Fair Value Measurements

3 Months Ended

Mar. 31, 2014

Our financial instruments consist principally of cash and cash equivalents, short- and long-term marketable securities, accounts receivable, accounts payable and long-term debt. The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1: Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2:Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

Level 3:Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The fair value of the majority of our cash equivalents and marketable securities was determined based on “Level 1” inputs. The fair value of certain marketable securities and our long-term debt were determined based on “Level 2” inputs. The valuation techniques used to measure the fair value of our “Level 2” instruments were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. We do not have any marketable securities in the “Level 3” category. We believe that the recorded values of all our other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Instruments Measured at Fair Value on a Recurring Basis. The following tables present our cash and marketable securities’ costs, gross unrealized gains, gross unrealized losses and fair value by major security type recorded as cash and cash equivalents or short-term or long-term marketable securities:



	March 31, 2014
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In millions)
Cash	$	537	$	—	$	—	$	537	$	537	$	—	$	—
Level 1:
Bank and time deposits	1,063		—		—		1,063		1,063		—		—
Money market funds	463		—		—		463		463		—		—
U.S. treasury and agency obligations	1,086		1		—		1,087		5		169		913
Subtotal	2,612		1		—		2,613		1,531		169		913
Level 2:
Commercial paper	188		—		—		188		166		22		—
Corporate bonds	1,566		3		—		1,569		20		485		1,064
Asset-backed securities and other	34		—		—		34		—		3		31
Subtotal	1,788		3		—		1,791		186		510		1,095
Level 3:
None	—		—		—		—		—		—		—
Total	$	4,937	$	4	$	—	$	4,941	$	2,254	$	679	$	2,008



	December 31, 2013
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In millions)
Cash	$	307	$	—	$	—		$	307	$	307	$	—	$	—
Level 1:
Bank and time deposits	474		—		—			474		474		—		—
Money market funds	277		—		—			277		277		—		—
U.S. treasury and agency obligations	1,005		1		—			1,006		—		205		801
Subtotal	1,756		1		—			1,757		751		205		801
Level 2:
Commercial paper	690		—		—			690		599		91		—
Corporate bonds	1,591		3		(1		)	1,593		—		477		1,116
Asset-backed securities and other	24		—		—			24		—		2		22
Subtotal	2,305		3		(1		)	2,307		599		570		1,138
Level 3:
None	—		—		—			—		—		—		—
Total	$	4,368	$	4	$	(1	)	$	4,371	$	1,657	$	775	$	1,939

There were no transfers between Level 1, Level 2 or Level 3 securities in the three months ended March 31, 2014. All of our long-term marketable securities had maturities of between one and three years in duration at March 31, 2014. Our cash, cash equivalents and marketable securities at March 31, 2014 consisted of $2.21 billion held domestically, with the remaining balance of $2.73 billion held by our foreign subsidiaries.

At March 31, 2014 we had 92 investments with a fair value of $675 million that were in an unrealized loss position for less than twelve months. Our gross unrealized losses of less than $1 million for these investments at March 31, 2014 were due to changes in market rates. We have determined that the gross unrealized losses on these investments at March 31, 2014 are temporary in nature. We evaluate securities for other-than-temporary impairment on a quarterly basis. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the issuer, and our intent and ability to hold the investment in order to allow for an anticipated recovery in fair value.

Instruments Not Recorded at Fair Value on a Recurring Basis. We measure the fair value of our long-term debt carried at amortized cost quarterly for disclosure purposes. The estimated fair value of long-term debt is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. Based on the market prices, the fair value of our long-term debt was $1.38 billion and $1.37 billion as of March 31, 2014 and December 31, 2013, respectively. The recorded values of all our accounts receivable and accounts payable approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis. We measure the fair value of our cost method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in a business acquisition, goodwill and other long lived assets when they are held for sale or determined to be impaired, and for license and settlement agreements when they are part of a multiple element arrangement. See Notes 2 and 9 for discussion on fair value measurements of certain assets and liabilities recorded at fair value on a non-recurring basis.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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