ADP 2003 Annual Report Download - page 30

ADP 2003 Annual Report
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NOTE 1 Summary of Significant Accounting Policies
A. Consolidation and Basis of Preparation. The consolidated
financial statements include the financial results of Automatic
Data Processing, Inc. and its majority-owned subsidiaries (the
“Company” or “ADP”). Intercompany balances and transac-
tions have been eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires manage-
ment to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these
estimates.
B. Revenue Recognition. A majority of the Company’s
revenues are attributable to fees for providing services (e.g.,
Employer Services’ payroll processing fees and Brokerage Ser-
vices’ trade processing fees) as well as investment income on
payroll funds, tax filing funds and other Employer Services’
client-related funds. The Company typically enters into agree-
ments for a fixed fee per transaction (e.g., number of payees).
Fees associated with services are recognized in the period
services are rendered and earned under service arrangements
with clients where service fees are fixed or determinable and
collectibility is reasonably assured. Interest income on col-
lected but not yet remitted funds held for clients is recognized
in revenues as earned.
The Company also recognizes revenues associated with
the sale of software systems and associated software licenses.
For a majority of the Company’s software sales arrangements,
which provide hardware, software licenses, installation and
post customer support, revenues are recognized ratably over
the software license term as objective evidence of the fair val-
ues of the individual elements in the sales arrangement does
not exist. As part of the sale of software systems, the Company
recognizes revenues from the sale of hardware, which is
recorded net of the associated costs.
Postage fees for client mailings are included in revenues
and the associated postage expenses are included in operat-
ing expenses. Professional Employer Organization (PEO)
service revenues are included in revenues and are reported net
of direct costs billed and incurred for PEO worksite employees,
which primarily include payroll wages and payroll taxes.
C. Cash and Cash Equivalents. Highly-liquid invest-
ments with a maturity of ninety days or less at the time of pur-
chase are considered cash equivalents.
D. Investments. Corporate investments and funds held
for clients at June 30, 2003 and 2002.
2003 2002
Cost Fair Value Cost Fair Value
Money market
securities and other
cash equivalents:
Corporate
investments $ 1,410,218 $ 1,410,218 $ 798,810 $ 798,810
Funds held for clients 2,865,957 2,865,957 3,319,646 3,319,646
Total money market
securities and other
cash equivalents 4,276,175 4,276,175 4,118,456 4,118,456
Available-for-sale
securities:
Corporate investments 917,026 934,125 1,916,896 1,950,773
Funds held for clients 8,582,958 8,941,792 7,730,724 7,905,625
Total available-for-sale
securities 9,499,984 9,875,917 9,647,620 9,856,398
Total corporate
investments
and funds held
for clients $13,776,159 $14,152,092 $13,766,076 $13,974,854
All of the Company’s marketable securities are considered
to be “available-for-sale” at June 30, 2003 and, accordingly, are
carried on the Consolidated Balance Sheets at fair value.
Expected maturities of available-for-sale securities for
both corporate investments and funds held for clients at June
30, 2003 are as follows:
Maturity Dates:
Due in one year or less $2,732,443
Due after one year through two years 3,402,876
Due after two years through three years 1,882,764
Due after three years through four years 779,654
Due after four years through ten years 1,078,180
Total available-for-sale securities $9,875,917
E. Property, Plant and Equipment. Property, plant and
equipment is stated at cost and depreciated over the estimated
useful lives of the assets using the straight-line method. Lease-
hold improvements are amortized over the shorter of the term
of the lease or the estimated useful lives of the improvements.
The estimated useful lives of assets are primarily as follows:
Data processing equipment 2 to 3 years
Buildings 20 to 40 years
Furniture and fixtures 3 to 7 years
Notes to Consolidated Financial Statements Automatic Data Processing, Inc. and Subsidiaries
Years ended June 30, 2003, 2002 and 2001
(Unless otherwise noted, amounts in thousands, except per share amounts)