UPS 2010 Annual Report Download - page 44

2009 compared to 2008
The lower operating profit in the forwarding unit was impacted by the weak global demand for forwarding
services, as well as capacity reductions by outside ocean and air freight carriers. During the latter half of 2009
and particularly in the fourth quarter, capacity constraints led to rapidly escalating rates on air freight which
could not be passed on to customers, resulting in a negative impact to operating profit and margin. The operating
profit for our logistics unit declined slightly, and was impacted by the loss incurred on the sale of some non-core
European logistics operations. However, the operating margin in this business remained stable, as costs were
reduced commensurate with the decline in revenues.
Our UPS Freight unit reported improved profitability for 2009, due to a reduction in vacation accruals
resulting from modifications in vacation policies and changes in the workforce coverage of our individual plans.
Excluding this reduction in vacation liabilities, the UPS Freight unit reported a small operating loss due to the
economic recession and difficult LTL market in the United States.
The combined operating income for all of our other businesses in this segment increased during the year.
The increase was primarily driven by a gain on sale of substantially all of our international Mail Boxes Etc.
operations during the second quarter.
Operating Expenses
Year Ended December 31, % Change
2010 2009 2008 2010 / 2009 2009 / 2008
Operating Expenses (in millions):
Compensation and Benefits ........................ $26,324 $25,640 $26,063 2.7% (1.6)%
Impact of Restructuring Charge ................ (98) — —
Adjusted Compensation and Benefits ........ 26,226 25,640 26,063 2.3% (1.6)%
Repairs and Maintenance .......................... 1,131 1,075 1,194 5.2% (10.0)%
Depreciation and Amortization ..................... 1,792 1,747 1,814 2.6% (3.7)%
Purchased Transportation ......................... 6,640 5,379 6,550 23.4% (17.9)%
Fuel .......................................... 2,972 2,365 4,134 25.7% (42.8)%
Other Occupancy ................................ 939 985 1,027 (4.7)% (4.1)%
Other Expenses ................................. 3,873 4,305 5,322 (10.0)% (19.1)%
Impact of Gain on Sale of Real Estate ............ 109 — —
Impact of Gain on Sales of Businesses ........... 20 — —
Impact of Aircraft Impairment Charge ........... — (181) —
Impact of Goodwill and Intangible Impairment
Charges ................................. — — (575)
Adjusted Other Expenses .................. 4,002 4,124 4,747 (3.0)% (13.1)%
Total Operating Expenses ......................... $43,671 $41,496 $46,104 5.2% (10.0)%
Adjusted Total Operating Expenses ................. 43,702 41,315 45,529 5.8% (9.3)%
Currency Translation (Benefit) Cost ................. $ 11 $ (390)
Compensation and Benefits
The increase in compensation and benefits expense during 2010 compared with 2009 was impacted by
several items. Payroll costs increased, largely due to higher accruals for management incentive compensation
plans resulting from improved company financial results. Union payroll costs also increased due to contractual
wage increases. These factors were partially offset by a decline in union labor hours, as well as a reduction in
management salary costs resulting from a decrease in the total number of management employees through
attrition combined with voluntary and involuntary workforce reductions.
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