ADP 2000 Annual Report Download - page 32

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The provision for income taxes consists of the following
components:
(In thousands)
Years ended June 30, 2000 1999 1998
Current:
Federal $326,875 $296,397 $198,932
Non-U.S. 56,505 66,440 41,209
State 56,535 48,058 45,334
Total current 439,915 410,895 285,475
Deferred:
Federal 5,750 (6,045) (4,145)
Non-U.S. 1,220 (15,175) 3,115
State 1,915 (2,015) (1,990)
Total deferred 8,885 (23,235) (3,020)
$448,800 $387,660 $282,455
At June 30, 2000 and 1999, the Company had gross deferred tax
assets of approximately $188 million and $168 million, respec-
tively, consisting primarily of operating expenses not currently
deductible for tax return purposes. Valuation allowances approxi-
mated $23 million as of June 30, 2000 and 1999. Gross deferred tax
liabilities approximated $294 million and $277 million, as of June
30, 2000 and June 30, 1999, respectively, consisting primarily of
differences in the accounting and tax values of certain fixed and
intangible assets.
Income tax payments were approximately $375 million in
2000, $270 million in 1999, and $247 million in 1998.
A reconciliation between the Company’s effective tax rate and
the U.S. federal statutory rate is as follows:
(In thousands,
except percentages)
Years ended June 30, 2000 % 1999 % 1998 %
Provision for taxes at
U.S. statutory rate $451,400 35.0 $379,600 35.0 $311,800 35.0
Increase (decrease) in
provision from:
Investments in
municipals (68,180) (5.3) (68,360) (6.3) (68,670) (7.7)
State taxes, net of
federal tax benefit 37,990 2.9 29,930 2.8 28,119 3.2
Other* 27,590 2.2 46,490 4.2 11,206 1.2
$448,800 34.8 $387,660 35.7 $282,455 31.7
*Includes impact of certain fiscal ’99 acquisitions, dispositions and other non-recurring
adjustments.
[note 1 0 ] Commitments and Contingencies
The Company has obligations under various facilities and equip-
ment leases, and software license agreements. Total expense
under these agreements was approximately $243 million
in 2000, $202 million in 1999 and $174 million in 1998, with mini-
mum commitments at June 30, 2000 as follows:
(In millions)
Years ending June 30,
2001 $228
2002 179
2003 121
2004 69
2005 44
Thereafter 103
$744
In addition to fixed rentals, certain leases require payment of
maintenance and real estate taxes and contain escalation provi-
sions based on future adjustments in price indices.
In the normal course of business, the Company is subject to
various claims and litigation. The Company does not believe that
the resolution of these matters will have a material impact on the
consolidated financial statements.
[note 1 1 ] Financial Data By Segment
Employer Services, Brokerage Services and Dealer Services are
the Company’s largest business units. ADP evaluates perform-
ance of its business units based on recurring operating results
before interest on corporate funds, income taxes and foreign
currency gains and losses. Certain revenues and expenses are
charged to business units at a standard rate for management
and motivation reasons. Other costs are recorded based on
management responsibility. As a result, various income and
expense items, including certain non-recurring gains and losses,
are recorded at the corporate level and certain shared costs are
not allocated. Goodwill amortization is charged to business
units at an accelerated rate to act as a surrogate for the cost of
capital for acquisitions. Interest on invested funds held for clients
are recorded in Employer Services’ revenues at a standard rate of
6%, with the adjustment to actual revenues included in “Other”.
Prior years’ business unit revenues and pre-tax earnings have
been restated to reflect fiscal year 2000 budgeted foreign
exchange rates. Business unit assets include funds held for
clients but exclude corporate cash, marketable securities and
goodwill. “Other” consists primarily of Claims Services, corpo-
rate expenses, non-recurring items and the reconciling items
referred to above.
[notes to consolidated financial stat em ents (continued)]