Annual report pursuant to Section 13 and 15(d)

SHAREOWNERS' EQUITY

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SHAREOWNERS' EQUITY
 12 Months Ended
Dec. 31, 2011
SHAREOWNERS' EQUITY

NOTE 10. 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, 2011, 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, 2011, 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):

 

    2011     2010     2009  
    Shares     Dollars     Shares     Dollars     Shares     Dollars  

Class A Common Stock

            

Balance at beginning of year

     258      $ 3        285      $ 3        314      $ 3   

Common stock purchases

     (7 )      —          (6 )      —          (10 )      —     

Stock award plans

     7        —          6        —          5        —     

Common stock issuances

     3        —          3        —          4        —     

Conversions of class A to class B common stock

     (21 )      —          (30 )      —          (28 )      —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Class A shares issued at end of year

     240      $ 3        258      $ 3        285      $ 3   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Class B Common Stock

            

Balance at beginning of year

     735      $ 7        711      $ 7        684      $ 7   

Common stock purchases

     (31 )      —          (6 )      —          (1 )      —     

Conversions of class A to class B common stock

     21        —          30        —          28        —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Class B shares issued at end of year

     725      $ 7        735      $ 7        711      $ 7   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Additional Paid-In Capital

            

Balance at beginning of year

     $ —          $ 2        $ —     

Stock award plans

       388          398          381   

Common stock purchases

       (475 )        (649 )        (569 ) 

Common stock issuances

       287          249          190   

Option Premiums Paid

       (200 )        —            —     
   

 

 

      

 

 

      

 

 

  

Balance at end of year

     $ —          $ —          $ 2   
   

 

 

      

 

 

      

 

 

  

Retained Earnings

            

Balance at beginning of year

     $ 10,604        $ 9,335        $ 9,186   

Net income attributable to controlling interests

       3,804          3,338          1,968   

Dividends ($2.08, $1.88 and $1.80 per share)

       (2,086 )        (1,909 )        (1,819 ) 

Common stock purchases

       (2,194 )        (160 )        —     
   

 

 

      

 

 

      

 

 

  

Balance at end of year

     $ 10,128        $ 10,604        $ 9,335   
   

 

 

      

 

 

      

 

 

  

For the years ended December 31, 2011, 2010 and 2009, we repurchased a total of 38.7, 12.4 and 10.9 million shares of class A and class B common stock for $2.669 billion, $809 million and $569 million, respectively. In January 2008, our Board of Directors authorized an increase in our share repurchase authority to $10.0 billion. 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 December 31, 2011, we had $2.525 billion of our share repurchase authorization remaining.

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, 2011, we had paid premiums of $200 million on options for the purchase of 3.3 million shares that will settle in the first half of 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):

 

     2011     2010     2009  

Foreign currency translation gain (loss):

       

Balance at beginning of year

    $ (68 )    $ 37      $ (38 ) 

Aggregate adjustment for the year (net of tax effect of $11, $(34), and $(27))

      (92 )      (105 )      75   
  

 

 

    

 

 

    

 

 

  

Balance at end of year

      (160 )      (68 )      37   
  

 

 

    

 

 

    

 

 

  

Unrealized gain (loss) on marketable securities, net of tax:

       

Balance at beginning of year

      12        (27 )      (60 ) 

Current period changes in fair value (net of tax effect of $11, $17, and $3)

      18        30        25   

Reclassification to earnings (net of tax effect of $(14), $6, and $5)

      (24 )      9        8   
  

 

 

    

 

 

    

 

 

  

Balance at end of year

      6        12        (27 ) 
  

 

 

    

 

 

    

 

 

  

Unrealized gain (loss) on cash flow hedges, net of tax:

       

Balance at beginning of year

      (239 )      (200 )      (107 ) 

Current period changes in fair value (net of tax effect of $(16), $(4), and $4)

      (26 )      (7 )      6   

Reclassification to earnings (net of tax effect of $37, $(19) and $(60))

      61        (32 )      (99 ) 
  

 

 

    

 

 

    

 

 

  

Balance at end of year

      (204 )      (239 )      (200 ) 
  

 

 

    

 

 

    

 

 

  

Unrecognized pension and postretirement benefit costs, net of tax:

       

Balance at beginning of year

      (2,340 )      (1,527 )      (2,211 ) 

Reclassification to earnings (net of tax effect of $378, $150 and $197)

      628        245        329   

Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and liabilities (net of tax effect of $(622), $(633), and $219)

      (1,033 )      (1,058 )      355   
  

 

 

    

 

 

    

 

 

  

Balance at end of year

      (2,745 )      (2,340 )      (1,527 ) 
  

 

 

    

 

 

    

 

 

  

Accumulated other comprehensive income (loss) at end of year

    $ (3,103 )    $ (2,635 )    $ (1,717 ) 
  

 

 

    

 

 

    

 

 

  

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, 2011, 2010, and 2009 is as follows (in millions):

 

     2011     2010     2009  
     Shares     Dollars     Shares     Dollars     Shares     Dollars  

Deferred Compensation Obligations

             

Balance at beginning of year

      $ 103        $ 108        $ 121   

Reinvested dividends

        4          4          3   

Options exercise deferrals

        —            1          —     

Benefit payments

        (19 )        (10 )        (16 ) 
    

 

 

      

 

 

      

 

 

  

Balance at end of year

      $ 88        $ 103        $ 108   
    

 

 

      

 

 

      

 

 

  

Treasury Stock

             

Balance at beginning of year

      (2 )    $ (103 )      (2 )    $ (108 )      (2 )    $ (121 ) 

Reinvested dividends

      —          (4 )      —          (4 )      —          (3 ) 

Options exercise deferrals

      —          —          —          (1 )      —          —     

Benefit payments

      —          19        —          10        —          16   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at end of year

      (2 )    $ (88 )      (2 )    $ (103 )      (2 )    $ (108 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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):

 

     2011      2010  

Noncontrolling Interests

      

Balance at beginning of period

    $ 68       $ 66   

Acquired noncontrolling interests

      5         2   

Dividends attributable to noncontrolling interests

      —           —     

Net income attributable to noncontrolling interests

      —           —     
  

 

 

     

 

 

  

Balance at end of period

    $ 73       $ 68