Quarterly report pursuant to Section 13 or 15(d)

SHAREOWNERS' EQUITY

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SHAREOWNERS' EQUITY
 9 Months Ended
Sep. 30, 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 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 September 30, 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, with a $0.01 par value, authorized to be issued; as of September 30, 2011, 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, 2011 and 2010 (in millions, except per share amounts):

 

     2011     2010  
     Shares     Dollars     Shares     Dollars  

Class A Common Stock

         

Balance at beginning of period

      258      $ 3        285      $ 3   

Common stock purchases

      (6 )      —          (3 )      —     

Stock award plans

      4        —          2        —     

Common stock issuances

      3        —          2        —     

Conversions of Class A to Class B common stock

      (15 )      —          (22 )      —     
  

 

 

    

 

 

    

 

 

    

 

 

  

Class A shares issued at end of period

      244      $ 3        264      $ 3   
  

 

 

    

 

 

    

 

 

    

 

 

  

Class B Common Stock

         

Balance at beginning of period

      735      $ 7        711      $ 7   

Common stock purchases

      (26 )      —          (6 )      —     

Conversions of Class A to Class B common stock

      15        —          22        —     
  

 

 

    

 

 

    

 

 

    

 

 

  

Class B shares issued at end of period

      724      $ 7        727      $ 7   
  

 

 

    

 

 

    

 

 

    

 

 

  

Additional Paid-In Capital

         

Balance at beginning of period

      $ —          $ 2   

Stock award plans

        375          324   

Common stock purchases

        (417 )        (491 ) 

Common stock issuances

        192          165   

Option premiums paid

        (150 )        —     
    

 

 

      

 

 

  

Balance at end of period

      $ —          $ —     
    

 

 

      

 

 

  

Retained Earnings

         

Balance at beginning of period

      $ 14,164        $ 12,745   

Net income

        2,990          2,369   

Dividends ($1.56 and $1.41 per share)

        (1,553 )        (1,413 ) 

Common stock purchases

        (1,773 )        (98 ) 
    

 

 

      

 

 

  

Balance at end of period

      $ 13,828        $ 13,603   
    

 

 

      

 

 

  

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 2011, we entered into an accelerated share repurchase program, which allowed us to repurchase $350 million of shares (5.5 million shares). The program was completed in September 2011.

In total, we repurchased a total of 31.7 million shares of Class A and Class B common stock for $2.190 billion during the nine months ended September 30, 2011, and 9.3 million shares for $589 million for the nine months ended September 30, 2010. As of September 30, 2011, we had $3.004 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 September 30, 2011, we had paid premiums of $150 million on options for the purchase of 2.6 million shares that will settle in the fourth quarter 2011. During 2011, we have settled options that resulted in the repurchase of 0.8 million shares at $65.11 per share, as well as the receipt of $2 million in 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 nine months ended September 30, 2011 and 2010 is as follows (in millions):

 

    2011     2010  

Foreign currency translation gain (loss):

    

Balance at beginning of period

   $ (68 )    $ 37   

Aggregate adjustment for the period (net of tax effect of $4 and $(36))

     (47 )      (95 ) 
 

 

 

    

 

 

  

Balance at end of period

     (115 )      (58 ) 
 

 

 

    

 

 

  

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

    

Balance at beginning of period

     12        (27 ) 

Current period changes in fair value (net of tax effect of $10, and $20)

     16        34   

Reclassification to earnings (net of tax effect of $(13) and $6)

     (21 )      10   
 

 

 

    

 

 

  

Balance at end of period

     7        17   
 

 

 

    

 

 

  

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

    

Balance at beginning of period

     (239 )      (200 ) 

Current period changes in fair value (net of tax effect of $(47) and $(34))

     (80 )      (55 ) 

Reclassification to earnings (net of tax effect of $30 and $(27))

     51        (46 ) 
 

 

 

    

 

 

  

Balance at end of period

     (268 )      (301 ) 
 

 

 

    

 

 

  

Unrecognized pension and postretirement benefit costs, net of tax:

    

Balance at beginning of period

     (5,900 )      (4,937 ) 

Reclassification to earnings (net of tax effect of $138 and $78)

     228        126   

Adjustment for Early Retirement Reinsurance Program (net of tax effect of $4 and $0)

     8        —     
 

 

 

    

 

 

  

Balance at end of period

     (5,664 )      (4,811 ) 
 

 

 

    

 

 

  

Accumulated other comprehensive income (loss) at end of period

   $ (6,040 )    $ (5,153 ) 
 

 

 

    

 

 

  

 

Deferred Compensation Obligations and Treasury Stock

Activity in the deferred compensation program for the nine months ended September 30, 2011 and 2010 is as follows (in millions):

 

     2011     2010  
   Shares     Dollars     Shares     Dollars  

Deferred Compensation Obligations

         

Balance at beginning of period

      $ 103        $ 108   

Reinvested dividends

        3          3   

Benefit payments

        (19 )        (10 ) 
    

 

 

      

 

 

  

Balance at end of period

      $ 87        $ 101   
    

 

 

      

 

 

  

Treasury Stock

         

Balance at beginning of period

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

Reinvested dividends

      —          (3 )      —          (3 ) 

Benefit payments

      —          19        —          10   
  

 

 

    

 

 

    

 

 

    

 

 

  

Balance at end of period

      (2 )    $ (87 )      (2 )    $ (101 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

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, which was formed in the third quarter of 2009. The activity related to our noncontrolling interests is presented below for the nine months ended September 30, 2011 and 2010 (in millions):

 

     2011      2010  

Noncontrolling Interests

      

Balance at beginning of period

    $ 68       $ 66   

Acquired noncontrolling interests

      3         —     

Dividends attributable to noncontrolling interests

      —           —     

Net income attributable to noncontrolling interests

      —           —     
  

 

 

     

 

 

  

Balance at end of period

    $ 71       $ 66