Quarterly report pursuant to Section 13 or 15(d)

SHAREOWNERS' EQUITY

v3.8.0.1
SHAREOWNERS' EQUITY
9 Months Ended
Sep. 30, 2017
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 primarily by their respective voting rights. Class A shares 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, and these shares are fully convertible on a one-to-one basis into class B shares at any time. Class B shares are publicly traded on the New York Stock Exchange under the symbol “UPS”. Class A and B shares both have a $0.01 par value, and as of September 30, 2017, 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, with a $0.01 par value, authorized to be issued. As of September 30, 2017, no preferred shares had been issued.
 
The following is a rollforward of our common stock, additional paid-in capital and retained earnings accounts for the nine months ended September 30, 2017 and 2016 (in millions, except per share amounts):
 
2017
 
2016
 
Shares
 
Dollars
 
Shares
 
Dollars
Class A Common Stock
 
 
 
 
 
 
 
Balance at beginning of period
180

 
$
2

 
194

 
$
2

Common stock purchases
(3
)
 

 
(4
)
 

Stock award plans
4

 

 
5

 

Common stock issuances
2

 

 
2

 

Conversions of class A to class B common stock
(7
)
 

 
(12
)
 

Class A shares issued at end of period
176

 
$
2

 
185

 
$
2

Class B Common Stock
 
 
 
 
 
 
 
Balance at beginning of period
689

 
$
7

 
693

 
$
7

Common stock purchases
(9
)
 

 
(16
)
 

Conversions of class A to class B common stock
7

 

 
12

 

Class B shares issued at end of period
687

 
$
7

 
689

 
$
7

Additional Paid-In Capital
 
 
 
 
 
 
 
Balance at beginning of period
 
 
$

 
 
 
$

Stock award plans
 
 
283

 
 
 
423

Common stock purchases
 
 
(604
)
 
 
 
(811
)
Common stock issuances
 
 
268

 
 
 
233

Option premiums received (paid)
 
 
53

 
 
 
155

Balance at end of period
 
 
$

 
 
 
$

Retained Earnings
 
 
 
 
 
 
 
Balance at beginning of period
 
 
$
4,879

 
 
 
$
6,001

Net income attributable to common shareowners
 
 
3,806

 
 
 
3,670

Dividends ($2.49 and $2.34 per share)
 
 
(2,213
)
 
 
 
(2,093
)
Common stock purchases
 
 
(748
)
 
 
 
(1,193
)
Balance at end of period
 
 
$
5,724

 
 
 
$
6,385


We repurchased 12.3 million shares of class A and class B common stock for $1.352 billion during the nine months ended September 30, 2017, and 19.3 million shares for $2.004 billion during the nine months ended September 30, 2016. In May 2016, the Board of Directors approved a share repurchase authorization of $8.0 billion, which has no expiration date. As of September 30, 2017, we had $4.803 billion of this share repurchase authorization available.
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 third quarter of 2017, we did not enter into any accelerated share repurchase transactions.
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 net premiums of $53 and $155 million during the first nine months of 2017 and 2016, respectively, related to entering into and settling capped call options for the purchase of class B shares. As of September 30, 2017, we had outstanding options for the purchase of 0.5 million shares with a weighted average strike price of $97.57 per share that will settle in the fourth quarter of 2017.
Accumulated Other Comprehensive Income (Loss)
We recognize activity in Accumulated Other Comprehensive Income (Loss) ("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 for the nine months ended September 30, 2017 and 2016 is as follows (in millions):
 
2017
 
2016
Foreign currency translation gain (loss):
 
 
 
Balance at beginning of period
$
(1,016
)
 
$
(897
)
Translation adjustment (net of tax effect of $(146) and $24)
86

 
(12
)
Balance at end of period
(930
)
 
(909
)
Unrealized gain (loss) on marketable securities, net of tax:
 
 
 
Balance at beginning of period
(1
)
 
(1
)
Current period changes in fair value (net of tax effect of $1 and $3)
2

 
4

Reclassification to earnings (no tax impact in either period)
(1
)
 

Balance at end of period

 
3

Unrealized gain (loss) on cash flow hedges, net of tax:
 
 
 
Balance at beginning of period
(45
)
 
67

Current period changes in fair value (net of tax effect of $(162) and $(15))
(269
)
 
(24
)
Reclassification to earnings (net of tax effect of $(6) and $(96))
(9
)
 
(159
)
Balance at end of period
(323
)
 
(116
)
Unrecognized pension and postretirement benefit costs, net of tax:
 
 
 
Balance at beginning of period
(3,421
)
 
(2,709
)
Remeasurement of plan assets and liabilities (net of tax effect of $214 and $0) (1)
356

 

Reclassification to earnings (net of tax effect of $56 and $48)
94

 
80

Balance at end of period
(2,971
)
 
(2,629
)
Accumulated other comprehensive income (loss) at end of period
$
(4,224
)
 
$
(3,651
)
 
 
 
 
(1) See note 6 for further information about plan curtailments resulting in remeasurement of plan assets and liabilities.




Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the three and nine months ended September 30, 2017 and 2016 is as follows (in millions):
Three Months Ended September 30:
 
 
 
 
 
 
Amount Reclassified from AOCI
 
Affected Line Item in the Income Statement
 
2017
 
2016
 
Unrealized gain (loss) on marketable securities:
 
 
 
 
 
Realized gain on sale of securities
$
1

 
$

 
Investment income
Income tax expense

 

 
Income tax expense
Impact on net income
1

 

 
Net income
Unrealized gain (loss) on cash flow hedges:
 
 
 
 
 
Interest rate contracts
(6
)
 
(7
)
 
Interest expense
Foreign exchange contracts
3

 
83

 
Revenue
Income tax (expense) benefit
1

 
(29
)
 
Income tax expense
Impact on net income
(2
)
 
47

 
Net income
Unrecognized pension and postretirement benefit costs:
 
 
 
 
 
Prior service costs
(50
)
 
(42
)
 
Compensation and benefits
Income tax benefit
19

 
15

 
Income tax expense
Impact on net income
(31
)
 
(27
)
 
Net income
 
 
 
 
 
 
Total amount reclassified for the period
$
(32
)
 
$
20

 
Net income


Nine Months Ended September 30:
 
 
 
 
 
 
Amount Reclassified from AOCI
 
Affected Line Item in the Income Statement
 
2017
 
2016
 
Unrealized gain (loss) on marketable securities:
 
 
 
 
 
Realized gain on sale of securities
$
1

 
$

 
Investment income
Income tax expense

 

 
Income tax expense
Impact on net income
1

 

 
Net income
Unrealized gain (loss) on cash flow hedges:
 
 
 
 
 
Interest rate contracts
(20
)
 
(19
)
 
Interest expense
Foreign exchange contracts
35

 
274

 
Revenue
Income tax expense
(6
)
 
(96
)
 
Income tax expense
Impact on net income
9

 
159

 
Net income
Unrecognized pension and postretirement benefit costs:
 
 
 
 
 
Prior service costs
(150
)
 
(128
)
 
Compensation and benefits
Income tax benefit
56

 
48

 
Income tax expense
Impact on net income
(94
)
 
(80
)
 
Net income
 
 
 
 
 
 
Total amount reclassified for the period
$
(84
)
 
$
79

 
Net income






Deferred Compensation Obligations and Treasury Stock
Activity in the deferred compensation program for the nine months ended September 30, 2017 and 2016 is as follows (in millions):
 
2017
 
2016
Shares
 
Dollars
 
Shares
 
Dollars
Deferred Compensation Obligations:
 
 
 
 
 
 
 
Balance at beginning of period
 
 
$
45

 
 
 
$
51

Reinvested dividends
 
 
2

 
 
 
2

Benefit payments
 
 
(10
)
 
 
 
(9
)
Balance at end of period
 
 
$
37

 
 
 
$
44

Treasury Stock:
 
 
 
 
 
 
 
Balance at beginning of period
(1
)
 
$
(45
)
 
(1
)
 
$
(51
)
Reinvested dividends

 
(2
)
 

 
(2
)
Benefit payments

 
10

 

 
9

Balance at end of period
(1
)
 
$
(37
)
 
(1
)
 
$
(44
)


Noncontrolling Interests:
We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain & Freight segments. Noncontrolling interests increased $6 and $3 million for the nine months ended September 30, 2017 and 2016, respectively.