ADP 2004 Annual Report Download - page 45

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Automatic Data Processing, Inc. and Subsidiaries
June 30, 2004 2003
Deferred tax assets:
Accrued expenses not currently deductible $190,541 $178,893
Net operating losses 45,916 58,178
Other 30,168 29,023
266,625 266,094
Less: Valuation allowances (25,858) (32,220)
Deferred tax assets—net $240,767 $233,874
Deferred tax liabilities:
Unrealized investment gains, net $ 22,390 $142,102
Accrued retirement benefits 112,323 90,730
Depreciation and amortization 275,806 188,943
Other 47,305 49,244
Deferred tax liabilities $457,824 $471,019
Net deferred tax liabilities $217,057 $237,145
There are $84.0 million and $104.7 million current deferred
tax assets included in other current assets in the balance sheets at
June 30, 2004 and June 30, 2003, respectively. There are $17.3
million and $21.0 million current deferred tax liabilities included
in accrued expenses and other current liabilities in the balance
sheets at June 30, 2004 and June 30, 2003, respectively.
Income taxes have not been provided on undistributed earnings
of foreign subsidiaries as the Company considers such earnings to be
permanently reinvested as of June 30, 2004 and June 30, 2003.
The Company has estimated domestic and foreign net oper-
ating loss carry forwards of approximately $55.5 million and
$70.1 million, respectively, at June 30, 2004 and approximately
$103.2 and $66.9 million, respectively, at June 30, 2003.
The Company has recorded valuation allowances of $25.8
million and $32.2 million at June 30, 2004 and June 30, 2003,
respectively, to reflect the estimated amount of foreign deferred
tax assets that may not be realized. A portion of the valuation
allowances in the amounts of approximately $3.4 million and
$11.6 million at June 30, 2004 and June 30, 2003, respectively,
relate to net deferred tax assets which were recorded in purchase
accounting. Any recognition of such amounts in future years will
be a reduction to goodwill.
Income tax payments were approximately $539 million in
2004, $686 million in 2003 and $518 million in 2002.
NOTE 12 Contractual Commitments, Contingencies and
Off-Balance Sheet Arrangements
The Company has obligations under various facilities and equip-
ment leases and software license agreements. Total expense under
these agreements was approximately $317 million in 2004, $319
million in 2003 and $272 million in 2002, with minimum com-
mitments at June 30, 2004 as follows:
Years ending June 30,
2005 $290,901
2006 215,412
2007 148,606
2008 102,264
2009 55,965
Thereafter 117,617
$930,765
In addition to fixed rentals, certain leases require payment
of maintenance and real estate taxes and contain escalation pro-
visions based on future adjustments in price indices.
As of June 30, 2004, the Company has purchase commit-
ments of approximately $89 million relating to software and
equipment maintenance contracts, of which $46 million relates
to fiscal 2005 and the remaining $43 million relates to fiscal
years 2006 through 2009.
The Company is subject to various claims and litigation in
the normal course of business. The Company does not believe that
the resolution of these matters will have a material impact on the
consolidated financial statements.
It is not the Company’s business practice to enter into
off-balance sheet arrangements. However, in the normal course of
business, the Company does enter into contracts in which it makes
representations and warranties that guarantee the performance of
the Company’s products and services. Historically, there have
been no material losses related to such guarantees. The Company
also has provisions within certain contracts that require the
Company to make future payments if specific conditions occur.
The maximum potential payments under these contracts is not
material to the consolidated financial statements.
NOTE 13 Accumulated Other Comprehensive (Loss) Income
Comprehensive income is a measure of income which includes
both net income and other comprehensive (loss) income. Other
comprehensive (loss) income results from items deferred on the
balance sheet in stockholders’ equity. Other comprehensive (loss)
income was $(178) million, $277 million and $115 million in
2004, 2003 and 2002, respectively. The accumulated balances
for each component of other comprehensive (loss) income are as
follows:
June 30, 2004 2003 2002
Currency translation
adjustments $(52,408) $(69,535) $(243,581)
Unrealized gain on available-
for-sale securities, net of tax 37,479 233,830 125,268
Minimum pension liability
adjustment, net of tax (4,581) (5,476) —
Accumulated other
comprehensive (loss) income $(19,510) $158,819 $(118,313)
NOTE 14 Financial Data By Segment
Employer Services, Brokerage Services and Dealer Services are
the Company’s largest business units. The primary components
of “Other” are Claims Services, miscellaneous processing
services, and corporate allocations and expenses. The Company
evaluates performance of its business units based on operating
results before interest on corporate funds, foreign currency
gains and losses, and income taxes. Certain revenues
and expenses are charged to business units at a standard
rate for management reasons. Other costs are recorded
based on management responsibility. The 2003 and 2002
business unit revenues and earnings before income taxes