ADP 2014 Annual Report Download - page 49

H. 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. Leasehold 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 5 years
Buildings 20 to 40 years
Furniture and fixtures 4 to 7 years
The Company has obligations under various facilities, equipment leases, and software license agreements. The Company assesses whether these arrangements meet
the criteria for capital leases by determining whether the agreement transfers ownership of the asset, whether the lease includes a bargain purchase option, whether
the lease term is for greater than 75% of the asset's useful life, or whether the minimum lease payments exceed 90% of the leased equipment's fair market value.
All of the Company's leases are classified as operating leases. Total expense under these operating lease agreements was approximately $237.9 million , $227.4
million , and $209.6 million in fiscal 2015 , 2014 , and 2013 .
I. Goodwill. Goodwill is not amortized, but is instead tested for impairment annually and whenever events or changes in circumstances indicate the carrying value
may not be recoverable. The Company performs this impairment test by first comparing the fair value of each reporting units to its carrying amount. If the carrying
value for a reporting unit exceeds its fair value, the Company would then compare the implied fair value of goodwill to the carrying amount in order to determine
the amount of the impairment, if any. The Company determines the estimated fair value of its reporting units using an equal weighted blended approach, which
combines the income approach, which is the present value of expected cash flows, discounted at a risk-adjusted weighted-average cost of capital; and the market
approach, which is based on using market multiples of companies in similar lines of business. Significant assumptions used in determining the fair value of our
reporting units include projected revenue growth rates, profitability projections, working capital assumptions, the weighted average cost of capital, the
determination of appropriate market comparison companies, and terminal growth rates. The Company had $1,793.5 million of goodwill as of J une 30, 2015 . Based
on the fair value analysis completed in the fourth quarter of fiscal 2015 the Company concluded that goodwill fair value exceeded the carrying value for all
reporting units.
J. Impairment of Long-Lived Assets.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
K. Foreign Currency. The net assets of the Company's foreign subsidiaries are translated into U.S. dollars based on exchange rates in effect for each period, and
revenues and expenses are translated at average exchange rates in the periods. Gains or losses from balance sheet translation are included in accumulated other
comprehensive income on the Consolidated Balance Sheets. Currency transaction gains or losses, which are included in the results of operations, are immaterial for
all periods presented.
L. Foreign Currency Risk Management Programs and Derivative Financial Instruments.
The Company transacts business in various foreign jurisdictions and
is therefore exposed to market risk from changes in foreign currency exchange rates that could impact its consolidated results of operations, financial position, or
cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through
the use of derivative financial instruments. The Company does not use derivative financial instruments for trading purposes.
45