UPS 2015 Annual Report Download - page 55

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
43
Depreciation and Amortization
2015 compared to 2014
Depreciation and amortization expense increased $161 million in 2015 compared with 2014, primarily due to three
factors: (1) Amortization expense increased largely due to new internally developed capitalized software, as well as intangible
assets resulting from business acquisitions; (2) Depreciation expense for buildings and facilities increased due to new leasehold
improvements and purchases of new equipment and (3) Depreciation expense on vehicles increased due to the replacement of
older, fully-depreciated vehicles, technology upgrades on new vehicles and an overall increase in the size of our vehicle fleet in
our U.S. Domestic Package and UPS Freight operations.
2014 compared to 2013
The $56 million increase in depreciation and amortization expense in 2014, compared with 2013, was primarily due to a
$45 million increase in the depreciation expense on vehicles, due to the replacement of older, fully-depreciated vehicles,
technology upgrades on vehicles and an overall increase in the size of our vehicle fleet in our U.S. Domestic Package and UPS
Freight operations. Additionally, amortization expense increased $20 million, primarily related to intangible assets resulting
from business acquisitions. These factors were partially offset by a decrease in building and facility depreciation, as several
operating facilities became fully-depreciated.
Purchased Transportation
2015 compared to 2014
The $417 million decrease in purchased transportation expense charged to us by third-party air, ocean and truck carriers in
2015 was driven by several factors:
• U.S. Domestic Package expense decreased $322 million in 2015, primarily due to the decreased use of, and lower fuel
surcharge rates passed to us from rail carriers and outside contract carriers. Additionally, adverse weather conditions in
the early months of 2014 resulted in the additional use of outside contract carriers, which impacted the comparison
with 2015.
• International Package expense decreased $64 million in 2015, primarily due to to the impact of currency exchange rate
movements and lower fuel surcharges passed from outside transportation providers. These factors were partially offset
by international volume growth.
• UPS Freight expense decreased $68 million in 2015, largely due to decreased LTL shipments and fuel efficiency, and
the resulting decreased use of, and lower fuel surcharges passed to us from, outside transportation carriers.
• The expense for Forwarding and Logistics and other businesses increased $37 million in 2015 primarily due to the
acquisition of Coyote; however, this was offset by the impact of decreased volume and tonnage in our international
and North American air freight businesses, the impact of currency exchange movements and lower fuel surcharges
passed to us from outside transportation providers.
2014 compared to 2013
The $974 million increase in purchased transportation expense charged to us by third-party air, ocean and truck carriers in
2014 was driven by several factors:
• Our U.S. Domestic Package segment incurred a $474 million increase in expense in 2014, primarily due to (1) higher
fees paid to the U.S. Postal Service associated with the volume growth in our SurePost product; (2) the increased use
of, and higher rates passed to us from, rail carriers; and (3) the increased use of outside contract carriers, which was
impacted by volume growth and rail carrier service issues; additionally, adverse weather conditions in the early months
of 2014 resulted in the additional use of outside contract carriers. Approximately $177 million of the increase, or 37%
of the total increase for the year, was attributable to the fourth quarter as a result of high seasonal volume.
• Our International Package segment incurred a $203 million increase in expense in 2014, primarily due to higher costs
incurred for the use of outside transportation providers, which was impacted by strong international volume growth.
• Our UPS Freight business incurred a $68 million increase in expense in 2014, largely due to increased LTL and
brokerage volume, and the resulting increased use of, and higher rates passed to us from, outside transportation
carriers.