Cisco 2010 Annual Report Download - page 60

Notes to Consolidated Financial Statements
8. Fair Value
Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that
would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers
assumptions that market participants would use when pricing the asset or liability.
(a) Fair Value Hierarchy
The accounting guidance for fair value measurement also requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of
independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within
the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value
hierarchy is as follows:
Level 1 Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset
or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are
significant to the measurement of the fair value of the assets or liabilities.
(b) Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis as of July 31, 2010 and July 25, 2009 were as follows (in millions):
JULY 31, 2010
FAIR VALUE MEASUREMENTS
JULY 25, 2009
FAIR VALUE MEASUREMENTS
Level 1 Level 2 Level 3
Total
Balance Level 1 Level 2 Level 3
Total
Balance
Assets
Cash equivalents:
Money market funds $ 2,521 $ — $ — $ 2,521 $ 4,514 $ — $ — $ 4,514
U.S. government securities — 235 — 235 —61—61
U.S. government agency securities(1) —40—40— 313 — 313
Corporate debt securities —1—1—35—35
Available-for-sale investments:
U.S. government securities — 16,612 — 16,612 — 10,284 — 10,284
U.S. government agency securities(1) — 13,579 — 13,579 — 15,603 — 15,603
Non-U.S. government and agency securities(2) — 1,467 — 1,467 — 540 — 540
Corporate debt securities — 2,222 — 2,222 — 1,705 — 1,705
Asset-backed securities — — 149 149 — — 223 223
Publicly traded equity securities 1,251 — — 1,251 928 — — 928
Derivative assets — 160 3 163 — 109 4 113
Total $ 3,772 $ 34,316 $ 152 $ 38,240 $ 5,442 $ 28,650 $ 227 $ 34,319
Liabilities:
Derivative liabilities $—$19$—$19$—$66$—$66
Total $—$19$—$19$—$66$—$66
(1) Includes corporate securities that are guaranteed by the FDIC.
(2) Includes agency and corporate securities that are guaranteed by non-U.S. governments.
Level 2 fixed income securities are priced using quoted market prices for similar instruments; nonbinding market prices that are
corroborated by observable market data; or in limited circumstances, discounted cash flow techniques. The Company uses inputs
58 Cisco Systems, Inc.