ADP 2012 Annual Report Download - page 53

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.
If the fair value of an available-for-
sale debt security is below its amortized cost, the Company assesses whether it intends to sell the security or
if it is more likely than not the Company will be required to sell the security before recovery. If either of those two conditions were met, the
Company would recognize a charge in earnings equal to the entire difference between the security’s amortized cost basis and its fair value. If
the Company does not intend to sell a security or it is not more likely than not that it will be required to sell the security before recovery, the
unrealized loss is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other
factors, which is recognized in accumulated other comprehensive income.
Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the
effective-interest method. Dividend and interest income are recognized when earned.
F. Long-term Receivables. Long-term receivables relate to notes receivable from the sale of computer systems, primarily to auto, truck,
motorcycle, marine, recreational vehicle and heavy equipment retailers and manufacturers. Unearned income from finance receivables
represents the excess of gross receivables over the sales price of the computer systems financed. Unearned income is amortized using the
effective-interest method to maintain a constant rate of return over the term of each contract.
The allowance for doubtful accounts on long-term receivables is the Company’s best estimate of the amount of probable credit losses related to
the Company’s existing note receivables.
G. 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:
H. Goodwill and Other Intangible Assets. Goodwill and intangible assets with indefinite useful lives are not amortized, but are instead tested
for impairment at least annually at the reporting unit level. The Company performs this impairment test by first comparing the fair value of our
reporting units to their carrying amount. If an indicator of impairment exists based upon comparing the fair value of our reporting units to their
carrying amount, the Company would then compare the implied fair value of our 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.
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Data processing equipment 2 to 5 years
Buildings 20 to 40 years
Furniture and fixtures 3 to 7 years