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.

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, 2014						December 31, 2013
	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	$	542	$	—	$	—	$	500	$	—	$	—
Corporate obligations	176		312		—		123		217		—
U.S. Government agency and Treasury securities	605		2,155		—		787		1,985		—
Trading securities
Mutual funds	—		—		176		—		—		179
Total	1,323		2,467		176		1,410		2,202		179

Other measurement basis:
Equity-method investments	—		—		24		—		—		24
Cost-method investments	—		—		12		—		—		13
Cash on hand	242		—		—		217		—		—
Total	$	1,565	$	2,467	$	212	$	1,627	$	2,202	$	216

At March 31, 2014, and December 31, 2013, we had no significant unrealized gains or losses associated with our available-for-sale investments. We did not recognize any credit losses related to available-for-sale investments for the three months ended March 31, 2014 and 2013.

For the three months ended March 31, 2014 and 2013, the proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $785 million and $615 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, 2014:



Due	Fair Value
One year or less	$	3,530
One to two years	260

Gross realized gains and losses from sales of long-term investments were not significant for the three months ended March 31, 2014 and 2013. Other-than-temporary declines and impairments in the values of these investments recognized in OI&E were also not significant for the three months ended March 31, 2014 and 2013.

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. We verify 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, 2014, and December 31, 2013. 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, 2014		Level 1		Level 2
Assets
Money market funds	$	542	$	542	$	—
Corporate obligations	488		—		488
U.S. Government agency and Treasury securities	2,760		1,915		845
Mutual funds	176		176		—
Total assets	$	3,966	$	2,633	$	1,333

Liabilities
Deferred compensation	$	192	$	192	$	—
Total liabilities	$	192	$	192	$	—



	Fair Value
	December 31, 2013		Level 1		Level 2
Assets
Money market funds	$	500	$	500	$	—
Corporate obligations	340		—		340
U.S. Government agency and Treasury securities	2,772		2,107		665
Mutual funds	179		179		—
Total assets	$	3,791	$	2,786	$	1,005

Liabilities
Deferred compensation	$	197	$	197	$	—
Total liabilities	$	197	$	197	$	—