Note 2 INVESTMENTS AND FAIR VALUE MEASUREMENTS

The following tables summarize the investments in available-for-sale securities (in thousands):


	December 31, 2012
	Gross Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Government and agency securities	$	1,312,876	$	985	$	(45	)	$	1,313,816
Corporate debt securities, commercial paper, and bank certificates of deposit		2,039,809		1,597		(622	)		2,040,784
Corporate equity and other marketable securities		230		—		(33	)		197
Alibaba Group Preference Shares		816,261		—		—			816,261

Total investments in available-for-sale securities	$	4,169,176	$	2,582	$	(700	)	$	4,171,058


	December 31, 2013
	Gross Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Government and agency securities	$	538,397	$	65	$	(101	)	$	538,361
Corporate debt securities, commercial paper, and bank certificates of deposit		2,380,134		2,525		(1,216	)		2,381,443
Corporate equity and other marketable securities		230		153		—			383

Total investments in available-for-sale securities	$	2,918,761	$	2,743	$	(1,317	)	$	2,920,187


	December 31,
	2012		2013
Reported as:
Short-term marketable securities	$	1,516,175	$	1,330,304
Long-term marketable securities		1,838,425		1,589,500
Alibaba Group Preference Shares		816,261		—
Other assets		197		383

Total	$	4,171,058	$	2,920,187

Available-for-sale securities included in cash and cash equivalents on the consolidated balance sheets are not included in the table above as the gross unrealized gains and losses were immaterial for both 2012 and 2013 as the carrying value approximates fair value because of the short maturity of those instruments.

The contractual maturities of available-for-sale marketable securities were as follows (in thousands):


	December 31,
	2012		2013
Due within one year	$	1,516,175	$	1,330,304
Due after one year through five years		1,838,425		1,589,500

Total available-for-sale marketable securities	$	3,354,600	$	2,919,804

The following tables show all investments in an unrealized loss position for which an other-than-temporary impairment has not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


	December 31, 2012
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Government and agency securities	$	165,025	$	(45	)	$	—	$	—		$	165,025	$	(45	)
Corporate debt securities, commercial paper, and bank certificates of deposit		729,046		(622	)		—		—			729,046		(622	)
Corporate equity securities		197		(33	)		—		—			197		(33	)

Total investments in available-for-sale securities	$	894,268	$	(700	)	$	—	$	—		$	894,268	$	(700	)


	December 31, 2013
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Government and agency securities	$	263,514	$	(101	)	$	—	$	—		$	263,514	$	(101	)
Corporate debt securities, commercial paper, and bank certificates of deposit		696,950		(1,214	)		3,833		(2	)		700,783		(1,216	)

Total investments in available-for-sale securities	$	960,464	$	(1,315	)	$	3,833	$	(2	)	$	964,297	$	(1,317	)

The Company’s investment portfolio consists of liquid high-quality fixed income government, agency, and corporate debt securities, money market funds, time deposits with financial institutions, and preference shares. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Fixed income securities may have their fair market value adversely impacted due to a deterioration of the credit quality of the issuer. The longer the term of the securities, the more susceptible they are to changes in market rates. Investments are reviewed periodically to identify possible other-than-temporary impairment. The Company has no current requirement or intent to sell these securities. The Company expects to recover up to (or beyond) the initial cost of investment for securities held.

The Company’s investment in the Alibaba Group Preference Shares was presented as an asset carried at fair value on the Company’s consolidated balance sheets as of December 31, 2012. As of December 31, 2012, the total carrying and fair value of the Alibaba Group Preference Shares was $822 million, which included $6 million of accrued dividend income recorded within prepaid expenses and other current assets and $16 million of accrued dividend income recorded as part of the carrying value of the Alibaba Group Preference Shares. For the years ended December 31, 2012 and 2013, the Company recorded approximately $23 million and $36 million, respectively, in dividend income related to the Alibaba Group Preference Shares within other income, net on the consolidated statements of income. On May 16, 2013, Alibaba Group Holding Limited (“Alibaba Group”) exercised its right to redeem the Alibaba Group Preference Shares for $846 million in cash. The cash received represented the redemption value, which included the stated value of $800 million plus accrued dividends of $46 million.

The following table sets forth the financial assets and liabilities, measured at fair value, by level within the fair value hierarchy as of December 31, 2012 (in thousands):


	Fair Value Measurements at Reporting Date Using
Assets	Level 1		Level 2			Level 3		Total
Money market funds⁽¹⁾	$	685,707	$	—		$	—	$	685,707
Available-for-sale securities:
Government and agency securities⁽¹⁾		—		2,464,227			—		2,464,227
Commercial paper and bank certificates of deposit⁽¹⁾		—		892,769			—		892,769
Corporate debt securities⁽¹⁾		—		1,298,123			—		1,298,123
Time deposits		—		84,555			—		84,555
Alibaba Group Preference Shares		—		—			816,261		816,261
Corporate equity securities⁽²⁾		197		—			—		197
Foreign currency derivative contracts⁽³⁾		—		5,007			—		5,007

Financial assets at fair value	$	685,904	$	4,744,681		$	816,261	$	6,246,846

Liabilities
Foreign currency derivative contracts⁽³⁾		—		(6,662	)		—		(6,662	)

Total financial assets and liabilities at fair value	$	685,904	$	4,738,019		$	816,261	$	6,240,184

The following table sets forth the financial assets and liabilities, measured at fair value, by level within the fair value hierarchy as of December 31, 2013 (in thousands):


	Fair Value Measurements at Reporting Date Using
Assets	Level 1		Level 2			Level 3		Total
Money market funds⁽¹⁾	$	936,438	$	—		$	—	$	936,438
Available-for-sale securities:
Government and agency securities⁽¹⁾		—		876,197			—		876,197
Commercial paper and bank certificates of deposit⁽¹⁾		—		472,080			—		472,080
Corporate debt securities⁽¹⁾		—		2,059,159			—		2,059,159
Time deposits		—		84,443			—		84,443
Corporate equity securities⁽²⁾		370		—			—		370
Foreign currency derivative contracts⁽³⁾		—		214,041			—		214,041

Financial assets at fair value	$	936,808	$	3,705,920		$	—	$	4,642,728

Liabilities
Foreign currency derivative contracts⁽³⁾		—		(1,401	)		—		(1,401	)

Total financial assets and liabilities at fair value	$	936,808	$	3,704,519		$	—	$	4,641,327

⁽¹⁾	The money market funds, government and agency securities, commercial paper and bank certificates of deposit, and corporate debt securities are classified as part of either cash and cash equivalents or investments in marketable securities in the consolidated balance sheets.

⁽²⁾	The corporate equity securities are classified as part of the other long-term assets and other marketable securities are classified as investments in marketable securities in the consolidated balance sheets.

⁽³⁾

Foreign currency derivative contracts are classified as part of either other current assets or other current liabilities in the consolidated balance sheets. The notional amounts of the foreign currency derivative contracts were $3.4 billion, including contracts designated as net investment hedges of $3 billion, as of December 31, 2012, and $1.8 billion, including contracts designated as net investment hedges of $1.3 billion, as of December 31, 2013.

The amount of cash and cash equivalents as of December 31, 2012 and 2013 includes $597 million and $569 million, respectively, in cash deposits.

The fair values of the Company’s Level 1 financial assets and liabilities are based on quoted market prices of the identical underlying security. The fair values of the Company’s Level 2 financial assets and liabilities are obtained using quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices, e.g., interest rates and yield curves. The Company utilizes a pricing service to assist in obtaining fair value pricing for the majority of this investment portfolio. The Company classified its investment in the Alibaba Group Preference Shares within Level 3 because it was valued using significant unobservable inputs. To estimate the fair value as of December 31, 2012, the Company performed benchmarking by comparing the terms and conditions of the Alibaba Group Preference Shares to dividend rates, subordination terms, and credit ratings of those of similar type instruments. The Company conducts reviews on a quarterly basis to verify pricing, assess liquidity, and to determine if significant inputs have changed that would impact the fair value hierarchy disclosure.

Convertible Senior Notes

In 2013, the Company issued $1.4375 billion aggregate principal amount of 0.00% Convertible Senior Notes due 2018 (the “Notes”). The Notes are carried at their original issuance value, net of unamortized debt discount, and are not marked to market each period. The approximate fair value of the Notes as of December 31, 2013 was $1.1 billion. The fair value of the Notes was estimated on the basis of quoted market prices observable in the market and is considered Level 2 in the fair value hierarchy. See Note 11—“Convertible Notes” for additional information related to the Notes.

Goodwill

The inputs used to measure the estimated fair value of goodwill are classified as a Level 3 fair value measurement due to the significance of unobservable inputs using company-specific information. The valuation methodology used to estimate the fair value of goodwill is discussed in Note 1—“Goodwill”.

Activity between Levels of the Fair Value Hierarchy

During the years ended December 31, 2012 and 2013, the Company did not make any transfers between Level 1, Level 2, or Level 3 assets or liabilities.