UNITED PARCEL SERVICE INC

The following table sets forth our consolidated operating expense for the three and nine months ended September 30, 2026 and 2025, respectively (in millions):

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

Compensation and Benefits

Compensation expense decreased $56 million for the quarter (down $240 million year to date). The principal factors contributing to the changes were

•Direct labor costs decreased $38 million for the quarter (down $346 million year to date). Lower headcount and volume declines, as well as the impact of fewer hours, decreased direct labor costs by $182 million for the quarter (down $872 million year to date). These decreases were partially offset by an increase of $117 million for the quarter (up $532 million year to date) in contractual wage rate increases and additional labor costs in the first quarter of 2026 associated with outsourcing our Ground Saver product.

•Management compensation costs decreased $34 million for the quarter primarily due to lower incentive compensation and lower overall headcount. Management compensation costs increased $111 million year to date primarily reflecting higher incentive compensation expense, partially offset by the impact of lower overall headcount.

Benefits costs decreased $255 million for the quarter (up $675 million year to date). Employee benefits decreased $163 million for the quarter due to decreases in separation costs. Employee benefits were up $836 million year to date primarily from separation costs associated with the Driver Choice Program. Multiemployer pension and other postretirement benefits costs, paid time off, payroll taxes, health and welfare and other costs decreased $126 million for the quarter (down $278 million year to date) primarily due to the impact of lower overall headcount. Workers' compensation expense increased $34 million for the quarter (up $117 million year to date) due to an increase in current year claim costs and unfavorable development in prior year claims, partially offset by the impact of a reduction in overall hours worked.

Non-GAAP adjusted operating expenses for the quarter and year-to-date periods of 2026 and 2025 exclude 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, including related payroll tax expense, under these initiatives were $113 million and $284 million in the third quarters of 2026 and 2025, respectively, and $1.3 billion and $358 million in the 2026 and 2025 year-to-date 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 $6 million for the quarter (up $100 million year to date) with the year-to-date increase primarily driven by higher aircraft maintenance costs and routine repair expenses for buildings and facilities.

Depreciation and Amortization

Depreciation and amortization expense increased for the quarter and year-to-date periods due to capital asset additions and the impact of building closures, which resulted in shortened useful lives and accelerated depreciation, as well as higher amortization costs related to software investments and the impact of amortization of assets from the acquisition of AHG in the fourth quarter of 2025.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers increased $812 million for the quarter (up $1.5 billion year to date). The changes were primarily driven by:

•Ground transportation expense increased $577 million for the quarter (up $915 million year to date) primarily due to an increase in fees paid to the USPS associated with outsourcing our Ground Saver product and increases in expense related to our digital businesses due to overall growth.

•Air carrier expense increased $124 million for the quarter (up $377 million year to date) from additional leased aircraft expense to address temporary capacity constraints resulting from aircraft retirements, net of vendor recoveries for costs incurred during the fourth quarter 2025, an increase in air freight market rates, and additional charter utilization associated with network disruptions from the Middle East conflict.

•Rail and other expense increased $111 million for the quarter (up $219 million year to date) primarily resulting from higher fuel surcharges.

Fuel Expense

Fuel expense reflects costs for fuel we purchase directly for use in our operations. Fuel expense increased $473 million for the quarter (up $1.1 billion year to date) mainly attributable to higher prices for jet fuel, diesel and gasoline, partially offset by the impact of lower volume. Fuel surcharges from third-party transportation providers are recorded within purchased transportation.

Other Occupancy

Other occupancy expense increased $24 million for the quarter (up $104 million year to date) primarily due to new lease expenses, including leases acquired in the AHG acquisition, and higher property taxes. The year-to-date increase also reflected higher costs associated with weather-related events.

Other Expenses

Other expenses increased $455 million for the quarter (up $615 million year to date) primarily due to a $304 million decrease in gains ($265 million year to date) largely associated with 2025 sale-leaseback transactions that did not recur and the $182 million goodwill impairment charge within our HLD reporting unit, partially offset by an increase in gains on sales of real estate in 2026. For additional information on this goodwill impairment charge, see note 7 to the unaudited consolidated financial statements. DAP expenses increased $42 million for the quarter (up $134 million year to date) due to business growth, auto liability insurance increased $40 million for the quarter (up $62 million year to date) due to higher claims and unfavorable development in prior year claims. Additionally, year-to-date, technology expense increased $82 million due to higher software costs and application fees, and credit losses increased $25 million as a result of changes in the composition of our accounts receivable. These increases were partially mitigated by $130 million in gains for the quarter ($199 million year to date) from sales of aircraft parts, which offset higher air carrier expense of $124 million for the quarter ($377 million year to date) included in purchased transportation.

In 2026, non-GAAP adjusted operating expenses exclude the $182 million HLD goodwill impairment charge, transformation strategy costs, consisting of fees paid to outside professional service providers, and $43 million in gains on sales of certain previously impaired aircraft parts. In 2025, non-GAAP adjusted operating expenses exclude the impact of the divestiture of a business within SCS and transformation strategy costs for fees paid to outside professional service providers.

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