ADP 2004 Annual Report Download - page 43

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Automatic Data Processing, Inc. and Subsidiaries
The Company has stock purchase plans under which eligi-
ble employees have the ability to purchase shares of common
stock at 85% of the lower of market value as of the date of pur-
chase election or as of the end of the plans. Approximately 3.3
million and 3.0 million shares are scheduled for issuance on
December 31, 2005 and 2004, respectively. Approximately 1.9
million and 1.5 million shares were issued during the years ended
June 30, 2004 and 2003, respectively. At June 30, 2004 and
2003, there were approximately 8.0 million and 0.6 million
shares, respectively, reserved for purchase under the plans. As of
June 30, 2004 and 2003, employee stock purchase plan with-
holdings of $63 million and $60 million, respectively, were
included in accrued expenses and other current liabilities, and
$26 million and $27 million, respectively, were included in other
non-current liabilities on our Consolidated Balance Sheets.
The Company has a restricted stock plan under which shares
of common stock have been sold for nominal consideration to cer-
tain 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 Company records stock compensation
expense relating to the issuance of restricted stock over the period
during which the transfer restrictions exist, which is up to six
years. During the fiscal years ended June 30, 2004, 2003 and
2002, the Company issued 393 thousand, 221 thousand and 144
thousand 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. The plan interest credit rate will vary from year-to-
year based on the ten-year U.S. Treasury rate. Employees are fully
vested on completion of five years of 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 and main-
tains a Supplemental Officer Retirement Plan (“SORP”). The SORP
is a defined benefit plan pursuant to which the Company will pay
supplemental pension benefits to certain key officers upon retire-
ment based upon the officer’s years of service and compensation.
A June 30 measurement date was used in determining
the majority of the Company’s benefit obligations and fair value of
plan assets.
The Company’s pension plans’ funded status as of June 30,
2004 and 2003 follows:
June 30, 2004 2003
Change in plan assets:
Fair value of plan assets at beginning of year $553,200 $444,500
Actual return on plan assets 81,800 20,400
Employer contributions 59,500 99,700
Benefits paid (16,500) (11,400)
Fair value of plan assets at end of year $678,000 $553,200
Change in benefit obligation:
Benefit obligation at beginning of year $593,400 $484,600
Service cost 23,000 25,600
Interest cost 33,700 31,200
Actuarial and other losses 3,100 63,400
Benefits paid (16,500) (11,400)
Projected benefit obligation at end of year $636,700 $593,400
Funded status — plan assets
less benefit obligation $ 41,300 $ (40,200)
Unrecognized net actuarial loss due to
different experience than assumed 240,700 279,800
Prepaid pension cost $282,000 $239,600
The accumulated benefit obligation for all defined benefit
pension plans was $629,000 and $582,700 at June 30, 2004
and 2003, respectively.
The projected benefit obligation, accumulated benefit obli-
gation and fair value of plan assets for the Company’s pension
plans with accumulated benefit obligations in excess of plan
assets were $70 million, $65 million and $23 million, respec-
tively, as of June 30, 2004, and $67 million, $59 million and $19
million, respectively, as of June 30, 2003.
The components of net pension expense were as follows:
Years ended June 30, 2004 2003 2002
Service cost — benefits earned
during the period $ 23,000 $ 25,600 $ 17,400
Interest cost on projected
benefits 33,700 31,200 29,100
Expected return on plan assets (50,500) (50,500) (46,300)
Net amortization and deferral 10,200 1,100 (500)
$16,400 $ 7,400 $ (300)
Assumptions used to determine the actuarial present value
of benefit obligations generally were:
Years ended June 30, 2004 2003
Discount rate 6.00% 5.75%
Increase in compensation levels 6.00% 6.00%
Assumptions used to determine the net periodic benefit cost
generally were:
Years ended June 30, 2004 2003
Discount rate 5.75% 6.75%
Expected long-term rate of return on assets 7.25% 8.50%
Increase in compensation levels 6.00% 6.00%