Annual report pursuant to Section 13 and 15(d)

SHAREOWNERS' EQUITY

v2.4.0.6
SHAREOWNERS' EQUITY
 12 Months Ended
Dec. 31, 2012
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, 2012, 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, 2012, 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):
 
2012
 
2011
 
2010
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
Class A Common Stock
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
240

 
$
3

 
258

 
$
3

 
285

 
$
3

Common stock purchases
(9
)
 
—

 
(7
)
 
—

 
(6
)
 
—

Stock award plans
8

 
—

 
7

 
—

 
6

 
—

Common stock issuances
3

 
—

 
3

 
—

 
3

 
—

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

 
(21
)
 
—

 
(30
)
 
—

Class A shares issued at end of year
225

 
$
3

 
240

 
$
3

 
258

 
$
3

Class B Common Stock
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
725

 
$
7

 
735

 
$
7

 
711

 
$
7

Common stock purchases
(13
)
 
—

 
(31
)
 
—

 
(6
)
 
—

Conversions of class A to class B common stock
17

 
—

 
21

 
—

 
30

 
—

Class B shares issued at end of year
729

 
$
7

 
725

 
$
7

 
735

 
$
7

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

 
 
 
$
—

 
 
 
$
2

Stock award plans
 
 
444

 
 
 
388

 
 
 
398

Common stock purchases
 
 
(943
)
 
 
 
(475
)
 
 
 
(649
)
Common stock issuances
 
 
293

 
 
 
287

 
 
 
249

Option Premiums Received (Paid)
 
 
206

 
 
 
(200
)
 
 
 
—

Balance at end of year
 
 
$
—

 
 
 
$
—

 
 
 
$
—

Retained Earnings
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
 
$
10,128

 
 
 
$
10,604

 
 
 
$
9,335

Net income attributable to controlling interests
 
 
807

 
 
 
3,804

 
 
 
3,338

Dividends ($2.28, $2.08 and $1.88 per share)
 
 
(2,243
)
 
 
 
(2,086
)
 
 
 
(1,909
)
Common stock purchases
 
 
(695
)
 
 
 
(2,194
)
 
 
 
(160
)
Balance at end of year
 
 
$
7,997

 
 
 
$
10,128

 
 
 
$
10,604


For the years ended December 31, 2012, 2011 and 2010, we repurchased a total of 21.8, 38.7 and 12.4 million shares of class A and class B common stock for $1.638 billion, $2.669 billion and $809 million, respectively. On May 3, 2012, the Board of Directors approved a share repurchase authorization of $5.0 billion, which replaced an authorization previously announced in 2008. As of December 31, 2012, we had $3.970 billion of this share repurchase authorization remaining. 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.
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. 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. During 2011, we settled options that resulted in the repurchase of 0.8 million shares at $65.11 per share, as well as the receipt of $6 million in premiums (in excess of our initial investment).
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):

 
2012
 
2011
 
2010
Foreign currency translation gain (loss):
 
 
 
 
 
Balance at beginning of year
$
(160
)
 
$
(68
)
 
$
37

Aggregate adjustment for the year (net of tax effect of $(9), $11 and $(34))
294

 
(92
)
 
(105
)
Balance at end of year
134

 
(160
)
 
(68
)
Unrealized gain (loss) on marketable securities, net of tax:
 
 
 
 
 
Balance at beginning of year
6

 
12

 
(27
)
Current period changes in fair value (net of tax effect of $4, $11 and $17)
6

 
18

 
30

Reclassification to earnings (net of tax effect of $(3), $(14) and $6)
(6
)
 
(24
)
 
9

Balance at end of year
6

 
6

 
12

Unrealized gain (loss) on cash flow hedges, net of tax:
 
 
 
 
 
Balance at beginning of year
(204
)
 
(239
)
 
(200
)
Current period changes in fair value (net of tax effect of $(25), $(16) and $(4))
(43
)
 
(26
)
 
(7
)
Reclassification to earnings (net of tax effect of $(24), $37 and $(19))
(39
)
 
61

 
(32
)
Balance at end of year
(286
)
 
(204
)
 
(239
)
Unrecognized pension and postretirement benefit costs, net of tax:
 
 
 
 
 
Balance at beginning of year
(2,745
)
 
(2,340
)
 
(1,527
)
Reclassification to earnings (net of tax effect of $1,876, $378 and $150)
3,135

 
628

 
245

Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $(2,151), $(622) and $(633))
(3,598
)
 
(1,033
)
 
(1,058
)
Balance at end of year
(3,208
)
 
(2,745
)
 
(2,340
)
Accumulated other comprehensive income (loss) at end of year
$
(3,354
)
 
$
(3,103
)
 
$
(2,635
)

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, 2012, 2011 and 2010 is as follows (in millions):
 
2012
 
2011
 
2010
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Shares
 
Dollars
Deferred Compensation Obligations
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
 
$
88

 
 
 
$
103

 
 
 
$
108

Reinvested dividends
 
 
3

 
 
 
4

 
 
 
4

Options exercise deferrals
 
 
—

 
 
 
—

 
 
 
1

Benefit payments
 
 
(13
)
 
 
 
(19
)
 
 
 
(10
)
Balance at end of year
 
 
$
78

 
 
 
$
88

 
 
 
$
103

Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
(2
)
 
$
(88
)
 
(2
)
 
$
(103
)
 
(2
)
 
$
(108
)
Reinvested dividends
—

 
(3
)
 
—

 
(4
)
 
—

 
(4
)
Options exercise deferrals
—

 
—

 
—

 
—

 
—

 
(1
)
Benefit payments
1

 
13

 
—

 
19

 
—

 
10

Balance at end of year
(1
)
 
$
(78
)
 
(2
)
 
$
(88
)
 
(2
)
 
$
(103
)

Noncontrolling Interests
We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain & Freight segments, the largest of which relates to a joint venture that operates in the Middle East, Turkey, and portions of the Central Asia region. The activity related to our noncontrolling interests is presented below (in millions):
 
2012
 
2011
 
2010
Noncontrolling Interests
 
 
 
 
 
Balance at beginning of period
$
73

 
$
68

 
$
66

Acquired noncontrolling interests
7

 
5

 
2

Dividends attributable to noncontrolling interests
—

 
—

 
—

Net income attributable to noncontrolling interests
—

 
—

 
—

Balance at end of period
$
80

 
$
73

 
$
68