v2.4.0.6
Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements
2. FAIR VALUE MEASUREMENTS

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:

 

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Level 1 inputs which include quoted prices in active markets for identical assets or liabilities;

 

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Level 2 inputs which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. We review trading activity and pricing for these investments as of the measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and

 

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Level 3 inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The following table summarizes, for assets or liabilities recorded at fair value, the respective fair value and the classification by level of input within the fair value hierarchy defined above (in thousands):

 

    December 31, 2011     December 31, 2010  
    Level 1     Level 2     Level 3     Total     Level 1     Level 2     Level 3     Total  

Assets:

                

Debt securities:

                

U.S. treasury securities

   $ —        $ —        $ —        $ —        $ 1,355,437      $ —        $ —        $ 1,355,437   

Money market funds

     7,455,982        —          —          7,455,982        520,063        —          —          520,063   

Certificates of deposit

     —          1,139,982        —          1,139,982        —          127,619        —          127,619   

U.S. government agencies and FDIC guaranteed securities

     —          —          —          —          —          1,296,110        —          1,296,110   

Municipal debt securities

     —          —          —          —          —          17,625        —          17,625   

Non-U.S. government securities

     —          —          24,741        24,741        —          278,610        9,594        288,204   

Corporate debt securities

     —          404,989        —          404,989        —          991,635        —          991,635   

Residential mortgage and asset-backed securities

     —          —          —          —          —          277,043        —          277,043   

Student loan-backed securities

     —          —          46,952        46,952        —          —          70,771        70,771   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total debt securities

     7,455,982        1,544,971        71,693        9,072,646        1,875,500        2,988,642        80,365        4,944,507   

Equity securities

     8,503        —          —          8,503        4,631        —          —          4,631   

Derivatives

     —          100,475        —          100,475        —          64,461        —          64,461   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 7,464,485      $ 1,645,446      $ 71,693      $ 9,181,624      $ 1,880,131      $ 3,053,103      $ 80,365      $ 5,013,599   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

                

Contingent consideration

     —          —          135,591        135,591        —          —          11,100        11,100   

Derivatives

     —          5,710        —          5,710        —          38,553        —          38,553   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ —        $ 5,710      $ 135,591      $ 141,301      $ —        $ 38,553      $ 11,100      $ 49,653   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The following table provides a rollforward of assets measured using Level 3 inputs (in thousands):

 

     Year Ended December 31,  
     2011     2010  

Balance, beginning of period

    $ 80,365      $ 105,662   

Total realized and unrealized gains (losses) included in:

     

Interest and other income, net

      6,251        115   

Other comprehensive income (loss), net

      (30,376 )      5,026   

Sales of marketable securities

      (38,430 )      (40,032 ) 

Transfers into Level 3

      53,883        9,594   
  

 

 

    

 

 

  

Balance, end of period

    $ 71,693      $ 80,365   
  

 

 

    

 

 

  

 

Our policy is to recognize transfers into or out of Level 3 classification as of the actual date of the event or change in circumstances that caused the transfer.

Assets measured at fair value using Level 3 inputs are comprised of auction rate securities and Greek government-issued bonds within our available-for-sale investment portfolio.

The underlying assets of our auction rate securities consist of student loans. Although auction rate securities would typically be measured using Level 2 inputs, the failure of auctions and the lack of market activity and liquidity experienced since the beginning of 2008 required that these securities be measured using Level 3 inputs. The fair value of our auction rate securities was determined using a discounted cash flow model that considered projected cash flows for the issuing trusts, underlying collateral and expected yields. Projected cash flows were estimated based on the underlying loan principal, bonds outstanding and payout formulas. The weighted-average life over which the cash flows were projected considered the collateral composition of the securities and related historical and projected prepayments. The underlying student loans have a weighted-average expected life of two to seven years. The discount rates used in our discounted cash flow model were based on market conditions for comparable or similar term asset-backed and other fixed income securities, adjusted for an illiquidity discount. This resulted in an annual discount rate of 2.76%. Our auction rate securities reset every seven to 14 days with maturity dates ranging from 2025 through 2040 and have annual interest rates ranging from 0.18% to 0.80%. As of December 31, 2011, our auction rate securities continued to earn interest. Although there continued to be failed auctions as well as lack of market activity and liquidity in 2011, we believe we had no other-than-temporary impairments on these securities as of December 31, 2011. We do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities before the recovery of their amortized cost basis.

In 2010, the Greek government agreed to settle the majority of its aged outstanding accounts receivable with zero-coupon bonds, which were expected to trade at a discount to face value. Through December 31, 2011, we had received a total of $63.5 million in bonds, of which $53.9 million were received during the year ended December 31, 2011 and were included in transfers into Level 3. We have estimated the fair value of the Greek zero-coupon bonds using Level 3 inputs due to the current lack of market activity and liquidity. The discount rates used in our fair value model for these bonds were based on credit default swap rates. We have the ability and intent to hold these bonds until maturity. Therefore, we believe we had no other-than-temporary impairments on these investments as of December 31, 2011.

As of December 31, 2011 and 2010, our auction rate securities were recorded in long-term marketable securities on our Consolidated Balance Sheet. As of December 31, 2011 and 2010, our Greek government-issued bonds were recorded in short-term and long-term marketable securities on our Consolidated Balance Sheet.

Contingent consideration liabilities measured at fair value using Level 3 inputs increased from $11.1 million at December 31, 2010 to $135.6 million at December 31, 2011 as a result of our acquisitions of Arresto Biosciences, Inc. (Arresto) in January 2011 and Calistoga Pharmaceuticals, Inc. (Calistoga) in April 2011. The estimated fair value of the contingent consideration liabilities for our acquisitions was based on the present value of the total earnout amount giving consideration to the probability of technical and regulatory success to achieve each of the milestone events at the expected dates. We evaluate changes in the fair values of our contingent consideration liabilities at the end of each period. See Note 5 for a description of our acquisitions.