United Parcel Service, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT (Tables)

DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT (Tables)

12 Months Ended

Dec. 31, 2012

Notional Amounts of Outstanding Derivative Positions

The notional amounts of our outstanding derivative positions were as follows as of December 31, 2012 and 2011 (in millions):



		2012	2011
Currency Hedges:
Euro	EUR	1,783	1,685
British Pound Sterling	GBP	797	870
Canadian Dollar	CAD	341	318
United Arab Emirates Dirham	AED	551	—
Malaysian Ringgit	MYR	500	—

Interest Rate Hedges:
Fixed to Floating Interest Rate Swaps	USD	7,274	6,424
Floating to Fixed Interest Rate Swaps	USD	781	791
Interest Rate Basis Swaps	USD	2,500	—

Balance sheet location of derivative assets and liabilities and their related fair values

The following table indicates the location on the balance sheet in which our derivative assets and liabilities have been recognized, and the related fair values of those derivatives as of December 31, 2012 and 2011 (in millions). The table is segregated between those derivative instruments that qualify and are designated as hedging instruments and those that are not, as well as by type of contract and whether the derivative is in an asset or liability position.



Asset Derivatives	Balance Sheet Location	Fair Value Hierarchy Level	2012		2011
Derivatives designated as hedges:
Foreign exchange contracts	Other current assets	Level 2	$	27	$	164
Interest rate contracts	Other current assets	Level 2	1		—
Foreign exchange contracts	Other non-current assets	Level 2	14		—
Interest rate contracts	Other non-current assets	Level 2	420		401
Derivatives not designated as hedges:
Foreign exchange contracts	Other current assets	Level 2	3		2
Interest rate contracts	Other non-current assets	Level 2	101		82
Total Asset Derivatives			$	566	$	649

Liability Derivatives	Balance Sheet Location	Fair Value Hierarchy Level	2012		2011
Derivatives designated as hedges:
Foreign exchange contracts	Other non-current liabilities	Level 2	103		185
Interest rate contracts	Other non-current liabilities	Level 2	14		13
Derivatives not designated as hedges:
Foreign exchange contracts	Other current liabilities	Level 2	1		—
Interest rate contracts	Other non-current liabilities	Level 2	41		10
Total Liability Derivatives			$	159	$	208

Amount and Location in the Income Statement for Derivatives Designed as Cash Flow Hedges

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)
Derivative Instruments in Cash Flow Hedging Relationships	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	)

Fair Values of Derivative Assets and Liabilities by Hedge Type

The fair values of our derivative assets and liabilities as of December 31, 2012 and 2011 by hedge type are as follows (in millions):



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2012
Assets
Foreign Exchange Contracts	$	—	$	44	$	—	$	44
Interest Rate Contracts	—		522		—		522
Total	$	—	$	566	$	—	$	566
Liabilities
Foreign Exchange Contracts	$	—	$	104	$	—	$	104
Interest Rate Contracts	—		55		—		55
Total	$	—	$	159	$	—	$	159

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2011
Assets
Foreign Exchange Contracts	$	—	$	166	$	—	$	166
Interest Rate Contracts	—		483		—		483
Total	$	—	$	649	$	—	$	649
Liabilities
Foreign Exchange Contracts	$	—	$	185	$	—	$	185
Interest Rate Contracts	—		23		—		23
Total	$	—	$	208	$	—	$	208

Designated as Hedging Instrument

Amount and Location in the Income Statement for Derivatives Designated as Fair Value Hedges

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
	Location of Gain (Loss) Recognized in Income	2012		2011		Hedged Items in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income	2012			2011
Interest rate contracts	Interest Expense	$	20	$	320	Fixed-Rate Debt and Capital Leases	Interest Expense	$	(20	)	$	(320	)

Not Designated as Hedging Instrument

Amount and Location in the Income Statement for Derivatives Designated as Fair Value Hedges

The following is a summary of the amounts recorded in the statements of consolidated income related to fair value changes and settlements of these foreign currency forward and interest rate swap contracts not designated as hedges for the years ended December 31, 2012 and 2011 (in millions):



Derivative Instruments Not Designated in Hedging Relationships	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
	Location of Gain (Loss) Recognized in Income	2012			2011
Foreign exchange contracts	Revenue	$	2		$	—
Foreign exchange contracts	Other Operating Expenses	19			2
Foreign exchange contracts	Investment Income	(22		)	—
Interest rate contracts	Interest Expense	(12		)	(8		)
Total		$	(13	)	$	(6	)

- Definition

Tabular disclosure of the location and amount of gains and losses reported in the statement of financial performance, or when applicable, the statement of financial position. For example, (a) gains and losses recognized in the income statement on derivative instruments designated and qualifying as hedging instruments in fair value hedges and related hedged items designated and qualifying in fair value hedges and (b) gains and losses initially recognized in other comprehensive income on derivative instruments designated and qualifying as cash flow hedges.

+ References + Details

- Definition

Tabular disclosure of the location and fair value amounts of derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments) reported in the statement of financial position.

+ References + Details