UPS 2014 Annual Report Download - page 124

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
112
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 1111
Interest rate contracts Other non-current liabilities 7 3 5 —
Total Liability Derivatives $ 77 $ 121 $ 42 $ 16
Income Statement and AOCI Recognition
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)
2014 2013
Interest rate contracts $(5)$ 6
Foreign exchange contracts 358 44
Commodity contracts — (48)
Total $ 353 $ 2
As of December 31, 2014, $135 million of pre-tax gains 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, 2015. 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, 2014, 2013 and 2012.
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
2014 2013 2014 2013
Interest rate
contracts Interest Expense $ 90 $ (306)Fixed-Rate Debt
and Capital Leases Interest Expense $ (90) $ 306
Additionally, we maintain some foreign exchange forward, interest rate swap, and commodity 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. These commodity contracts are intended to
provide a short-term economic offset to fuel expense changes due to price fluctuations.
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.