INVESTMENTS AND RESTRICTED CASH
|6 Months Ended|
Jun. 30, 2015
|Marketable Securities [Abstract]|
|INVESTMENTS AND RESTRICTED CASH||
INVESTMENTS AND RESTRICTED CASH
The following is a summary of marketable securities classified as trading and available-for-sale as of June 30, 2015 and December 31, 2014 (in millions):
Of the total estimated fair value in marketable securities listed above, $2.007 billion and $430 million as of June 30, 2015 and December 31, 2014, respectively, have been classified as "trading", with unrealized gains and losses recognized in investment income within the statements of consolidated income. The remaining estimated fair value of marketable securities was classified as "available-for-sale", with related unrealized gains and losses, net of tax, recognized in accumulated other comprehensive income ("AOCI").
Investment Other-Than-Temporary Impairments
We have concluded that no other-than-temporary impairment losses existed as of June 30, 2015. 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.
The amortized cost and estimated fair value of marketable securities at June 30, 2015, 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 $442 million of restricted cash related to our self-insurance requirements as of June 30, 2015 and December 31, 2014, which is reported in “non-current investments and restricted cash” on the consolidated balance sheets. This restricted cash is invested in money market funds and similar cash equivalent type assets.
At June 30, 2015 and December 31, 2014, we held a $19 million investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan. Additionally, we held escrowed cash related to the acquisition and disposition of certain assets of $8 and $28 million as of June 30, 2015 and December 31, 2014, respectively. The amounts described above are classified as “non-current investments and restricted cash” on the consolidated balance sheets, while the quarterly change in investment fair value is 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 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) the 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 8.29% and 7.81% as of June 30, 2015 and December 31, 2014, respectively. These inputs, and the resulting fair values, are updated on a quarterly basis.
The following table presents information about our investments measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014, 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, 2015 and 2014 (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, 2015 and 2014 (in millions):
There were no transfers of investments between Level 1 and Level 2 during the three and six months ended June 30, 2015 and 2014.