UPS yesterday announced it intends to take on higher debt levels to finance a $10 billion buybackof company shares over the next two years as well as to finance future investments.
UPS said its Board of Directors had approved a change in financial policy regarding thecapital structure that was designed to enhance UPS’s value to shareowners. Under the new policy,UPS intends to significantly increase the debt component of its balance sheet. In future, thetarget debt ratio would be within a range of 50-to-60% funds-from-operations-to-total-debt.Previously, there was no stated metric.
“We have been studying our capital structure options for some time,” said Kurt Kuehn, UPS’schief financial officer. “This change in policy will permit us to make increased investments in thebusiness, pursue selective acquisitions and undertake larger share repurchases.”
To begin implementation of the new policy, the UPS Board authorised an immediate increase inthe amount of funds available for stock repurchases from approximately $2 billion to $10 billion.
UPS said it intends to complete that level of share repurchases in the next 24 months throughan accelerated share repurchase programme, open market purchases or other methods.
“UPS has had a long-standing commitment to a very strong balance sheet for decades and thatwill not change,” added Scott Davis, UPS’s chairman and CEO. “Indeed, we are putting that balancesheet strength to work to more efficiently deploy capital for the benefit of our shareowners. UPS’sconsistent, stable cash flows mean we can accept a higher degree of debt while continuing tostrategically grow our business.”
In response, credit rating agency Standard & Poor’s downgraded UPS’s rating from thetop-level “AAA” by three levels to “AA-minus”, citing the future higher debt levels but also notingthe company’s strong cash flow and high liquidity.
Meanwhile, CEO Scott Davis told an Atlanta Chamber of Commerce meeting yesterday that the USeconomy was currently in greater danger of falling into recession, according to an Associated Pressreport.
UPS, which warned before Christmas that the October – December fourth quarter would be slowdue to expected weak end of year sales, is due to release Q4, 2007 figures on January 30, 2008.
