UPS 2014 Annual Report Download - page 125

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
113
We have entered into several interest rate basis swaps, which effectively convert cash flows based on variable LIBOR-based
interest rates to cash flows based on the prevailing federal funds interest rate. These swaps are not designated as hedges, and all
amounts related to fair value changes and settlements are recorded to interest expense in the statements of consolidated income.
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
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
Fair Value Measurements
Our foreign currency, interest rate and energy derivatives are largely comprised of over-the-counter derivatives, which are
primarily valued using pricing models that rely on market observable inputs such as yield curves, currency exchange rates and
commodity forward prices, and therefore are classified as Level 2. 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