Amgen 2011 Annual Report Download - page 162

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; prepayment/
default projections based on historical data; and other observable inputs.
We value our other short-term interest bearing securities at amortized cost, which approximates fair value
given their near-term maturity dates.
Substantially all of our foreign currency forward and option derivatives contracts have maturities of three
years or less and all are with counterparties that have a minimum credit rating of A- or equivalent by S&P,
Moody’s or Fitch. We estimate the fair values of these contracts by taking into consideration valuations obtained
from a third-party valuation service that utilizes an income-based industry standard valuation model for which all
significant inputs are observable, either directly or indirectly. These inputs include foreign currency rates,
LIBOR, swap rates and obligor credit default swap rates. In addition, inputs for our foreign currency option
contracts also include implied volatility measures. These inputs, where applicable, are at commonly quoted
intervals. As of December 31, 2011 and 2010, we had open foreign currency forward contracts with notional
amounts of $3.5 billion and $3.2 billion, respectively, and open foreign currency option contracts with notional
amounts of $292 million and $398 million, respectively, that were primarily euro-based and were designated as
cash flow hedges. In addition, as of December 31, 2011 and 2010, we had $389 million and $670 million,
respectively, of open foreign currency forward contracts to reduce exposure to fluctuations in value of certain
assets and liabilities denominated in foreign currencies that were primarily euro-based and that were not
designated as hedges. (See Note 17, Derivative instruments.)
Our interest rate and cross currency swap contracts are with counterparties that have a minimum credit
rating of A- or equivalent by S&P, Moody’s or Fitch. We estimate the fair values of these contracts by taking
into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry
standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs
include foreign currency rates, LIBOR, swap rates, obligor credit default swap rates and cross currency basis
swap spreads. We had interest rate swap contracts with an aggregate notional amount of $3.6 billion as of
December 31, 2011 and 2010, that were designated as fair value hedges. We had cross currency swap contracts
on all of our 5.50% 2026 pound sterling Notes as of December 31, 2011, that were designated as cash flow
hedges. (See Note 17, Derivative instruments.)
Contingent consideration obligations in connection with a business combination result from our acquisition
of BioVex in March 2011. The fair value measurements of these obligations are based on significant
unobservable inputs, and accordingly, such amounts are considered Level 3 measurements. There were no
changes in assumptions that had a material impact on the estimated fair values of these obligations during the
period from the acquisition date to December 31, 2011, and accordingly, there was no significant impact on net
income for this period. For a description of the valuation methodology and related assumptions used for
estimating the fair values of these obligations, see Note 2, Business combinations.
There have been no transfers of assets or liabilities between the fair value measurement levels, and there
were no material remeasurements to fair value during the years ended December 31, 2011 and 2010, of assets
and liabilities that are not measured at fair value on a recurring basis, except as discussed in Note 8, Cost savings
initiatives and restructuring, regarding an impairment of fixed assets that we recognized in 2010.
Summary of the fair value of other financial instruments
Cash equivalents
The estimated fair values of cash equivalents approximate their carrying values due to the short-term nature
of these financial instruments.
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