Valuation of debt and equity investments and certain liabilities

Debt and equity investments

We classify our investments as available for sale, trading, equity method or cost method. Most of our investments are classified as available for sale.

Available-for-sale and trading securities are stated at fair value, which is generally based on market prices, broker quotes or, when necessary, financial models (see fair-value discussion below). Unrealized gains and losses on available-for-sale securities are recorded as an increase or decrease, net of taxes, in AOCI on our Consolidated balance sheets. We record other-than-temporary impairments on available-for-sale securities in OI&E in our Consolidated statements of income.

We classify certain mutual funds as trading securities. These mutual funds hold a variety of debt and equity investments intended to generate returns that offset changes in certain deferred compensation liabilities. We record changes in the fair value of these mutual funds and the related deferred compensation liabilities in SG&A. Changes in the fair value of debt securities classified as trading securities are recorded in OI&E.

Our other investments are not measured at fair value but are accounted for using either the equity method or cost method. These investments consist of interests in venture capital funds and other non-marketable equity securities. Gains and losses from equity-method investments are reflected in OI&E based on our ownership share of the investee’s financial results. Gains and losses on cost-method investments are recorded in OI&E when realized or when an impairment of the investment’s value is warranted based on our assessment of the recoverability of each investment.

Details of our investments are as follows:



	March 31, 2013						December 31, 2012
	Cash and Cash Equivalents		Short-term Investments		Long-term Investments		Cash and Cash Equivalents		Short-term Investments		Long-term Investments
Measured at fair value:
Available-for-sale securities
Money market funds	$	208	$	—	$	—	$	211	$	—	$	—
Corporate obligations	200		308		—		188		325		—
U.S. Government agency and Treasury securities	827		2,161		—		795		2,224		—

Trading securities
Mutual funds	—		—		159		—		—		159
Total	$	1,235	$	2,469	$	159	$	1,194	$	2,549	$	159

Other measurement basis:
Equity-method investments	$	—	$	—	$	23	$	—	$	—	$	34
Cost-method investments	—		—		22		—		—		22
Cash on hand	158		—		—		222		—		—
Total	$	1,393	$	2,469	$	204	$	1,416	$	2,549	$	215

As of March 31, 2013, and December 31, 2012, we had no significant unrealized gains or losses associated with our available-for-sale investments. For the three months ended March 31, 2013 and 2012, we did not recognize in earnings any credit losses related to these investments.

For the three months ended March 31, 2013 and 2012, the proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $615 million and $613 million, respectively. Gross realized gains and losses from these sales were not significant.

The following table presents the aggregate maturities of investments in debt securities classified as available for sale at March 31, 2013:



Due	Fair Value
One year or less	$	3,363
One to three years	341

Fair-value considerations

We measure and report certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The three-level hierarchy discussed below indicates the extent and level of judgment used to estimate fair-value measurements.

Level 1 — Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities as of the reporting date.

Level 2 — Uses inputs other than Level 1 that are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data. Our Level 2 assets consist of corporate obligations and some U.S. government agency and Treasury securities. We utilize a third-party data service to provide Level 2 valuations, verifying these valuations for reasonableness relative to unadjusted quotes obtained from brokers or dealers based on observable prices for similar assets in active markets.

Level 3 — Uses inputs that are unobservable, supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models that utilize management estimates of market participant assumptions.

The following are our assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2013, and December 31, 2012. For these periods, we had no level 3 assets or liabilities. These tables do not include cash on hand, assets held by our postretirement plans, or assets and liabilities that are measured at historical cost or any basis other than fair value.



	Fair Value
	March 31, 2013		Level 1		Level 2
Assets:
Money market funds	$	208	$	208	$	—
Corporate obligations	508		—		508
U.S. Government agency and Treasury securities	2,988		1,352		1,636
Mutual funds	159		159		—
Total assets	$	3,863	$	1,719	$	2,144

Liabilities:
Deferred compensation	177		177		—
Total liabilities	$	177	$	177	$	—



	Fair Value
	December 31, 2012		Level 1		Level 2
Assets:
Money market funds	$	211	$	211	$	—
Corporate obligations	513		—		513
U.S. Government agency and Treasury securities	3,019		1,145		1,874
Mutual funds	159		159		—
Total assets	$	3,902	$	1,515	$	2,387

Liabilities:
Deferred compensation	174		174		—
Total liabilities	$	174	$	174	$	—

The following table summarizes the change in the fair values for Level 3 assets for the periods ended March 31, 2013 and 2012:



	Level 3
Changes in fair value during the period (pre-tax):	Auction-rate Securities
Balance, December 31, 2011	$	134
Change in unrealized loss – included in AOCI	5
Redemptions	(1		)
Sales	(20		)
Balance, March 31, 2012	118

Change in unrealized loss – included in AOCI	8
Redemptions	(83		)
Sales	(43		)
Balance, December 31, 2012 and March 31, 2013	$	—