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 June 30, 2015, 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 June 30, 2015, 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 six months ended June 30, 2015 and 2014 (in millions, except per share amounts):
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2015 |
|
2014 |
|
Shares |
|
Dollars |
|
Shares |
|
Dollars |
Class A Common Stock |
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|
|
|
|
|
|
Balance at beginning of period |
201 |
|
|
$ |
2 |
|
|
212 |
|
|
$ |
2 |
|
Common stock purchases |
(2 |
) |
|
— |
|
|
(3 |
) |
|
— |
|
Stock award plans |
4 |
|
|
— |
|
|
4 |
|
|
— |
|
Common stock issuances |
1 |
|
|
— |
|
|
1 |
|
|
— |
|
Conversions of class A to class B common stock |
(5 |
) |
|
— |
|
|
(6 |
) |
|
— |
|
Class A shares issued at end of period |
199 |
|
|
$ |
2 |
|
|
208 |
|
|
$ |
2 |
|
Class B Common Stock |
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|
|
|
|
|
Balance at beginning of period |
705 |
|
|
$ |
7 |
|
|
712 |
|
|
$ |
7 |
|
Common stock purchases |
(12 |
) |
|
— |
|
|
(11 |
) |
|
— |
|
Conversions of class A to class B common stock |
5 |
|
|
— |
|
|
6 |
|
|
— |
|
Class B shares issued at end of period |
698 |
|
|
$ |
7 |
|
|
707 |
|
|
$ |
7 |
|
Additional Paid-In Capital |
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|
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Balance at beginning of period |
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|
$ |
— |
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|
|
|
$ |
— |
|
Stock award plans |
|
|
265 |
|
|
|
|
232 |
|
Common stock purchases |
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|
(392 |
) |
|
|
|
(481 |
) |
Common stock issuances |
|
|
173 |
|
|
|
|
147 |
|
Option premiums received (paid) |
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|
(46 |
) |
|
|
|
102 |
|
Balance at end of period |
|
|
$ |
— |
|
|
|
|
$ |
— |
|
Retained Earnings |
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Balance at beginning of period |
|
|
$ |
5,726 |
|
|
|
|
$ |
6,925 |
|
Net income attributable to common shareowners |
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|
2,256 |
|
|
|
|
1,365 |
|
Dividends ($1.46 and $1.34 per share) |
|
|
(1,348 |
) |
|
|
|
(1,253 |
) |
Common stock purchases |
|
|
(966 |
) |
|
|
|
(882 |
) |
Balance at end of period |
|
|
$ |
5,668 |
|
|
|
|
$ |
6,155 |
|
In total, we repurchased 13.5 million shares of class A and class B common stock for $1.358 billion during the six months ended June 30, 2015, and 13.7 million shares for $1.363 billion during the six months ended June 30, 2014. In February 2013, the Board of Directors approved a new share repurchase authorization of $10.0 billion, which has no expiration date. As of June 30, 2015, we had $2.794 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 second quarter of 2015, we entered into an accelerated share repurchase program which allowed us to repurchase 4.0 million shares for $400 million. The program was completed in June 2015.
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 $(46) and $102 million during the first six months of 2015 and 2014, respectively, related to entering into and settling capped call options for the purchase of class B shares. As of June 30, 2015, we had outstanding options for the purchase of 2.3 million shares, with a weighted average strike price of $89.91 per share, that will settle in the third and fourth quarters of 2015.
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 six months ended June 30, 2015 and 2014 is as follows (in millions):
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2015 |
|
2014 |
Foreign currency translation gain (loss): |
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Balance at beginning of period |
$ |
(457 |
) |
|
$ |
(126 |
) |
Reclassification to earnings (no tax impact in either period) |
— |
|
|
— |
|
Translation adjustment (net of tax effect of $0 and $3) |
(203 |
) |
|
3 |
|
Balance at end of period |
(660 |
) |
|
(123 |
) |
Unrealized gain (loss) on marketable securities, net of tax: |
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|
|
Balance at beginning of period |
— |
|
|
(1 |
) |
Current period changes in fair value (net of tax effect of $0 and $1) |
1 |
|
|
2 |
|
Reclassification to earnings (no tax impact in either period) |
— |
|
|
— |
|
Balance at end of period |
1 |
|
|
1 |
|
Unrealized gain (loss) on cash flow hedges, net of tax: |
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|
Balance at beginning of period |
61 |
|
|
(219 |
) |
Current period changes in fair value (net of tax effect of $56 and $(27)) |
91 |
|
|
(44 |
) |
Reclassification to earnings (net of tax effect of $(45) and $1) |
(74 |
) |
|
3 |
|
Balance at end of period |
78 |
|
|
(260 |
) |
Unrecognized pension and postretirement benefit costs, net of tax: |
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|
|
Balance at beginning of period |
(3,198 |
) |
|
(114 |
) |
Reclassification to earnings (net of tax effect of $35 and $430) |
52 |
|
|
715 |
|
Remeasurement of plan assets and liabilities (net of tax effect of $0 and $(488)) |
— |
|
|
(815 |
) |
Balance at end of period |
(3,146 |
) |
|
(214 |
) |
Accumulated other comprehensive income (loss) at end of period |
$ |
(3,727 |
) |
|
$ |
(596 |
) |
Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the three and six months ended June 30, 2015 and 2014 is as follows (in millions):
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Three Months Ended June 30: |
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Amount Reclassified from AOCI |
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Affected Line Item in the Income Statement |
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2015 |
|
2014 |
|
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 |
) |
|
(5 |
) |
|
Interest expense |
Foreign exchange contracts |
11 |
|
|
20 |
|
|
Interest expense |
Foreign exchange contracts |
77 |
|
|
(12 |
) |
|
Revenue |
Income tax (expense) benefit |
(31 |
) |
|
(2 |
) |
|
Income tax expense |
Impact on net income |
51 |
|
|
1 |
|
|
Net income |
Unrecognized pension and postretirement benefit costs: |
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|
|
Prior service costs |
(44 |
) |
|
(36 |
) |
|
Compensation and benefits |
Settlement and curtailment loss |
— |
|
|
(320 |
) |
|
Compensation and benefits |
Remeasurement of benefit obligation |
— |
|
|
(746 |
) |
|
Compensation and benefits |
Income tax (expense) benefit |
18 |
|
|
414 |
|
|
Income tax expense |
Impact on net income |
(26 |
) |
|
(688 |
) |
|
Net income |
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|
Total amount reclassified for the period |
$ |
25 |
|
|
$ |
(687 |
) |
|
Net income |
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Six Months Ended June 30: |
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Amount Reclassified from AOCI |
|
Affected Line Item in the Income Statement |
|
2015 |
|
2014 |
|
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 |
(12 |
) |
|
(11 |
) |
|
Interest expense |
Foreign exchange contracts |
(25 |
) |
|
28 |
|
|
Interest expense |
Foreign exchange contracts |
156 |
|
|
(21 |
) |
|
Revenue |
Income tax (expense) benefit |
(45 |
) |
|
1 |
|
|
Income tax expense |
Impact on net income |
74 |
|
|
(3 |
) |
|
Net income |
Unrecognized pension and postretirement benefit costs: |
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|
|
|
|
Prior service costs |
(87 |
) |
|
(79 |
) |
|
Compensation and benefits |
Settlement and curtailment loss |
— |
|
|
(320 |
) |
|
Compensation and benefits |
Remeasurement of benefit obligation |
— |
|
|
(746 |
) |
|
Compensation and benefits |
Income tax (expense) benefit |
35 |
|
|
430 |
|
|
Income tax expense |
Impact on net income |
(52 |
) |
|
(715 |
) |
|
Net income |
|
|
|
|
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|
Total amount reclassified for the period |
$ |
22 |
|
|
$ |
(718 |
) |
|
Net income |
Deferred Compensation Obligations and Treasury Stock
Activity in the deferred compensation program for the six months ended June 30, 2015 and 2014 is as follows (in millions):
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|
|
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2015 |
|
2014 |
Shares |
|
Dollars |
|
Shares |
|
Dollars |
Deferred Compensation Obligations: |
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|
Balance at beginning of period |
|
|
$ |
59 |
|
|
|
|
$ |
69 |
|
Reinvested dividends |
|
|
2 |
|
|
|
|
1 |
|
Benefit payments |
|
|
(11 |
) |
|
|
|
(12 |
) |
Balance at end of period |
|
|
$ |
50 |
|
|
|
|
$ |
58 |
|
Treasury Stock: |
|
|
|
|
|
|
|
Balance at beginning of period |
(1 |
) |
|
$ |
(59 |
) |
|
(1 |
) |
|
$ |
(69 |
) |
Reinvested dividends |
— |
|
|
(2 |
) |
|
— |
|
|
(1 |
) |
Benefit payments |
— |
|
|
11 |
|
|
— |
|
|
12 |
|
Balance at end of period |
(1 |
) |
|
$ |
(50 |
) |
|
(1 |
) |
|
$ |
(58 |
) |
Noncontrolling Interests:
We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain & Freight segments. Noncontrolling interests increased $1 and $3 million for the six months ended June 30, 2015 and 2014, respectively, mainly due to noncontrolling interests associated with acquisitions during the period.