v2.4.0.6
Fair Value Measurements
 3 Months Ended
Mar. 31, 2012
Fair Value Disclosures [Abstract]  
Fair Value Measurements
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:
•
Level 1 inputs which include quoted prices in active markets for identical assets or liabilities;
•
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. For our marketable securities, we review trading activity and pricing 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
•
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.
Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts receivable, foreign currency exchange forward and option contracts, accounts payable, and short-term and long-term debt. Cash and cash equivalents, marketable securities and foreign currency exchange contracts that hedge accounts receivable and forecasted sales are reported at their respective fair values on our Condensed Consolidated Balance Sheets. The carrying value and fair value of the Convertible Notes were $2.94 billion and $3.99 billion, respectively, as of March 31, 2012. The carrying value and fair value of the Convertible Notes were $2.92 billion and $3.53 billion, respectively, as of December 31, 2011.
In March 2011, we issued senior unsecured notes due in April 2021 (April 2021 Notes) in a registered offering for an aggregate principal amount of $1.00 billion. The carrying value and fair value of the April 2021 Notes were $992.3 million and $1.06 billion, respectively, as of March 31, 2012. The carrying value and fair value of the April 2021 Notes were $992.1 million and $1.06 billion, respectively, as of December 31, 2011. In December 2011, we issued senior unsecured notes due in December 2014 (December 2014 Notes), December 2016 (December 2016 Notes), December 2021 (December 2021 Notes) and December 2041 (December 2041 Notes) in a registered offering for an aggregate principal amount of $3.70 billion. The carrying value and fair value of these notes were $3.69 billion and $3.89 billion, respectively, as of March 31, 2012. The carrying value and fair value of these notes were $3.69 billion and $3.93 billion, respectively, as of December 31, 2011. The fair values of the Convertible Notes and senior unsecured notes were determined using Level 2 inputs based on their quoted market values.
The remaining financial instruments are reported on our Condensed Consolidated Balance Sheets at amounts that approximate current fair values.

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):
 
March 31, 2012
 
December 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
518,248

 
$
—

 
$
—

 
$
518,248

 
$
7,455,982

 
$
—

 
$
—

 
$
7,455,982

Certificates of deposit
—

 
—

 
—

 
—

 
—

 
1,139,982

 
—

 
1,139,982

Non-U.S. government securities
—

 
—

 
—

 
—

 
—

 
—

 
24,741

 
24,741

Corporate debt securities
—

 
—

 
—

 
—

 
—

 
404,989

 
—

 
404,989

Student loan-backed securities
—

 
—

 
48,168

 
48,168

 
—

 
—

 
46,952

 
46,952

Total debt securities
518,248

 
—

 
48,168

 
566,416

 
7,455,982

 
1,544,971

 
71,693

 
9,072,646

Equity securities
—

 
—

 
—

 
—

 
8,503

 
—

 
—

 
8,503

Derivatives
—

 
51,958

 
—

 
51,958

 
—

 
100,475

 
—

 
100,475

 
$
518,248

 
$
51,958

 
$
48,168

 
$
618,374

 
$
7,464,485


$
1,645,446


$
71,693


$
9,181,624

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
$
—

 
$
—

 
$
138,328

 
$
138,328

 
$
—

 
$
—

 
$
135,591

 
$
135,591

Derivatives
—

 
18,404

 
—

 
18,404

 
—

 
5,710

 
—

 
5,710

 
$
—

 
$
18,404

 
$
138,328

 
$
156,732

 
$
—

 
$
5,710

 
$
135,591

 
$
141,301


Level 3 Inputs
Assets measured at fair value using Level 3 inputs at March 31, 2012 were comprised of auction rate securities within our available-for-sale investment portfolio. The following table provides a rollforward of assets measured using Level 3 inputs (in thousands):  
 
Three Months Ended
 
March 31,
 
2012
 
2011
Balance, beginning of period
$
71,693

 
$
80,365

Total realized and unrealized gains (losses) included in:
 
 
 
Other income (expense), net
(40,096
)
 
1,246

Other comprehensive income, net
33,094

 
2,160

Sales of marketable securities
(16,523
)
 
(20,830
)
Transfers into Level 3
—

 
53,882

Balance, end of period
$
48,168

 
$
116,823


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.

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 2.18%. 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 0.12% to 0.77%. As of March 31, 2012, our auction rate securities continued to earn interest. Although there continued to be failed auctions as well as lack of market activity and liquidity, we believe we had no other-than-temporary impairments on these securities as of March 31, 2012. We have the ability to hold these securities until 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. We estimated the fair value of the Greek zero-coupon bonds using Level 3 inputs due to the then 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. In March 2012, the Greek government restructured its sovereign debt which impacted all holders of Greek bonds. As a result, we recorded a $40.1 million loss related to the debt restructuring as part of other income (expense), net on our Condensed Consolidated Statement of Income and exchanged the Greek government-issued bonds for new securities, which we liquidated during the first quarter of 2012.
As of March 31, 2012 and December 31, 2011, our auction rate securities were recorded in long-term marketable securities on our Condensed Consolidated Balance Sheets. As of December 31, 2011, our Greek government-issued bonds were recorded in short-term and long-term marketable securities on our Condensed Consolidated Balance Sheets.
The following table provides a rollforward of our contingent consideration liabilities (in thousands):
 
Three Months Ended
 
March 31,
 
2012
 
2011
Balance, beginning of period
$
135,591

 
$
11,100

Changes in valuation
2,737

 
—

Balance, end of period
$
138,328

 
$
11,100


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 significant inputs such as the probability of technical and regulatory success, the discount rate used and the timeline to achieve each of the milestone events. Significant increases in the probability of success in isolation would result in a significantly higher fair value measurement while significant decreases in the probability of success in isolation would result in a significantly lower fair value measurement. Similarly, significant increases in the discount rate or timeline in isolation would result in a significantly lower fair value measurement while significant decreases in the discount rate or timeline in isolation would result in a significantly higher fair value measurement. We evaluate changes in each of the assumptions used to calculate fair values of our contingent consideration liabilities at the end of each period.