UPS 2009 Annual Report Download - page 46

Other Occupancy
The decrease in other occupancy expense in 2009 was primarily caused by lower electricity and natural gas
costs, as well as lower rent expense. The 2008 increase in other occupancy expense resulted from higher rent,
property tax, electricity and natural gas expense. The changes in both years were significantly impacted by
changes in energy commodity prices.
Other Expenses
The decline in other expenses in 2009, exclusive of impairment charges, was due in part to certain variable
costs that declined as a result of lower package volume, such as the expense associated with customer claims for lost
or damaged packages, rent expense for transportation equipment, cargo handling costs, and aircraft landing fees.
Additionally, certain other costs declined primarily as a result of cost containment programs, such as employee
expense reimbursements, office supplies, professional services, and advertising costs.
The increase in other expenses in 2008, exclusive of impairment charges, was attributable to increased
expenses for leased transportation equipment, data processing, advertising, professional services, and bad debts.
Investment Income and Interest Expense
Year Ended December 31, % Change
2009 2008 2007 2009 / 2008 2008 / 2007
Investment Income and Interest Expense (in millions):
Investment Income .................................... $ 10 $ 75 $ 99 (86.7)% (24.2)%
Interest Expense ...................................... $(445) $(442) $(246) 0.7% 79.7%
Impact of Currency Remeasurement Charge ............ 77 — —
Adjusted Interest Expense ...................... (368) (442) (246) (16.7)% 79.7%
Investment Income
The 2009 decline was largely due to a lower average balance of interest-earning investments, a significantly
lower yield earned on our invested assets as a result of declines in short-term interest rates in the United States,
and a loss on the fair value adjustments of certain investment partnerships. The 2008 decline was primarily due
to a lower average balance of interest-earning investments, a lower yield earned on our investments, and
impairment losses.
During the second quarter of 2009, we recorded impairment losses on certain perpetual preferred securities,
and an auction rate security collateralized by preferred securities, issued by large financial institutions.
The impairment charge resulted from conversion offers from the issuers of these securities at prices well below
the stated redemption value of the preferred shares. These securities, which had a cost basis of $42 million, were
written down to their fair value of $25 million as of June 30, 2009, resulting in an other-than-temporary
impairment of $17 million.
During the third quarter of 2008, we recorded impairment losses on two auction rate securities that were
collateralized by preferred stock issued by the Federal National Mortgage Association (“FNMA”) and the
Federal Home Loan Mortgage Corporation (“FHLMC”). The impairment resulted from actions by the U.S.
Treasury Department and the Federal Housing Finance Agency to place FNMA and FHLMC under
conservatorship. Additionally, we recorded impairment losses on a municipal auction rate security and on
holdings of several medium term notes issued by Lehman Brothers Inc., which declared bankruptcy during the
third quarter of 2008. The total of these credit-related impairment losses was $23 million.
Interest Expense
Excluding the currency remeasurement charge, the 2009 decrease in interest expense was largely due to lower
average debt balances and lower average interest rates incurred on variable rate debt and interest rate swaps.
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