UNITED PARCEL SERVICE INC

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

Compensation and Benefits

Compensation expense decreased $247 million. The principal factors contributing to the changes were:

•Direct labor costs decreased $210 million. The impact of volume declines as well as improved productivity from outsourcing our Ground Saver product decreased direct labor costs by $423 million. These decreases were partially offset by $286 million in wage rate growth driven by increased seniority and contractual wage rate increases, and by excess operational staffing associated with outsourcing our Ground Saver product.

•Management compensation costs decreased $43 million, primarily due to lower overall headcount. For additional information on our transformation strategy, see note 16 to the unaudited, consolidated financial statements.

Benefits costs decreased $35 million. Multiemployer pension and other postretirement, paid time off, payroll taxes, health and welfare and other costs decreased $114 million primarily due to headcount reductions. Workers' compensation expense increased $67 million due to less favorable development in prior year claims, partially offset by a reduction in hours worked.

Non-GAAP adjusted operating expenses for the first quarter of 2026 and 2025 excluded the impact of costs incurred under our Transformation 2.0, Fit to Serve and Network Reconfiguration and Efficiency Reimagined initiatives, and primarily consisted of employee benefits expense and related payroll tax expense. Compensation and benefits expenses under these initiatives were $31 and $24 million in the 2026 and 2025 periods, respectively. See Supplemental Information - Items Affecting Comparability for additional discussion of items excluded from our non-GAAP financial measures.

Repairs and Maintenance

Repairs and maintenance costs increased due to higher routine expenses for repairs to buildings and facilities, and an increase in aircraft maintenance costs.

Depreciation and Amortization

Amortization expense increased $40 million primarily from capitalized software investments and additional intangible assets acquired from AHG in the fourth quarter of 2025. Depreciation expense increased $33 million due to capital asset additions and building closures from our Network Reconfigurationand Efficiency Reimagined initiative which shortened useful lives and accelerated depreciation.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers increased $34 million. The changes were primarily driven by:

•Air carrier expense increased $78 million from additional leased aircraft to address temporary capacity constraints resulting from fourth quarter 2025 aircraft retirements.

•Ocean carrier expense decreased $34 million due to product mix changes, soft demand and lower market rates.

•Ground transportation expense decreased $24 million primarily due to the impact of volume declines related to our Mail Innovations business, which was partially offset by an increase in fees paid to the USPS associated with outsourcing our Ground Saver product, and expense increases in our digital businesses due to overall growth.

Fuel Expense

Fuel expense increased $25 million mainly attributable to higher prices for jet fuel, diesel and gasoline, partially offset by the impact of lower volumes. Market prices and the manner in which we purchase fuel influence our costs. During the first quarter of 2026, the conflict in the Middle East resulted in higher fuel 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 $67 million primarily due to new lease expenses, including leases acquired in the AHG acquisition and an increase occupancy expense from weather-related events.

Other Expenses

Other expenses increased $78 million, primarily from a $39 million increase in commissions paid due to our growth in our Digital Access Program and a $29 million increase in credit losses as a result of changes in the composition of our accounts receivable and specific customer matters.

In the first quarter of 2026, non-GAAP adjusted operating expenses excluded $24 million in transformation strategy costs for fees paid to outside professional service providers. In the 2025 period, non-GAAP adjusted operating expenses excluded $39 million related to the impairment of certain assets within our digital businesses and $34 million in transformation strategy costs for fees paid to outside professional service providers.

We expect to incur additional other expenses under our Network Reconfigurationand Efficiency Reimagined programs during the remainder of 2026. See Supplemental Information - Items Affecting Comparability for additional discussion on the types, amounts and timing thereof.