CASH AND INVESTMENTS
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Jun. 30, 2011
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CASH AND INVESTMENTS |
NOTE 4. CASH AND INVESTMENTS The following is a summary of marketable securities classified as available-for-sale as of June 30, 2011 and December 31, 2010 (in millions):
Auction Rate Securities During first quarter 2011, we sold all remaining investments in auction rate securities, which had been classified as non-current marketable securities as of December 31, 2010. We realized $12 million in gains on the sales of our auction rate securities, preferred equity securities and an S&P 500 index fund in the first quarter of 2011. Investment Other-Than-Temporary Impairments We have concluded that no other-than-temporary impairment losses existed as of June 30, 2011. In making this determination, we considered the financial condition and prospects of the issuers, the magnitude of the losses compared with the investments’ cost, the length of time the investments have been in an unrealized loss position, the probability that we will be unable to collect all amounts due according to the contractual terms of the securities, the credit rating of the securities and our ability and intent to hold these investments until the anticipated recovery in market value occurs. During the second quarter of 2010, we recorded impairment losses on certain asset-backed auction rate securities. The impairment charge resulted from provisions that allow the issuers of the securities to subordinate our holdings to newly issued debt or to tender for the securities at less than their par value. These securities, which had a cost basis of $128 million, were written down to their fair value of $107 million as of June 30, 2010, as an other-than-temporary impairment. The $21 million total impairment charge during the second quarter was recorded in investment income (loss) on the statement of consolidated income. Maturity Information The amortized cost and estimated fair value of marketable securities at June 30, 2011, by contractual maturity, are shown below (in millions). Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
Non-Current Investments and Restricted Cash We had $286 million of restricted cash related to our self-insurance requirements, as of June 30, 2011 and December 31, 2010, which is reported in “Non-Current Investments and Restricted Cash” on the consolidated balance sheets. At June 30, 2011 we held an $18 million investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan. This investment is classified as “Non-Current Investments and Restricted Cash” in the consolidated balance sheets with the quarterly change in investment value recognized in the statements of consolidated income. Fair Value Measurements Marketable securities utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds, and most U.S. Government debt securities, as these securities all have quoted prices in active markets. Marketable securities utilizing Level 2 inputs include non-auction rate asset-backed securities, corporate bonds and municipal bonds. These securities are valued using market corroborated pricing, matrix pricing or other models that utilize observable inputs such as yield curves. We classified our auction rate securities portfolio as utilizing Level 3 inputs, as their valuation required substantial judgment and estimation of factors that were not observable in the market due to the lack of trading in the securities. These securities were valued as of December 31, 2010 considering several factors, including the credit quality of the securities, the rate of interest received since the failed auctions began, the yields of securities similar to the underlying auction rate securities and the input of broker-dealers in these securities. We maintain holdings in certain investment partnerships that are measured at fair value utilizing Level 3 inputs (classified as “other investments” in the tables below, and as “Other Non-Current Assets” in the consolidated balance sheets). These partnership holdings do not have any quoted prices, nor can they be valued using inputs based on observable market data. These investments are valued internally using a discounted cash flow model based on each partnership’s financial statements and cash flow projections. The following table presents information about our investments measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in millions).
The following table presents the changes in the above Level 3 instruments measured on a recurring basis for the three months ended June 30, 2011 (in millions).
The following table presents the changes in the above Level 3 instruments measured on a recurring basis for the six months ended June 30, 2011 (in millions).
There were no transfers of investments between Level 1 and Level 2 during the three and six months ended June 30, 2011 and 2010. |