Medtronic 2011 Annual Report Download - page 73

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Medtronic, Inc.
6. Fair Value Measurements
Under the authoritative guidance for fair value measurements, fair
value is defined as the exit price, or the amount that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants as of the measurement
date. The authoritative guidance also establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs
by requiring that the most observable inputs be used when
available. Observable inputs are inputs market participants would
use in valuing the asset or liability developed based on market
data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company’s
assumptions about the factors market participants would use in
valuing the asset or liability developed based upon the best
information available in the circumstances. The categorization of
financial assets and financial liabilities within the valuation
hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. The hierarchy is broken down into
three levels defined as follows:
• Level 1 — Inputs are quoted prices in active markets for
identical assets or liabilities.
• Level 2 — Inputs include quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active and
inputs (other than quoted prices) that are observable for the
asset or liability, either directly or indirectly.
• Level 3 — Inputs are unobservable for the asset or liability.
See the section below titled Valuation Techniques for further
discussion of how the Company determines fair value for
investments.
Assets and Liabilities That Are Measured at Fair Value on a Recurring
Basis The authoritative guidance is principally applied to financial
assets and liabilities such as marketable equity securities and debt
securities that are classified and accounted for as trading,
available-for-sale, and derivative instruments. Derivatives include
cash flow hedges, freestanding derivative forward contracts, and
interest rate swaps. These items are marked-to-market at each
reporting period. The information in the following paragraphs
and tables primarily addresses matters relative to these financial
assets and liabilities.
The following tables provide information by level for assets and
liabilities that are measured at fair value on a recurring basis:
Fair Value at
Fair Value Measurements
Using Inputs Considered as
(in millions) April 2 9, 2011 Level 1 Level 2 Level 3
Assets:
Corporate debt securities $1,961 $ — $1,944 $ 17
Auction rate securities 133 — — 133
Mortgage-backed
securities 785 — 750 35
U.S. government and
agency securities 2,756 1,453 1,303 —
Foreign government
and agency securities 131 — 131 —
Certificates of deposit 119 — 119 —
Other asset-backed
securities 349 — 343 6
Marketable equity
securities 237 237 — —
Exchange-traded funds 39 39 — —
Derivative assets 130 21 109 —
Total assets $6,640 $1,750 $4,699 $191
Liabilities:
Derivative liabilities $ 303 $ 303 $ — $ —
Total liabilities $ 303 $ 303 $ — $ —
Fair Value at
Fair Value Measurements
Using Inputs Considered as
(in millions) April 30, 2010 Level 1 Level 2 Level 3
Assets:
Corporate debt securities $ 2,134 $ — $ 2,118 $ 16
Auction rate securities 142 — — 142
Mortgage-backed
securities 717 — 678 39
U.S. government and
agency securities 2,753 782 1,971 —
Foreign government
and agency securities 119 — 119 —
Certificates of deposit 256 — 256 —
Other asset-backed
securities 313 — 297 1 6
Marketable equity
securities 1 1 — —
Exchange-traded funds 30 30 — —
Derivative assets 296 265 31 —
Total assets $ 6,761 $1,078 $ 5,470 $213
Liabilities:
Derivative liabilities $ 47 $ 47 $ — $ —
Total liabilities $ 47 $ 47 $ — $ —