UPS 2011 Annual Report Download - page 86

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Maturity Information
The amortized cost and estimated fair value of marketable securities at December 31, 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.
Cost
Estimated
Fair Value
Due in one year or less ............................................. $ 669 $ 668
Due after one year through three years ................................. 207 207
Due after three years through five years ................................ 51 51
Due after five years ................................................ 303 313
1,230 1,239
Equity securities .................................................. 2 2
$1,232 $1,241
Non-Current Investments and Restricted Cash
Restricted cash and cash equivalents relate to our self-insurance requirements. We entered into an escrow
agreement with an insurance carrier to guarantee our self-insurance obligations. This agreement requires us to
provide cash collateral to the insurance carrier, which is reported in “Non-Current Investments and Restricted
Cash” on our consolidated balance sheets. Additional cash collateral provided is reflected in other investing
activities in the statements of consolidated cash flows. This restricted cash is invested in money market funds and
similar cash equivalent type assets. As of December 31, 2011 and 2010, we had $286 million in restricted cash.
At December 31, 2011, we held a $17 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
investment income on 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 previous holdings of auction rate securities 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 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.
74