ADP 2001 Annual Report Download - page 34

Notes to Consolidated Financial Statements (continued)
Company issued 172,500, 171,900, and 121,400 restricted
shares, respectively.
B. Pension Plans. The Company has a defined benefit
cash balance pension plan covering substantially all U.S.
employees, under which employees are credited with a
percentage of base pay plus interest. Effective January 1,
2001, the plan interest credit rate was changed from a
fixed rate of 7% to a rate that will vary from year-to-year
with the 10-year treasury constant. Employees are fully
vested on completion of five years’ service. The Com-
pany’s policy is to make contributions within the range
determined by generally accepted actuarial principles.
In addition, the Company has various retirement plans
for its non-U.S. employees.
The plans’ funded status as of June 30, 2001 and
2000 follows:
(In thousands)
June 30, 2001 2000
Change in plan assets:
Funded plan assets at market
value at beginning of year $485,700 $354,500
Plans of acquired employers — 17,300
Actual return on plan assets (44,700) 78,300
Employer contributions 36,100 43,000
Benefits paid (7,800) (7,400)
Funded plan assets at market
value at end of year $469,300 $485,700
Change in benefit obligation:
Benefit obligation at beginning of year $316,600 $256,400
Plans of acquired employers — 20,900
Service cost 31,400 29,600
Interest cost 23,600 20,000
Actuarial and other (gains)/losses 18,700 (2,900)
Benefits paid (7,800) (7,400)
Projected benefit obligation end of year $382,500 $316,600
Plan assets in excess of projected benefits $ 86,800 $169,100
Transition obligation 300 500
Unrecognized net actuarial (gain)/loss due to
different experience than assumed 46,200 (58,200)
Prepaid pension cost $133,300 $111,400
The components of net pension expense were
as follows:
(In thousands)
Years ended June 30, 2001 2000 1999
Service cost—benefits earned
during the period $ 31,400 $ 29,600 $ 23,400
Interest cost on projected benefits 23,600 20,200 16,400
Expected return on plan assets (40,100) (32,900) (24,500)
Net amortization and deferral 200 (100) (700)
$ 15,100 $ 16,800 $ 14,600
Assumptions used to develop the actuarial present value
of benefit obligations generally were:
Years ended June 30, 2001 2000
Discount rate 7.25% 7.75%
Expected long-term rate on assets 8.75% 8.75%
Increase in compensation levels 6.0% 6.0%
C. Retirement and Savings Plan. The Company has a
401(k) retirement and savings plan, which allows eligible
employees to contribute up to 16% of their compensation
annually. The Company matches a portion of this contri-
bution which amounted to approximately $31 million,
$27 million and $26 million for calendar years 2000, 1999
and 1998, respectively.
Note 10. Income Taxes
The Company accounts for its income taxes using the
asset and liability approach. Deferred taxes reflect the tax
consequences on future years of differences between the
financial reporting and tax bases of assets and liabilities.
The provision for income taxes consists of the following
components:
(In thousands)
Years ended June 30, 2001 2000 1999
Current:
Federal $439,745 $326,875 $296,397
Non-U.S. 77,435 56,505 66,440
State 53,660 56,535 48,058
Total current 570,840 439,915 410,895
Deferred:
Federal 24,895 5,750 (6,045)
Non-U.S. (3,743) 1,220 (15,175)
State 8,298 1,915 (2,015)
Total deferred 29,450 8,885 (23,235)
$600,290 $448,800 $387,660
At June 30, 2001 and 2000, the Company had gross
deferred tax assets of approximately $206 million and
$188 million, respectively, consisting primarily of operating
expenses not currently deductible for tax return purposes.
Valuation allowances approximated $14 million and $23
million as of June 30, 2001 and 2000, respectively. Gross
deferred tax liabilities approximated $373 million and $294
million, as of June 30, 2001 and June 30, 2000, respec-
tively, consisting primarily of differences in the accounting
and tax values of certain fixed and intangible assets.
Income tax payments were approximately $437 million in
2001, $375 million in 2000, and $270 million in 1999.
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