ADP 1998 Annual Report Download - page 28

Years ended June 30, 1998 1997 1996
Risk-free interest rate 5.4-6.3% 5.8-6.6% 5.2-6.5%
Dividend yield 1.0% 1.0-1.1% 1.1%
Volatility factor 13.9-17.4% 12.7-13.2% 11.9-13.3%
Expected life:
Options 6.2 6.2 6.2
Purchase rights 2.0 2.0 2.0
Weighted average fair value:
Options $15.97 $12.43 $9.53
Purchase rights $21.44 $11.94 $9.53
The Companys pro forma information, amortizing the fair
value of the stock options and stock purchase plan rights
issued subsequent to July 1, 1995 over their vesting period,
is as follows:
(In millions, except per share amounts)
Years ended June 30, 1998 1997 1996
Pro forma net earnings $ 565 $ 492 $ 442
Pro forma basic earnings per share $1.90 $1.69 $1.53
Pro forma diluted earnings per share $1.85 $1.64 $1.49
The Company has a restricted stock plan under which
shares of common stock have been sold for nominal consid-
eration to certain key employees. These shares are restricted
as to transfer and in certain circumstances must be resold to
the Company at the original purchase price. The restrictions
lapse over periods of up to six years. During the years
ended June 30, 1998, 1997 and 1996, the Company issued
130,500, 128,800 and 139,600 restricted shares, respectively.
B. Pension Plan. 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 7% interest. Employees are fully vested on
completion of five years service. The Company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 is as follows:
(In thousands)
June 30, 1998 1997
Funded plan assets at market value,
primarily stocks and bonds $306,900 $245,300
Actuarial present value of benefit obligations:
Vested benefits 224,800 170,900
Non-vested benefits 6,500 9,200
Accumulated/projected benefit obligation 231,300 180,100
Plan assets in excess of projected benefits 75,600 65,200
Prior service cost (1,600) (2,500)
Transition obligation 1,000 1,200
Unrecognized net actuarial loss due to
different experience than assumed 4,400 11,000
Prepaid pension cost $ 79,400 $ 74,900
The components of net pension expense were as follows:
(In thousands)
Years ended June 30, 1998 1997 1996
Service cost  benefits earned
during the period $18,000 $15,500 $13,600
Interest cost on projected benefits 14,500 11,800 10,000
Return on plan assets (41,100) (35,100) (20,000)
Net amortization and deferral 19,100 18,100 9,900
$10,500 $10,300 $13,500
Assumptions used to develop the actuarial present value
of benefit obligations generally were:
Years ended June 30, 1998 1997 1996
Discount rate 7.25% 7.75% 8.0%
Expected long-term rate on assets 8.5% 8.5% 8.5%
Increase in compensation levels 6.0% 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 contribu-
tion which amounted to approximately $22 million, $19
million and $18 million for calendar years 1997, 1996 and
1995, respectively.
NOTE 9. INCOME TAXES
The Company accounts for its income taxes using the asset
and liability approach. Deferred taxes reflect the tax conse-
quences 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, 1998 1997 1996
Current:
Federal $197,496 $170,826 $124,400
Non-U.S. 41,209 37,090 20,750
State 45,042 37,885 21,600
Total current 283,747 245,801 166,750
Deferred:
Federal (5,972) (29,741) 6,060
Non-U.S. 3,115 4,360 5,860
State (1,990) (9,910) 2,020
Total deferred (4,847) (35,291) 13,940
$278,900 $210,510 $180,690
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
26