Amgen 2009 Annual Report Download - page 158

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Fair value measurement
We use various valuation approaches in determining the fair value of our financial assets and liabilities with-
in a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that observable inputs be used when available. Observable inputs are inputs that market participants
would use in pricing the asset or liability based on market data obtained from sources independent of the Com-
pany. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market
participants would use in pricing the asset or liability and are developed based on the best information available
in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as
follows:
Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities
that the Company has the ability to access
Level 2 — Valuations for which all significant inputs are observable, either directly or indirectly, other than
level 1 inputs
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value
measurement.
The availability of observable inputs can vary among the various types of financial assets and liabilities. To
the extent that the valuation is based on models or inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value
may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure pur-
poses, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the
lowest level of input used that is significant to the overall fair value measurement.
U.S. Treasury securities, money market mutual funds and equity securities are valued using quoted market
prices in active markets with no valuation adjustment. Accordingly, these securities are categorized in Level 1.
Obligations of U.S. government agencies and FDIC guaranteed bank debt, corporate debt securities, mortgage
and asset backed securities and other short-term interest bearing securities are valued using methodologies based
on market observable inputs, principally, quoted prices of transactions of similar securities in active markets,
quoted prices of recent transactions of identical or similar assets in markets that are not active, benchmark yields
and issuer credit spreads. Accordingly, these securities are categorized in Level 2.
Our derivative assets and liabilities include interest rate swaps and foreign currency forward and option con-
tracts. The fair values of these derivatives are determined using methodologies based on market observable
inputs, including interest rate and volatility curves, credit spreads and foreign currency spot prices. All of these
derivative contracts are categorized in Level 2.
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