Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT

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DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
 9 Months Ended
Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
Risk Management Policies
Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations and we actively monitor these exposures. Where deemed appropriate, to manage the impact of these exposures on earnings and/or cash flows, we may enter into a variety of derivative financial instruments. We do not hold or issue derivative financial instruments for trading or speculative purposes.
Credit Risk Management
The forward contracts, swaps and options discussed below contain an element of risk that the counterparties may be unable to meet the terms of the agreements. We seek to minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines. We may further manage credit risk through the use of zero threshold bilateral collateral provisions and/or early termination rights utilizing master netting arrangements, whereby cash is exchanged based on the net fair value of derivatives associated with each counterparty.
As of September 30, 2023 and December 31, 2022, we held cash collateral of $382 and $534 million, respectively, under these agreements. This collateral is included in Cash and cash equivalents in the consolidated balance sheets and is unrestricted. As of September 30, 2023 and December 31, 2022, no collateral was required to be posted with our counterparties.
Types of Hedges
Commodity Risk Management
Currently, the fuel surcharges that we apply in our domestic and international package businesses are the primary means of reducing the risk of adverse fuel price changes on our business. In order to mitigate the impact of fuel surcharges imposed on us by outside carriers, we regularly adjust the rates we charge for our freight brokerage services.
Foreign Currency Risk Management
To protect against the reduction in value of forecasted foreign currency cash flows from our international package business, we maintain a foreign currency cash flow hedging program. Our most significant foreign currency exposures relate to the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We generally designate and account for these contracts as cash flow hedges of anticipated foreign currency denominated revenue.
We may also hedge portions of our anticipated cash settlements of principal and interest on certain foreign currency denominated debt. We generally designate and account for these contracts as cash flow hedges of forecasted foreign currency denominated transactions.
We hedge our net investment in certain foreign operations with foreign currency denominated debt instruments.
Interest Rate Risk Management
We may use a combination of derivative instruments to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing.
We generally designate and account for interest rate swaps that convert fixed-rate interest payments into floating-rate interest payments as fair value hedges of the associated debt instruments. We designate and account for interest rate swaps that convert floating-rate interest payments into fixed-rate interest payments as cash flow hedges of the forecasted payment obligations.
We may periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings by using forward starting interest rate swaps, interest rate locks or similar derivatives.
Outstanding Positions
As of September 30, 2023 and December 31, 2022, the notional amounts of our outstanding derivative positions were as follows (in millions):
  September 30,
2023		 December 31,
2022
Currency hedges:
Euro EUR 3,837  4,115 
British Pound Sterling GBP 682  856 
Canadian Dollar CAD 1,518  1,598 
Hong Kong Dollar HKD 2,669  4,261 
Interest rate hedges:
Floating to Fixed Interest Rate Swaps USD —  28 
As of September 30, 2023 and December 31, 2022, we had no outstanding commodity hedge positions.
Balance Sheet Recognition
The following table indicates the location in the consolidated balance sheets where our derivative assets and liabilities have been recognized, the fair value hierarchy level applicable to each derivative type and the related fair values of those derivatives.
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 in the 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 in the consolidated balance sheets had we elected to apply the right of offset as of September 30, 2023 and December 31, 2022 (in millions):
Fair Value Hierarchy Level Gross Amounts Presented in Consolidated Balance Sheets Net Amounts if Right of
Offset had been Applied
Asset Derivatives Balance Sheet Location September 30,
2023		 December 31,
2022		 September 30,
2023		 December 31,
2022
Derivatives designated as hedges:
Foreign currency exchange contracts Other current assets Level 2 $ 171  $ 174  $ 166  $ 171 
Foreign currency exchange contracts Other non-current assets Level 2 172  250  161  226 
Derivatives not designated as hedges:
Foreign currency exchange contracts Other current assets Level 2 —  1  —  1 
Total Asset Derivatives $ 343  $ 425  $ 327  $ 398 
Fair Value Hierarchy Level Gross Amounts Presented in
Consolidated Balance Sheets		 Net Amounts if Right of
Offset had been Applied
Liability Derivatives Balance Sheet Location September 30,
2023		 December 31,
2022		 September 30,
2023		 December 31,
2022
Derivatives designated as hedges:
Foreign currency exchange contracts Other current liabilities Level 2 $ 5  $ 3  $ —  $ — 
Foreign currency exchange contracts Other non-current liabilities Level 2 11  24  —  — 
Interest rate contracts Other non-current liabilities Level 2 —  5  —  5 
Total Liability Derivatives $ 16  $ 32  $ —  $ 5 
Our foreign currency exchange rate and interest rate 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, foreign currency exchange rates and investment forward prices; therefore, these derivatives are classified as Level 2.
Balance Sheet Location of Hedged Item in Fair Value Hedges    
The following table indicates the amounts that were recorded in the consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of September 30, 2023 and December 31, 2022 (in millions):
Line Item in the Consolidated Balance Sheets in Which the Hedged Item is Included Carrying Amount
of Hedged Liabilities		 Cumulative Amount
of Fair Value Hedge
Adjustments		 Carrying Amount
of Hedged Liabilities		 Cumulative Amount
 of Fair Value Hedge
Adjustments
September 30, 2023 September 30, 2023 December 31, 2022 December 31, 2022
Long-term debt and finance leases $ 280  $ 5  $ 280  $ 5 
Income Statement and AOCI Recognition of Designated Hedges
The following table indicates the amount of gains (losses) that have been recognized in the statements of consolidated income for fair value and cash flow hedges, as well as the associated gain (loss) for the underlying hedged item for fair value hedges for the three and nine months ended September 30, 2023 and 2022 (in millions):


 Three Months Ended September 30,
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships 2023 2022
Revenue Interest Expense Investment Income and Other Revenue Interest Expense Investment Income and Other
Gain or (loss) on fair value hedging relationships:
Interest Contracts:
Hedged items $ —  $ —  $ —  $ —  $ (1) $ — 
Derivatives designated as hedging instruments —  —  —  —  1  — 
Gain or (loss) on cash flow hedging relationships:
Interest Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income —  (6) —  —  (4) — 
Foreign Currency Exchange Contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income 41  —  —  94  —  — 
Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded $ 41  $ (6) $ —  $ 94  $ (4) $ — 
Nine Months Ended September 30,

2023 2022
Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships Revenue Interest Expense Investment Income and Other Revenue Interest Expense Investment Income and Other
Gain (loss) on fair value hedging relationships:
Interest Rate Contracts:
Hedged items $ —  $ —  $ —  $ —  $ 10  $ — 
Derivatives designated as hedging instruments —  —  —  —  (10) — 
Gain (loss) on cash flow hedging relationships:
Interest Rate Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income —  (9) —  —  (9) — 
Foreign Currency Exchange Contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income 160  —  —  202  —  — 
Total amounts of income and expense line items presented in the statement of income in which the effects of fair value or cash flow hedges are recorded $ 160  $ (9) $ —  $ 202  $ (9) $ — 
The following table indicates the amount of gains (losses) that have been recognized in AOCI for the three and nine months ended September 30, 2023 and 2022 for those derivatives designated as cash flow hedges (in millions):
Three Months Ended September 30:
Derivative Instruments in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives
2023 2022
Interest rate contracts $ —  $ 1 
Foreign currency exchange contracts 182  459 
Total $ 182  $ 460 
Nine Months Ended September 30:
Derivative Instruments in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives
2023 2022
Interest rate contracts $ —  $ 5 
Foreign currency exchange contracts 91  922 
Total $ 91  $ 927 
As of September 30, 2023, there were $160 million of pre-tax gains related to cash flow hedges deferred in AOCI that are expected to be reclassified to income over the 12-month period ending September 30, 2024. 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 maximum term over which we are hedging exposures to the variability of cash flows is approximately 3 years.
The following table indicates the amount of gains (losses) that have been recognized in AOCI within foreign currency translation adjustment for the three and nine months ended September 30, 2023 and 2022 for those instruments designated as net investment hedges (in millions):
Three Months Ended September 30:
Non-derivative Instruments in Net Investment Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Debt
2023 2022
Foreign currency denominated debt $ 103  $ 209 
Total $ 103  $ 209 
Nine Months Ended September 30:
Non-derivative Instruments in Net Investment Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Debt
2023 2022
Foreign currency denominated debt $ 5  $ 436 
Total $ 5  $ 436 
Income Statement Recognition of Non-Designated Derivative Instruments
Derivative instruments that are not designated as hedges are recorded at fair value with unrealized gains and losses reported in earnings each period. Cash flows from the settlement of derivative instruments appear in the statement of consolidated cash flows within the same categories as the cash flows of the hedged item.
We may periodically terminate interest rate swaps and foreign currency exchange forward contracts or enter into offsetting swap and foreign currency positions with different counterparties. As part of this process, we de-designate our original hedge relationship.
Amounts recorded in the statements of consolidated income related to fair value changes and settlements of interest rate swaps and foreign currency forward contracts not designated as hedges for the three and nine months ended September 30, 2023 and 2022 (in millions) were as follows:
Derivative Instruments Not Designated in
Hedging Relationships		 Location of Gain (Loss)
Recognized in Income		 Amount of Gain (Loss) Recognized in Income
2023 2022
Three Months Ended September 30:
Foreign currency exchange contracts Investment income and other $ (4) $ (45)
Total $ (4) $ (45)
Nine Months Ended September 30:
Foreign currency exchange contracts Investment income and other $ (1) $ (131)
Total $ (1) $ (131)