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, 2016

Notional Amounts of Outstanding Derivative Positions

The notional amounts of our outstanding derivative positions were as follows as of December 31, 2016 and 2015 (in millions):



		2016	2015
Currency Hedges:
Euro	EUR	3,702	3,750
British Pound Sterling	GBP	1,380	1,140
Canadian Dollar	CAD	1,053	177
Indian Rupee	INR	76	—
Mexican Peso	MXN	—	3,863
Japanese Yen	JPY	3,972	20,000
Singapore Dollar	SGD	32	—

Interest Rate Hedges:
Fixed to Floating Interest Rate Swaps	USD	5,799	5,799
Floating to Fixed Interest Rate Swaps	USD	778	778

Investment Market Price Hedges:
Marketable Securities	EUR	76	496

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

The following table indicates the location on the consolidated balance sheets in which our derivative assets and liabilities have been recognized, and the related fair values of those derivatives as of December 31, 2016 and 2015 (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.

We have master netting arrangements with substantially all of our counterparties giving us the right of offset for our derivative positions. However, we have not elected to offset the fair value positions of our derivative contracts recorded on our consolidated balance sheets. The columns labeled "net amounts if right of offset had been applied" indicate the potential net fair value positions by type of contract and location on the consolidated balance sheets had we elected to apply the right of offset.



		Gross Amounts Presented in Consolidated Balance Sheets				Net Amounts if Right of Offset had been Applied
Asset Derivatives	Balance Sheet Location	2016		2015		2016		2015
Derivatives designated as hedges:
Foreign exchange contracts	Other current assets	$	176	$	408	$	176	$	408
Foreign exchange contracts	Other non-current assets	131		92		126		92
Interest rate contracts	Other non-current assets	137		204		119		185
Derivatives not designated as hedges:
Foreign exchange contracts	Other current assets	1		2		1		—
Investment market price contracts	Other current assets	—		5		—		—
Interest rate contracts	Other non-current assets	42		57		40		53
Total Asset Derivatives		$	487	$	768	$	462	$	738



		Gross Amounts Presented in Consolidated Balance Sheets				Net Amounts if Right of Offset had been Applied
Liability Derivatives	Balance Sheet Location	2016		2015		2016		2015
Derivatives Designated As Hedges:
Interest rate contracts	Other current liabilities	1		—		1		—
Foreign exchange contracts	Other non-current liabilities	6		—		1		—
Interest rate contracts	Other non-current liabilities	21		19		3		—
Derivatives Not Designated As Hedges:
Foreign exchange contracts	Other current liabilities	—		12		—		10
Interest rate contracts	Other current liabilities	—		—		—		—
Investment market price contracts	Other current liabilities	10		9		10		4
Interest rate contracts	Other non-current liabilities	7		13		5		9
Total Liability Derivatives		$	45	$	53	$	20	$	23

Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss)

The following table indicates the amount of gains and losses that have been recognized in AOCI within "unrealized gain (loss) on cash flow hedges" for the years ended December 31, 2016 and 2015 for those derivatives designated as cash flow hedges (in millions):



Derivative Instruments in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
Derivative Instruments in Cash Flow Hedging Relationships	2016		2015
Interest rate contracts	$	1	$	(1	)
Foreign exchange contracts	198		275
Total	$	199	$	274

The following table indicates the amount of gains and losses that have been recognized in AOCI within "foreign currency translation gain (loss)" for the years ended December 31, 2016 and 2015 for those instruments designated as net investment hedges (in millions):



Non-derivative Instruments in Net Investment Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Debt (Effective Portion)
	2016		2015
Foreign denominated debt	$	119	$	(33	)
Total	$	119	$	(33	)

Fair Values of Derivative Assets and Liabilities by Hedge Type

The fair values of our derivative assets and liabilities as of December 31, 2016 and 2015 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
2016
Assets:
Foreign Exchange Contracts	$	—	$	308	$	—	$	308
Interest Rate Contracts	—		179		—		179
Total	$	—	$	487	$	—	$	487
Liabilities:
Foreign Exchange Contracts	$	—	$	6	$	—	$	6
Investment Market Price Contracts	—		10		—		10
Interest Rate Contracts	—		29		—		29
Total	$	—	$	45	$	—	$	45

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2015
Assets:
Foreign Exchange Contracts	$	—	$	502	$	—	$	502
Investment Market Price Contracts	—		5		—		5
Interest Rate Contracts	—		261		—		261
Total	$	—	$	768	$	—	$	768
Liabilities:
Foreign Exchange Contracts	$	—	$	12	$	—	$	12
Investment Market Price Contracts	—		9		—		9
Interest Rate Contracts	—		32		—		32
Total	$	—	$	53	$	—	$	53

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, 2016 and 2015 (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	2016			2015			Hedged Items in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income	2016		2015
Interest rate contracts	Interest Expense	$	(71	)	$	(7	)	Fixed-Rate Debt and Capital Leases	Interest Expense	$	71	$	7

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 forwards, interest rate swaps, investment market price and commodity contracts not designated as hedges for the years ended December 31, 2016 and 2015 (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	2016			2015
Commodity contracts	Fuel Expense	$	—		$	(2	)
Foreign exchange contracts	Other Operating Expenses	—			22
Foreign exchange contracts	Investment income and other	(145		)	43
Investment market price contracts	Investment income and other	(5		)	(5		)
Foreign exchange contracts	Interest Expense	—			(14		)
Interest rate contracts	Interest Expense	(8		)	(7		)
Total		$	(158	)	$	37