ADP 2014 Annual Report Download - page 47

Notes to Consolidated Financial Statements
(Tabular dollars in millions, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Preparation.
The accompanying Consolidated Financial Statements and footnotes thereto of Automatic Data Processing, Inc. and its subsidiaries
(“ADP” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GA A P”).
Intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities,
revenue, costs, expenses, and accumulated other comprehensive income that are reported in the Consolidated Financial Statements and footnotes thereto. Actual
results may differ from those estimates. The Consolidated Financial Statements and all relevant footnotes have been adjusted for discontinued operations (see Note
2).
B. Description of Business. The Company is a provider of Human Capital Management (HCM) solutions and business process outsourcing. The Company
classifies its operations into the following two reportable segments: Employer Services and Professional Employer Organization (“PEO”) Services. The primary
components of the “Other” segment are the results of operations of ADP Indemnity (a wholly-owned captive insurance company that provides workers'
compensation and employer's liability deductible reimbursement insurance protection for PEO Services worksite employees), non-recurring gains and losses,
miscellaneous processing services, such as customer financing transactions, the elimination of inter-company transactions, and certain charges and expenses that
have not been allocated to the reportable segments, such as stock-based compensation expense and the non tax-deductible goodwill impairment charge in the year
ended June 30, 2013 ("fiscal 2013 "). Prior to October 1, 2014, the Company had a third reportable segment, Dealer Services. Refer to Note 2 for further
information.
C. Revenue Recognition.
Revenues are primarily attributable to fees for providing services ( e.g., Employer Services' payroll processing fees), investment income
on payroll funds, payroll tax filing funds and other Employer Services' client-related funds and fees charged to implement clients on the Company's solutions. The
Company enters into agreements for a fixed fee per transaction ( e.g., number of payees or number of payrolls processed). 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 collectability is
reasonably assured.
PEO revenues are reported net of direct pass-through costs, which are costs billed and incurred for PEO Services worksite employees, primarily consisting of
payroll wages and payroll taxes. Benefits, workers' compensation, and state unemployment tax fees for worksite employees are included in PEO revenues and the
associated costs are included in operating expenses.
Interest income on collected but not yet remitted funds held for clients is recognized in revenues as earned, as the collection, holding and remittance of these funds
are critical components of providing these services.
Client implementation fees are charged to set clients up on the Company's platform and are deferred until the client has gone live on the Company's solutions and
services have begun. These fees are amortized to revenue over the longer of the contractual term or the expected client life, including estimated renewals of client
contracts. Additionally, certain implementation costs are deferred until the client has gone live on the Company's solution and services have begun and are then
amortized over the longer of the contractual term or the expected client life, including estimated renewals of client contracts.
The Company assesses the collectability of revenues based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well
as the customer's payment history.
D. Cash and Cash Equivalents.
Investment securities with a maturity of ninety days or less at the time of purchase are considered cash equivalents. The fair value
of our cash and cash equivalents approximates carrying value.
E. Corporate Investments and Funds Held for Clients.
All of the Company's marketable securities are considered to be “available-for-sale” and, accordingly,
are carried on the Consolidated Balance Sheets at fair value. Unrealized gains and losses, net of the related tax effect, are excluded from earnings and are reported
as a separate component of accumulated other comprehensive income on the Consolidated Balance Sheets until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific-identification basis and are included in other income, net on the Statements of Consolidated Earnings.
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