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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
101
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, 2012 and 2011 (in millions):
Derivative Instruments in Cash
Flow Hedging Relationships
Amount of Gain (Loss) Recognized
in OCI on Derivative (Effective
Portion)
Location of Gain
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
Amount of Gain (Loss)
Reclassified from Accumulated OCI
into Income (Effective Portion)
2012 2011 2012 2011
Interest rate contracts $ (71) $ (6) Interest Expense $ (22) $ (19)
Foreign exchange contracts 84 (85) Interest Expense 24 13
Foreign exchange contracts (5) 5 Other Operating Expense — —
Foreign exchange contracts (76) 35 Revenue 61 (101)
Commodity contracts — 9 Fuel Expense — 9
Total $ (68) $ (42) $ 63 $ (98)
As of December 31, 2012, $58 million of pre-tax losses 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, 2013. 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, 2012, 2011 and 2010.
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, 2012 and 2011 (in millions):
Derivative Instruments
in
Fair Value Hedging
Relationships
Location of
Gain (Loss)
Recognized in
Income
Amount of Gain (Loss)
Recognized
in Income Hedged Items in
Fair Value Hedging
Relationships
Location of Gain
(Loss)
Recognized in
Income
Amount of Gain (Loss)
Recognized
in Income
2012 2011 2012 2011
Interest rate
contracts Interest Expense $ 20 $ 320 Fixed-Rate Debt
and Capital Leases Interest Expense $ (20) $ (320)
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.
We have entered into several interest rate basis swaps, which effectively convert cash flows based on variable LIBOR-based
interest rates to cash flows based on the prevailing federal funds interest rate. These swaps are not designated as hedges, and all
amounts related to fair value changes and settlements are recorded to interest expense in the statements of consolidated income.