Fair Value Measurement

3 Months Ended

Mar. 31, 2016

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



			Fair Value Measurement at Reporting Date Using
Description	March 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market funds	$	4,452	$	4,452	$	—	$	—
Marketable securities:
U.S. government securities	5,183		5,183		—		—
U.S. government agency securities	4,815		4,815		—		—
Corporate debt securities	4,167		—		4,167		—
Total cash equivalents and marketable securities	$	18,617	$	14,450	$	4,167	$	—

Other liabilities:
Contingent consideration liability	$	285	$	—	$	—	$	285



			Fair Value Measurement at Reporting Date Using
Description	December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market funds	$	2,409	$	2,409	$	—	$	—
U.S. government securities	597		597		—		—
U.S. government agency securities	145		145		—		—
Corporate debt securities	53		—		53		—
Marketable securities:
U.S. government securities	5,948		5,948		—		—
U.S. government agency securities	4,475		4,475		—		—
Corporate debt securities	3,104		—		3,104		—
Total cash equivalents and marketable securities	$	16,731	$	13,574	$	3,157	$	—

Other liabilities:
Contingent consideration liability	$	260	$	—	$	—	$	260

We classify our cash equivalents and marketable securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value.

We classify our contingent consideration liability in connection with an acquisition in 2014 within Level 3 as factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. We estimate the fair value of our contingent consideration liability based on the present value of probability-weighted future cash flows related to the contingent earn-out criteria and the fair value of our common stock on each reporting date. Changes in the fair value of the contingent consideration liability subsequent to the acquisition date, such as changes in the probability assessment and the fair value of our common stock, are recognized in earnings in the period when the change in the estimated fair value occurs. During the three months ended March 31, 2016, we recognized an increase in the fair value of our contingent liability of $25 million, in research and development expense in our condensed consolidated statements of income, primarily due to an increase in the fair value of our common stock.

- 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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