UPS 2005 Annual Report Download - page 96

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2005, $64 million in gains related to cash flow hedges that are currently deferred in
OCI are expected to be reclassified to income over the 12 month period ending December 31, 2006. The actual
amounts that will be reclassified to income over the next 12 months will vary from this amount as a result of
changes in market conditions. No amounts were reclassified to income during 2005 in connection with forecasted
transactions that were no longer considered probable of occurring.
At December 31, 2005, the maximum term of derivative instruments that hedge forecasted transactions,
except those related to cross-currency interest rate swaps on existing financial instruments, was two years. We
maintain cross-currency interest rate swaps that extend through 2009.
Fair Value of Financial Instruments
At December 31, 2005 and 2004, our financial instruments included cash and cash equivalents, marketable
securities and short-term investments, accounts receivable, finance receivables, accounts payable, short-term and
long-term borrowings, and commodity, interest rate, foreign currency, and equity options, forwards, and swaps.
The fair values of cash and cash equivalents, accounts receivable, and accounts payable approximate carrying
values because of the short-term nature of these instruments. The fair value of our marketable securities and
short-term investments is disclosed in Note 2, finance receivables in Note 3, and debt instruments in Note 8.
NOTE 17. MENLO RESTRUCTURING PROGRAM AND RELATED EXPENSES
In February 2005, we announced our intention to transfer operations currently taking place at the Menlo
Worldwide Forwarding facility in Dayton, Ohio to other UPS facilities over approximately 12 to 18 months. This
action is being taken to remove redundancies between the Menlo Worldwide Forwarding and existing UPS
transportation networks, and thus provide efficiencies and better leverage the current UPS facilities in the
movement of air freight. During the third quarter of 2005, we finalized our plans to exit the Dayton facility, as
well as various other Menlo Worldwide Forwarding facilities, and accrued certain costs related to employee
severance, lease terminations, and related items. As part of this program, the recorded value of the Dayton
facility was reduced to its fair market value as of the date of the acquisition. These accrued costs, and related
reductions in the fair value of recorded assets, resulted in an adjustment to the amount of goodwill initially
recorded in the Menlo Worldwide Forwarding acquisition.
The total cost of the program is estimated at $229 million, of which $160 million resulted in an adjustment
of the purchase price allocation of Menlo Worldwide Forwarding. The remaining $69 million of the total
program cost relates to integration activities, such as employee relocations, the moving of inventory and fixed
assets, and the consolidation of information systems, and are therefore being expensed as incurred. The program
will be completed by the end of 2006.
Set forth below is a summary of activity related to the restructuring program and resulting liability for 2005
(in millions):
Employee
Severance
Asset
Impairment
Facility
Consolidation Other Total
Balance at January 1, 2005 .......................... $— $— $— $— $—
Costs accrued ..................................... 31 56 48 25 160
Cashspent ....................................... (7) — (1) — (8)
Charges against assets .............................. — (56) — — (56)
Balance at December 31, 2005 ....................... $ 24 $— $ 47 $ 25 $ 96
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