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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
110
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 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
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)
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, 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