UPS 2015 Annual Report Download - page 54

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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• Workers compensation expense increased $36 million in 2015. Insurance reserves are established for estimates of the
loss that we will ultimately incur on reported worker's compensation claims, as well as estimates of claims that have
been incurred but not reported, and take into account a number of factors including our history of claim losses, payroll
growth and the impact of safety improvement initiatives. In 2015, we experienced less favorable actuarial expense
adjustments than the prior year as well as increased program costs and taxes.
• Vacation, holiday and excused absence expense increased $32 million in 2015, due to an increase in the overall
number of employees and increased vacation entitlements earned based on employees' years of service; however, these
factors were partially offset by the impact of currency exchange rates.
2014 compared to 2013
Employee payroll costs increased $1.054 billion in 2014, compared with 2013, largely due to contractual union wage rate
increases, a 7.5% increase in average daily union labor hours, and a merit salary increase for management employees. The
increase in average daily union labor hours was impacted by volume growth, as well as additional training hours for the
seasonal fourth quarter staffing increase. Additionally, adverse weather conditions in the early part of 2014 contributed to an
increase in labor hours in the year over year comparison.
Adjusted benefits expense increased $270 million in 2014, primarily due to increased health and welfare costs, payroll
taxes, and vacation, holiday and excused absence expenses. However, these factors were partially offset by a reduction in
pension costs and workers compensation expense. These factors are discussed further as follows:
• Adjusted health and welfare costs increased $221 million in 2014, largely due to higher medical claims in company-
sponsored plans, increased contributions to multiemployer plans and the impact of several provisions of the Patient
Protection and Affordable Care Act of 2010. The growth in multiemployer plan contributions was impacted by
contractual contribution rate increases and higher union labor hours.
• Payroll taxes increased $73 million in 2014, primarily as a result of higher union labor hours, union wage rate
increases and higher management incentive compensation payments.
• Vacation, holiday and excused absence expense increased $41 million in 2014, due to an increase in the overall
number of employees and increased vacation entitlements earned based on employees' years of service.
• Adjusted pension costs declined $23 million in 2014, as a decrease in the expense for company-sponsored pension
plans (largely due to higher discount rates used to determine pension cost for 2014) was largely offset by higher
contributions to multiemployer pension plans (due to both increased contribution rates and higher union labor hours).
• Workers compensation expense decreased $69 million in 2014, impacting all segments. Insurance reserves are
established for estimates of the loss that we will ultimately incur on reported worker's compensation claims, as well as
estimates of claims that have been incurred but not reported, and take into account a number of factors including our
history of claim losses, payroll growth and the impact of safety improvement initiatives. In 2014, we experienced
favorable actuarial expense adjustments as the frequency and severity of claims was less than previously projected,
due to the impact of ongoing operational safety improvement and claim management initiatives.
Repairs and Maintenance
2015 compared to 2014
The $29 million increase in repairs and maintenance expense in 2015 was primarily due to an increase in airframe and
aircraft engine repair and component replacement costs, largely in our Boeing 747 and 767 aircraft fleets. The remaining
increase was largely due to increased vehicle maintenance costs in our global package and freight operations, primarily due to
the growth in the size of our vehicle fleet.
2014 compared to 2013
The $131 million increase in repairs and maintenance expense in 2014 was primarily due to a $93 million increase in
airframe and aircraft engine repair and component replacement costs, largely in our Boeing 747 and 767 aircraft fleets. The
remaining increase was largely due to increased vehicle maintenance costs in our global package and freight operations,
primarily due to the growth in the size of our vehicle fleet.