ADP 2004 Annual Report Download - page 41

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Automatic Data Processing, Inc. and Subsidiaries
Components of intangible assets are as follows:
June 30, 2004 2003
Intangibles
Software and software licenses $ 729,399 $ 578,261
Customer contracts and lists 594,841 545,978
Other 391,906 405,860
1,716,146 1,530,099
Less accumulated amortization (979,865) (860,208)
Intangible assets, net $ 736,281 $ 669,891
Other intangibles consist primarily of purchased rights,
covenants, patents and trademarks (acquired directly or through
acquisitions). All of the intangible assets have finite lives and as
such are subject to amortization. The weighted average remaining
useful life of the intangible assets is 9 years (3 years for software
and software licenses, 13 years for customer contracts and lists, and
12 years for other). Amortization of intangibles totaled $145 million
for fiscal 2004, $114 million for fiscal 2003 and $115 million for
fiscal 2002. Estimated amortization expense of the Company’s
existing intangible assets for the next five fiscal years are as follows:
2005 $140,239
2006 $116,681
2007 $ 96,269
2008 $ 75,001
2009 $ 46,287
NOTE 7 Short-term Financing
In June 2004, the Company entered into two new unsecured
revolving credit agreements, each for $2.25 billion, with certain
financial institutions, replacing an existing $4.5 billion credit
agreement which was due to expire in September 2004. The inter-
est rate applicable to the borrowings is tied to LIBOR or prime rate
depending on the notification provided by the Company to the syn-
dicated financial institutions prior to borrowing. The Company is
also required to pay facility fees on the credit agreements. The pri-
mary uses of the credit facilities are to provide liquidity to the
unsecured commercial paper program and to provide funding for
general corporate purposes, if necessary. The Company had no
borrowings through June 30, 2004 under the new credit agree-
ments or the credit agreement that was replaced. The two new
unsecured revolving credit agreements expire in June 2005 and
June 2009, respectively.
In April 2002, we initiated a U.S. short-term commercial
paper program providing for the issuance of up to $4.0 billion in
aggregate maturity value of commercial paper at our discretion. In
November 2003, the Company increased the aggregate maturity
value of commercial paper available under the program to $4.5
billion. Our commercial paper program is rated A-1+ by Standard
& Poor’s and Prime 1 by Moody’s. These ratings denote the high-
est quality commercial paper securities. Maturities of commercial
paper can range from overnight to 270 days. At June 30, 2004
and 2003, there was no commercial paper outstanding. For fiscal
2004 and 2003, the Company’s average borrowings were $1.0 bil-
lion and $0.9 billion, respectively, at a weighted average interest
rate of 1.0% and 1.5%, respectively. The weighted average matu-
rity of the Company’s commercial paper during fiscal 2004 and
2003 was less than two days for both periods.
The Company’s U.S. and Canadian short-term funding
requirements related to client funds obligations are sometimes
obtained on a secured basis through the use of repurchase agree-
ments, which are collateralized principally by government and
government agency securities. These agreements generally have
terms ranging from overnight up to five business days. At June 30,
2004 and 2003, there were no outstanding repurchase agree-
ments. For the years ended June 30, 2004 and 2003, the Com-
pany had an average outstanding balance of $32.0 million and
$6.1 million, respectively, at a weighted average interest rate of
1.8% and 3.0%, respectively.
NOTE 8 Debt
Components of long-term debt are as follows:
June 30, 2004 2003
Zero coupon convertible subordinated
notes (5.25% yield) $31,863 $39,661
Industrial revenue bonds
(with variable interest rates from
1.15% to 1.58%) 36,525 36,500
Other 8,327 9,338
76,715 85,499
Less current portion (515) (825)
$76,200 $84,674
The zero coupon convertible subordinated notes had a face
value of approximately $48 million at June 30, 2004 and mature
February 20, 2012, unless converted or redeemed earlier. At June
30, 2004, the notes were convertible into approximately 1.2 mil-
lion shares of the Company’s common stock. The notes are
callable at the option of the Company, and the holders of the notes
can convert into common stock at any time or require redemption
in fiscal 2007. During fiscal 2004 and 2003, approximately $14
million and $18 million face value of notes were converted,
respectively. As of June 30, 2004 and 2003, the quoted market
prices for the zero coupon notes were approximately $52 million
and $55 million, respectively. The fair value of the other debt,
included above, approximates its carrying value.
Long-term debt repayments at June 30, 2004 are due as
follows:
2006 $ 402
2007 344
2008 169
2009 16,366
2010 —
Thereafter 58,919
$76,200
Cash payments relating to interest were approximately $14
million in fiscal 2004, $20 million in fiscal 2003 and $18 mil-
lion in fiscal 2002.