Annual report pursuant to Section 13 and 15(d)

SHAREOWNERS' EQUITY

v2.4.0.8
SHAREOWNERS' EQUITY
 12 Months Ended
Dec. 31, 2013
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, 2013, 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, 2013, 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):
 
2013
 
2012
 
2011
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
Class A Common Stock
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
225

 
$
3

 
240

 
$
3

 
258

 
$
3

Common stock purchases
(8
)
 
(1
)
 
(9
)
 
—

 
(7
)
 
—

Stock award plans
9

 
—

 
8

 
—

 
7

 
—

Common stock issuances
4

 
—

 
3

 
—

 
3

 
—

Conversions of class A to class B common stock
(18
)
 
—

 
(17
)
 
—

 
(21
)
 
—

Class A shares issued at end of year
212

 
$
2

 
225

 
$
3

 
240

 
$
3

Class B Common Stock
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
729

 
$
7

 
725

 
$
7

 
735

 
$
7

Common stock purchases
(35
)
 
—

 
(13
)
 
—

 
(31
)
 
—

Conversions of class A to class B common stock
18

 
—

 
17

 
—

 
21

 
—

Class B shares issued at end of year
712

 
$
7

 
729

 
$
7

 
725

 
$
7

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

 
 
 
$
—

 
 
 
$
—

Stock award plans
 
 
554

 
 
 
444

 
 
 
388

Common stock purchases
 
 
(768
)
 
 
 
(943
)
 
 
 
(475
)
Common stock issuances
 
 
307

 
 
 
293

 
 
 
287

Option Premiums Received (Paid)
 
 
(93
)
 
 
 
206

 
 
 
(200
)
Balance at end of year
 
 
$
—

 
 
 
$
—

 
 
 
$
—

Retained Earnings
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
 
$
7,997

 
 
 
$
10,128

 
 
 
$
10,604

Net income attributable to controlling interests
 
 
4,372

 
 
 
807

 
 
 
3,804

Dividends ($2.48, $2.28 and $2.08 per share)
 
 
(2,367
)
 
 
 
(2,243
)
 
 
 
(2,086
)
Common stock purchases
 
 
(3,077
)
 
 
 
(695
)
 
 
 
(2,194
)
Balance at end of year
 
 
$
6,925

 
 
 
$
7,997

 
 
 
$
10,128


For the years ended December 31, 2013, 2012 and 2011, we repurchased a total of 43.2, 21.8 and 38.7 million shares of class A and class B common stock for $3.846 billion, $1.638 billion and $2.669 billion, respectively. On February 14, 2013, the Board of Directors approved a new share repurchase authorization of $10.0 billion, which replaced the 2012 authorization. This new share repurchase authorization has no expiration date. As of December 31, 2013, we had $6.814 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 2013, we entered into an accelerated share repurchase program, which allowed us to repurchase $600 million of shares (5.9 million shares). The program was completed in December 2013.
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. As of December 31, 2013, we paid net premiums of $100 million on options for the purchase of 1.1 million shares with a strike price of $88.54 per share that will settle in the first quarter of 2014. During 2013, we settled options that resulted in $7 million in premiums (in excess of our initial investment). During 2012, we did not pay premiums on options for the purchase of shares; however, we received $206 million in premiums for options that were entered into during 2011 that expired during 2012.
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):
 
2013
 
2012
 
2011
Foreign currency translation gain (loss):
 
 
 
 
 
Balance at beginning of year
$
134

 
$
(160
)
 
$
(68
)
Reclassification to earnings (no tax impact in either period)
(161
)
 
—

 
—

Translation adjustment (net of tax effect of $(5), $(9) and $11)
(99
)
 
294

 
(92
)
Balance at end of year
(126
)
 
134

 
(160
)
Unrealized gain (loss) on marketable securities, net of tax:
 
 
 
 
 
Balance at beginning of year
6

 
6

 
12

Current period changes in fair value (net of tax effect of $(3), $4 and $11)
(4
)
 
6

 
18

Reclassification to earnings (net of tax effect of $(2), $(3) and $(14))
(3
)
 
(6
)
 
(24
)
Balance at end of year
(1
)
 
6

 
6

Unrealized gain (loss) on cash flow hedges, net of tax:
 
 
 
 
 
Balance at beginning of year
(286
)
 
(204
)
 
(239
)
Current period changes in fair value (net of tax effect of $1, $(25) and $(16))
1

 
(43
)
 
(26
)
Reclassification to earnings (net of tax effect of $39, $(24) and $37)
66

 
(39
)
 
61

Balance at end of year
(219
)
 
(286
)
 
(204
)
Unrecognized pension and postretirement benefit costs, net of tax:
 
 
 
 
 
Balance at beginning of year
(3,208
)
 
(2,745
)
 
(2,340
)
Reclassification to earnings (net of tax effect of $67, $1,876 and $378)
111

 
3,135

 
628

Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $1,786, $(2,151) and $(622))
2,983

 
(3,598
)
 
(1,033
)
Balance at end of year
(114
)
 
(3,208
)
 
(2,745
)
Accumulated other comprehensive income (loss) at end of year
$
(460
)
 
$
(3,354
)
 
$
(3,103
)

Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the years ended December 31, 2013, 2012 and 2011 is as follows (in millions):
 
2013 Amount Reclassified from AOCI
 
2012 Amount Reclassified from AOCI
 
2011 Amount Reclassified from AOCI
 
Affected Line Item in the Income Statement
Foreign currency translation gain (loss):
 
 
 
 
 
 
 
Liquidation of foreign subsidiary
$
161

 
$
—

 
$
—

 
Other expenses
Income tax (expense) benefit
—

 
—

 
—

 
Income tax expense
Impact on net income
161

 
—

 
—

 
Net income
Unrealized gain (loss) on marketable securities:
 
 
 
 
 
 
 
Realized gain (loss) on sale of securities
5

 
9

 
38

 
Investment income
Income tax (expense) benefit
(2
)
 
(3
)
 
(14
)
 
Income tax expense
Impact on net income
3

 
6

 
24

 
Net income
Unrealized gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
Interest rate contracts
(22
)
 
(22
)
 
(19
)
 
Interest expense
Foreign exchange contracts
18

 
24

 
13

 
Interest expense
Foreign exchange contracts
(53
)
 
61

 
(101
)
 
Revenue
Commodity contracts
(48
)
 
—

 
9

 
Fuel expense
Income tax (expense) benefit
39

 
(24
)
 
37

 
Income tax expense
Impact on net income
(66
)
 
39

 
(61
)
 
Net income
Unrecognized pension and postretirement benefit costs:
 
 
 
 
 
 
 
Prior service costs
(178
)
 
(5,011
)
 
(1,006
)
 
Compensation and benefits
Income tax (expense) benefit
67

 
1,876

 
378

 
Income tax expense
Impact on net income
(111
)
 
(3,135
)
 
(628
)
 
Net income
 
 
 
 
 
 
 
 
Total amount reclassified for the period
$
(13
)
 
$
(3,090
)
 
$
(665
)
 
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, 2013, 2012 and 2011 is as follows (in millions):
 
2013
 
2012
 
2011
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
Deferred Compensation Obligations
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
 
$
78

 
 
 
$
88

 
 
 
$
103

Reinvested dividends
 
 
4

 
 
 
3

 
 
 
4

Options exercise deferrals
 
 
—

 
 
 
—

 
 
 
—

Benefit payments
 
 
(13
)
 
 
 
(13
)
 
 
 
(19
)
Balance at end of year
 
 
$
69

 
 
 
$
78

 
 
 
$
88

Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
(1
)
 
$
(78
)
 
(2
)
 
$
(88
)
 
(2
)
 
$
(103
)
Reinvested dividends
—

 
(4
)
 
—

 
(3
)
 
—

 
(4
)
Options exercise deferrals
—

 
—

 
—

 
—

 
—

 
—

Benefit payments
—

 
13

 
1

 
13

 
—

 
19

Balance at end of year
(1
)
 
$
(69
)
 
(1
)
 
$
(78
)
 
(2
)
 
$
(88
)


Noncontrolling Interests
We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain & Freight segments, primarily in international locations. The activity related to our noncontrolling interests is presented below (in millions):
 
2013
 
2012
 
2011
Noncontrolling Interests
 
 
 
 
 
Balance at beginning of period
$
80

 
$
73

 
$
68

Purchase of noncontrolling interests
(66
)
 
7

 
5

Dividends attributable to noncontrolling interests
—

 
—

 
—

Net income attributable to noncontrolling interests
—

 
—

 
—

Balance at end of period
$
14

 
$
80

 
$
73


In January 2013, we repurchased the noncontrolling interest in our joint venture that operates in the Middle East, Turkey, and portions of the Central Asia region for $70 million. After this transaction, we own 100% of this entity.