Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS AND RESTRICTED CASH

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INVESTMENTS AND RESTRICTED CASH
9 Months Ended
Sep. 30, 2018
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 September 30, 2018 and December 31, 2017 (in millions):
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
September 30, 2018:
 
 
 
 
 
 
 
Current trading marketable securities:
 
 
 
 
 
 
 
Corporate debt securities
$
75

 
$

 
$

 
$
75

Equity securities
2

 

 

 
2

Total trading marketable securities
77

 

 

 
77

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

 

 
(5
)
 
292

Mortgage and asset-backed debt securities
85

 

 
(1
)
 
84

Corporate debt securities
277

 

 
(2
)
 
275

Non-U.S. government debt securities
16

 

 

 
16

Total available-for-sale marketable securities
675

 

 
(8
)
 
667

 
 
 
 
 
 
 
 
Total current marketable securities
$
752

 
$

 
$
(8
)
 
$
744

 
 
 
 
 
 
 
 
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
December 31, 2017:
 
 
 
 
 
 
 
Current trading marketable securities:
 
 
 
 
 
 
 
Corporate debt securities
$
75

 
$

 
$

 
$
75

Carbon credit investments (1)
77

 
16

 

 
93

Total trading marketable securities
152

 
16

 

 
168

 
 
 
 
 
 
 
 
Current available-for-sale securities:
 
 
 
 
 
 
 
U.S. government and agency debt securities
286

 

 
(3
)
 
283

Mortgage and asset-backed debt securities
86

 

 

 
86

Corporate debt securities
201

 
1

 
(1
)
 
201

Equity securities
2

 

 

 
2

Non-U.S. government debt securities
9

 

 

 
9

Total available-for-sale marketable securities
584

 
1

 
(4
)
 
581

 
 
 
 
 
 
 
 
Total current marketable securities
$
736

 
$
17

 
$
(4
)
 
$
749

(1) These investments are hedged with forward contracts that are not designated in hedging relationships. See Note 14 for offsetting statement of consolidated income impact.



Investment Other-Than-Temporary Impairments
We have concluded that no material other-than-temporary impairment losses existed as of September 30, 2018. 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 September 30, 2018, 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
$
230

 
$
228

Due after one year through three years
424

 
420

Due after three years through five years
21

 
21

Due after five years
75

 
73

 
750

 
742

Equity securities
2

 
2

 
$
752

 
$
744


Non-Current Investments and Restricted Cash
Non-current investments and restricted cash is 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, 2018 and December 31, 2017, we had $278 and $449 million in self-insurance investments and restricted cash, respectively.
We held a $19 million investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan at September 30, 2018 and December 31, 2017. The quarterly change in investment fair value is recognized in "Investment income and other" on the statements of consolidated income. Additionally, we held escrowed cash related to the acquisition and disposition of certain assets, primarily real estate, of $9 and $15 million as of September 30, 2018 and December 31, 2017, respectively.
The amounts described above are classified as “Non-Current 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, 2018
 
December 31, 2017
 
September 30, 2017
Cash and cash equivalents
 
$
4,097

 
$
3,320

 
$
3,418

Restricted cash
 
278

 
449

 
448

Total cash, cash equivalents and restricted cash
 
$
4,375

 
$
3,769

 
$
3,866


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 8.14% and 7.56% as of September 30, 2018 and December 31, 2017, 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 and $6 million as of September 30, 2018 and December 31, 2017, respectively.
The following table presents information about our investments measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017, 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, 2018:
 
 
 
 
 
 
 
Marketable Securities:
 
 
 
 
 
 
 
U.S. government and agency debt securities
$
292

 
$

 
$

 
$
292

Mortgage and asset-backed debt securities

 
84

 

 
84

Corporate debt securities

 
350

 

 
350

Equity securities

 
2

 

 
2

Non-U.S. government debt securities

 
16

 

 
16

Total marketable securities
292

 
452

 

 
744

Other non-current investments
19

 

 
2

 
21

Total
$
311

 
$
452

 
$
2

 
$
765

December 31, 2017:
 
 
 
 
 
 
 
Marketable Securities:
 
 
 
 
 
 
 
U.S. government and agency debt securities
$
283

 
$

 
$

 
$
283

Mortgage and asset-backed debt securities


 
86

 

 
86

Corporate debt securities

 
276

 

 
276

Equity securities

 
2

 

 
2

Non-U.S. government debt securities

 
9

 

 
9

Carbon credit investments
93

 

 

 
93

Total marketable securities
376

 
373

 

 
749

Other non-current investments
19

 

 
6

 
25

Total
$
395

 
$
373

 
$
6

 
$
774


There were no transfers of investments between Level 1 and Level 2 during the three or nine months ended September 30, 2018 or 2017.