UPS 2009 Annual Report Download - page 45

Compensation and Benefits
The decrease in compensation and benefits expense during 2009 compared with 2008 was impacted by
several items. A large component of this decrease was related to employee payroll costs, as union labor hours
declined as a result of lower U.S. Domestic Package volume, and management payroll declined as a result of a
reduction in the total number of management employees through attrition combined with a wage freeze. Benefits
expense increased due to higher employee health and welfare program costs, which were impacted by higher
union contribution rates, and increased pension expense. Pension expense increases resulted from higher union
contribution rates for multi-employer pension plans, combined with increased interest costs, a decrease in our
expected return on plan assets and the amortization of actuarial losses for company-sponsored plans. The interest
cost grew due to continued service accruals, while the decrease in expected return on plan assets and the actuarial
losses were primarily due to the negative asset returns experienced in 2008. The overall increase in benefits
expense was partially offset by a freeze in the company contributions to our primary employee defined
contribution savings plan.
Compensation and benefits expense increased in 2008 compared with 2007, excluding charges for the multi-
employer pension plan withdrawal, the SVSO and the France restructuring. Increased benefit expenses were
largely due to higher employee health and welfare program costs, which was impacted by medical cost inflation.
Employee payroll costs increased due to contractual wage increases for our union employees and normal merit
increases for our non-union employees.
Repairs and Maintenance
Repairs and maintenance expense declined in 2009, largely due to reduced vehicle maintenance expenses
resulting from a reduction in miles driven. The 2008 increase in repairs and maintenance was largely due to
increased aircraft maintenance, somewhat offset by reduced vehicle maintenance expense.
Depreciation and Amortization
Depreciation and amortization expense decreased in 2009, primarily as a result of lower depreciation
expense on equipment and facilities, as certain Worldport assets became fully depreciated, as well as lower
software amortization resulting from fewer new capitalized software projects. These decreases were partially
offset by higher depreciation expense on aircraft and vehicles, resulting from new deliveries in 2008 and 2009.
The increase in depreciation and amortization in 2008 resulted primarily from higher depreciation expense
on aircraft and vehicles due to new deliveries, but was partially offset by reduced amortization expense on
capitalized software resulting from a decrease in software development projects.
Purchased Transportation
The decrease in purchased transportation in 2009 was driven by a combination of lower volume in our
international package and forwarding businesses, a stronger U.S. Dollar, and decreased fuel surcharge rates
charged to us by third-party carriers as a result of lower fuel prices. The increase in purchased transportation in
2008 was attributable to a combination of higher volume in our international package and forwarding businesses,
a weaker U.S. Dollar, and increased fuel surcharge rates charged to us by third-party carriers resulting from
higher fuel prices.
Fuel
The decrease in fuel expense in 2009 was impacted by significantly lower prices for jet-A fuel, diesel, and
unleaded gasoline, as well as lower usage of these products in our operations. The increase in fuel expense in
2008 resulted from higher prices for jet-A fuel, diesel, and unleaded gasoline as well as lower hedging gains.
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