The Securities and Exchange Commission (SEC) announced today that UPS will pay $45 million to settle charges that it improperly valued its freight division, according to the Associated Press. The regulatory agency said that UPS materially misrepresented its earnings because it failed to follow generally accepted accounting principles in valuing its freight unit.
In 2019, UPS reportedly determined that its freight division was likely to sell for no more than about $650 million. UPS’s own analysis indicated that nearly $500 million of goodwill it had associated with the unit was impaired.
Instead of using its own analysis, however, the SEC said that UPS relied on an outside consultant’s valuation of the freight division, without giving the consultant information necessary to conduct a fair valuation of the business. The consultant reportedly estimated that the freight unit was worth about $2 billion — three times as much as UPS had determined.
Had UPS properly valued the division, its earnings and other reported items would have been materially lower.
The SEC’s order also alleges that in 2020 UPS entered into a nonbinding term sheet to sell the freight unit for $800 million with adjustments to be made later that were likely to reduce the final price.
Despite its own analysis and its entry into this term sheet, the Atlanta company again relied on a consultant’s valuation of the unit in 2020 to support not impairing the business’ goodwill. UPS also did not inform the consultant of the term sheet, the commission said.
UPS said Friday that the amount of the settlement had been set aside and that it will have no material effect on its business.
