UNITED PARCEL SERVICE INC

(1) Amount represents the change in currency translation compared to the prior year.

Compensation and Benefits

Total compensation and benefits and non-GAAP adjusted total compensation and benefits increased for both the quarter and year-to-date periods. Compensation costs increased $363 million for the quarter (up $719 million year to date), and on a non-GAAP adjusted basis increased $363 million for the quarter (up $716 million year to date). The principal factors contributing to the overall increase were:

•Direct labor costs increased $384 million for the quarter (up $933 million year to date). Contractual wage rate increases for our U.S. union workforce resulted in an increase in costs of $123 million for the quarter (up $750 million year to date). Productivity improvements reduced direct labor costs by $87 million for the quarter (down $116 million year to date). Volume growth increased direct labor expense by $238 million for the quarter and $46 million year to date, as growth during the third quarter more than offset decreases during the first half of 2024. The remaining increase for both the quarter and year-to-date periods was primarily due to increased seniority within our union workforce. We expect wage rate growth to moderate for the remainder of the year as a result of the terms of our IBT contract.

•Management compensation costs decreased $34 million for the quarter (down $188 million year to date) due to lower overall headcount, offset by higher incentive compensation expense.

Benefits costs increased $64 million for the quarter (up $190 million year to date) and on a non-GAAP adjusted basis increased $95 million for the quarter (up $271 million year to date). The principal factors driving the overall increase were:

•Workers' compensation expense decreased $102 million for the quarter (down $192 million year to date) due to favorable developments in prior year claims.

•Accruals for paid time off, payroll taxes and other costs increased $80 million for the quarter (up $274 million year to date), primarily due to contractual wage rate growth.

•Health and welfare costs increased $62 million for the quarter (up $152 million year to date), driven by increased contributions to multiemployer plans as a result of contractually-mandated rate increases.

•Pension and other postretirement benefits costs increased $40 million for the quarter (up $23 million year to date), due primarily to third quarter increases in both the cost of company-sponsored defined benefit plans, driven by service cost resulting from lower discount rates, and increased expense for the UPS 401(k) Savings Plan.

•Other employee benefits expense decreased $14 million for the quarter (down $66 million year to date) due to higher separation costs incurred in 2023 as we continued to right-size our business. On a non-GAAP adjusted basis, other employee benefits expense remained relatively flat.

Non-GAAP adjusted operating expenses exclude the impact of costs incurred under our transformation strategy programs, Fit to Serve and Transformation 2.0, and primarily impacted other employee benefits expense and related payroll tax expense as discussed above. Compensation and benefit expenses under these programs during the third quarter of 2024 were $110 million ($161 million year to date). These costs increased by $30 million (down $17 million year to date) as compared to the same periods of 2023. During 2023, non-GAAP adjusted operating expenses excluded a one-time compensation payment. See Supplemental Information - Items Affecting Comparability for additional discussion.

Repairs and Maintenance

Repairs and maintenance expense was relatively flat for the quarter, as higher vehicle maintenance expenses, driven by increased volume, were more than offset by lower aircraft and facilities expense due to the timing of required maintenance and revisions to 2024 contractual aircraft maintenance rates. Year-to-date repairs and maintenance expense increased, primarily attributable to higher routine repairs to buildings and facilities in the first half of the year.

Depreciation and Amortization

We incurred higher depreciation expense for both the quarter and year to date as a result of facility automation and expansion projects aligned with our strategic objectives. Amortization expense for capitalized software investments in support of our strategic initiatives increased for both the quarter and year to date, and we recorded additional amortization expense for intangible assets arising from the acquisitions of MNX Global Logistics and Happy Returns in the fourth quarter of 2023.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers increased for both the quarter and year to date. The increases were primarily driven by:

•U.S. Domestic expense increased $140 million for the quarter (up $58 million year to date). Volume growth in our SurePost product drove an increase in delivery costs of $116 million for the quarter (up $248 million year to date). For the quarter, volume increases also resulted in higher utilization of third-party ground and rail carriers. Year to date, third quarter increases more than offset decreases in the first half of the year, which were driven by the impact of network optimization initiatives resulting in lower utilization of third-party ground and rail carriers, and by volume declines in the first quarter.

•Supply Chain Solutions expense increased $85 million for the quarter (up $27 million year to date) as increased expense in our freight forwarding business during the third quarter more than offset lower expenses during the first half of the year. Within our Logistics businesses, expense increased $100 million for the quarter ($212 million year to date), primarily driven by the impact of the acquisition of MNX Global Logistics and volume growth in our healthcare operations, during the first half of the year, and in mail services, during the third quarter. In our freight forwarding business, expense increased $78 million for the quarter (up $29 million year to date) due to market rates increasing in the second and third quarters offsetting lower rates in the first quarter. Volume growth within our digital businesses also resulted in increased expense for both the quarter and year to date. These increases more than offset the impact of Coyote, the disposition of which was completed in September and which experienced volume declines and lower market rates prior to divestiture.

•International Package expense increased $36 million for the quarter but was relatively flat year to date. Higher utilization of third-party transportation services in the quarter, driven by an increase in volume in Europe and Asia, were more than offset by lower volumes in the first quarter resulting in lower expense for third-party transportation services.

Fuel

The decrease in fuel expense for the quarter was mainly attributable to lower prices for jet fuel, diesel and gasoline, which more than offset expense increases driven by volume growth. Year to date, overall fuel expense also decreased, driven by the combination of lower prices for jet fuel and the impact of volume declines in the first quarter, as well as lower prices for diesel and gasoline. Market prices and the manner in which we purchase fuel influence our costs. The majority of our fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential. While many of the indices are correlated, each index may respond differently to changes in underlying prices, which in turn can drive variability in our costs.

Other Occupancy

Other occupancy expense increased for both the quarter and year to date, primarily due to increases in property rents. A reduction in certain rebates and increases to temporary structural costs in the second and third quarters also contributed to the increase.

Other Expenses

Other expenses decreased $180 million for the quarter (down $201 million year to date). During the quarter, we completed the divestiture of Coyote and recorded a pre-tax gain of $156 million. Transformation strategy costs increased $30 million for the quarter ($8 million year to date). We recorded an additional pre-tax expense of $45 million in the first half of 2024 related to a regulatory matter. Also in the first half of 2024, we recorded a $41 million pre-tax charge to write down the value of certain trade names acquired as part of our acquisition of Bomi Group as we consolidated our brands, a $7 million pre-tax impairment charge related to software licenses and a $94 million pre-tax payment, including interest, made to settle a previously-disclosed international regulatory matter.

On a non-GAAP adjusted basis, other expenses increased $63 million for the quarter (down $109 million year to date). These fluctuations were primarily driven by:

•A reduction in outsourcing and consulting fees of $9 million for the quarter (down $119 million year to date) driven by a decrease in project-based engagements and an increase in third-party costs related to software development projects that are eligible to be capitalized.

•Reductions in vehicle lease expense of $24 million for the quarter (down $121 million year to date), due to the impact of network optimization efforts and volume declines in the first quarter.

•Gains from the sale of surplus real estate decreased by $45 million during the quarter (down $55 million year to date).

•Credit losses increased $18 million for the quarter (up $83 million year to date) as a result of an increased number of customer bankruptcies in the first half of the year and increases in reserves.

•Commissions paid increased $23 million for the quarter (up $14 million year to date) primarily due to growth in our Digital Access Program.

Other expense movements for the current quarter included higher costs for software. Cost related to airline operations increased primarily due to increased flight activity. These were offset by lower marketing and advertising costs.

Non-GAAP adjusted operating expenses exclude the impact of costs incurred under our transformation strategy programs. Other expenses under our Fit to Serve and Transformation 2.0 programs during the third quarter of 2024 were $44 million ($66 million year to date). These costs increased by $30 million (up $8 million year to date) as compared to the same periods of 2023. We expect to incur additional other expenses under our Fit to Serve and Transformation 2.0 programs during 2024 and 2025 as we complete these programs. Other expenses incurred under these programs are primarily related to fees paid to outside professional service providers and impairment charges resulting from our business portfolio review. See Supplemental Information - Items Affecting Comparability for additional discussion.