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, 2013

Notional Amounts of Outstanding Derivative Positions

The notional amounts of our outstanding derivative positions were as follows as of December 31, 2013 and 2012 (in millions):



		2013	2012
Currency Hedges:
Euro	EUR	2,637	1,783
British Pound Sterling	GBP	1,097	797
Canadian Dollar	CAD	218	341
United Arab Emirates Dirham	AED	—	551
Malaysian Ringgit	MYR	—	500
Mexican Peso	MXN	583	—

Interest Rate Hedges:
Fixed to Floating Interest Rate Swaps	USD	6,799	7,274
Floating to Fixed Interest Rate Swaps	USD	780	781
Interest Rate Basis Swaps	USD	2,500	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, 2013 and 2012 (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	2013		2012		2013		2012
Derivatives designated as hedges:
Foreign exchange contracts	Other current assets	$	10	$	27	$	4	$	27
Interest rate contracts	Other current assets	7		1		7		1
Foreign exchange contracts	Other non-current assets	59		14		59		12
Interest rate contracts	Other non-current assets	204		420		110		406
Derivatives not designated as hedges:
Foreign exchange contracts	Other current assets	7		3		5		3
Interest rate contracts	Other non-current assets	60		101		57		91
Total Asset Derivatives		$	347	$	566	$	242	$	540



		Gross Amounts Presented in Consolidated Balance Sheets				Net Amounts if Right of Offset had been Applied
Liability Derivatives	Balance Sheet Location	2013		2012		2013		2012
Derivatives designated as hedges:
Foreign exchange contracts	Other current liabilities	$	6	$	—	$	—	$	—
Foreign exchange contracts	Other non-current liabilities	—		103		—		101
Interest rate contracts	Other non-current liabilities	104		14		10		—
Derivatives not designated as hedges:
Foreign exchange contracts	Other current liabilities	7		1		5		1
Interest rate contracts	Other current liabilities	1		—		1		—
Interest rate contracts	Other non-current liabilities	3		41		—		31
Total Liability Derivatives		$	121	$	159	$	16	$	133

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

The following table indicates the amount of gains and losses that have been recognized in other comprehensive income for the years ended December 31, 2013 and 2012 for those derivatives designated as cash flow hedges (in millions):



Derivative Instruments in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
Derivative Instruments in Cash Flow Hedging Relationships	2013			2012
Interest rate contracts	$	6		$	(71	)
Foreign exchange contracts	44			3
Commodity contracts	(48		)	—
Total	$	2		$	(68	)

Fair Values of Derivative Assets and Liabilities by Hedge Type

The fair values of our derivative assets and liabilities as of December 31, 2013 and 2012 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
2013
Assets
Foreign Exchange Contracts	$	—	$	76	$	—	$	76
Interest Rate Contracts	—		271		—		271
Total	$	—	$	347	$	—	$	347
Liabilities
Foreign Exchange Contracts	$	—	$	13	$	—	$	13
Interest Rate Contracts	—		108		—		108
Total	$	—	$	121	$	—	$	121

	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

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, 2013 and 2012 (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	2013			2012		Hedged Items in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income	2013		2012
Interest rate contracts	Interest Expense	$	(306	)	$	20	Fixed-Rate Debt and Capital Leases	Interest Expense	$	306	$	(20	)

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, 2013 and 2012 (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	2013			2012
Foreign exchange contracts	Revenue	$	—		$	2
Foreign exchange contracts	Other Operating Expenses	72			19
Foreign exchange contracts	Investment Income	(5		)	(22		)
Interest rate contracts	Interest Expense	(4		)	(12		)
Total		$	63		$	(13	)