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, 2014

Notional Amounts of Outstanding Derivative Positions

The notional amounts of our outstanding derivative positions were as follows as of December 31, 2014 and 2013 (in millions):



		2014	2013
Currency Hedges:
Euro	EUR	2,833	2,637
British Pound Sterling	GBP	1,149	1,097
Canadian Dollar	CAD	293	218
Indian Rupee	INR	85	—
Malaysian Ringgit	MYR	150	—
Mexican Peso	MXN	152	583

Interest Rate Hedges:
Fixed to Floating Interest Rate Swaps	USD	5,799	6,799
Floating to Fixed Interest Rate Swaps	USD	779	780
Interest Rate Basis Swaps	USD	1,500	2,500

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, 2014 and 2013 (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	2014		2013		2014		2013
Derivatives designated as hedges:
Foreign exchange contracts	Other current assets	$	204	$	10	$	204	$	4
Interest rate contracts	Other current assets	—		7		—		7
Foreign exchange contracts	Other non-current assets	229		59		229		59
Interest rate contracts	Other non-current assets	227		204		194		110
Derivatives not designated as hedges:
Foreign exchange contracts	Other current assets	2		7		2		5
Interest rate contracts	Other non-current assets	59		60		57		57
Total Asset Derivatives		$	721	$	347	$	686	$	242



		Gross Amounts Presented in Consolidated Balance Sheets				Net Amounts if Right of Offset had been Applied
Liability Derivatives	Balance Sheet Location	2014		2013		2014		2013
Derivatives designated as hedges:
Foreign exchange contracts	Other current liabilities	$	—	$	6	$	—	$	—
Foreign exchange contracts	Other non-current liabilities	34		—		34		—
Interest rate contracts	Other non-current liabilities	35		104		2		10
Derivatives not designated as hedges:
Foreign exchange contracts	Other current liabilities	—		7		—		5
Interest rate contracts	Other current liabilities	1		1		1		1
Interest rate contracts	Other non-current liabilities	7		3		5		—
Total Liability Derivatives		$	77	$	121	$	42	$	16

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 AOCI for the years ended December 31, 2014 and 2013 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	2014			2013
Interest rate contracts	$	(5	)	$	6
Foreign exchange contracts	358			44
Commodity contracts	—			(48		)
Total	$	353		$	2

Fair Values of Derivative Assets and Liabilities by Hedge Type

The fair values of our derivative assets and liabilities as of December 31, 2014 and 2013 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
2014
Assets
Foreign Exchange Contracts	$	—	$	435	$	—	$	435
Interest Rate Contracts	—		286		—		286
Total	$	—	$	721	$	—	$	721
Liabilities
Foreign Exchange Contracts	$	—	$	34	$	—	$	34
Interest Rate Contracts	—		43		—		43
Total	$	—	$	77	$	—	$	77

	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

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, 2014 and 2013 (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	2014		2013			Hedged Items in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income	2014			2013
Interest rate contracts	Interest Expense	$	90	$	(306	)	Fixed-Rate Debt and Capital Leases	Interest Expense	$	(90	)	$	306

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, interest rate swap, and commodity contracts not designated as hedges for the years ended December 31, 2014 and 2013 (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	2014			2013
Commodity contracts	Fuel Expense	$	(15	)	$	—
Foreign exchange contracts	Other Expenses	27			72
Foreign exchange contracts	Investment Income	7			(5		)
Interest rate contracts	Interest Expense	(5		)	(4		)
Total		$	14		$	63