UPS 2013 Annual Report Download - page 80

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
68
Foreign Currency Translation
We translate the results of operations of our foreign subsidiaries using average exchange rates during each period,
whereas balance sheet accounts are translated using exchange rates at the end of each period. Balance sheet currency translation
adjustments are recorded in AOCI. Currency transaction gains and losses, net of hedging, included in other operating expenses
were pre-tax gains (losses) of $76, $10 and $(1) million in 2013, 2012 and 2011, respectively.
Stock-Based Compensation
All share-based awards to employees are measured based on their fair values and expensed over the period during which
an employee is required to provide service in exchange for the award (the vesting period). We issue employee share-based
awards under the UPS Incentive Compensation Plan that are subject to specific vesting conditions; generally, the awards cliff
vest or vest ratably over a three or five year period, “the nominal vesting period,” or at the date the employee retires (as defined
by the plan), if earlier. Compensation cost is recognized immediately for awards granted to retirement-eligible employees, or
over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal
vesting period.
Fair Value Measurements
Our financial assets and liabilities measured at fair value on a recurring basis have been categorized based upon a fair
value hierarchy. Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Level 2 inputs are based
on other observable market data, such as quoted prices for similar assets and liabilities, and inputs other than quoted prices that
are observable, such as interest rates and yield curves. Level 3 inputs are developed from unobservable data reflecting our own
assumptions, and include situations where there is little or no market activity for the asset or liability.
Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis, including property, plant,
and equipment, goodwill and intangible assets. These assets are not measured at fair value on a recurring basis; however, they
are subject to fair value adjustments in certain circumstances, such as when there is evidence of an impairment. A general
description of the valuation methodologies used for assets and liabilities measured at fair value, including the general
classification of such assets and liabilities pursuant to the valuation hierarchy, is included in each footnote with fair value
measurements present.
Derivative Instruments
All financial derivative instruments are recorded on our consolidated balance sheets at fair value. Derivatives not
designated as hedges must be adjusted to fair value through income. If a derivative is designated as a hedge, depending on the
nature of the hedge, changes in its fair value that are considered to be effective, as defined, either offset the change in fair value
of the hedged assets, liabilities or firm commitments through income, or are recorded in AOCI until the hedged item is recorded
in income. Any portion of a change in a hedge’s fair value that is considered to be ineffective, or is excluded from the
measurement of effectiveness, is recorded immediately in income.
Recently Adopted Accounting Standards
In May 2011, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update to disclosure
requirements for fair value measurement. These amendments, which became effective for us in the first quarter of 2012, result
in a common definition of fair value and common measurement and disclosure requirements between U.S. GAAP and IFRS.
Consequently, the amendments change some fair value measurement principles and disclosure requirements. The
implementation of this amended accounting guidance had an immaterial impact on our consolidated financial position and
results of operations.
In June 2011, the FASB issued an Accounting Standards Update that increases the prominence of items reported in other
comprehensive income in the financial statements. This update requires companies to present comprehensive income in a single
statement below net income or in a separate statement of comprehensive income immediately following the income statement.
This requirement became effective for us beginning with the first quarter of 2012, and we have included the required
presentation in all applicable filings since that date.