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United Parcel Service, Inc.$117.08$1.701.47%

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 UPS Growth Accelerates In 2017
   Thursday, February 01, 2018 7:00:48 AM ET

Announces Positive 2018 Outlook

-- Revenue Growth Tops 11% for 4Q17 and 8% for Full-Year 2017

-- 4Q17 EPS of $1.27; Adjusted 4Q EPS of $1.67

-- International Export Shipments Rose 16% in 4Q17, Full-Year up 15%

-- Supply Chain & Freight Profit Jumps with Strong Revenue Growth of 21%

-- U.S. Domestic Revenue up 8.4% on Higher Package Demand and Yields

-- 2017 EPS of $5.61; Adjusted 2017 EPS of $6.01

-- UPS Increases Investments for Growth in 2018

-- Announces Full-Year 2018 Adjusted EPS Guidance Range of $7.03 to $7.37

UPS (UPS ) today announced fourth quarter 2017 earnings. "We achieved our 2017 adjusted earnings-per-share target through exceptionally strong revenue and yield growth, coupled with benefits from our network investments and portfolio initiatives," said David Abney, UPS chairman and CEO. "We made significant progress on key capacity investments in 2017. Our momentum, transformative actions and the economic catalyst from the Tax Cuts and Jobs Act (TCJA), position UPS for growth in 2018 and beyond. We expect to unlock significant resources, which will be available for accelerated investments in our network and create additional opportunities for our people."

Consolidated Results              4Q 2017   Adjusted 4Q 2016   Adjusted
                                            4Q 2017            4Q 2016
Revenue                           $18,829 M          $16,931 M
Operating profit (loss)           $1,494 M  $2,294 M $(428) M  $2,223 M
Diluted earnings (loss) per share $1.27     $1.67    $(0.27)   $1.63

Fourth-quarter 2017 GAAP results include a benefit of $0.30 per share attributable to the TCJA. In addition, results include a mark-to-market (MTM) non-cash, pre-tax pension charge of $800 million which represents an after-tax charge of $0.70 per diluted share. In the prior-year period, the company reported non-cash, after-tax charges of $1.90 per diluted share related to mark-to-market pension charges.

For the total company in 4Q 2017:

-- Revenue increased 11.2%; currency-neutral revenue was up 10.9%.

-- 4Q 2017 diluted EPS of $1.27; adjusted diluted EPS of $1.67.

-- During the quarter, the company delivered 1.5 billion packages, up 5.7% over last year.

-- Record deliveries for Peak Season of 762 million, materially above last year and over plan.

* Information on non-GAAP financial measures is attached to this press release.

U.S. Domestic Segment

The Domestic segment is transforming its network to take full advantage of structural changes in the direct-to-consumer market. Demand for UPS Ground rose in the fourth quarter with volume growth of 5.7% and revenue of 9.3%. Premium Next Day Air shipment growth continued to be strong at 4.9% as customers selected faster delivery options. However, bottom line results were muted by additional peak operating expenses due to cyber-period volume surges and short-term costs related to capacity projects yet to come on-line.

                        4Q 2017   Adjusted 4Q 2016   Adjusted
                                  4Q 2017            4Q 2016
Revenue                 $11,835 M          $10,913 M
Operating profit (loss) $627 M    $1,264 M $(570) M  $1,338 M

For the U.S. Domestic segment in 4Q 2017:

-- Revenue increased $922 million or 8.4% over 4Q 2016, driven by Deferred Air and Ground.

-- Revenue per piece increased 2.9%, as higher base-rate pricing and fuel surcharges offset headwinds from customer and product mix.

-- Shipments surged beyond network capacity during Cyber-periods driving additional operating cost of $125 million.

-- Saturday operations provided additional capacity and flexibility during the quarter.

-- Operating profit includes additional expense from investments in new technology, customer solutions and automated capacity expansion of about $60 million.

-- Adjusted operating profit excludes the MTM pension charge.

International Segment

"Our International segment has generated four consecutive quarters of double-digit export growth," said Abney. "That execution, combined with our growth strategy and the investments we’ve made over the last three-and-a-half years, produced results that exceeded expectations."

                 4Q 2017  Adjusted 4Q 2016  Adjusted
                          4Q 2017           4Q 2016
Revenue          $3,753 M          $3,335 M
Operating profit $725 M   $760 M   $281 M   $706 M

For the International segment in 4Q 2017:

-- The segment reported revenue growth of 13% driven by premium products.

-- Export shipment growth surged 16% per day. All regions of the world contributed to the expansion.

-- 4Q 2017 operating profit was $725 million; 4Q adjusted operating profit increased 7.6% to $760 million, the result of broad, accelerated growth combined with expanded yields.

-- Adjusted operating profit excludes the MTM pension charge.

-- Currency-neutral operating profit increased 19% on an adjusted basis.

* Information on non-GAAP financial measures is attached to this press release.

Supply Chain and Freight Segment

The Supply Chain and Freight segment produced record full-year and fourth-quarter results with double-digit expansion in both revenue and adjusted operating profit. Improved market conditions combined with revenue-quality improvements and structural cost-reduction programs produced strong results.

                        4Q 2017  Adjusted 4Q 2016  Adjusted
                                 4Q 2017           4Q 2016
Revenue                 $3,241 M          $2,683 M
Operating profit (loss) $142 M   $270 M   $(139) M $179 M

For the Supply Chain and Freight segment in 4Q 2017:

-- Revenue increased 21% over 4Q 2016, the result of deeper alignment with preferred customers, strengthened revenue management initiatives and improved market conditions.

-- Tonnage gains in Freight Forwarding, UPS Freight and Coyote Logistics contributed to improved top-line results.

-- 4Q 2017 operating profit of $142 million; adjusted operating profit was $270 million.

-- Adjusted operating profit excludes the MTM pension charge.

Full-year 2017 Consolidated Results

-- Total revenue increased 8.2% to $65.9 billion on shipment growth and yield expansion.

-- Full-year 2017 diluted EPS of $5.61; adjusted diluted EPS was $6.01.

-- Adjusted diluted EPS excludes the impact of both MTM pension charge and TCJA income tax benefit.

-- Company made capital expenditures of $5.2 billion during the year.

-- Paid dividends of $2.9 billion, an increase of 6.4% per share over the prior year.

-- Repurchased 16.1 million shares for approximately $1.8 billion.

Outlook

The company provides guidance on an adjusted (non-GAAP) basis because it is not possible to predict or provide a reconciliation reflecting the impact of future pension mark-to-market adjustments or other unanticipated events, which would be included in reported (GAAP) results and could be material.

"Our growth opportunities are accelerating," said Richard Peretz, UPS chief financial officer. "The strong economic outlook and UPS’s high return on invested capital generates a unique opportunity to create additional long-term value by increasing capital investments. These investments enable UPS to execute our strategy and we are well-positioned for 2018 and beyond."

-- UPS expects 2018 adjusted diluted earnings per share to be in a range of $7.03 to $7.37, which includes about $200 million of additional pre-tax pension expense due to lower discount rates.

-- Our guidance includes TCJA benefits that will increase net income and cash flow.

-- Capital expenditures planned between $6.5 billion to $7.0 billion, mostly dedicated to investments in new technology, aircraft and automated capacity.

Conference Call Information

UPS CEO David Abney and CFO Richard Peretz will discuss fourth-quarter results with investors and analysts during a conference call at 8:30 a.m. ET, February 1, 2018. That call is open to others through a live Webcast. To access the call, go to www.investors.ups.com and click on "Earnings Webcast."

About UPS

UPS (UPS ) is a global leader in logistics, offering a broad range of solutions including transporting packages and freight; facilitating international trade, and deploying advanced technology to more efficiently manage the world of business. Headquartered in Atlanta, UPS serves more than 220 countries and territories worldwide. The company can be found on the web at ups.com or pressroom.ups.com and its corporate blog can be found at longitudes.ups.com. To get UPS news direct, follow @UPS_News on Twitter.

Forward-Looking Statements

Except for historical information contained herein, the statements made in this release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements, including statements regarding the intent, belief or current expectations of UPS and its management regarding the company’s strategic directions, prospects and future results, involve certain risks and uncertainties.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, governmental regulations (including tax laws and regulations), our competitive environment, changes in the facts or assumptions underlying our health and pension benefit funding obligations, negotiation and ratification of labor contracts, strikes, work stoppages and slowdowns, changes in aviation and motor fuel prices, cyclical and seasonal fluctuations in our operating results, and other risks discussed in the company’s Form 10-K and other filings with the Securities and Exchange Commission, which discussions are incorporated herein by reference.

Reconciliation of GAAP and non-GAAP Financial Measures

We supplement the reporting of our financial information determined under generally accepted accounting principles ("GAAP") with certain non-GAAP financial measures, including, as applicable, "as adjusted" operating profit, operating margin, pre-tax income, net income and earnings per share. The equivalent measures determined in accordance with GAAP are also referred to as "reported" or "unadjusted." Additionally, we periodically disclose free cash flow, free cash flow excluding discretionary pension contributions, as well as currency-neutral revenue, revenue per piece and operating profit.

We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends. Examples of items for which we may make adjustments include but are not limited to: amounts related to mark-to-market gains or losses (non-cash); settlement of contingencies; gains or losses associated with mergers, acquisitions, divestitures and other structural changes; charges related to restructuring programs; asset impairments (non-cash); amounts related to changes in tax regulations or positions; pension and postretirement related items; and debt modifications.

We believe that these non-GAAP measures provide additional meaningful information to assist users of our financial statements in understanding our financial results, cash flows and assessing our ongoing performance because they exclude items that may not be indicative of, or are unrelated to, our underlying operations and may provide a useful baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures in making financial, operating and planning decisions. We also use certain of these measures for the determination of incentive compensation award results.

Non-GAAP financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our non-GAAP financial information does not represent a comprehensive basis of accounting. Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies.

Mark-To-Market Pension and Postretirement Adjustments

We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor for company-sponsored pension and post-retirement obligations immediately as part of net periodic benefit cost. We supplement the presentation of our operating profit, operating margin, pre-tax income, net income and earnings per share with similar non-GAAP measures that exclude the impact of the portion of net periodic benefit cost represented by the gains and losses recognized in excess of the 10% corridor and the related income tax effects. We believe this adjusted net periodic benefit cost provides important supplemental information that reflects the anticipated long-term cost of our defined benefit plans, and provides a benchmark for historical defined benefit cost trends that may provide useful comparison of year-to-year financial performance without considering the short-term impact of changes in market interest rates, equity prices, and similar factors.

This adjusted net periodic benefit cost ($843 million in 2017 and $1,074 million in 2016) is comparable to the accounting for our defined benefit plans in our quarterly reporting under U.S. GAAP, utilizing the expected return on plan assets (8.65% in 2017 and 8.65% in 2016) and the discount rate used to determine net periodic benefit cost (4.34% in 2017 and 4.81% in 2016). The non-adjusted net periodic benefit cost reflects the actual return on plan assets (12.45% in 2017 and 6.06% in 2016) and the discount rate used to measure the projected benefit obligation at the December 31 measurement date (3.81% in 2017 and 4.34% in 2016).

The deferred income tax effects of these mark-to-market pension and postretirement adjustments are calculated by multiplying the statutory tax rates applicable in each tax jurisdiction, including the U.S. federal jurisdiction and various U.S. state and non-U.S. jurisdictions, by the adjustments. The blended average of the applicable statutory tax rates in 2017 and 2016 were 24.1% and 36.9%, respectively.

Tax Cuts and Jobs Act of 2017

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted that significantly revises U.S. corporate income tax law by, among other things, reducing the corporate income tax rate to 21% and implementing a modified territorial tax system, that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. Net Income and diluted earnings per share as adjusted, excluding the benefit from TCJA of $258 million, is a non-GAAP measure. The tax benefit was primarily due to the TCJA’s reduction in the corporate tax rate that resulted in a remeasurement of our net deferred tax liability. We believe diluted earnings per share excluding the tax benefit is useful in evaluating our ongoing operating performance for the current period to that of other periods presented. The estimates are based on our initial analysis and current interpretation of the TCJA. Given the significant complexity of the Act, anticipated guidance from the U. S. Treasury about implementing the Act, and the potential for additional guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board related to the Act, our estimates may be refined in the future.

Weighted-Average Shares Outstanding and Diluted Earnings per Share

The computation of weighted-average shares outstanding and diluted earnings per share for the fourth quarter of 2016 excludes the effect of certain incentive compensation awards because they were anti-dilutive in consideration of our reported net loss. Adjusted diluted earnings per share for this period includes the dilutive effect of these same shares because we are reporting adjusted net income after excluding the mark-to-market pension and postretirement adjustment.

Currency-Neutral Revenue, Revenue per Piece and Operating Profit

We supplement the reporting of our revenue, revenue per piece and operating profit with similar non-GAAP measures that exclude the period-over-period impact of foreign currency exchange rate changes and hedging activities. We believe currency-neutral revenue, revenue per piece and operating profit information allows users of our financial statements to understand growth trends in our products and results. We evaluate the performance of our International Package and Supply Chain and Freight businesses on a currency-neutral basis.

Currency-neutral revenue, revenue per piece and operating profit are calculated by dividing current period reported U.S. dollar revenue, revenue per piece and operating profit by the current period average exchange rates to derive current period local currency revenue, revenue per piece and operating profit. The derived current period local currency revenue, revenue per piece and operating profit are then multiplied by the average foreign exchange rates used to translate the comparable results for each month in the prior year period (including the period over period impact of foreign currency revenue hedging activities). The difference between the current period reported U.S. dollar revenue, revenue per piece and operating profit and the derived current period U.S. dollar revenue, revenue per piece and operating profit is the period over period impact of currency fluctuations.

Free Cash Flow

We supplement the reporting of cash flows from operating activities with free cash flow and free cash flow excluding discretionary pension contributions, non-GAAP liquidity measures. We believe free cash flow is an important indicator of how much cash is generated by regular business operations and we use it as a measure of incremental cash available to invest in our business, meet our debt obligations and return cash to shareowners. We calculate free cash flow as cash flows from operating activities less capital expenditures, proceeds from disposals of property, plant and equipment, and plus or minus the net changes in finance receivables and other investing activities.

We believe free cash flow excluding discretionary pension contributions is an important indicator of how much cash is generated by regular business operations and we use it to monitor our cash flow performance. We also believe this non-GAAP measure provides investors additional useful information when evaluating our cash flows from operating activities.

Reconciliation of GAAP and non-GAAP Income Statement Data (in millions, except EPS amounts):
Three Months Ended December 31, 2017
                                   As-Reported       Defined Benefit Impact of TCJA    As-Adjusted
                                   (GAAP)            Plans MTM                         (non-GAAP)
                                                     Charges
Operating profit:
U.S. Domestic Package              $       627       $       637     $       -         $       1,264
International Package                      725               35              -                 760
Supply Chain & Freight                     142               128             -                 270
Total operating profit             $       1,494     $       800     $       -         $       2,294
Income Taxes                       $       284       $       193     $       258       $       735
Net income                         $       1,104     $       607     $       (258    ) $       1,453
Diluted earnings per share         $       1.27      $       0.70    $       (0.30   ) $       1.67
Three Months Ended December 31, 2016
                                   As-Reported       Defined Benefit Impact of TCJA    As-Adjusted
                                   (GAAP)            Plans MTM                         (non-GAAP)
                                                     Charges
Operating profit (loss):
U.S. Domestic Package              $       (570    ) $       1,908   $       -         $       1,338
International Package                      281               425             -                 706
Supply Chain & Freight                     (139    )         318             -                 179
Total operating profit             $       (428    ) $       2,651   $       -         $       2,223
Income Taxes                       $       (277    ) $       978     $       -         $       701
Net income (loss)                  $       (239    ) $       1,673   $       -         $       1,434
Diluted weighted avg. shares               876               5                                 881
Diluted earnings (loss) per share  $       (0.27   ) $       1.90    $       -         $       1.63

Note: Certain amounts may not compute due to rounding.

Reconciliation of GAAP and non-GAAP Income Statement Data (in millions, except EPS amounts):
Year Ended December 31, 2017
                            As-Reported     Defined Benefit Impact of TCJA    As-Adjusted
                            (GAAP)          Plans MTM                         (non-GAAP)
                                            Charges
Operating profit:
U.S. Domestic Package       $       4,280   $       637     $       -         $       4,917
International Package               2,464           35              -                 2,499
Supply Chain & Freight              785             128             -                 913
Total operating profit      $       7,529   $       800     $       -         $       8,329
Income Taxes                $       2,238   $       193     $       258       $       2,689
Net income                  $       4,910   $       607     $       (258    ) $       5,259
Diluted earnings per share  $       5.61    $       0.69    $       (0.29   ) $       6.01
Year Ended December 31, 2016
                            As-Reported     Defined Benefit Impact of TCJA    As-Adjusted
                            (GAAP)          Plans MTM                         (non-GAAP)
                                            Charges
Operating profit:
U.S. Domestic Package       $       3,017   $       1,908   $       -         $       4,925
International Package               2,044           425             -                 2,469
Supply Chain & Freight              406             318             -                 724
Total operating profit      $       5,467   $       2,651   $       -         $       8,118
Income Taxes                $       1,705   $       978     $       -         $       2,683
Net income                  $       3,431   $       1,673   $       -         $       5,104
Diluted earnings per share  $       3.87    $       1.88    $       -         $       5.75

Note: Certain amounts may not compute due to rounding.

Reconciliation of GAAP and non-GAAP Revenue, Revenue Per Piece and As-Adjusted Currency Neutral Operating Profit
(in millions, except Per Piece amounts):
Three Months Ended December 31
                              2017 As-     2016 As-      % Change   Currency       2017          % Change
                              Reported     Reported      (GAAP)     Impact         Currency-     (non-GAAP)
                              (GAAP)       (GAAP)                                  Neutral
                                                                                   (non-GAAP)
Average Revenue Per Piece:
International Package:
Domestic                      $     6.31   $     5.57    13.3   %   $     (0.45  ) $     5.86    5.2    %
Export                              28.50        29.50   -3.4   %         0.28           28.78   -2.4   %
Total International Package   $     16.57  $     15.90   4.2    %   $     (0.12  ) $     16.45   3.5    %
Consolidated                  $     10.19  $     9.85    3.5    %   $     (0.02  ) $     10.17   3.2    %
Revenue:
U.S. Domestic Package         $     11,835 $     10,913  8.4    %   $     -        $     11,835  8.4    %
International Package               3,753        3,335   12.5   %         (27    )       3,726   11.7   %
Supply Chain & Freight              3,241        2,683   20.8   %         (25    )       3,216   19.9   %
Total revenue                 $     18,829 $     16,931  11.2   %   $     (52    ) $     18,777  10.9   %
                              2017 As-     2016 As-      % Change   Currency       2017          % Change
                              Adjusted     Adjusted      (non-GAAP) Impact         As-           (non-GAAP)
                              (non-GAAP)   (non-GAAP)                              Adjusted
                                                                                   Currency-
                                                                                   Neutral
                                                                                   (non-GAAP)
As-Adjusted Operating Profit:
U.S. Domestic Package         $     1,264  $     1,338   -5.5   %   $     -        $     1,264   -5.5   %
International Package               760          706     7.6    %         80             840     19.0   %
Supply Chain & Freight              270          179     50.8   %         1              271     51.4   %
Total operating profit        $     2,294  $     2,223   3.2    %   $     81       $     2,375   6.8    %
Reconciliation of GAAP and non-GAAP Revenue, Revenue Per Piece and As-Adjusted Currency Neutral Operating Profit
(in millions, except Per Piece amounts):
Year Ended December 31
                            2017 As-      2016 As-       % Change  Currency        2017           % Change
                            Reported      Reported       (GAAP)    Impact          Currency-      (non-GAAP)
                            (GAAP)        (GAAP)                                   Neutral
                                                                                   (non-GAAP)
Average Revenue Per Piece:
International Package:
Domestic                    $      6.08   $      5.85    3.9     % $      (0.03  ) $      6.05    3.4     %
Export                             28.69         30.38   -5.6    %        0.95            29.64   -2.4    %
Total International Package $      16.22  $      16.29   -0.4    % $      0.41     $      16.63   2.1     %
Consolidated                $      10.53  $      10.30   2.2     % $      0.06     $      10.59   2.8     %
Revenue:
U.S. Domestic Package       $      40,764 $      38,301  6.4     % $      -        $      40,764  6.4     %
International Package              13,338        12,350  8.0     %        325             13,663  10.6    %
Supply Chain & Freight             11,770        10,255  14.8    %        (10    )        11,760  14.7    %
Total revenue               $      65,872 $      60,906  8.2     % $      315      $      66,187  8.7     %
                              2017 As-   2016 As-   % Change   Currency 2017       % Change
                              Adjusted   Adjusted   (non-GAAP) Impact   As-        (non-GAAP)
                              (non-GAAP) (non-GAAP)                     Adjusted
                                                                        Currency-
                                                                        Neutral
                                                                        (non-GAAP)
As-Adjusted Operating Profit:
U.S. Domestic Package         $   4,917  $   4,925  -0.2 %     $  -     $   4,917  -0.2 %
International Package             2,499      2,469  1.2  %        375       2,874  16.4 %
Supply Chain & Freight            913        724    26.1 %        2         915    26.4 %
Total operating profit        $   8,329  $   8,118  2.6  %     $  377   $   8,706  7.2  %
Reconciliation of GAAP and non-GAAP Liquidity Measures (in millions)
Year Ended December 31
Net Increase (Decrease) in Cash and Cash Equivalents
                                                                           2017
Cash flows from operating activities                                     $ 1,479
Cash flows used in investing activities                                    (4,975)
Cash flows from financing activities                                       3,287
Effect of exchange rate changes on cash and cash equivalents               53
Net (decrease) in cash and cash equivalents                              $ (156)
Reconciliation of Free Cash Flow (non-GAAP)
                                                                           2017
Cash flows from operating activities (GAAP)                              $ 1,479
Capital expenditures                                                       (5,227)
Proceeds from disposals of PP&E                                            24
Net change in finance receivables                                          5
Other investing activities                                                 1
Free cash flow (non-GAAP)                                                $ (3,718)
Discretionary pension contributions                                        7,291
Free cash flow, excluding discretionary pension contributions (non-GAAP) $ 3,573
United Parcel Service, Inc.
Selected Financial Data - Fourth Quarter
(unaudited)
                                             Three Months Ended
                                             December 31
                                                2017          2016       Change        % Change
(amounts in millions, except per share data)
Statement of Income Data:
Revenue:
U.S. Domestic Package                        $  11,835     $  10,913     $  922        8.4   %
International Package                           3,753         3,335         418        12.5  %
Supply Chain & Freight                          3,241         2,683         558        20.8  %
Total revenue                                   18,829        16,931        1,898      11.2  %
Operating expenses:
Compensation and benefits                       10,131        11,322        (1,191 )   -10.5 %
Other                                           7,204         6,037         1,167      19.3  %
Total operating expenses                        17,335        17,359        (24    )   -0.1  %
Operating profit:
U.S. Domestic Package                           627           (570   )      1,197      N/A
International Package                           725           281           444        158.0 %
Supply Chain & Freight                          142           (139   )      281        N/A
Total operating profit                          1,494         (428   )      1,922      N/A
Other income (expense):
Investment income and other                     23            12            11         91.7  %
Interest expense                                (129   )      (100   )      (29    )   29.0  %
Total other income (expense)                    (106   )      (88    )      (18    )   20.5  %
Income (loss) before income taxes               1,388         (516   )      1,904      N/A
Income tax expense (benefit)                    284           (277   )      561        N/A
Net income (loss)                            $  1,104      $  (239   )   $  1,343      N/A
Net income (loss) as a percentage of revenue    5.9    %      -1.4   %
Per share amounts:
Basic earnings (loss) per share              $  1.27       $  (0.27  )   $  1.54       N/A
Diluted earnings (loss) per share            $  1.27       $  (0.27  )   $  1.54       N/A
Weighted-average shares outstanding:
Basic                                           867           876           (9     )   -1.0  %
Diluted                                         872           876           (4     )   -0.5  %
As adjusted income data:
Operating profit:
U.S. Domestic Package (1)                    $  1,264      $  1,338         (74    )   -5.5  %
International Package (1)                       760           706           54         7.6   %
Supply Chain & Freight (1)                      270           179           91         50.8  %
Total operating profit (1)                      2,294         2,223         71         3.2   %
Income before income taxes (1)               $  2,188      $  2,135      $  53         2.5   %
Net income (2)                               $  1,453      $  1,434      $  19         1.3   %
Basic earnings per share (2)                 $  1.68       $  1.64       $  0.04       2.4   %
Diluted earnings per share (2)               $  1.67       $  1.63       $  0.04       2.5   %

(1) 2017 operating profit and consolidated income before income taxes exclude the impact of an increase in pension expense due to a mark-to-market loss recognized outside of a 10% corridor of $800 million, allocated between the U.S. Domestic Package segment ($637 million), International Package segment ($35 million), and Supply Chain & Freight segment ($128 million).

2016 operating profit and consolidated income before income taxes exclude the impact of an increase in pension expense due to a mark-to-market loss recognized outside of a 10% corridor of $2.651 billion, allocated between the U.S. Domestic Package segment ($1.908 billion), International Package segment ($425 million), and Supply Chain & Freight segment ($318 million).

(2) 2017 net income and earnings per share amounts exclude the after-tax impact of the adjustments described in (1), which decreased net income by $607 million. 2017 net income also excludes income tax benefits of $258 million attributable to the 2017 Tax Cuts and Jobs Act.

2016 net income and earnings per share amounts exclude the after-tax impact of the adjustments described in (1), which decreased net income by $1.673 billion. 2016 diluted earnings per share is based on weighted-average shares outstanding of 881 million, which includes the effect of 5 million dilutive shares and share equivalents.

United Parcel Service, Inc.
Selected Operating Data - Fourth Quarter
(unaudited)
                                  Three Months Ended
                                  December 31
                                                 2017                2016    Change       % Change
Revenue (in millions):
U.S. Domestic Package:
Next Day Air                      $              1,905           $   1,834   $  71        3.9  %
Deferred                                         1,429               1,301      128       9.8  %
Ground                                           8,501               7,778      723       9.3  %
Total U.S. Domestic Package                      11,835              10,913     922       8.4  %
International Package:
Domestic                                         739                 637        102       16.0 %
Export                                           2,869               2,561      308       12.0 %
Cargo and Other                                  145                 137        8         5.8  %
Total International Package                      3,753               3,335      418       12.5 %
Supply Chain & Freight:
Forwarding and Logistics                         2,272               1,813      459       25.3 %
Freight                                          758                 686        72        10.5 %
Other                                            211                 184        27        14.7 %
Total Supply Chain & Freight                     3,241               2,683      558       20.8 %
Consolidated                      $              18,829          $   16,931  $  1,898     11.2 %
Consolidated volume (in millions)                1,515               1,433      82        5.7  %
Operating weekdays                               63                  63         -         0.0  %
Average Daily Package Volume (in thousands):
U.S. Domestic Package:
Next Day Air                                     1,660               1,582      78        4.9  %
Deferred                                         1,868               1,827      41        2.2  %
Ground                                           17,069              16,142     927       5.7  %
Total U.S. Domestic Package                      20,597              19,551     1,046     5.4  %
International Package:
Domestic                                         1,859               1,815      44        2.4  %
Export                                           1,598               1,378      220       16.0 %
Total International Package                      3,457               3,193      264       8.3  %
Consolidated                                     24,054              22,744     1,310     5.8  %
Average Revenue Per Piece:
U.S. Domestic Package:
Next Day Air                      $              18.22           $   18.40   $  (0.18 )   -1.0 %
Deferred                                         12.14               11.30      0.84      7.4  %
Ground                                           7.91                7.65       0.26      3.4  %
Total U.S. Domestic Package                      9.12                8.86       0.26      2.9  %
International Package:
Domestic                                         6.31                5.57       0.74      13.3 %
Export                                           28.50               29.50      (1.00 )   -3.4 %
Total International Package                      16.57               15.90      0.67      4.2  %
Consolidated                      $              10.19           $   9.85    $  0.34      3.5  %
United Parcel Service, Inc.
Supplemental Analysis of Currency and UPS Freight
Currency Neutral Revenue Per Piece
(unaudited)
                                                Three Months Ended                                                              Currency
                                                December 31                                                                     Neutral
                                                               2017                   2016    % Change         Currency         2017*          % Change
Average Revenue Per Piece:
International Package:
Domestic                                        $              6.31            $      5.57           13.3   %  $      (0.45  )  $      5.86    5.2    %
Export                                                         28.50                  29.50          -3.4   %         0.28             28.78   -2.4   %
Total International Package                     $              16.57           $      15.90          4.2    %  $      (0.12  )  $      16.45   3.5    %
Consolidated                                    $              10.19           $      9.85           3.5    %  $      (0.02  )  $      10.17   3.2    %
* Amounts adjusted for period over period foreign currency exchange rate and hedging differences
Currency Neutral Revenue
(unaudited)
                                                Three Months Ended                                                              Currency
                                                December 31                                                                     Neutral
                                                               2017                   2016    % Change         Currency         2017*          % Change
Revenue (in millions):
U.S. Domestic Package                           $              11,835          $      10,913         8.4    %  $      -         $      11,835  8.4    %
International Package                                          3,753                  3,335          12.5   %         (27    )         3,726   11.7   %
Supply Chain & Freight                                         3,241                  2,683          20.8   %         (25    )         3,216   19.9   %
Total revenue                                   $              18,829          $      16,931         11.2   %  $      (52    )  $      18,777  10.9   %
* Amounts adjusted for period over period foreign currency exchange rate and hedging differences
As-Adjusted Currency Neutral Operating Profit
(unaudited)
                                                Three Months Ended                                                              As-Adjusted Currency
                                                December 31                                                                     Neutral
                                                2017*                          2016*          % Change         Currency         2017**         % Change
As-Adjusted Operating profit (in millions):
U.S. Domestic Package                           $              1,264           $      1,338          -5.5   %  $      -         $      1,264   -5.5   %
International Package                                          760                    706            7.6    %         80               840     19.0   %
Supply Chain & Freight                                         270                    179            50.8   %         1                271     51.4   %
Total operating profit                          $              2,294           $      2,223          3.2    %  $      81        $      2,375   6.8    %
* Amounts adjusted for Defined Benefit Plans MTM charges
** Amounts adjusted for Defined Benefit Plans MTM charges and period over period foreign currency exchange rate and hedging differences
UPS Freight Selected Operating Data - Fourth Quarter
(unaudited)
                                                Three Months Ended
                                                December 31
                                                               2017                   2016    Change           % Change
LTL revenue (in millions)                       $              653             $      604     $      49               8.1    %
LTL revenue per LTL hundredweight               $              24.63           $      23.42   $      1.21             5.2    %
LTL shipments (in thousands)                                   2,464                  2,447          17               0.7    %
LTL shipments per day (in thousands)                           40.4                   40.1           0.3              0.7    %
LTL gross weight hauled (in millions of pounds)                2,651                  2,578          73               2.8    %
LTL weight per shipment (in pounds)                            1,076                  1,054          22               2.1    %
Operating weekdays                                             61                     61             -                0.0    %
United Parcel Service, Inc.
Detail of Other Operating Expenses - Fourth Quarter
(unaudited)
(in millions)                                Three Months Ended
                                             December 31
                                                               2017                   2016   Change         % Change
Repairs and maintenance                      $                 420                $   388    $   32         8.2  %
Depreciation and amortization                                  594                    563        31         5.5  %
Purchased transportation                                       3,528                  2,823      705        25.0 %
Fuel                                                           817                    638        179        28.1 %
Other occupancy                                                310                    275        35         12.7 %
Other expenses                                                 1,535                  1,350      185        13.7 %
Total other operating expenses               $                 7,204              $   6,037  $   1,167      19.3 %
Earnings Per Share and Share Data - Fourth Quarter
(unaudited)
                                                                                  Three Months Ended
(amounts in millions, except per share data)                                      December 31
                                                                                      2017       2016
Numerator:
Net income (loss)                                                                 $   1,104  $   (239  )
Denominator:
Weighted-average shares                                                               861        870
Deferred compensation obligations                                                     1          1
Vested portion of restricted units                                                    5          5
Denominator for basic earnings (loss) per share                                       867        876
Effect of dilutive securities:
Restricted units                                                                      4          -
Stock options                                                                         1          -
Denominator for diluted earnings (loss) per share                                     872        876
Basic earnings (loss) per share                                                   $   1.27   $   (0.27 )
Diluted earnings (loss) per share                                                 $   1.27   $   (0.27 )
Detail of shares outstanding as of December 31, 2017:
Class A shares                                                                        172
Class B shares                                                                        687
Total shares outstanding                                                              859
United Parcel Service, Inc.
Selected Financial Data - Year to Date
(unaudited)
                                             Twelve Months Ended
                                             December 31
                                                2017          2016       Change       % Change
(amounts in millions, except per share data)
Statement of Income Data:
Revenue:
U.S. Domestic Package                        $  40,764     $  38,301     $  2,463     6.4  %
International Package                           13,338        12,350        988       8.0  %
Supply Chain & Freight                          11,770        10,255        1,515     14.8 %
Total revenue                                   65,872        60,906        4,966     8.2  %
Operating expenses:
Compensation and benefits                       34,588        34,770        (182  )   -0.5 %
Other                                           23,755        20,669        3,086     14.9 %
Total operating expenses                        58,343        55,439        2,904     5.2  %
Operating profit:
U.S. Domestic Package                           4,280         3,017         1,263     41.9 %
International Package                           2,464         2,044         420       20.5 %
Supply Chain & Freight                          785           406           379       93.3 %
Total operating profit                          7,529         5,467         2,062     37.7 %
Other income (expense):
Investment income and other                     72            50            22        44.0 %
Interest expense                                (453   )      (381   )      (72   )   18.9 %
Total other income (expense)                    (381   )      (331   )      (50   )   15.1 %
Income before income taxes                      7,148         5,136         2,012     39.2 %
Income tax expense                              2,238         1,705         533       31.3 %
Net income                                   $  4,910      $  3,431      $  1,479     43.1 %
Net income as a percentage of revenue           7.5    %      5.6    %
Per share amounts:
Basic earnings per share                     $  5.64       $  3.89       $  1.75      45.0 %
Diluted earnings per share                   $  5.61       $  3.87       $  1.74      45.0 %
Weighted-average shares outstanding:
Basic                                           871           883           (12   )   -1.4 %
Diluted                                         875           887           (12   )   -1.4 %
As adjusted income data:
Operating profit:
U.S. Domestic Package (1)                    $  4,917      $  4,925      $  (8    )   -0.2 %
International Package (1)                       2,499         2,469         30        1.2  %
Supply Chain & Freight (1)                      913           724           189       26.1 %
Total operating profit (1)                      8,329         8,118         211       2.6  %
Income before income taxes (1)               $  7,948      $  7,787      $  161       2.1  %
Net income (2)                               $  5,259      $  5,104      $  155       3.0  %
Basic earnings per share (2)                 $  6.04       $  5.78       $  0.26      4.5  %
Diluted earnings per share (2)               $  6.01       $  5.75       $  0.26      4.5  %

(1) 2017 operating profit and consolidated income before income taxes exclude the impact of an increase in pension expense due to a mark-to-market loss recognized outside of a 10% corridor of $800 million, allocated between the U.S. Domestic Package segment ($637 million), International Package segment ($35 million), and Supply Chain & Freight segment ($128 million).

2016 operating profit and consolidated income before income taxes exclude the impact of an increase in pension expense due to a mark-to-market loss recognized outside of a 10% corridor of $2.651 billion, allocated between the U.S. Domestic Package segment ($1.908 billion), International Package segment ($425 million), and Supply Chain & Freight segment ($318 million).

(2) 2017 net income and earnings per share amounts exclude the after-tax impact of the adjustments described in (1), which decreased net income by $607 million. 2017 net income also excludes income tax benefits of $258 million attributable to the 2017 Tax Cuts and Jobs Act.

2016 net income and earnings per share amounts exclude the after-tax impact of the adjustments described in (1), which decreased net income by $1.673 billion.

United Parcel Service, Inc.
Selected Operating Data - Year to Date
(unaudited)
                                  Twelve Months Ended
                                  December 31
                                                 2017                2016    Change       % Change
Revenue (in millions):
U.S. Domestic Package:
Next Day Air                      $              7,088           $   6,752   $  336       5.0  %
Deferred                                         4,421               4,082      339       8.3  %
Ground                                           29,255              27,467     1,788     6.5  %
Total U.S. Domestic Package                      40,764              38,301     2,463     6.4  %
International Package:
Domestic                                         2,645               2,441      204       8.4  %
Export                                           10,167              9,374      793       8.5  %
Cargo and Other                                  526                 535        (9    )   -1.7 %
Total International Package                      13,338              12,350     988       8.0  %
Supply Chain & Freight:
Forwarding and Logistics                         7,981               6,793      1,188     17.5 %
Freight                                          2,998               2,736      262       9.6  %
Other                                            791                 726        65        9.0  %
Total Supply Chain & Freight                     11,770              10,255     1,515     14.8 %
Consolidated                      $              65,872          $   60,906  $  4,966     8.2  %
Consolidated volume (in millions)                5,087               4,868      219       4.5  %
Operating weekdays                               254                 255        (1    )   -0.4 %
Average Daily Package Volume (in thousands):
U.S. Domestic Package:
Next Day Air                                     1,460               1,379      81        5.9  %
Deferred                                         1,400               1,351      49        3.6  %
Ground                                           14,061              13,515     546       4.0  %
Total U.S. Domestic Package                      16,921              16,245     676       4.2  %
International Package:
Domestic                                         1,714               1,635      79        4.8  %
Export                                           1,395               1,210      185       15.3 %
Total International Package                      3,109               2,845      264       9.3  %
Consolidated                                     20,030              19,090     940       4.9  %
Average Revenue Per Piece:
U.S. Domestic Package:
Next Day Air                      $              19.11           $   19.20   $  (0.09 )   -0.5 %
Deferred                                         12.43               11.85      0.58      4.9  %
Ground                                           8.19                7.97       0.22      2.8  %
Total U.S. Domestic Package                      9.48                9.25       0.23      2.5  %
International Package:
Domestic                                         6.08                5.85       0.23      3.9  %
Export                                           28.69               30.38      (1.69 )   -5.6 %
Total International Package                      16.22               16.29      (0.07 )   -0.4 %
Consolidated                      $              10.53           $   10.30   $  0.23      2.2  %
United Parcel Service, Inc.
Supplemental Analysis of Currency and UPS Freight
Currency Neutral Revenue Per Piece
(unaudited)
                                                Twelve Months Ended                                                             Currency
                                                December 31                                                                     Neutral
                                                               2017                   2016    % Change         Currency         2017*          % Change
Average Revenue Per Piece:
International Package:
Domestic                                        $              6.08            $      5.85           3.9    %  $      (0.03  )  $      6.05    3.4    %
Export                                                         28.69                  30.38          -5.6   %         0.95             29.64   -2.4   %
Total International Package                     $              16.22           $      16.29          -0.4   %  $      0.41      $      16.63   2.1    %
Consolidated                                    $              10.53           $      10.30          2.2    %  $      0.06      $      10.59   2.8    %
* Amounts adjusted for period over period foreign currency exchange rate and hedging differences
Currency Neutral Revenue
(unaudited)
                                                Twelve Months Ended                                                             Currency
                                                December 31                                                                     Neutral
                                                               2017                   2016    % Change         Currency         2017*          % Change
Revenue (in millions):
U.S. Domestic Package                           $              40,764          $      38,301         6.4    %  $      -         $      40,764  6.4    %
International Package                                          13,338                 12,350         8.0    %         325              13,663  10.6   %
Supply Chain & Freight                                         11,770                 10,255         14.8   %         (10    )         11,760  14.7   %
Total revenue                                   $              65,872          $      60,906         8.2    %  $      315       $      66,187  8.7    %
* Amounts adjusted for period over period foreign currency exchange rate and hedging differences
As-Adjusted Currency Neutral Operating Profit
(unaudited)
                                                Twelve Months Ended                                                             As-Adjusted Currency
                                                December 31                                                                     Neutral
                                                2017*                          2016*          % Change         Currency         2017**         % Change
As-Adjusted Operating profit (in millions):
U.S. Domestic Package                           $              4,917           $      4,925          -0.2   %  $      -         $      4,917   -0.2   %
International Package                                          2,499                  2,469          1.2    %         375              2,874   16.4   %
Supply Chain & Freight                                         913                    724            26.1   %         2                915     26.4   %
Total operating profit                          $              8,329           $      8,118          2.6    %  $      377       $      8,706   7.2    %
* Amounts adjusted for Defined Benefit Plans MTM charges
** Amounts adjusted for Defined Benefit Plans MTM charges and period over period foreign currency exchange rate and hedging differences
UPS Freight Selected Operating Data - Year to Date
(unaudited)
                                                Twelve Months Ended
                                                December 31
                                                               2017                   2016    Change           % Change
LTL revenue (in millions)                       $              2,596           $      2,384   $      212              8.9    %
LTL revenue per LTL hundredweight               $              24.08           $      23.44   $      0.64             2.7    %
LTL shipments (in thousands)                                   10,203                 9,954          249              2.5    %
LTL shipments per day (in thousands)                           40.5                   39.3           1.2              3.1    %
LTL gross weight hauled (in millions of pounds)                10,782                 10,167         615              6.0    %
LTL weight per shipment (in pounds)                            1,057                  1,021          36               3.5    %
Operating weekdays                                             252                    253            (1     )         -0.4   %
United Parcel Service, Inc.
Detail of Other Operating Expenses - Year to Date
(unaudited)
(in millions)                                Twelve Months Ended
                                             December 31
                                                 2017        2016    Change     % Change
Repairs and Maintenance                      $   1,600   $   1,538   $   62     4.0  %
Depreciation and Amortization                    2,282       2,224       58     2.6  %
Purchased Transportation                         10,989      9,129       1,860  20.4 %
Fuel                                             2,690       2,118       572    27.0 %
Other Occupancy                                  1,155       1,037       118    11.4 %
Other Expenses                                   5,039       4,623       416    9.0  %
Total Other Operating Expenses               $   23,755  $   20,669  $   3,086  14.9 %
Earnings Per Share and Share Data - Year to Date
(unaudited)
                                                         Twelve Months Ended
(amounts in millions, except per share data)             December 31
                                                             2017        2016
Numerator:
Net income                                               $   4,910   $   3,431
Denominator:
Weighted-average shares                                      865         878
Deferred compensation obligations                            1           1
Vested portion of restricted units                           5           4
Denominator for basic earnings per share                     871         883
Effect of dilutive securities:
Restricted units                                             3           3
Stock options                                                1           1
Denominator for diluted earnings per share                   875         887
Basic earnings per share                                 $   5.64    $   3.89
Diluted earnings per share                               $   5.61    $   3.87
United Parcel Service, Inc.
Consolidated Balance Sheets - December 31, 2017 and December 31, 2016
(unaudited)
       (amounts in millions)                                                   December 31,   December 31,
                                                                               2017           2016
       ASSETS
       Current Assets:
                               Cash and marketable securities                  $      4,069   $      4,567
                               Other current assets                                   11,479         9,282
                               Total Current Assets                                   15,548         13,849
       Property, Plant and Equipment                                                  48,726         43,674
                               Less accumulated depreciation and amortization         26,608         24,874
                                                                                      22,118         18,800
       Other Assets                                                                   7,737          7,728
                                                                               $      45,403  $      40,377
       LIABILITIES AND SHAREOWNERS’ EQUITY
       Current Liabilities                                                     $      12,708  $      11,730
       Long-Term Debt                                                                 20,278         12,394
       Pension and Postretirement Benefit Obligations                                 7,061          12,694
       Deferred Taxes, Credits and Other Liabilities                                  4,326          3,130
       Shareowners’ Equity                                                            1,030          429
                                                                               $      45,403  $      40,377
       Amounts are subject to reclassification.
United Parcel Service, Inc.
Selected Cash Flow Data
(unaudited)
Net Increase (Decrease) in Cash and Cash Equivalents
                                                                         Preliminary
                                                                         Year-to-Date
(amounts in millions)                                                    December 31
Cash flows from operating activities                                     $    1,479
Cash flows used in investing activities                                       (4,975 )
Cash flows from financing activities                                          3,287
Effect of exchange rate changes on cash and cash equivalents                  53
Net increase (decrease) in cash and cash equivalents                     $    (156   )
Reconciliation of Free Cash Flow (non-GAAP)
                                                                         Preliminary
                                                                         Year-to-Date
(amounts in millions)                                                    December 31
Cash flows from operating activities                                     $    1,479
Capital expenditures                                                          (5,227 )
Proceeds from disposals of PP&E                                               24
Net change in finance receivables                                             5
Other investing activities                                                    1
Free cash flow (non-GAAP)                                                $    (3,718 )
Discretionary pension contributions                                           7,291
Free cash flow, excluding discretionary pension contributions (non-GAAP) $    3,573
Amounts are subject to reclassification.
United Parcel Service, Inc.
Aircraft Fleet - As of December 31, 2017
(unaudited)
                  Owned and      Leases & Charters
Description       Capital Leases from Others       On Order Under Option
Operating:
Boeing 757-200    75             -                 -        -
Boeing 767-300    59             -                 -        -
Boeing 767-300BCF 2              -                 1        -
Airbus A300-600   52             -                 -        -
Boeing MD-11      37             -                 -        -
Boeing 747-400F   11             -                 -        -
Boeing 747-400BCF 2              -                 -        -
Boeing 747-8F     3              -                 11       14
Other             -              340               -        -
Total             241            340               12       14
Contacts:
Steve Gaut, Public Relations
404-828-8787

Scott Childress, Investor Relations
404-828-7957

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