ADT 2011 Annual Report Download - page 233

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Financial Instruments (Continued)
corroborated by market data for which the primary inputs are observable, including forward
interest rates, yield curves, credit risk and exchange rates.
• Level 3—inputs for the valuations are unobservable and are based on management’s estimates of
assumptions that market participants would use in pricing the asset or liability. The fair values
are therefore determined using model-based techniques such as option pricing models and
discounted cash flow models.
Investments
Investments primarily include cash equivalents, U.S. government obligations, U.S. government
agency securities and corporate debt securities.
When available, the Company uses quoted market prices to determine the fair value of investment
securities. Such investments are included in Level 1. When quoted market prices are not readily
available, pricing determinations are made based on the results of market approach valuation models
using observable market data such as recently reported trades, bid and offer information and
benchmark securities. These investments are included in Level 2 and consist primarily of U.S.
government agency securities and corporate debt securities.
Derivative Financial Instruments
As described above, under the caption ‘‘Derivative Instruments’’ derivative assets and liabilities
consist principally of forward foreign currency exchange contracts and interest rate swaps. The fair
values for these derivative financial instruments are derived from market approach pricing models that
take into account the contractual terms and features of each instrument, forward foreign currency rates
for the Company’s foreign exchange contracts and yield curves for the Company’s interest rate swaps
existing at the end of the period. Valuations are adjusted to reflect creditworthiness of the counterparty
for assets and the creditworthiness of the Company for liabilities. Such adjustments are based on
observable market evidence and are categorized as Level 2 exposures. Derivative financial instruments
are not presented in the following tables as the derivative financial instruments were not material to
any of the periods presented.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the Company’s assets and liabilities measured at fair value on a
recurring basis as of September 30, 2011 and September 24, 2010, by level within the fair value
hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of
input that is significant to the valuation.
As of September 30, 2011
($ in millions) Level 1 Level 2 Total
Available-for-Sale Securities:
Corporate debt securities ......................... $ — $ 43 $ 43
U.S. Government debt securities ................... 101 103 204
Total ......................................... $101 $146 $247
130 2011 Financials