UPS 2008 Annual Report Download - page 45

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Other investing activities reflected a cash outflow of $363 million in 2008 as compared with a $46 million
outflow in 2007 and a $120 million cash inflow in 2006, and was impacted by cash settlements of derivative
contracts used in our energy and currency hedging programs, the timing of aircraft purchase contract deposits on
our Boeing 767-300 and Boeing 747-400 aircraft orders, and increases in restricted cash balances. In 2008, we
entered into an escrow agreement with an insurance carrier to guarantee our self-insurance obligations. This
agreement required us to provide $191 million in cash collateral to the insurance carrier, which is classified as
restricted cash within other non-current assets on our consolidated balance sheet as of December 31, 2008. We
received (paid) cash related to purchases and settlements of energy and currency derivative contracts of ($208),
($140), and $233 million during 2008, 2007, and 2006, respectively.
Financing Activities
Net cash provided by (used in) financing activities was $(6.702), $2.297, and ($3.851) billion in 2008, 2007,
and 2006, respectively. Our primary uses of cash flows for financing activities are to repurchase shares, pay cash
dividends, and make debt principal repayments.
We repaid debt principal, net of issuances, of $921 million in 2008, compared with net issuances of debt of
$6.509 billion in 2007. In 2007, we increased our commercial paper borrowings to fund the $6.100 billion
withdrawal payment to the Central States Pension Fund (commercial paper increased $6.575 billion at
December 31, 2007 over December 31, 2006) upon ratification of our labor contract with the Teamsters, as
previously discussed. In 2008, we repaid most of this commercial paper with the proceeds from a $4.0 billion
senior notes offering, as well as the $850 million U.S. federal tax refund received. In January 2008, we
completed an offering of $1.750 billion of 4.50% senior notes due January 2013, $750 million of 5.50% senior
notes due January 2018, and $1.500 billion of 6.20% senior notes due January 2038. All of these notes pay
interest semiannually, and allow for redemption of the notes by UPS at any time by paying the greater of the
principal amount or a “make-whole” amount, plus accrued interest. After pricing and underwriting discounts, we
received a total of $3.961 billion in cash proceeds from the offering. Concurrent with the issuance these notes, we
settled certain derivatives that were designated as hedges of the notes offering, resulting in a cash outflow of $84
million (which is reported in other financing activities on the cash flow statement).
Other than commercial paper, repayments of debt consisted primarily of scheduled principal payments on
our capital lease obligations, redemption of certain tranches of UPS Notes, and principal payments on debt
related to our investment in certain partnerships. During 2008, we called for the redemption of $327 million of
notes issued under our UPS Notes program, and the associated swaps on the notes were terminated. We consider
the overall fixed and floating interest rate mix of our portfolio and the related overall cost of borrowing when
planning for future issuances and non-scheduled repayments of debt.
In January 2008, we announced a new financial policy regarding our capital structure to enhance
shareowner value. We intend to manage our balance sheet to a target debt ratio of approximately 50%-60% funds
from operations to total debt. In connection with this policy, the Board of Directors authorized an increase in our
share repurchase authorization to $10.0 billion. Share repurchases may take the form of accelerated share
repurchases, open market purchases, or other such methods as we deem appropriate. The timing of our share
repurchases will depend upon market conditions. 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. During
2008, 2007, and 2006, we repurchased a total of 53.6, 35.9, and 32.6 million shares of Class A and Class B
common stock for $3.558, $2.618, and $2.455 billion, respectively ($3.570, $2.639, and $2.460 billion reported
on the statement of cash flows due to timing of settlements).
Our quarterly cash dividends declared were $0.45, $0.42, and $0.38 per share in 2008, 2007, and 2006,
respectively. Additionally, in 2008 the Board of Directors approved an earlier payment schedule for the
November dividend declaration, as in prior years this dividend was payable the following January. As a result, a
total of five dividend payments were made in 2008. This extra dividend payment, along with the higher quarterly
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