Annual report pursuant to Section 13 and 15(d)

SHAREOWNERS' EQUITY

v3.6.0.2
SHAREOWNERS' EQUITY
 12 Months Ended
Dec. 31, 2016
Stockholders' Equity Note [Abstract]  
SHAREOWNERS' EQUITY
SHAREOWNERS’ EQUITY
Capital Stock, Additional Paid-In Capital, and Retained Earnings
We maintain two classes of common stock, which are distinguished from each other by their respective voting rights. Class A shares of UPS are entitled to 10 votes per share, whereas class B shares are entitled to one vote per share. Class A shares are primarily held by UPS employees and retirees, as well as trusts and descendants of the Company’s founders, and these shares are fully convertible into class B shares at any time. Class B shares are publicly traded on the New York Stock Exchange (“NYSE”) under the symbol “UPS”. Class A and B shares both have a $0.01 par value, and as of December 31, 2016, there were 4.6 billion class A shares and 5.6 billion class B shares authorized to be issued. Additionally, there are 200 million preferred shares authorized to be issued, with a par value of $0.01 per share; as of December 31, 2016, no preferred shares had been issued.
The following is a rollforward of our common stock, additional paid-in capital, and retained earnings accounts (in millions, except per share amounts):
 
2016
 
2015
 
2014
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
Class A Common Stock:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
194

 
$
2

 
201

 
$
2

 
212

 
$
2

Common stock purchases
(4
)
 
—

 
(4
)
 
—

 
(5
)
 
—

Stock award plans
5

 
—

 
5

 
—

 
5

 
—

Common stock issuances
2

 
—

 
3

 
—

 
3

 
—

Conversions of class A to class B common stock
(17
)
 
—

 
(11
)
 
—

 
(14
)
 
—

Class A shares issued at end of year
180

 
$
2

 
194

 
$
2

 
201

 
$
2

Class B Common Stock:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
693

 
$
7

 
705

 
$
7

 
712

 
$
7

Common stock purchases
(21
)
 
—

 
(23
)
 
—

 
(21
)
 
—

Conversions of class A to class B common stock
17

 
—

 
11

 
—

 
14

 
—

Class B shares issued at end of year
689

 
$
7

 
693

 
$
7

 
705

 
$
7

Additional Paid-In Capital:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
 
$
—

 
 
 
$
—

 
 
 
$
—

Stock award plans
 
 
541

 
 
 
492

 
 
 
656

Common stock purchases
 
 
(898
)
 
 
 
(791
)
 
 
 
(918
)
Common stock issuances
 
 
303

 
 
 
316

 
 
 
309

Option premiums received (paid)
 
 
54

 
 
 
(17
)
 
 
 
(47
)
Balance at end of year
 
 
$
—

 
 
 
$
—

 
 
 
$
—

Retained Earnings:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
 
$
6,001

 
 
 
$
5,726

 
 
 
$
6,925

Net income attributable to controlling interests
 
 
3,431

 
 
 
4,844

 
 
 
3,032

Dividends ($3.12, $2.92 and $2.68 per share)
 
 
(2,771
)
 
 
 
(2,649
)
 
 
 
(2,487
)
Common stock purchases
 
 
(1,782
)
 
 
 
(1,920
)
 
 
 
(1,744
)
Balance at end of year
 
 
$
4,879

 
 
 
$
6,001

 
 
 
$
5,726


For the years ended December 31, 2016, 2015 and 2014, we repurchased a total of 25.2, 26.8 and 26.4 million shares of class A and class B common stock for $2.680, $2.711 and $2.662 billion, respectively ($2.678, $2.702 and $2.695 billion in repurchases for 2016, 2015 and 2014, respectively, are reported on the cash flow statement due to the timing of settlements). During the first quarter of 2016, we also exercised a capped call option that we entered in 2015 for which we received 0.2 million UPS class B shares. The $25 million premium payment for this capped call option reduced shareowners' equity in 2015. In total, shares repurchased and received the twelve months ended December 31, 2016 were 25.4 million shares for $2.705 billion. In May 2016, the Board of Directors approved a new share repurchase authorization of $8.0 billion, which replaced an authorization previously announced in 2013. This new share repurchase authorization has no expiration date. As of December 31, 2016, we had $6.155 billion of this share repurchase authorization remaining.
From time to time, we enter into share repurchase programs with large financial institutions to assist in our buyback of company stock. These programs allow us to repurchase our shares at a price below the weighted average UPS share price for a given period. During the fourth quarter of 2016, we entered into an accelerated share repurchase program, which allowed us to repurchase $300 million of shares (2.6 million shares). The program was completed in December 2016.
In order to lower the average cost of acquiring shares in our ongoing share repurchase program, we periodically enter into structured repurchase agreements involving the use of capped call options for the purchase of UPS class B shares. We pay a fixed sum of cash upon execution of each agreement in exchange for the right to receive either a pre-determined amount of cash or stock. Upon expiration of each agreement, if the closing market price of our common stock is above the pre-determined price, we will have our initial investment returned with a premium in either cash or shares (at our election). If the closing market price of our common stock is at or below the pre-determined price, we will receive the number of shares specified in the agreement. We received (paid) net premiums of $54 and $(17) million during 2016 and 2015, respectively, related to entering into and settling capped call options for the purchase of class B shares. As of December 31, 2016, we had outstanding options for the purchase of 1.0 million shares with an average strike price of $97.27 per share that will settle in the first quarter of 2017.
Accumulated Other Comprehensive Income (Loss)
We incur activity in AOCI for unrealized holding gains and losses on available-for-sale securities, foreign currency translation adjustments, unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized pension and postretirement benefit costs. The activity in AOCI is as follows (in millions):
 
2016
 
2015
 
2014
Foreign Currency Translation Gain (Loss):
 
 
 
 
 
Balance at beginning of year
$
(897
)
 
$
(457
)
 
$
(126
)
Translation adjustment (net of tax effect of $32, $0, and $105)
(119
)
 
(440
)
 
(331
)
Balance at end of year
(1,016
)
 
(897
)
 
(457
)
Unrealized Gain (Loss) on Marketable Securities, Net of Tax:
 
 
 
 
 
Balance at beginning of year
(1
)
 
—

 
(1
)
Current period changes in fair value (net of tax effect of $0, $(1), and $1)
—

 
(1
)
 
2

Reclassification to earnings (no tax impact in any period)
—

 
—

 
(1
)
Balance at end of year
(1
)
 
(1
)
 
—

Unrealized Gain (Loss) on Cash Flow Hedges, Net of Tax:
 
 
 
 
 
Balance at beginning of year
67

 
61

 
(219
)
Current period changes in fair value (net of tax effect of $75, $103, and $133)
124

 
171

 
220

Reclassification to earnings (net of tax effect of $(142), $(99), and $35)
(236
)
 
(165
)
 
60

Balance at end of year
(45
)
 
67

 
61

Unrecognized Pension and Postretirement Benefit Costs, Net of Tax:
 
 
 
 
 
Balance at beginning of year
(2,709
)
 
(3,198
)
 
(114
)
Reclassification to earnings (net of tax effect of $1,040, $97, and $870)
1,783

 
195

 
1,462

Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $(1,460), $197, and $(2,714))
(2,495
)
 
294

 
(4,546
)
Balance at end of year
(3,421
)
 
(2,709
)
 
(3,198
)
Accumulated other comprehensive income (loss) at end of year
$
(4,483
)
 
$
(3,540
)
 
$
(3,594
)

Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the years ended December 31, 2016, 2015 and 2014 is as follows (in millions):
 
2016 Amount Reclassified from AOCI
 
2015 Amount Reclassified from AOCI
 
2014 Amount Reclassified from AOCI
 
Affected Line Item in the Income Statement
Unrealized Gain (Loss) on Marketable Securities:
 
 
 
 
 
 
Realized gain (loss) on sale of securities
—

 
—

 
1

 
Investment income
Income tax (expense) benefit
—

 
—

 
—

 
Income tax expense
Impact on net income
—

 
—

 
1

 
Net income
Unrealized Gain (Loss) on Cash Flow Hedges:
 
 
 
 
 
 
 
Interest rate contracts
(26
)
 
(24
)
 
(23
)
 
Interest expense
Foreign exchange contracts
—

 
(25
)
 
(48
)
 
Interest expense
Foreign exchange contracts
404

 
313

 
(24
)
 
Revenue
Income tax (expense) benefit
(142
)
 
(99
)
 
35

 
Income tax expense
Impact on net income
236

 
165

 
(60
)
 
Net income
Unrecognized Pension and Postretirement Benefit Costs:
 
 
 
 
 
 
Prior service costs
(172
)
 
(174
)
 
(170
)
 
Compensation and benefits
Curtailment and settlement loss
—

 
—

 
(356
)
 
Compensation and benefits
Remeasurement of benefit obligation
(2,651
)
 
(118
)
 
(1,806
)
 
Compensation and benefits
Income tax (expense) benefit
1,040

 
97

 
870

 
Income tax expense
Impact on net income
(1,783
)
 
(195
)
 
(1,462
)
 
Net income
 
 
 
 
 
 
 
 
Total amount reclassified for the period
$
(1,547
)
 
$
(30
)
 
$
(1,521
)
 
Net income

Deferred Compensation Obligations and Treasury Stock
We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer the gains on stock option exercises by deferring the shares received upon exercise into a rabbi trust. The shares held in this trust are classified as treasury stock, and the liability to participating employees is classified as “deferred compensation obligations” in the shareowners’ equity section of the consolidated balance sheets. The number of shares needed to settle the liability for deferred compensation obligations is included in the denominator in both the basic and diluted earnings per share calculations. Employees are generally no longer able to defer the gains from stock options exercised subsequent to December 31, 2004.
Activity in the deferred compensation program for the years ended December 31, 2016, 2015 and 2014 is as follows (in millions):
 
2016
 
2015
 
2014
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
Deferred Compensation Obligations:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
 
$
51

 
 
 
$
59

 
 
 
$
69

Reinvested dividends
 
 
3

 
 
 
3

 
 
 
2

Options exercise deferrals
 
 
—

 
 
 
—

 
 
 
—

Benefit payments
 
 
(9
)
 
 
 
(11
)
 
 
 
(12
)
Balance at end of year
 
 
$
45

 
 
 
$
51

 
 
 
$
59

Treasury Stock:
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
(1
)
 
$
(51
)
 
(1
)
 
$
(59
)
 
(1
)
 
$
(69
)
Reinvested dividends
—

 
(3
)
 
—

 
(3
)
 
—

 
(2
)
Options exercise deferrals
—

 
—

 
—

 
—

 
—

 
—

Benefit payments
—

 
9

 
—

 
11

 
—

 
12

Balance at end of year
(1
)
 
$
(45
)
 
(1
)
 
$
(51
)
 
(1
)
 
$
(59
)


Noncontrolling Interests

We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain & Freight segments. Noncontrolling interests increased $3 and $4 million for the years ended December 31, 2016 and 2015, respectively.