Quarterly report pursuant to Section 13 or 15(d)

SHAREOWNERS' EQUITY

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SHAREOWNERS' EQUITY
 6 Months Ended
Jun. 30, 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 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 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, 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, with a $0.01 par value, authorized to be issued; as of June 30, 2012, 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, 2012 and 2011 (in millions, except per share amounts):
 
2012
 
2011
 
Shares
 
Dollars
 
Shares
 
Dollars
Class A Common Stock
 
 
 
 
 
 
 
Balance at beginning of period
240

 
$
3

 
258

 
$
3

Common stock purchases
(3
)
 
—

 
(4
)
 
—

Stock award plans
4

 
—

 
2

 
—

Common stock issuances
2

 
—

 
2

 
—

Conversions of class A to class B common stock
(8
)
 
—

 
(11
)
 
—

Class A shares issued at end of period
235

 
$
3

 
247

 
$
3

Class B Common Stock
 
 
 
 
 
 
 
Balance at beginning of period
725

 
$
7

 
735

 
$
7

Common stock purchases
(8
)
 
—

 
(10
)
 
—

Conversions of class A to class B common stock
8

 
—

 
11

 
—

Class B shares issued at end of period
725

 
$
7

 
736

 
$
7

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

 
 
 
$
—

Stock award plans
 
 
291

 
 
 
236

Common stock purchases
 
 
(606
)
 
 
 
(209
)
Common stock issuances
 
 
144

 
 
 
126

Option premiums received (paid)
 
 
206

 
 
 
(150
)
Unsettled portion of accelerated stock repurchase program
 
(35
)
 
 
 
—

Balance at end of period
 
 
$
—

 
 
 
$
3

Retained Earnings
 
 
 
 
 
 
 
Balance at beginning of period
 
 
$
10,128

 
 
 
$
10,604

Net income
 
 
2,086

 
 
 
2,007

Dividends ($1.14 and $1.04 per share)
 
 
(1,123
)
 
 
 
(1,048
)
Common stock purchases
 
 
(264
)
 
 
 
(846
)
Balance at end of period
 
 
$
10,827

 
 
 
$
10,717


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 2012, we entered into an accelerated share repurchase program, which allowed us to repurchase $230 million of shares (2.9 million shares). As of June 30, 2012, the remaining unsettled portion of this accelerated stock repurchase program was $35 million of shares.
In total, we repurchased a total of 11.3 million shares of class A and class B common stock for $870 million during the six months ended June 30, 2012, and 14.4 million shares for $1.055 billion during the six months ended June 30, 2011. On May 3, 2012, the Board of Directors approved a new share repurchase authorization of $5.0 billion, which replaces an authorization previously announced in 2008. The 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 the six months ended June 30, 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 the six months ended June 30, 2012. During the six months ended June 30, 2011, we paid $150 million in premiums on options for the purchase of shares, and had not received any premiums in excess of our initial investment.

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, 2012 and 2011 is as follows (in millions):
 
2012
 
2011
Foreign currency translation gain (loss):
 
 
 
Balance at beginning of period
$
(160
)
 
$
(68
)
Aggregate adjustment for the period (net of tax effect of $(3) and $(9))
(67
)
 
132

Balance at end of period
(227
)
 
64

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

 
12

Current period changes in fair value (net of tax effect of $2 and $5)
4

 
9

Reclassification to earnings (net of tax effect of $(1) and $(8))
(3
)
 
(16
)
Balance at end of period
7

 
5

Unrealized gain (loss) on cash flow hedges, net of tax:
 
 
 
Balance at beginning of period
(204
)
 
(239
)
Current period changes in fair value (net of tax effect of $(57) and $(50))
(94
)
 
(84
)
Reclassification to earnings (net of tax effect of $6 and $9)
10

 
16

Balance at end of period
(288
)
 
(307
)
Unrecognized pension and postretirement benefit costs, net of tax:
 
 
 
Balance at beginning of period
(2,745
)
 
(2,340
)
Reclassification to earnings (net of tax effect of $34 and $57)
55

 
94

Adjustment for Early Retirement Reinsurance Program (net of tax effect of $4 and $4)
6

 
8

Balance at end of period
(2,684
)
 
(2,238
)
Accumulated other comprehensive income (loss) at end of period
$
(3,192
)
 
$
(2,476
)

Deferred Compensation Obligations and Treasury Stock
Activity in the deferred compensation program for the six months ended June 30, 2012 and 2011 is as follows (in millions):
 
2012
 
2011
Shares
 
Dollars
 
Shares
 
Dollars
Deferred Compensation Obligations:
 
 
 
 
 
 
 
Balance at beginning of period
 
 
$
88

 
 
 
$
103

Reinvested dividends
 
 
2

 
 
 
2

Benefit payments
 
 
(14
)
 
 
 
(19
)
Balance at end of period
 
 
$
76

 
 
 
$
86

Treasury Stock:
 
 
 
 
 
 
 
Balance at beginning of period
(2
)
 
$
(88
)
 
(2
)
 
$
(103
)
Reinvested dividends
—

 
(2
)
 
—

 
(2
)
Benefit payments
—

 
14

 
—

 
19

Balance at end of period
(2
)
 
$
(76
)
 
(2
)
 
$
(86
)


Noncontrolling Interests:
We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain & Freight segments. The noncontrolling interests on our consolidated balance sheets primarily relate to a joint venture in Dubai that operates in the Middle East, Turkey and portions of the Central Asia region. The activity related to our noncontrolling interests is presented below for the six months ended June 30, 2012 and 2011 (in millions):
 
2012
 
2011
Noncontrolling Interests:
 
 
 
Balance at beginning of period
$
73

 
$
68

Acquired noncontrolling interests
7

 
7

Dividends attributable to noncontrolling interests
—

 
—

Net income attributable to noncontrolling interests
—

 
—

Balance at end of period
$
80

 
$
75