Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS AND RESTRICTED CASH

v3.19.2
INVESTMENTS AND RESTRICTED CASH
6 Months Ended
Jun. 30, 2019
Marketable Securities [Abstract]  
INVESTMENTS AND RESTRICTED CASH CASH AND INVESTMENTS
The following is a summary of marketable securities classified as trading and available-for-sale as of June 30, 2019 and December 31, 2018 (in millions):
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
June 30, 2019:
 
 
 
 
 
 
 
Current trading marketable securities:
 
 
 
 
 
 
 
Corporate debt securities
$
114

 
$

 
$

 
$
114

Equity securities
2

 

 

 
2

Total trading marketable securities
116

 

 

 
116

 
 
 
 
 
 
 
 
Current available-for-sale securities:
 
 
 
 
 
 
 
U.S. government and agency debt securities
295

 
4

 
(1
)
 
298

Mortgage and asset-backed debt securities
69

 
1

 

 
70

Corporate debt securities
220

 
2

 

 
222

Non-U.S. government debt securities
19

 

 

 
19

Total available-for-sale marketable securities
603

 
7

 
(1
)
 
609

 
 
 
 
 
 
 
 
Total current marketable securities
$
719

 
$
7

 
$
(1
)
 
$
725

 
 
 
 
 
 
 
 
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
December 31, 2018:
 
 
 
 
 
 
 
Current trading marketable securities:
 
 
 
 
 
 
 
Corporate debt securities
$
137

 
$

 
$

 
$
137

Equity securities
2

 

 

 
2

Total trading marketable securities
139

 

 

 
139

 
 
 
 
 
 
 
 
Current available-for-sale securities:
 
 
 
 
 
 
 
U.S. government and agency debt securities
297

 
1

 
(1
)
 
297

Mortgage and asset-backed debt securities
82

 

 
(1
)
 
81

Corporate debt securities
275

 

 
(2
)
 
273

Non-U.S. government debt securities
20

 

 

 
20

Total available-for-sale marketable securities
674

 
1

 
(4
)
 
671

 
 
 
 
 
 
 
 
Total current marketable securities
$
813

 
$
1

 
$
(4
)
 
$
810




Investment Other-Than-Temporary Impairments
We have concluded that no material other-than-temporary impairment losses existed as of June 30, 2019. In making this determination, we considered the financial condition and prospects of the issuer, the magnitude of the losses compared with the investments’ cost, the probability that we will be unable to collect all amounts due according to the contractual terms of the security, the credit rating of the security and our ability and intent to hold these investments until the anticipated recovery in market value occurs.
Maturity Information
The amortized cost and estimated fair value of marketable securities at June 30, 2019, 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 with or without prepayment penalties.
 
Cost
 
Estimated
Fair Value
Due in one year or less
$
147

 
$
147

Due after one year through three years
472

 
474

Due after three years through five years
21

 
22

Due after five years
77

 
80

 
717

 
723

Equity securities
2

 
2

 
$
719

 
$
725


Non-Current Investments and Restricted Cash
Non-current investments and restricted cash are primarily associated with our self-insurance programs. We entered into an escrow agreement with an insurance carrier to guarantee our self-insurance obligations. This agreement requires us to provide collateral to the insurance carrier, which is invested in various marketable securities and cash equivalents. Collateral provided is reflected in "Cash, Cash Equivalents and Restricted Cash" in the statements of consolidated cash flows. At June 30, 2019 and December 31, 2018, we had $144 and $142 million, respectively, in self-insurance investments and restricted cash.
We held a $20 and $19 million investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan at June 30, 2019 and December 31, 2018, respectively. The quarterly change in investment fair value is recognized in "Investment income and other" in the statements of consolidated income. Additionally, we held escrowed cash related to the acquisition and disposition of certain assets of $3 and $9 million as of June 30, 2019 and December 31, 2018, respectively.
The amounts described above are classified as “Investments and Restricted Cash” in the consolidated balance sheets.
A reconciliation of cash and cash equivalents and restricted cash from the consolidated balance sheets to the statements of consolidated cash flows is shown below (in millions):
 
 
June 30, 2019
 
December 31, 2018
 
June 30, 2018
Cash and cash equivalents
 
$
4,072

 
$
4,225

 
$
4,214

Restricted cash
 
144

 
142

 
277

Total cash, cash equivalents and restricted cash
 
$
4,216

 
$
4,367

 
$
4,491


Fair Value Measurements
Marketable securities valued 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 valued utilizing Level 2 inputs include 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 maintain holdings in certain investment partnerships that are measured at fair value utilizing Level 3 inputs (classified as “Other non-current 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 with two significant inputs: (1) the after-tax cash flow projections for each partnership, and (2) a risk-adjusted discount rate consistent with the duration of the expected cash flows for each partnership. The weighted-average discount rates used to value these investments were 7.45% and 8.16% as of June 30, 2019 and December 31, 2018, respectively. These inputs, and the resulting fair values, are updated on a quarterly basis. The level 3 instruments measured on a recurring basis totaled $1 and $2 million as of June 30, 2019 and December 31, 2018, respectively.
The following table presents information about our investments measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in millions):
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance 
June 30, 2019:
 
 
 
 
 
 
 
Marketable Securities:
 
 
 
 
 
 
 
U.S. government and agency debt securities
$
298

 
$

 
$

 
$
298

Mortgage and asset-backed debt securities

 
70

 

 
70

Corporate debt securities

 
336

 

 
336

Equity securities

 
2

 

 
2

Non-U.S. government debt securities

 
19

 

 
19

Total marketable securities
298

 
427

 

 
725

Other non-current investments
20

 

 
1

 
21

Total
$
318

 
$
427

 
$
1

 
$
746

December 31, 2018:
 
 
 
 
 
 
 
Marketable Securities:
 
 
 
 
 
 
 
U.S. government and agency debt securities
$
297

 
$

 
$

 
$
297

Mortgage and asset-backed debt securities

 
81

 

 
81

Corporate debt securities

 
410

 

 
410

Equity securities

 
2

 

 
2

Non-U.S. government debt securities

 
20

 

 
20

Total marketable securities
297

 
513

 

 
810

Other non-current investments
19

 

 
2

 
21

Total
$
316

 
$
513

 
$
2

 
$
831


There were no transfers of investments between Level 1 and Level 2 during the six months ended June 30, 2019 or 2018.