8. 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 or broker quotes. See Fair-value considerations 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:

	December 31, 2017						December 31, 2016
	Cash and Cash		Short-Term		Long-Term		Cash and Cash		Short-Term		Long-Term
	Equivalents		Investments		Investments		Equivalents		Investments		Investments
Measured at fair value:
Available-for-sale securities:
Money market funds	$	525	$	—	$	—	$	346	$	—	$	—
Corporate obligations		172		698		—		107		544		—
U.S. government agency and Treasury securities		700		2,115		—		490		1,792		—
Trading securities:
Mutual funds		—		—		236		—		—		201
Total		1,397		2,813		236		943		2,336		201

Other measurement basis:
Equity-method investments		—		—		26		—		—		25
Cost-method investments		—		—		6		—		—		9
Cash on hand		259		—		—		211		—		—
Total	$	1,656	$	2,813	$	268	$	1,154	$	2,336	$	235

As of December 31, 2017 and 2016, unrealized gains and losses associated with our available-for-sale investments were not material. We did not recognize any credit losses related to available-for-sale investments in 2017, 2016 and 2015. All of our debt securities classified as available for sale as of December 31, 2017, have maturities within one year.

In 2017, 2016 and 2015, the proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $4.10 billion, $3.39 billion and $2.89 billion, respectively. Gross realized gains and losses from these sales were not material.

Other-than-temporary declines and impairments in the values of our debt and equity investments, which were recognized in OI&E, were not material in 2017, 2016 and 2015.

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. 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. As of December 31, 2017 and 2016, we had no Level 3 assets or liabilities, other than certain assets held by our postretirement plans.

The following are our assets and liabilities that were accounted for at fair value on a recurring basis. 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.

	December 31, 2017						December 31, 2016
	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
Money market funds	$	525	$	—	$	525	$	346	$	—	$	346
Corporate obligations		—		870		870		—		651		651
U.S. government agency and Treasury securities		2,765		50		2,815		2,042		240		2,282
Mutual funds		236		—		236		201		—		201
Total assets	$	3,526	$	920	$	4,446	$	2,589	$	891	$	3,480

Liabilities:
Deferred compensation	$	255	$	—	$	255	$	218	$	—	$	218
Total liabilities	$	255	$	—	$	255	$	218	$	—	$	218