Fair Value Measurement

Authoritative guidance establishes a valuation hierarchy for disclosure of the inputs to the valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value.



		Fair Value Measurement at March 31, 2016
Balance Sheet Classification	Type of Instrument	Total		Level 1		Level 2		Level 3
Cash equivalents	Institutional money market funds	$	82,416	$	—	$	82,416	$	—
Cash equivalents	Commercial paper	$	3,999	$	—	$	3,999	$	—
Cash equivalents	Corporate bonds	$	15,000	$	—	$	15,000	$	—
Cash equivalents	Municipal bonds	$	22,000	$	—	$	22,000	$	—
Marketable securities	Mutual funds	$	11,807	$	11,807	$	—	$	—
Marketable securities	Corporate bonds	$	121,559	$	—	$	121,559	$	—
Marketable securities	Municipal bonds	$	28,511	$	—	$	28,511	$	—
Marketable securities	Other government-related obligations	$	155,477	$	—	$	155,477	$	—
Other current assets	Foreign exchange forward contracts	$	58,570	$	—	$	58,570	$	—
Other assets	Foreign exchange forward contracts	$	35,019	$	—	$	35,019	$	—
Other current liabilities	Foreign exchange forward contracts	$	32,056	$	—	$	32,056	$	—
Other liabilities	Foreign exchange forward contracts	$	30,740	$	—	$	30,740	$	—
Other current liabilities	Acquisition-related contingent consideration	$	55,343	$	—	$	—	$	55,343
Contingent consideration	Acquisition-related contingent consideration	$	107,085	$	—	$	—	$	107,085



		Fair Value Measurement at December 31, 2015
Balance Sheet Classification	Type of Instrument	Total		Level 1		Level 2		Level 3
Cash equivalents	Institutional money market funds	$	179,898	$	—	$	179,898	$	—
Cash equivalents	Commercial paper	$	192,418	$	—	$	192,418	$	—
Cash equivalents	Corporate bonds	$	12,250	$	—	$	12,250	$	—
Cash equivalents	Municipal bonds	$	60,001	$	—	$	60,001	$	—
Cash equivalents	Other government-related obligations	$	31,549	$	—	$	31,549	$	—
Cash equivalents	Bank certificates of deposit	$	27,000	$	—	$	27,000	$	—
Marketable securities	Mutual funds	$	8,817	$	8,817	$	—	$	—
Marketable securities	Commercial paper	$	61,978	$	—	$	61,978	$	—
Marketable securities	Corporate bonds	$	120,499	$	—	$	120,499	$	—
Marketable securities	Municipal bonds	$	27,110	$	—	$	27,110	$	—
Marketable securities	Other government-related obligations	$	156,500	$	—	$	156,500	$	—
Other current assets	Foreign exchange forward contracts	$	91,745	$	—	$	91,745	$	—
Other assets	Foreign exchange forward contracts	$	66,309	$	—	$	66,309	$	—
Other current liabilities	Foreign exchange forward contracts	$	5,648	$	—	$	5,648	$	—
Other liabilities	Foreign exchange forward contracts	$	4,773	$	—	$	4,773	$	—
Other current liabilities	Acquisition-related contingent consideration	$	55,804	$	—	$	—	$	55,804
Contingent consideration	Acquisition-related contingent consideration	$	121,424	$	—	$	—	$	121,424

There were no securities transferred between Level 1, 2 and 3 during the three months ended March 31, 2016.

Valuation Techniques

We classify mutual fund investments, which are valued based on quoted market prices in active markets with no valuation adjustment, as Level 1 assets within the fair value hierarchy.

Cash equivalents and marketable securities classified as Level 2 within the valuation hierarchy consist of institutional money market funds, commercial paper, municipal bonds, U.S. and foreign government-related debt, corporate debt securities and certificates of deposit. We estimate the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. We validate the prices provided by our third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.

Our derivative assets and liabilities include foreign exchange derivatives that are measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk as well as an evaluation of our counterparties’ credit risks. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy.

Contingent consideration liabilities related to acquisitions are classified as Level 3 within the valuation hierarchy and are valued based on various estimates, including probability of success, discount rates and amount of time until the conditions of the milestone payments are met.

As of March 31, 2016, there has not been any impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties’ credit risks.

Contingent Consideration

In connection with prior acquisitions, we may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory approvals or sales-based milestone events. We determine the fair value of these obligations on the acquisition date using various estimates that are not observable in the market and represent a Level 3 measurement within the fair value hierarchy. The resulting probability-weighted cash flows were discounted using a cost of debt of 5.5% for developmental milestones and a weighted average cost of capital ranging from 10% to 21% for sales-based milestones.

Each reporting period, we adjust the contingent consideration to fair value with changes in fair value recognized in operating earnings. Changes in fair values reflect new information about the probability and timing of meeting the conditions of the milestone payments. In the absence of new information, changes in fair value will only reflect the interest component of contingent consideration related to the passage of time as development work progresses towards the achievement of the milestones.

Estimated future contingent milestone payments related to prior business combinations range from zero if no milestone events are achieved, to a maximum of $826,000 if all development, regulatory and sales-based milestones are reached. As of March 31, 2016, the fair value of acquisition-related contingent consideration was $162,428. The following table represents a roll-forward of our acquisition-related contingent consideration:



Balance at December 31, 2015	$	(177,228	)
Change in fair value	14,800
Balance at March 31, 2016	$	(162,428	)