UPS 2015 Annual Report Download - page 53

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
41
Operating Expenses
Year Ended December 31, % Change
2015 2014 2013 2015/ 2014 2014/ 2013
Operating Expenses (in millions):
Compensation and Benefits: $ 31,028 $ 32,045 $ 28,557 (3.2)% 12.2 %
Defined Benefit Plans Mark-to-Market Charge (118)(1,062)—
Health & Welfare Plan Charges —(1,102)—
Adjusted Compensation and Benefits 30,910 29,881 28,557 3.4 % 4.6 %
Repairs and Maintenance 1,400 1,371 1,240 2.1 % 10.6 %
Depreciation and Amortization 2,084 1,923 1,867 8.4 % 3.0 %
Purchased Transportation 8,043 8,460 7,486 (4.9)% 13.0 %
Fuel 2,482 3,883 4,027 (36.1)% (3.6)%
Other Occupancy 1,022 1,044 950 (2.1)% 9.9 %
Other Expenses: 4,636 4,538 4,277 2.2 % 6.1 %
TNT Termination Fee and Related Expenses ——
(284)
Gain Upon Liquidation of Foreign Subsidiary — — 245
Adjusted Other Expenses 4,636 4,538 4,238 2.2 % 7.1 %
Total Operating Expenses $ 50,695 $ 53,264 $ 48,404 (4.8)% 10.0 %
Adjusted Total Operating Expenses $ 50,577 $ 51,100 $ 48,365 (1.0)% 5.7 %
Currency Translation Cost / (Benefit)* $ (1,137) $ (141)
* Amount represents the change compared to the prior year.
Compensation and Benefits
2015 compared to 2014
Employee payroll costs increased $351 million in 2015, compared with 2014, largely due to contractual union wage rate
increases, a 1.2% increase in union labor hours, higher incentive compensation and a merit salary increase for management
employees, partially offset by productivity improvements and the impact of currency exchange rates. The increase in average
daily union labor hours was impacted by volume growth. Additionally, adverse weather conditions in the early part of 2014
contributed to a decrease in labor hours in the comparison between 2015 and 2014.
Adjusted benefits expense increased $679 million in 2015, primarily due to increased pension costs, health and welfare
costs, workers compensation expenses, vacation, holiday and excused absence expenses and payroll taxes. These factors are
discussed further as follows:
• Adjusted pension costs increased $333 million in 2015, due to increased expenses in both company-sponsored pension
plans (largely due to lower discount rates used to determine ongoing pension cost for 2015) and multiemployer
pension plans (due to both increased contribution rates and higher union labor hours).
• Health and welfare costs increased $275 million in 2015, largely due to contractual contribution rate increases and
higher union labor hours.