ADP 2012 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2012 ADP annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 125

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125

NOTE 6. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants at the measurement date and is based upon the Company’s principal or most advantageous market for a specific
asset or liability.
U.S. GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:
Available-for-sale securities included in Level 1 are valued using closing prices for identical instruments that are traded on active exchanges.
Over 99% of the Company’s available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing
service. To determine the fair value of the Company’s 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. 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.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the
classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to measure fair value may meet the
definition of more than one level of the fair value hierarchy. The significant input with the lowest level priority is used to determine the
applicable level in the fair value hierarchy.
59
Level 1
Fair value is determined based upon quoted prices for identical assets or liabilities that are traded in active markets.
Level 2
Fair value is determined based upon inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the asset or liability, including:
1
quoted prices for similar assets or liabilities in active markets;
1
quoted prices for identical or similar assets or liabilities in markets that are not active;
1
inputs other than quoted prices that are observable for the asset or liability; or
1
inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3
Fair value is determined based upon inputs that are unobservable and reflect the Company’s own assumptions about the
assumptions that market participants would use in pricing the asset or liability based upon the best information available in
the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).