UNITED PARCEL SERVICE INC

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

Compensation and Benefits

Total compensation expense decreased $20 million for the quarter (up $265 million year to date), and on a non-GAAP adjusted basis decreased $21 million for the quarter (up $271 million year to date). The principal factors contributing to the overall changes were:

•Direct labor costs increased $2 million for the quarter (up $464 million year to date) due to:

◦Wage rate growth increased $146 million for the quarter (up $406 million year to date) driven by increased seniority, contractual wage rate increases and overtime.

◦Higher international labor costs due to merit increases and weekend operations within Europe as well as an increase in flight operations payroll of $52 million for the quarter (up $169 million year to date).

◦Volume declines partially offset the increase in additional stops resulting from insourcing our Ground Saver decreasing labor costs by $179 million for the quarter (down $79 million year to date).

•Management compensation costs decreased $29 million for the quarter (down $220 million year to date), primarily due to lower overall headcount resulting from our transformation programs, partially offset by an increase in incentive compensation. Year to date, incentive compensation expense decreased. For additional information on our transformation strategy, see note 17 to the unaudited, consolidated financial statements.

Benefits costs increased $183 million for the quarter (up $209 million year to date) and, on a non-GAAP adjusted basis increased $10 million (up $6 million year to date). The principal factors driving these changes were:

•Separation costs increased $174 million for the quarter (up $215 million year to date) as we execute our transformation strategy.

•Workers' compensation expense increased $64 million for the quarter (up $74 million year to date) due to prior year claim developments and higher average claim cost, partially offset by a reduction in hours worked.

•Health and welfare costs increased $32 million for the quarter (up $97 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 decreased $46 million for the quarter (down $183 million year to date) driven by lower service cost resulting from higher discount rates and reduced multiemployer plan expense from lower participating headcount.

Non-GAAP adjusted operating expenses in the third quarter and year-to-date periods of 2025 and 2024 exclude the impact of costs incurred under our transformation strategy programs, Fit to Serve, Transformation 2.0 and Network Reconfiguration and Efficiency Reimagined initiatives, and primarily consisted of other employee benefits expense and related payroll tax expense. Compensation and benefits expenses under these programs during the third quarter of 2025 were $284 million ($358 million year to date), an increase of $174 million for the quarter (up $197 million year to date) 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

Repairs and maintenance cost increased in both the third quarter and year-to-date periods due to a number of factors including an increase in parts and labor for aircraft and rate increases for facility repairs.

Depreciation and Amortization

Depreciation and amortization expense increased in both the third quarter and year-to-date periods due to capital asset additions and building closures during the third quarter of 2025, which shortened useful lives and accelerated depreciation.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers decreased $912 million for the quarter (down $2.2 billion year to date). The changes were primarily driven by:

•Ground transportation decreased $782 million for the quarter (down $1.9 billion year to date) primarily due to the divestiture of Coyote in 2024, the impact of insourcing our Ground Saver and Mail Services products and lower overall volume.

•Third-party fuel surcharges decreased $69 million for the quarter (down $251 million year to date) primarily due to the divestiture of Coyote.

Fuel Expense

Fuel expense increased $3 million in the quarter from increased usage, partially offset by lower prices. Fuel expense was down $67 million year to date. This was mainly attributable to lower prices for jet fuel, diesel and gasoline, partially offset by the impact of increases in flight activity. 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 $31 million for the quarter (up $126 million year to date) due to an increase in property rent expense from rising occupancy rates and an increase in electrical and power utilities. Other occupancy related expenses such as taxes and weather-related costs also contributed to the overall increase in the 2025 year-to-date period.

Other Expenses

Other expenses decreased $45 million for the quarter (up $100 million year to date) and, on a non-GAAP adjusted basis, decreased $201 million for the quarter (up $70 million year to date). The principal factors contributing to the overall changes were driven by higher gains of $164 million for the quarter (net gain of $244 million year to date) primarily from the $350 million gains from the third quarter of 2025 sale-leaseback transactions and sales of surplus real estate compared to the 2024 period gain of $156 million from the divestiture of Coyote. Other expenses increased $112 million for the quarter (up $301 million year to date) driven by increased third-party consulting and legal costs, commissions, customer credit losses and airline operation expenses.

Non-GAAP adjusted operating expenses exclude the following:

•In the 2025 year-to-date period we recognized an expense of $39 million related to the write down in the value of certain assets within our UPS Digital business. In the 2024 year-to-date period we recognized an expense of $48 million related to the impairment of trade names and software.

•In the 2025 year-to-date period we recognized a gain of $20 million from the divestiture of a business within UPS Digital. In the third quarter and year-to-date period of 2024 we recognized a gain of $156 million from the divestiture of Coyote.

•Transformation strategy costs of $44 million for the quarter ($102 million year to date) as a result of third-party consulting costs associated with our transformation initiatives.

•In the 2024 year-to-date period, we incurred a total of $133 million in expenses related to regulatory matters.

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.