ADP 2005 Annual Report Download - page 41

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AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
Estimated amortization expenses of the Company’s existing
intangible assets for the next five fiscal years are as follows:
2006 $144.7
2007 $123.4
2008 $ 95.1
2009 $ 56.6
2010 $ 50.5
NOTE 9. SHORT-TERM FINANCING
In June 2005, the Company entered into a $1.25 billion, 364-day
credit agreement and a $1.5 billion, five-year credit agreement
with a group of lenders. The five-year facility contains an accor-
dion feature under which the aggregate commitment can be
increased by $500.0 million to $2.0 billion, subject to the avail-
ability of additional commitments. These facilities replaced the
Company’s prior $2.25 billion, 364-day facility, which terminated
on June 29, 2005. The $1.25 billion and $1.5 billion agreements
mature in June 2006 and June 2010, respectively. The Company
also has a $2.25 billion credit facility that matures in June 2009.
The interest rate applicable to the borrowings is tied to LIBOR or
prime rate depending on the notification provided by the
Company to the syndicated financial institutions prior to borrow-
ing. The Company is also required to pay facility fees on the
credit agreements. The primary uses of the credit facilities are
to provide liquidity to the commercial paper program and to
provide funding for general corporate purposes, if necessary.
The Company had no borrowings at June 30, 2005 or June 30,
2004 under the credit agreements.
The Company maintains a U.S. short-term commercial paper
program providing for the issuance of up to $4.5 billion in aggre-
gate maturity value of commercial paper at the Company’s dis-
cretion. The Company’s commercial paper program is rated
A-1+ by Standard and Poor’s and Prime 1 by Moody’s. These rat-
ings denote the highest quality commercial paper securities.
Maturities of commercial paper can range from overnight to up
to 270 days. At June 30, 2005 and 2004, there was no commer-
cial paper outstanding. For both fiscal 2005 and 2004, the
Company’s average borrowings were $1.0 billion at a weighted
average interest rate of 2.1% and 1.0%, respectively. The
weighted average maturity of the Company’s commercial paper
during fiscal 2005 and 2004 was less than two days for both fiscal
years.
The Company’s U.S. and Canadian short-term funding require-
ments related to client funds obligations are sometimes
obtained on a secured basis through the use of repurchase
agreements, which are collateralized principally by government
and government agency securities. These agreements generally
have terms ranging from overnight to up to five business days.
At June 30, 2005 and 2004, there were no outstanding repur-
chase agreements. For fiscal 2005 and 2004, the Company had
an average outstanding balance of $321.2 million and $32.0 mil-
lion, respectively, at an average interest rate of 1.9% and 1.8%,
respectively.
NOTE 10. DEBT
Components of long-term debt are as follows:
June 30, 2005 2004
Zero coupon convertible subordinated
notes (5.25% yield) $31.7 $31.9
Industrial revenue bonds
(with variable interest rates from
2.45% to 2.95%) 36.5 36.5
Other 7.8 8.3
76.0 76.7
(0.2) (0.5)
$75.8 $76.2
The zero coupon convertible subordinated notes have a face
value of approximately $16.0 million at June 30, 2005 and
mature February 20, 2012, unless converted or redeemed ear-
lier. At June 30, 2005, the notes were convertible into approxi-
mately 1.2 million shares of the Company’s common stock. The
notes are callable at the option of the Company, and the holders
of the notes can convert into common stock at any time or
require redemption in fiscal 2007. During fiscal 2005 and 2004,
approximately $1.0 million and $5.1 million face value of notes
were converted, respectively. As of June 30, 2005 and 2004, the
quoted market prices for the zero coupon notes were approxi-
mately $48.9 million and $51.9 million, respectively. The fair
value of the industrial revenue bonds and other debt, included
above, approximates carrying value.
Long-term debt repayments at June 30, 2005 are due as follows:
2007 $ 0.3
2008 0.3
2009 16.4
2010 —
2011 —
Thereafter 58.8
$75.8
Cash payments relating to interest were approximately $25.7
million, $13.9 million and $20.0 million in fiscal 2005, 2004 and
2003, respectively.
NOTE 11. FUNDS HELD FOR CLIENTS AND
CLIENT FUNDS OBLIGATIONS
As part of its integrated payroll and payroll tax filing services, the
Company impounds funds for federal, state and local employ-
ment taxes from approximately 401,000 clients; handles regula-
tory payroll tax filings, correspondence, amendments, and
penalty and interest disputes; remits the funds to the appropriate
tax agencies; and handles other employer-related services. In
addition to fees paid by clients for these services, the Company
receives interest during the interval between the receipt and
Less: Current portion