44 million year to date) based upon our current forecasts that reflect slight improvements in the economic outlook.
In January 2017, the FASB issued an ASU to simplify the accounting for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill using a hypothetical purchase price allocation. Under this ASU, goodwill impairment is the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We adopted this standard on January 1, 2020. Upon adoption, this ASU did not have a material impact on our consolidated financial position, results of operations or cash flows.
In March 2020, the FASB issued an ASU to temporarily ease the potential burden in accounting for reference rate reform. The update provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The guidance was effective upon issuance and generally can be applied through December 31, 2022. We are evaluating the potential impacts of reference rate reform on our various contractual positions to determine whether we may apply any of the practical expedients set forth in this update.
For accounting standards adopted in the period ended September 30, 2019, refer to note 1 to our audited, consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019.
Other 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.
Accounting Standards Issued But Not Yet Effective
In December 2019, the FASB issued an ASU to simplify the accounting for income taxes. The update removes certain exceptions to the general income tax principles. The update will be effective for us in the first quarter of 2021. We are evaluating the impact of its adoption on our consolidated financial statements and internal control over financial reporting environment, but do not expect this ASU to have a material impact on our consolidated financial position, results of operations or cash flows.
Other accounting pronouncements issued before, but not effective until after, September 30, 2020, are not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
6
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”), whether carried out by or arranged by UPS, either domestically or internationally, which generally occurs 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
September 30,		 Nine Months Ended
September 30,
2020 2019 2020 2019
Revenue:  
Next Day Air $ 2,098    $ 2,146  $ 6,137  $ 6,160 
Deferred 1,378  1,248  3,873  3,494 
Ground 9,749    8,061  27,745  23,431 
     U.S. Domestic Package 13,225  11,455  37,755  33,085 
Domestic 776    689  2,183  2,069 
Export 3,153  2,673  8,538  7,972 
Cargo & Other 158    132  454  417 
    International Package 4,087  3,494  11,175  10,458 
Forwarding 1,753    1,472  4,897  4,384 
Logistics 1,040  846  2,862  2,511 
Freight 870    852  2,360  2,486 
Other 263  199  683  602 
    Supply Chain & Freight 3,926  3,369  10,802  9,983 
Consolidated revenue $ 21,238  $ 18,318  $ 59,732  $ 53,526 
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.

7
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 re-perform 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 and 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.
8
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.
In the third quarter, we decreased our allowance for expected credit losses by $6 million (an increase of $44 million year to date) based upon current forecasts that reflect slight improvements in the economic outlook. Our allowance for credit losses as of September 30, 2020 and December 31, 2019 was $160 and $93 million, respectively. Amounts for credit losses charged to expense before recoveries during the three months ended September 30, 2020 and 2019 were $51 and $40 million, respectively, and for the nine months ended September 30, 2020 and 2019 were $204 and $145 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 $368 and $272 million at September 30, 2020 and December 31, 2019, respectively, net of deferred revenue related to in-transit packages of $463 and $264 million at September 30, 2020 and December 31, 2019, 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 $8 and $7 million at September 30, 2020 and December 31, 2019, 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 million at both September 30, 2020 and December 31, 2019. Long-term contract liabilities are included within "Other Non-Current Liabilities" in the consolidated balance sheets.

9
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, which permit the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock units, and restricted performance shares and performance units to eligible employees (restricted stock and stock units, restricted performance shares and performance units are herein referred to as "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.
The primary compensation programs offered under the UPS Incentive Compensation Plan include the UPS Management Incentive Award program, the UPS Long-Term Incentive Performance Award program 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. Additionally, our matching contributions to the primary employee defined contribution savings plan are made in shares of UPS class A common stock.
Management Incentive Award Program ("MIP")
We award Restricted Units under the MIP to certain eligible management employees. For Restricted Units granted under the MIP prior to 2019, vesting generally occurs ratably over a five-year period on January 15th of each of the years following the grant date (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). These historical awards will continue to vest through 2023.
Beginning with the MIP grant in the first quarter of 2019, Restricted Units vest one year following the grant date (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 that the eligible management population and performance targets were approved for the 2019 MIP, we determined the award measurement dates to be February 6, 2020 (for U.S.-based employees), February 12, 2020 (for executive management) and March 23, 2020 (for international-based employees); therefore, the Restricted Units awarded were valued for stock compensation expense purposes using the closing New York Stock Exchange ("NYSE") price of $106.51, $105.54 and $91.90 on those dates, respectively.
Long-Term Incentive Performance Award Program ("LTIP")
We award Restricted Units under the LTIP to certain eligible management employees. These Restricted Units generally vest at the end of a three-year performance period (except in the case of death, disability or retirement, in which case immediate vesting occurs on a prorated basis). The number of Restricted Units earned is based on the achievement of the performance targets established on the grant date.
For awards granted prior to 2020, the performance targets are equally-weighted among consolidated operating return on invested capital ("ROIC"), growth in currency-constant consolidated revenue and total shareholder return ("RTSR") relative to a peer group of companies. For the two-thirds of the award related to ROIC and growth in currency-constant consolidated revenue, we recognize the grant date fair value of these Restricted Units (less estimated forfeitures) as compensation expense ratably over the vesting period, based on the number of awards expected to be earned. The remaining one-third of the award related to RTSR is valued using a Monte Carlo model. We recognize the grant date fair value of this portion of the award (less estimated forfeitures) as compensation expense ratably over the vesting period.
Beginning with the LTIP grant that was made in the second quarter of 2020, the performance targets are equally weighted between adjusted earnings per share and adjusted cumulative free cash flow. The final number of Restricted Units earned will then be subject to adjustment based on RTSR relative to the Standard & Poors 500 Index ("S&P 500"). We determine the grant date fair value of the Restricted Units 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.


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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the 2020 award, the LTIP will be subdivided into two measurement periods. The first measurement period will evaluate the achievement of the performance targets for the year 2020. The second measurement period will evaluate the achievement of the performance targets for the years 2021 through 2022. The performance targets for the second measurement period will be determined at a future date.

Based on the date that the eligible management employees and performance targets were approved for the 2020 LTIP, we determined the award measurement date for the first measurement period to be May 13, 2020. The target Restricted Units awarded were valued at $91.65.

In the second quarter, we awarded a one-time grant of Restricted Units to one participant that will vest over the same period as the 2020 LTIP. Based on the date that the Compensation Committee approved this award, we determined the award measurement date for the first measurement period to be June 1, 2020 and the target Restricted Units awarded were valued at $99.08 using a Monte Carlo valuation.

In the third quarter of 2020, we awarded a one-time grant of Restricted Units to one participant that will vest over the same period as the 2020 LTIP. Based on the date that the Compensation Committee approved this award, we determined the award measurement date for the first measurement period to be August 12, 2020 and the target Restricted Units awarded were valued at $186.67 using a Monte Carlo valuation.
The weighted-average assumptions used and the calculated weighted-average fair values of the first measurement period for the 2020 LTIP and the RTSR portion of the 2019 LTIP are as follows:
2020 2019
Risk-free interest rate 0.15  % 2.23  %
Expected volatility 27.53  % 19.64  %
Weighted-average fair value of units granted $ 92.77  $ 123.44 
Share payout 101.00  % 115.04  %
There is no expected dividend yield as units earn dividend equivalents.
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 generally 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 options granted expire 10 years after the date of the grant. In the first quarter, we granted 0.3 million stock options at a grant price of $105.54, which was the closing NYSE price on February 12, 2020. In the second quarter, we granted 0.1 million stock options at a grant price of $99.28, which was the closing NYSE price on June 1, 2020.
The fair value of each option grant is estimated using the Black-Scholes option pricing model. The weighted-average assumptions used and the calculated weighted-average fair values of options granted in 2020 and 2019 are as follows:
2020 2019
Expected dividend yield 3.51  % 2.94  %
Risk-free interest rate 1.26  % 2.60  %
Expected life (in years) 7.5 7.5
Expected volatility 19.25  % 17.79  %
Weighted-average fair value of options granted $ 11.74  $ 16.34 
Pre-tax compensation expense for share-based awards recognized in "Compensation and benefits" on the statements of consolidated income for the three months ended September 30, 2020 and 2019 was $140 and $203 million, respectively, and for the nine months ended September 30, 2020 and 2019 was $508 and $716 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 September 30, 2020 and December 31, 2019 (in millions):
Cost Unrealized
Gains		 Unrealized
Losses		 Estimated
Fair Value
September 30, 2020:
Current trading marketable securities:
Equity securities $ 2  $ —  $ —  $ 2 
Total trading marketable securities 2  —  —  2 
Current available-for-sale securities:
U.S. government and agency debt securities 180  3  —  183 
Mortgage and asset-backed debt securities 33  2  —  35 
Corporate debt securities 167  4  —  171 
Non-U.S. government debt securities 11  —  —  11 
Total available-for-sale marketable securities 391  9  —  400 
Total current marketable securities $ 393  $ 9  $ —  $ 402 
  Cost Unrealized
Gains		 Unrealized
Losses		 Estimated
Fair Value
December 31, 2019:
Current trading marketable securities:
Corporate debt securities $ 112  $ —  $ —  $ 112 
Equity securities 2  —  —  2 
Total trading marketable securities 114  —  —  114 
Current available-for-sale securities:
U.S. government and agency debt securities 191  2  —  193 
Mortgage and asset-backed debt securities 46  1  —  47 
Corporate debt securities 130  3  —  133 
Non-U.S. government debt securities 16  —  —  16 
Total available-for-sale marketable securities 383  6  —  389 
Total current marketable securities $ 497  $ 6  $ —  $ 503 
Investment Impairments
We have concluded that no material impairment losses existed as of September 30, 2020. 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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Maturity Information
The amortized cost and estimated fair value of marketable securities at September 30, 2020, 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.
Cost Estimated
Fair Value
Due in one year or less $ 29  $ 30 
Due after one year through three years 315  320 
Due after three years through five years 8  8 
Due after five years 39  42 
391  400 
Equity securities 2  2 
$ 393  $ 402 
Non-Current Investments and Restricted Cash
We held a $22 and $21 million investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan at September 30, 2020 and December 31, 2019, respectively. The quarterly change in investment fair value is recognized in "Investment income and other" in the statements of consolidated income. Additionally, we held escrowed cash related to the acquisition and disposition of certain assets of $2 and $3 million as of September 30, 2020 and December 31, 2019, respectively. We previously held various marketable securities and cash equivalents as collateral under an escrow agreement to guarantee our self-insurance obligations. In 2019, we liquidated this investment balance and pledged the required collateral with a surety bond. At September 30, 2020 and December 31, 2019, we had $1 and $0 million, respectively, in restricted cash.
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):
September 30, 2020 December 31, 2019 September 30, 2019
Cash and cash equivalents $ 8,839  $ 5,238  $ 4,040 
Restricted cash 1  —  145 
Total cash, cash equivalents and restricted cash $ 8,840  $ 5,238  $ 4,185 
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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information about our investments measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, 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 
September 30, 2020:
Marketable Securities:
U.S. government and agency debt securities $ 183  $ —  $ —  $ 183 
Mortgage and asset-backed debt securities —  35  —  35 
Corporate debt securities —  171  —  171 
Equity securities —  2  —  2 
Non-U.S. government debt securities —  11  —  11 
Total marketable securities 183  219  —  402 
Other non-current investments 22  —  —  22 
Total $ 205  $ 219  $ —  $ 424 

December 31, 2019:
Marketable Securities:
U.S. government and agency debt securities $ 193  $ —  $ —  $ 193 
Mortgage and asset-backed debt securities —  47  —  47 
Corporate debt securities —  245  —  245 
Equity securities —  2  —  2 
Non-U.S. government debt securities —  16  —  16 
Total marketable securities 193  310  —  503 
Other non-current investments 21  —  1  22 
Total $ 214  $ 310  $ 1  $ 525 
There were no transfers of investments between Level 1 and Level 2 during the nine months ended September 30, 2020 or 2019.
    

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of September 30, 2020 and December 31, 2019 consisted of the following (in millions):
2020 2019
Vehicles $ 10,604  $ 10,613 
Aircraft 19,672  19,045 
Land 2,146  2,087 
Buildings 5,575  5,046 
Building and leasehold improvements 4,888  4,898 
Plant equipment 14,088  13,849 
Technology equipment 2,695  2,206 
Construction-in-progress 2,940  1,983 
62,608  59,727 
Less: Accumulated depreciation and amortization (30,444) (29,245)
$ 32,164  $ 30,482 
Property, plant and equipment purchased on account was $835 and $372 million as of September 30, 2020 and December 31, 2019, 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 material impairment charges during the nine months ended September 30, 2020 or 2019.



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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. EMPLOYEE BENEFIT PLANS
Company-Sponsored Benefit Plans
Information about the net periodic benefit cost for our company-sponsored pension and postretirement benefit plans for the three and nine months ended September 30, 2020 and 2019 is as follows (in millions):
  U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
2020 2019 2020 2019 2020 2019
Three Months Ended September 30:
Service cost $ 463  $ 360  $ 7  $ 6  $ 17  $ 15 
Interest cost 495  516  23  27  10  12 
Expected return on assets (887) (782) (2) (2) (22) (19)
Amortization of prior service cost 55  55  1  2  —  — 
Net periodic benefit cost $ 126  $ 149  $ 29  $ 33  $ 5  $ 8 
U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
2020 2019 2020 2019 2020 2019
Nine Months Ended September 30:
Service cost $ 1,390  $ 1,079  $ 22  $ 18  $ 50  $ 43 
Interest cost 1,483  1,550  68  81  30  35 
Expected return on assets (2,662) (2,347) (6) (6) (64) (57)
Amortization of prior service cost 164  164  5  5  1  1 
Net periodic benefit cost $ 375  $ 446  $ 89  $ 98  $ 17  $ 22 
The components of net periodic benefit cost other than current service cost are presented within “Investment income and other” in the statements of consolidated income.
During the first nine months of 2020, we contributed $1.1 billion and $242 million to our company-sponsored pension and U.S. postretirement medical benefit plans, respectively. We currently expect to contribute approximately $24 million over the remainder of the year to our pension benefit plans. Subject to market conditions, we continually evaluate opportunities for additional discretionary pension contributions.
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 September 30, 2020 and December 31, 2019, we had $839 and $845 million, respectively, recorded in "Other Non-Current Liabilities" and $7 million as of both September 30, 2020 and December 31, 2019, recorded in "Other current liabilities" on our consolidated balance sheets associated with our previous withdrawal from a multiemployer pension plan. This liability is payable in equal monthly installments over a remaining term of approximately 42 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 September 30, 2020 and December 31, 2019 was $991 and $929 million, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
UPS was a contributing employer to the Central States Pension Fund (“CSPF”) until 2007 when we withdrew from the CSPF and fully funded our allocable share of unfunded vested benefits by paying a $6.1 billion withdrawal liability. 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 our withdrawal agreement with the CSPF, benefits to the UPS Transfer Group cannot be reduced without our consent and can only be reduced in accordance with applicable law.
In December 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 September 2015, the CSPF submitted a proposed pension benefit reduction plan to the U.S. Department of the Treasury (“Treasury”). In May 2016, Treasury rejected the proposed plan submitted by the CSPF. In the first quarter of 2018, Congress established a Joint Select Committee to develop a recommendation to improve the solvency of multiemployer plans and the Pension Benefit Guaranty Corporation (“PBGC”) before a November 30, 2018 deadline. While the Committee’s efforts failed to meet its deadline, the Committee made significant progress towards finding solutions that will address the long-term solvency of multiemployer pension plans. In the third quarter of 2019, the U.S. House of Representatives passed the Rehabilitation for Multiemployer Pensions Act of 2019 to provide assistance to critical and declining multiemployer pension plans. Additionally, in 2020, the U.S. House of Representatives passed two versions of the Health and Economic Recovery Omnibus Emergency Solutions Act ("HEROES Act"), which would provide financial support to those same plans. These bills are with the U.S. Senate for consideration. UPS will continue to work with all stakeholders, including legislators and regulators, to implement an acceptable solution.
The CSPF has said that it believes a legislative solution to its funded status is necessary or that it will become insolvent in 2025, and we expect that the CSPF will continue to explore options to avoid insolvency. Numerous factors could affect the CSPF’s funded status and UPS’s potential obligation to pay coordinating benefits under the UPS/IBT Plan. Any obligation to pay coordinating benefits will be subject to a number of significant uncertainties, including whether the CSPF submits a revised MPRA filing and the terms thereof, or whether it otherwise seeks federal government assistance, as well as the terms of any applicable legislation, the extent to which benefits are paid by the PBGC and our ability to successfully defend legal positions we may take in the future under the MPRA, including the suspension ordering provisions, our withdrawal agreement and other applicable law.
We account for the potential obligation to pay coordinating benefits to the UPS Transfer Group under Accounting Standards Codification Topic 715- Compensation- Retirement Benefits (“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. While we currently believe the most likely outcome to this matter and the broader systemic problems facing multiemployer pension plans is intervention by the federal government, ASC 715 does not permit anticipation of changes in law in making a best estimate of pension liabilities.
As such, our best estimate of the next most likely outcome at the December 31, 2019 measurement date was that the CSPF would submit and implement another benefit reduction plan under the MPRA during 2020. We believe any MPRA filing would be designed to forestall insolvency by reducing benefits to participants other than the UPS Transfer Group to the maximum extent permitted, and then reducing benefits to the UPS Transfer Group by a lesser amount.
We evaluated this outcome using a deterministic cash flow projection, reflecting updated estimated CSPF cash flows and investment earnings, the lack of legislative action and the absence of a MPRA filing by the CSPF in 2019. As a result, at the December 31, 2019 measurement date, the best estimate of our projected benefit obligation for coordinating benefits that may be required to be directly provided by the UPS/IBT Plan to the UPS Transfer Group was $2.6 billion.
The future value of this estimate will be influenced by the terms and timing of any MPRA filing, changes in our discount rate, rate of return on assets and other actuarial assumptions, presumed solvency of the PBGC, as well as potential solutions resulting from federal government intervention. Any such event may result in a decrease or an increase in the best estimate of our projected benefit obligation. If the uncertainties are not resolved, it is reasonably possible that our projected benefit obligation could increase by approximately $2.2 billion at the December 31, 2020 measurement date, resulting in a total obligation for coordinating benefits of approximately $4.8 billion. If a future change in law occurs, it may be a significant event requiring an interim remeasurement of the UPS/IBT Plan at the date the law is enacted. We will continue to assess the impact of these uncertainties on our projected benefit obligation in accordance with ASC 715.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Collective Bargaining Agreements
We have approximately 290,000 employees employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters. The current National Master Agreement ("NMA") was ratified on April 28, 2019 and runs through July 31, 2023. Most of the economic provisions of the NMA are retroactive to August 1, 2018, which is the effective date of the NMA. The UPS Freight business unit national master agreement was ratified on November 11, 2018.
We have approximately 2,900 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 1,500 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 Teamsters 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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. GOODWILL AND INTANGIBLE ASSETS
The following table indicates the allocation of goodwill by reportable segment as of September 30, 2020 and December 31, 2019 (in millions):
U.S. Domestic
Package		 International
Package		 Supply Chain &
Freight		 Consolidated
December 31, 2019: $ 715  $ 416  $ 2,682  $ 3,813 
Acquired —  —  —  — 
Currency / Other
 —  (2) 5  3 
September 30, 2020: $ 715  $ 414  $ 2,687  $ 3,816 
The change in goodwill for both the International Package and Supply Chain & Freight segments 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.
Goodwill Impairment
We completed our annual goodwill impairment assessment for all reporting units and indefinite-lived intangible assets as of July 1, 2020 and determined that no impairments had occurred. We continue to monitor our reporting units and indefinite-lived intangible assets for indications of triggering events that would require an update to our annual impairment evaluation between the annual assessment date and December 31, 2020. There were no triggering events identified during the third quarter.
The following is a summary of intangible assets as of September 30, 2020 and December 31, 2019 (in millions):
Gross Carrying
Amount		 Accumulated
Amortization		 Net Carrying
Value
September 30, 2020:
Capitalized software $ 4,460  $ (2,890) $ 1,570 
Licenses 156  (84) 72 
Franchise rights 158  (112) 46 
Customer relationships 720  (325) 395 
Trade name 200  —  200 
Trademarks, patents and other 23  (17) 6 
Total Intangible Assets, Net $ 5,717  $ (3,428) $ 2,289 
December 31, 2019:
Capitalized software $ 4,125  $ (2,704) $ 1,421 
Licenses 117  (64) 53 
Franchise rights 146  (109) 37 
Customer relationships 730  (282) 448 
Trade name 200  —  200 
Trademarks, patents and other 29  (21) 8 
Total Intangible Assets, Net $ 5,347  $ (3,180) $ 2,167 
As of September 30, 2020, we had a trade name with a carrying value of $200 million and licenses with a carrying value of $4 million, which are deemed to be indefinite-lived intangible assets and are included in the table above.
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. We have recorded $4 million in impairment charges for finite-lived intangible assets during 2020. There was no impairment in 2019.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. DEBT AND FINANCING ARRANGEMENTS
The carrying value of our outstanding debt as of September 30, 2020 and December 31, 2019 consisted of the following (in millions):
Principal
Amount		 Carrying Value
Maturity 2020 2019
Commercial paper $ 1,202  2021 $ 1,202  $ 3,234 
Fixed-rate senior notes:
3.125% senior notes
 1,500  2021 1,516  1,524 
2.050% senior notes
 700  2021 700  699 
2.450% senior notes
 1,000  2022 1,031  1,003 
2.350% senior notes
 600  2022 599  598 
2.500% senior notes
 1,000  2023 996  995 
2.800% senior notes
 500  2024 497  497 
2.200% senior notes
 400  2024 398  398 
3.900% senior notes
 1,000  2025 995  — 
2.400% senior notes
 500  2026 498  498 
3.050% senior notes
 1,000  2027 993  992 
3.400% senior notes
 750  2029 745  745 
2.500% senior notes
 400  2029 397  397 
4.450% senior notes
 750  2030 743  — 
6.200% senior notes
 1,500  2038 1,483  1,483 
5.200% senior notes
 500  2040 493  — 
4.875% senior notes
 500  2040 490  490 
3.625% senior notes
 375  2042 368  368 
3.400% senior notes
 500  2046 491  491 
3.750% senior notes
 1,150  2047 1,137  1,136 
4.250% senior notes
 750  2049 742  742 
3.400% senior notes
 700  2049 688  688 
5.300% senior notes
 1,250  2050 1,231  — 
Floating-rate senior notes:
Floating-rate senior notes 350  2021 350  349 
Floating-rate senior notes 400  2022 399  399 
Floating-rate senior notes 500  2023 499  499 
Floating-rate senior notes 1,039  2049-2067 1,027  1,028 
8.375% Debentures:
8.375% debentures
 —  2020 —  426 
8.375% debentures
 276  2030 281  281 
Pound Sterling notes:
5.500% notes
 86  2031 85  86 
5.125% notes
 585  2050 554  566 
Euro senior notes:
0.375% notes
 820  2023 816  779 
1.625% notes
 820  2025 816  779 
1.000% notes
 585  2028 582  556 
1.500% notes
 585  2032 582  556 
Floating-rate senior notes —  2020 —  559 
Canadian senior notes:
2.125% notes
 560  2024 558  571 
Finance lease obligations 411  2020-2210 411  498 
Facility notes and bonds 320  2029-2045 320  320 
Other debt 5  2020-2025 5  8 
Total debt $ 25,869  25,718  25,238 
Less: Current maturities (2,382) (3,420)
Long-term debt $ 23,336  $ 21,818 
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
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. We had the following amounts outstanding under these programs as of September 30, 2020: $935 million with an average interest rate of 0.12% and €228 million ($267 million) with an average interest rate of -0.28%. As of September 30, 2020, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheets.
Debt Classification
We have classified a portion of our debt instruments that mature within twelve months and certain floating-rate senior notes with put options as long-term due to our intent and ability to refinance the debt.
Debt Repayments
On July 15, 2020 our Euro floating-rate senior notes with a principal balance of €500 million ($566 million) matured and were repaid in full. On April 1, 2020, our 8.375% senior notes with a principal balance of $424 million matured and were repaid in full.
Debt Issuances
On March 24, 2020 we issued four series of notes, in the following principal amounts: $1.0 billion, $750 million, $500 million and $1.25 billion. These notes bear interest at 3.90%, 4.45%, 5.20% and 5.30%, respectively, and will mature on April 1, 2025, April 1, 2030, April 1, 2040 and April 1, 2050, respectively. Interest on the notes is payable semi-annually, beginning October 2020. Each series of notes is callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of scheduled payments of principal and interest, plus accrued and unpaid interest.
In such event, the present values of scheduled principal and interest payments are discounted to the redemption date on a semi-annual basis at the discount rate of the Treasury Rate plus 50 basis points, and are determined as follows:
•On the 3.90% notes, payments from the redemption date until one month prior to maturity
•On the 4.45% notes, payments from the redemption date until three months prior to maturity
•On the 5.20% and 5.30% notes, payments from the redemption date until six months prior to maturity
Sources of Credit
We maintain two credit agreements with a consortium of banks. The first of these agreements provides revolving credit facilities of $2.0 billion and expires on December 8, 2020. We expect to be able to renew this facility upon expiration. The second agreement provides revolving credit facilities of $2.5 billion and expires on December 11, 2023. Both of the credit agreements have the following terms:
•Generally, amounts outstanding under these facilities bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an applicable margin.
•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%; and (3) LIBOR for a one month interest period plus 1.00%, plus an applicable margin, may be used at our discretion.
The applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our one-year credit default swap spread:
•The $2.0 billion facility is subject to a minimum rate of 0.25% and a maximum rate of 1.00%.
•The $2.5 billion facility is subject to a minimum rate of 0.10% and a maximum rate of 0.75% per annum. The rate is interpolated for a period from the date of determination of such credit default swap spread in connection with a new interest period until the latest maturity date of the facility then in effect (but not less than a period of one year).
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The applicable margin for advances bearing interest based on the prime rate is 1.00% below the applicable margin for LIBOR advances (but not lower than 0%). 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 September 30, 2020.
Debt Covenants
Our existing debt instruments and credit facilities subject us to certain financial covenants. As of September 30, 2020, and for all 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 September 30, 2020, 10% of net tangible assets was equivalent to $4.1 billion; however, 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 debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $29.3 and $26.9 billion as of September 30, 2020 and December 31, 2019, 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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. LEASES
We recognize a right-of-use ("ROU") asset and lease liability for all leases. 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. We elected the package of transition practical expedients for existing contracts, which allowed us to carry forward our historical assessments of whether contracts are, or contain, leases, lease classification and determination of initial direct costs.
We lease property and equipment under finance and operating 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. Determining the lease term and amount of lease payments to include in the calculation of the ROU asset and lease liability for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and if the optional period and payments should be included in the calculation of the associated ROU asset and lease liability. 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 liability 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 189 years.
Aircraft
In addition to the aircraft that we own, we have leases for 324 aircraft. Of these leased aircraft, 27 are classified as finance leases, 16 are classified as operating leases and the remaining 281 are classified as short-term leases. A majority of the obligations associated with the aircraft classified as finance leases have been legally defeased. Most 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 liability.
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 liability.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
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 lease liability.
The components of lease expense for the three and nine months ended September 30, 2020 and 2019 were as follows (in millions):
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2020 2019 2020 2019
Operating lease costs $ 180  151  $ 527  $ 474 
Finance lease costs:
Amortization of assets 20  18  58  55 
Interest on lease liabilities 4  5  14  14 
Total finance lease costs 24  23  72  69 
Variable lease costs 58  69  171  148 
Short-term lease costs 260  194  716  633 
Total lease costs $ 522  $ 437  $ 1,486  $ 1,324 

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
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):
September 30,
2020		 December 31,
2019
Operating Leases:
Operating lease right-of-use assets $ 3,022  $ 2,856 
Current maturities of operating leases $ 560  $ 538 
Non-current operating leases 2,473  2,391 
Total operating lease liabilities $ 3,033  $ 2,929 
Finance Leases:
Property, plant and equipment, net $ 1,289  $ 1,502 
Current maturities of long-term debt, commercial paper and finance leases $ 88  $ 181 
Long-term debt and finance leases 323  317 
Total finance lease liabilities $ 411  $ 498 
Weighted average remaining lease term (in years):
Operating leases 9.4 9.7
Finance leases 9.4 8.9
Weighted average discount rate:
Operating leases 2.56  % 2.78  %
Finance leases 4.25  % 4.03  %

Supplemental cash flow information related to leases is as follows (in millions):
Nine Months Ended
September 30,
2020 2019
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases $ 508  $ 455 
Operating cash flows from finance leases 11  11 
Financing cash flows from finance leases 136  121 
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases $ 544  $ 144 
Finance leases 50  61 

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Maturities of lease liabilities as of September 30, 2020 are as follows (in millions):
Finance Leases Operating Leases
2020 $ 61  $ 148 
2021 62  634 
2022 56  541 
2023 45  440 
2024 37  323 
Thereafter 252  1,504 
Total lease payments 513  3,590 
Less: Imputed interest (102) (557)
Total lease obligations 411  3,033 
Less: Current obligations (88) (560)
Long-term lease obligations $ 323  $ 2,473 
As of September 30, 2020, we have additional leases which have not commenced. These leases will commence in 2020 and 2021 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 assurance 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 matters in this category, we have indicated in the descriptions that follow the reasons that we are unable to estimate the possible loss or range of losses.
Judicial Proceedings
In February 2015, the State and City of New York filed suit against UPS in the U.S. District Court for the Southern District of New York, arising from alleged shipments of cigarettes to New York State and City residents. The complaint asserted claims under various federal and state laws. The complaint also included a claim that UPS violated the Assurance of Discontinuance it entered into with the New York Attorney General in 2005 concerning cigarette deliveries. On March 24, 2017, the District Court issued an opinion and order finding liability against UPS on each of the plaintiffs’ causes of action. On May 25, 2017, the District Court issued a corrected opinion and order on liability and an order awarding the plaintiffs damages of $9 million and penalties of $238 million. Following an appeal, on November 7, 2019, the U.S. Court of Appeals for the Second Circuit issued an order awarding the plaintiffs damages of $19 million and penalties of $79 million. An accrual of $100 million with respect to this matter had previously been included on our consolidated balance sheets. The U.S. Supreme Court recently denied our petition for writ of certiorari, and we have now paid and fully satisfied this judgment.
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 have appealed this decision.
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 ("USPS") International Commercial Air contracts. In October 2017, we received a Civil Investigative Demand seeking certain information relating to our contracts. The DOJ has indicated it is investigating potential violations of the False Claims Act or other statutes. We are cooperating with the DOJ. An immaterial accrual with respect to this matter is included on 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 any government authorities as a result of their investigation.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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, UPS received a Statement of Objections issued by the CNMC. In July 2017, UPS 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. UPS 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 May 2020, 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 Interest
We maintain two classes of common stock, which are distinguished from each other 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 September 30, 2020, 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 September 30, 2020, 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 interest accounts for the three and nine months ended September 30, 2020 and 2019 (in millions, except per share amounts):
Three Months Ended September 30: 2020 2019
  Shares Dollars Shares Dollars
Class A Common Stock
Balance at beginning of period 157  $ 2  161  $ 2 
Common stock purchases —  —  (1) — 
Stock award plans —  —  —  — 
Common stock issuances 1  —  1  — 
Conversions of class A to class B common stock (8) —  (4) — 
Class A shares issued at end of period 150  $ 2  157  $ 2 
Class B Common Stock
Balance at beginning of period 706  $ 7  698  $ 7 
Common stock purchases —  —  (1) — 
Conversions of class A to class B common stock 8  —  4  — 
Class B shares issued at end of period 714  $ 7  701  $ 7 
Additional Paid-In Capital
Balance at beginning of period $ 255  $ 102 
Common stock purchases —  (251)
Stock award plans 145  202 
Common stock issuances 90  56 
Option premiums paid —  20 
Balance at end of period $ 490  $ 129 
Retained Earnings
Balance at beginning of period $ 10,032  $ 9,109 
Net income attributable to common shareowners 1,957  1,750 
Dividends ($1.01 and $0.96 per share) (1)
 (873) (825)
Other (1) 3 
Balance at end of period $ 11,115  $ 10,037 
Non-Controlling Minority Interest
Balance at beginning of period $ 13  $ 18 
Change in non-controlling minority interest 1  (2)
Balance at end of period $ 14  $ 16 
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $28 and $27 million as of September 30, 2020 and September 30, 2019 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
Nine Months Ended September 30: 2020 2019
  Shares Dollars Shares Dollars
Class A Common Stock
Balance at beginning of period 156  $ 2  163  $ 2 
Common stock purchases —  —  (3) — 
Stock award plans 6  —  4  — 
Common stock issuances 3  —  2  — 
Conversions of class A to class B common stock (15) —  (9) — 
Class A shares issued at end of period 150  $ 2  157  $ 2 
Class B Common Stock
Balance at beginning of period 701  $ 7  696  $ 7 
Common stock purchases (2) —  (4) — 
Conversions of class A to class B common stock 15  —  9  — 
Class B shares issued at end of period 714  $ 7  701  $ 7 
Additional Paid-In Capital
Balance at beginning of period $ 150  $ — 
Common stock purchases (217) (753)
Stock award plans 215  584 
Common stock issuances 342  277 
Option premiums received (paid) —  21 
Balance at end of period $ 490  $ 129 
Retained Earnings
Balance at beginning of period $ 9,105  $ 8,006 
Net income attributable to common shareowners 4,690  4,546 
Dividends ($3.03 and $2.88 per share) (1)
 (2,679) (2,518)
Other (1) 3 
Balance at end of period $ 11,115  $ 10,037 
Non-Controlling Minority Interest
Balance at beginning of period $ 16  $ 16 
Change in non-controlling minority interest (2) — 
Balance at end of period $ 14  $ 16 
(1) The dividend per share amount is the same for both class A and class B common stock. Dividends include $151 and $121 million as of September 30, 2020 and September 30, 2019 respectively, that were settled in shares of class A common stock.
In May 2016, the Board of Directors approved a share repurchase authorization of $8.0 billion for shares of class A and class B common stock, which has no expiration date. As of September 30, 2020, we had $2.1 billion of this share repurchase authorization available.
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, the program will expire when we have purchased all shares authorized for repurchase under the program.
We did not repurchase any shares under this program during the three months ended September 30, 2020. During the three months ended September 30, 2019, we repurchased 2.2 million shares of class A and class B common stock for $251 million. We repurchased 2.1 and 7.0 million shares of class A and class B common stock for $217 and $753 million during the nine months ended September 30, 2020 and 2019, respectively ($224 million and $751 million in repurchases for 2020 and 2019, respectively, are reported on the statements of consolidated cash flows due to the timing of settlements).
From time to time, we enter into share repurchase programs with large financial institutions to assist in our buyback of company stock. These programs may allow us to repurchase our shares at a price below the weighted average share price for a given period. During 2020 and 2019, we did not enter into any accelerated share repurchase transactions.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In order to lower the average cost of acquiring shares in our ongoing share repurchase program, we periodically enter into structured repurchase agreements involving the use of capped call options for the purchase of UPS class B shares. We pay a fixed sum of cash upon execution of each agreement in exchange for the right to receive either a predetermined amount of cash or stock. Upon expiration of each agreement, if the closing market price of our common stock is above the predetermined price, we will have our initial investment returned with a premium in either cash or shares (at our election). If the closing market price of our common stock is at or below the predetermined price, we will receive the number of shares specified in the agreement. We received net premiums of $20 and $21 million during the three and nine months ended September 30, 2019, respectively, related to entering into and settling capped call options for the purchase of class B shares. As of September 30, 2020, we had no capped call options outstanding.
On April 28, 2020 we announced our intention to suspend stock repurchases.
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. The movements for the three and nine months ended September 30, 2020 were driven by changes in the vesting schedule for certain of our awards.
Accumulated Other Comprehensive Income (Loss)
We recognize activity in AOCI for unrealized holding gains and losses on available-for-sale securities, foreign currency translation adjustments, unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized pension and postretirement benefit costs. The activity in AOCI for the three and nine months ended September 30, 2020 and 2019 was as follows (in millions):

Three Months Ended September 30: 2020 2019
Foreign currency translation gain (loss), net of tax:
Balance at beginning of period $ (1,209) $ (1,106)
Translation adjustment (net of tax effect of $(14) and $41)
 65  (48)
Balance at end of period (1,144) (1,154)
Unrealized gain (loss) on marketable securities, net of tax:
Balance at beginning of period 9  7 
Current period changes in fair value (net of tax effect of $0 and $1)
 (1) 2 
Reclassification to earnings (net of tax effect of $0 and $(1))
 (1) (5)
Balance at end of period 7  4 
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of period 215  104 
Current period changes in fair value (net of tax effect of $(53) and $79)
 (168) 251 
Reclassification to earnings (net of tax effect of $(8) and $(14))
 (27) (45)
Balance at end of period 20  310 
Unrecognized pension and postretirement benefit costs, net of tax:
Balance at beginning of period (4,948) (3,820)
Reclassification to earnings (net of tax effect of $13 and $14)
 43  43 
Balance at end of period (4,905) (3,777)
Accumulated other comprehensive income (loss) at end of period $ (6,022) $ (4,617)

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30: 2020 2019
Foreign currency translation gain (loss), net of tax:
Balance at beginning of period $ (1,078) $ (1,126)
Translation adjustment (net of tax effect of $(15) and $43)
 (66) (28)
Balance at end of period (1,144) (1,154)
Unrealized gain (loss) on marketable securities, net of tax:
Balance at beginning of period 4  (2)
Current period changes in fair value (net of tax effect of $1 and $4)
 6  11 
Reclassification to earnings (net of tax effect of $(1) in both periods)
 (3) (5)
Balance at end of period 7  4 
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of period 112  40 
Current period changes in fair value (net of tax effect of $10 and $112)
 33  355 
Reclassification to earnings (net of tax effect of $(39) and $(27))
 (125) (85)
Balance at end of period 20  310 
Unrecognized pension and postretirement benefit costs, net of tax:
Balance at beginning of period (5,035) (3,906)
Reclassification to earnings (net of tax effect of $40 and $41)
 130  129 
Balance at end of period (4,905)