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 the quarter.

Compensation costs increased $235 million for the quarter, and on a non-GAAP adjusted basis increased $236 million for the quarter. The principal factors contributing to the overall increase were:

•Direct labor costs increased $274 million. Additional stops driven by the impact of insourcing our Ground Saver product increased direct labor costs by $298 million for the quarter. Wage rate growth increased $132 million driven by increased seniority within our union workforce, contractual wage rate increases for our U.S. union workforce and higher overtime. These increases were partially offset by the impact of decreases in volume, which reduced direct labor expense by $199 million. Growth in compensation expense is expected to be partially offset by the anticipated impact from workforce reductions as we execute on our Network Reconfiguration and Efficiency Reimagined initiatives.

•Management compensation costs decreased $29 million for the quarter due to lower overall headcount, partially offset by higher long-term incentive compensation expense, which was lower in the 2024 period.

Benefits costs decreased $47 million and on a non-GAAP adjusted basis decreased $41 million. The principal factors driving the change were:

•Pension and other postretirement benefits costs decreased $81 million. These reductions were driven by demographic updates and workforce reductions, a decrease in the cost of company-sponsored defined benefit plans, driven by lower service cost resulting from higher discount rates, and decreased expense for multiemployer plans.

•Accruals for paid time off, payroll taxes and other costs increased $23 million primarily due to the impact of insourcing our Ground Saver product.

•Health and welfare costs increased $18 million, driven by increased contributions to multiemployer plans as a result of contractually-mandated rate increases.

Non-GAAP adjusted operating expenses in both periods exclude the impact of costs incurred under our transformation strategy programs, Fit to Serve, Transformation 2.0 and Network Reconfiguration and Efficiency Reimagined, and primarily impacted other employee benefits expense and related payroll tax expense. Compensation and benefits expenses under these programs during the first quarter of 2025 were $24 million, a decrease of $7 million as compared to the same period of 2024. See Supplemental Information - Items Affecting Comparability for additional discussion of items excluded from our non-GAAP financial measures.

Repairs and Maintenance

Increased expense incurred for repairs and maintenance was driven by increased network usage.

Depreciation and Amortization

Depreciation and Amortization expense increased due to capital asset additions.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers decreased $516 million for the quarter. The decreases were primarily driven by a decrease of $468 million attributable to the impact of the disposition of Coyote in the third quarter of 2024, and a $344 million decrease relating to the impact of insourcing our Ground Saver product.

These decreases were partially offset by an increase of $182 million driven by higher rates in our mail services business and an increase of $108 million in our International Package segment expense, driven by higher volumes.

Fuel Expense

Fuel expense was relatively flat as decreases due to reduced rates for jet fuel, diesel and gasoline were largely offset by the impact of increases in air volumes. 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 $43 million for the quarter, primarily due to increases in weather-related costs, primarily snow removal.

Other Expenses

Other expenses increased $46 million, and on a non-GAAP adjusted basis, increased $76 million. The principal factors contributing to the increases were:

•Commissions paid increased $48 million primarily due to growth in our Digital Access Program.

•Auto liability insurance increased $42 million driven by the unfavorable development of old claims.

•Expenses related to our airline operations increased $26 million, primarily due to increased flight activity.

•Claims expense increased $18 million due to an increase in the volume of customer claims.

These increases were offset in part by a decrease of $25 million in credit losses as a result of changes in the composition of our accounts receivable and improved customer collections, and a $32 million gain related to the sale of a property which we subsequently leased.

Non-GAAP adjusted operating expenses exclude the impact of:

•Transformation strategy costs of $34 million, an increase of $19 million compared to the first quarter of 2024.

•Goodwill and asset impairment charges of $39 million, a decrease of $9 million compared to the first quarter of 2024. During the quarter we recognized expense of $39 million related to the write down in the value of certain assets within one of our Supply Chain Solutions businesses. In 2024 we recognized expense of $48 million related to the impairment of trade names and software.

•In the first quarter of 2024 we incurred a $40 million expense related to a regulatory matter. We did not have any similar charges in the first quarter of 2025.

We expect to incur additional other expenses under our Fit to Serve, Transformation 2.0, Network Reconfigurationand Efficiency Reimagined programs during the remainder of 2025. See Supplemental Information - Items Affecting Comparability for additional discussion on the types, amounts and timing thereof.