UPS 2011 Annual Report Download - page 131

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income Statement Recognition
The following table indicates the amount and location in the statements of consolidated income in which
derivative gains and losses, as well as the related amounts reclassified from AOCI, have been recognized for
those derivatives designated as cash flow hedges for the years ended December 31, 2011 and 2010 (in millions):
Derivative Instruments in Cash
Flow Hedging Relationships
2011 Amount of
Gain (Loss)
Recognized in
OCI on
Derivative
(Effective
Portion)
2010 Amount of
Gain (Loss)
Recognized in
OCI on
Derivative
(Effective
Portion)
Location of Gain
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
2011 Amount of
Gain (Loss)
Reclassified from
Accumulated
OCI into Income
(Effective
Portion)
2010 Amount of
Gain (Loss)
Reclassified from
Accumulated
OCI into Income
(Effective
Portion)
Interest rate contracts .... $ (6) $ 7 Interest Expense $ (19) $ (18)
Foreign exchange
contracts ............ (85) (48) Interest Expense 13 (27)
Foreign exchange
contracts ............ 5 — Other Operating Expense — —
Foreign exchange
contracts ............ 35 30 Revenue (101) 96
Commodity contracts .... 9 — Fuel Expense 9 —
Total ............. $(42) $ (11) $ (98) $ 51
As of December 31, 2011, $83 million of pre-tax gains related to cash flow hedges that are currently
deferred in AOCI are expected to be reclassified to income over the 12 month period ended December 31, 2012.
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.
The amount of ineffectiveness recognized in income on derivative instruments designated in cash flow
hedging relationships was immaterial for the years ended December 31, 2011, 2010 and 2009.
The following table indicates the amount and location in the statements of consolidated income in which
derivative gains and losses, as well as the associated gains and losses on the underlying exposure, have been
recognized for those derivatives designated as fair value hedges for the years ended December 31, 2011 and 2010
(in millions):
Derivative Instruments in
Fair Value Hedging
Relationships
Location of
Gain (Loss)
Recognized in
Income
2011
Amount of
Gain
(Loss)
Recognized
in Income
2010
Amount of
Gain
(Loss)
Recognized
in Income
Hedged Items in
Fair Value Hedging
Relationships
Location of Gain
(Loss)
Recognized in
Income
2011
Amount of
Gain
(Loss)
Recognized
in Income
2010
Amount of
Gain
(Loss)
Recognized
in Income
Interest rate
contracts ..........Interest Expense $320 $134
Fixed-Rate Debt
and Capital Leases Interest Expense $(320) $(134)
Additionally, we maintain some foreign exchange forward and interest rate swap contracts that are not
designated as hedges. These foreign exchange forward contracts are intended to provide an economic offset to
foreign currency remeasurement risks for certain assets and liabilities in our consolidated balance sheets. These
interest rate swap contracts are intended to provide an economic hedge of a portfolio of interest bearing
receivables. The income statement impact of these hedges was not material for any period presented.
We also periodically terminate interest rate swaps and foreign currency options by entering into offsetting
swap and foreign currency positions with different counterparties. As part of this process, we de-designate our
original swap and foreign currency contracts. These transactions provide an economic offset that effectively
eliminates the effects of changes in market valuation.
119