ADP 2010 Annual Report Download - page 65

For the securities in an unrealized loss position of $10.2 million at June 30, 2010, the Company concluded that it did not have the
intent to sell such securities and that it was not more likely than not that the Company would be required to sell such securities
before recovery. At June 30, 2010, the Company evaluated the unrealized losses of $10.2 million related to the debt securities in an
unrealized loss position, for which the Company did not have the intent to sell such securities and that it was not more likely than
not that the Company would be required to sell such securities before recovery, in order to determine whether such losses were due
to credit losses. The securities with unrealized losses of $10.2 million were primarily comprised of corporate bonds. The Company
evaluated such securities utilizing a variety of quantitative and qualitative factors including whether the Company expects to collect
all amounts due under the contractual terms of the security, information about current and past events of the issuer, and the length
of time and the extent to which the fair value has been less than the cost basis. At June 30, 2010, the Company concluded that
unrealized losses on available
- for - sale securities held at June 30, 2010 were not credit losses and were attributable to other factors,
including changes in interest rates. As a result, the Company concluded that the $10.2 million in unrealized losses on such securities
should be recorded in accumulated other comprehensive income on the Consolidated Balance Sheets at June 30, 2010.
NOTE 6. FAIR VALUE MEASUREMENTS
On July 1, 2008, the Company adopted ASC 820
- 10, “Fair Value Measurements and Disclosures” for assets and liabilities recognized
or disclosed at fair value on a recurring basis. On July 1, 2009, the Company adopted ASC 820
- 10 for non - financial assets that are
recognized or disclosed on a non
- recurring basis. The guidance in ASC 820 - 10 clarifies the definition of fair value, establishes a
framework for measuring fair value, and expands the disclosures on fair value measurements. ASC 820
- 10 defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants. ASC 820 - 10 establishes market or observable
inputs as the preferred source of fair value, followed by assumptions based on hypothetical transactions in the absence of market
inputs.
In January 2010, the Company adopted ASU 2010
- 6. The guidance in ASU 2010 - 6 amends the disclosure requirements in ASC 820.10
and requires new disclosures regarding transfers in and out of Level 1 and 2 asset categories as well as more detailed information for
the Level 3 reconciliation of activity, if required. Since we adopted ASC 820.10, we have not had any transfers in or out of Level 1 or
Level 2, nor have we had any Level 3 assets or liabilities. ASU 2010
- 6 also clarifies existing disclosure requirements regarding the
level of disaggregation expected, valuation techniques and inputs to fair value measurements.
The valuation techniques required by ASC 820
- 10 are based upon observable and unobservable inputs. Observable inputs reflect
market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of
inputs create the following three
- level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy
are described below with Level 1 having the highest priority and Level 3 having the lowest priority.
Available
- for - sale securities included in Level 1 are valued using closing prices for identical instruments that are traded on active
exchanges. Available
- for - sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing service.
To determine the fair value of our Level 2 investments, a variety of inputs are utilized, including benchmark yields, reported trades,
non - binding broker/dealer quotes, issuer spreads, two - sided markets, benchmark securities, bids, offers, reference data, new issue
data, and monthly payment information. Over 99% of our Level 2 investments are valued utilizing inputs obtained from a pricing
service. The Company reviews the values generated by the independent pricing service for reasonableness by comparing the
valuations received from the independent pricing service to valuations from at least one other observable source. The Company has
not adjusted the prices obtained from the independent pricing service. The Company has no available - for - sale securities included in
Level 3.
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Level 1
Fair value is determined based upon closing prices for identical instruments that are traded on active exchanges.
Level 2
Fair value is determined based upon quoted prices for similar instruments in active markets; quoted prices for identical
or similar instruments in markets that are not active; or model
- derived valuations whose inputs are observable or
whose significant value drivers are observable.
Level 3
Fair value is determined based upon significant inputs to the valuation model that are unobservable.