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, 2014, 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, 2014, 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, 2014 and 2013 (in millions, except per share amounts):
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2014 |
|
2013 |
|
Shares |
|
Dollars |
|
Shares |
|
Dollars |
Class A Common Stock |
|
|
|
|
|
|
|
Balance at beginning of period |
212 |
|
|
$ |
2 |
|
|
225 |
|
|
$ |
3 |
|
Common stock purchases |
(4 |
) |
|
— |
|
|
(6 |
) |
|
(1 |
) |
Stock award plans |
4 |
|
|
— |
|
|
6 |
|
|
— |
|
Common stock issuances |
2 |
|
|
— |
|
|
3 |
|
|
— |
|
Conversions of class A to class B common stock |
(11 |
) |
|
— |
|
|
(14 |
) |
|
— |
|
Class A shares issued at end of period |
203 |
|
|
$ |
2 |
|
|
214 |
|
|
$ |
2 |
|
Class B Common Stock |
|
|
|
|
|
|
|
Balance at beginning of period |
712 |
|
|
$ |
7 |
|
|
729 |
|
|
$ |
7 |
|
Common stock purchases |
(17 |
) |
|
— |
|
|
(27 |
) |
|
— |
|
Conversions of class A to class B common stock |
11 |
|
|
— |
|
|
14 |
|
|
— |
|
Class B shares issued at end of period |
706 |
|
|
$ |
7 |
|
|
716 |
|
|
$ |
7 |
|
Additional Paid-In Capital |
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|
|
|
|
|
|
Balance at beginning of period |
|
|
$ |
— |
|
|
|
|
$ |
— |
|
Stock award plans |
|
|
359 |
|
|
|
|
493 |
|
Common stock purchases |
|
|
(630 |
) |
|
|
|
(513 |
) |
Common stock issuances |
|
|
218 |
|
|
|
|
216 |
|
Option premiums received (paid) |
|
|
53 |
|
|
|
|
(196 |
) |
Balance at end of period |
|
|
$ |
— |
|
|
|
|
$ |
— |
|
Retained Earnings |
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
$ |
6,925 |
|
|
|
|
$ |
7,997 |
|
Net income attributable to common shareowners |
|
|
2,579 |
|
|
|
|
3,205 |
|
Dividends ($2.01 and $1.86 per share) |
|
|
(1,863 |
) |
|
|
|
(1,770 |
) |
Common stock purchases |
|
|
(1,412 |
) |
|
|
|
(2,330 |
) |
Balance at end of period |
|
|
$ |
6,229 |
|
|
|
|
$ |
7,102 |
|
In total, we repurchased 20.6 million shares of class A and class B common stock for $2.042 billion during the nine months ended September 30, 2014, and 33.3 million shares for $2.844 billion during the nine months ended September 30, 2013. In February 2013, the Board of Directors approved a new share repurchase authorization of $10.0 billion, which has no expiration date. Share repurchases may take the form of accelerated share repurchases, open market purchases, or other such methods as we deem appropriate. The timing of our share repurchases will depend upon market conditions. Unless terminated earlier by the resolution of our Board, the program will expire when we have purchased all shares authorized for repurchase under the program. As of September 30, 2014, we had $4.772 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 2014, we entered into an accelerated share repurchase program which allowed us to repurchase 3.9 million shares for $375 million. The program was completed in September 2014.
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 $53 and ($196) million during the first nine months of 2014 and 2013, respectively, related to entering into and settling capped call options for the purchase of class B shares. As of September 30, 2014, we had outstanding options for the purchase of 0.6 million shares, with a strike price of $86.18 per share, that will settle in the fourth quarter of 2014.
Accumulated Other Comprehensive Income (Loss)
We experience 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 for the nine months ended September 30, 2014 and 2013 is as follows (in millions):
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|
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|
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|
|
2014 |
|
2013 |
Foreign currency translation gain (loss): |
|
|
|
Balance at beginning of period |
$ |
(126 |
) |
|
$ |
134 |
|
Reclassification to earnings (no tax impact in either period) |
— |
|
|
(161 |
) |
Translation adjustment (net of tax effect of $11 and $(2)) |
(248 |
) |
|
(99 |
) |
Balance at end of period |
(374 |
) |
|
(126 |
) |
Unrealized gain (loss) on marketable securities, net of tax: |
|
|
|
Balance at beginning of period |
(1 |
) |
|
6 |
|
Current period changes in fair value (net of tax effect of $1 and $(5)) |
1 |
|
|
(7 |
) |
Reclassification to earnings (no tax impact in either period) |
— |
|
|
— |
|
Balance at end of period |
— |
|
|
(1 |
) |
Unrealized gain (loss) on cash flow hedges, net of tax: |
|
|
|
Balance at beginning of period |
(219 |
) |
|
(286 |
) |
Current period changes in fair value (net of tax effect of $77 and $3) |
129 |
|
|
6 |
|
Reclassification to earnings (net of tax effect of $24 and $39) |
40 |
|
|
64 |
|
Balance at end of period |
(50 |
) |
|
(216 |
) |
Unrecognized pension and postretirement benefit costs, net of tax: |
|
|
|
Balance at beginning of period |
(114 |
) |
|
(3,208 |
) |
Reclassification to earnings (net of tax effect of $447 and $51) |
742 |
|
|
82 |
|
Remeasurement of plan assets and liabilities (net of tax effect of $(488) and $0) |
(815 |
) |
|
— |
|
Balance at end of period |
(187 |
) |
|
(3,126 |
) |
Accumulated other comprehensive income (loss) at end of period |
$ |
(611 |
) |
|
$ |
(3,469 |
) |
Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the three and nine months ended September 30, 2014 and 2013 is as follows (in millions):
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Three Months Ended September 30: |
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Amount Reclassified from AOCI |
|
Affected Line Item in the Income Statement |
|
2014 |
|
2013 |
|
Foreign currency translation gain (loss): |
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|
|
|
|
Liquidation of foreign subsidiary |
$ |
— |
|
|
$ |
— |
|
|
Other expenses |
Income tax (expense) benefit |
— |
|
|
— |
|
|
Income tax expense |
Impact on net income |
— |
|
|
— |
|
|
Net income |
Unrealized gain (loss) on marketable securities: |
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|
|
|
Realized gain (loss) on sale of securities |
— |
|
|
— |
|
|
Investment income |
Income tax (expense) benefit |
— |
|
|
— |
|
|
Income tax expense |
Impact on net income |
— |
|
|
— |
|
|
Net income |
Unrealized gain (loss) on cash flow hedges: |
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|
|
|
|
Interest rate contracts |
(6 |
) |
|
(6 |
) |
|
Interest expense |
Foreign exchange contracts |
(43 |
) |
|
44 |
|
|
Interest expense |
Foreign exchange contracts |
(11 |
) |
|
(13 |
) |
|
Revenue |
Commodity contracts |
— |
|
|
— |
|
|
Fuel expense |
Income tax (expense) benefit |
23 |
|
|
(9 |
) |
|
Income tax expense |
Impact on net income |
(37 |
) |
|
16 |
|
|
Net income |
Unrecognized pension and postretirement benefit costs: |
|
|
|
|
|
Prior service costs |
(44 |
) |
|
(45 |
) |
|
Compensation and benefits |
Settlement and curtailment loss |
— |
|
|
— |
|
|
Compensation and benefits |
Remeasurement of benefit obligation |
— |
|
|
— |
|
|
Compensation and benefits |
Income tax (expense) benefit |
17 |
|
|
17 |
|
|
Income tax expense |
Impact on net income |
(27 |
) |
|
(28 |
) |
|
Net income |
|
|
|
|
|
|
Total amount reclassified for the period |
$ |
(64 |
) |
|
$ |
(12 |
) |
|
Net income |
|
|
|
|
|
|
|
|
|
|
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Nine Months Ended September 30: |
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|
|
Amount Reclassified from AOCI |
|
Affected Line Item in the Income Statement |
|
2014 |
|
2013 |
|
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 |
— |
|
|
— |
|
|
Investment income |
Income tax (expense) benefit |
— |
|
|
— |
|
|
Income tax expense |
Impact on net income |
— |
|
|
— |
|
|
Net income |
Unrealized gain (loss) on cash flow hedges: |
|
|
|
|
|
Interest rate contracts |
(17 |
) |
|
(16 |
) |
|
Interest expense |
Foreign exchange contracts |
(15 |
) |
|
— |
|
|
Interest expense |
Foreign exchange contracts |
(32 |
) |
|
(39 |
) |
|
Revenue |
Commodity contracts |
— |
|
|
(48 |
) |
|
Fuel expense |
Income tax (expense) benefit |
24 |
|
|
39 |
|
|
Income tax expense |
Impact on net income |
(40 |
) |
|
(64 |
) |
|
Net income |
Unrecognized pension and postretirement benefit costs: |
|
|
|
|
|
Prior service costs |
(123 |
) |
|
(133 |
) |
|
Compensation and benefits |
Settlement and curtailment loss |
(320 |
) |
|
— |
|
|
Compensation and benefits |
Remeasurement of benefit obligation |
(746 |
) |
|
— |
|
|
Compensation and benefits |
Income tax (expense) benefit |
447 |
|
|
51 |
|
|
Income tax expense |
Impact on net income |
(742 |
) |
|
(82 |
) |
|
Net income |
|
|
|
|
|
|
Total amount reclassified for the period |
$ |
(782 |
) |
|
$ |
15 |
|
|
Net income |
Deferred Compensation Obligations and Treasury Stock
Activity in the deferred compensation program for the nine months ended September 30, 2014 and 2013 is as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
Shares |
|
Dollars |
|
Shares |
|
Dollars |
Deferred Compensation Obligations: |
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
$ |
69 |
|
|
|
|
$ |
78 |
|
Reinvested dividends |
|
|
2 |
|
|
|
|
3 |
|
Benefit payments |
|
|
(12 |
) |
|
|
|
(13 |
) |
Balance at end of period |
|
|
$ |
59 |
|
|
|
|
$ |
68 |
|
Treasury Stock: |
|
|
|
|
|
|
|
Balance at beginning of period |
(1 |
) |
|
$ |
(69 |
) |
|
(1 |
) |
|
$ |
(78 |
) |
Reinvested dividends |
— |
|
|
(2 |
) |
|
— |
|
|
(3 |
) |
Benefit payments |
— |
|
|
12 |
|
|
— |
|
|
13 |
|
Balance at end of period |
(1 |
) |
|
$ |
(59 |
) |
|
(1 |
) |
|
$ |
(68 |
) |
Noncontrolling Interests:
We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain & Freight segments. The activity related to our noncontrolling interests is presented below for the nine months ended September 30, 2014 and 2013 (in millions):
|
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|
|
|
|
|
|
|
|
2014 |
|
2013 |
Noncontrolling Interests: |
|
|
|
Balance at beginning of period |
$ |
14 |
|
|
$ |
80 |
|
Acquired noncontrolling interests |
3 |
|
|
(67 |
) |
Dividends attributable to noncontrolling interests |
— |
|
|
— |
|
Net income attributable to noncontrolling interests |
— |
|
|
— |
|
Balance at end of period |
$ |
17 |
|
|
$ |
13 |
|
The reduction in our noncontrolling interests in 2013 primarily relates to our purchase of the remaining noncontrolling interest in a 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.