United Parcel Service, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

CASH AND INVESTMENTS

CASH AND INVESTMENTS

9 Months Ended

Sep. 30, 2019

The following is a summary of marketable securities classified as trading and available-for-sale as of September 30, 2019 and December 31, 2018 (in millions):



	Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
September 30, 2019:
Current trading marketable securities:
Corporate debt securities	$	109	$	—	$	—		$	109
Equity securities	2		—		—			2
Total trading marketable securities	111		—		—			111

Current available-for-sale securities:
U.S. government and agency debt securities	161		2		—			163
Mortgage and asset-backed debt securities	54		1		—			55
Corporate debt securities	150		3		—			153
Non-U.S. government debt securities	16		—		—			16
Total available-for-sale marketable securities	381		6		—			387

Total current marketable securities	$	492	$	6	$	—		$	498

	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 September 30, 2019. In making this determination, we considered the financial condition and prospects of each 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 September 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	$	121	$	121
Due after one year through three years	318		321
Due after three years through five years	7		8
Due after five years	44		46
	490		496
Equity securities	2		2
	$	492	$	498

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 September 30, 2019 and December 31, 2018, we had $145 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 September 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 September 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):



	September 30, 2019		December 31, 2018		September 30, 2018
Cash and cash equivalents	$	4,040	$	4,225	$	4,097
Restricted cash	145		142		278
Total cash, cash equivalents and restricted cash	$	4,185	$	4,367	$	4,375

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 7.33% and 8.16% as of September 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 $2 million as of September 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 September 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
September 30, 2019:
Marketable Securities:
U.S. government and agency debt securities	$	163	$	—	$	—	$	163
Mortgage and asset-backed debt securities	—		55		—		55
Corporate debt securities	—		262		—		262
Equity securities	—		2		—		2
Non-U.S. government debt securities	—		16		—		16
Total marketable securities	163		335		—		498
Other non-current investments	20		—		2		22
Total	$	183	$	335	$	2	$	520



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 nine months ended September 30, 2019 or 2018.