Delaware 22-1467904
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One ADP Boulevard, Roseland, New Jersey 07068
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (973) 974-5000
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
X Yes No
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
X Yes No
As of September 30, 2004 there were 582,537,627 common shares outstanding.
(A) Net of pass-through costs of $1,149,487 and $911,569, respectively.
See notes to the consolidated financial statements.
Automatic Data Processing, Inc. and Subsidiaries
See notes to the consolidated financial statements.
Automatic Data Processing, Inc. and Subsidiaries
Note 1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. Adjustments are of a
normal recurring nature. These unaudited Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements and
related notes of Automatic Data Processing, Inc. and Subsidiaries (collectively,
ADP or the Company) as of and for the fiscal year ended June 30, 2004. The
results of operations for the three months ended September 30, 2004 may not
be indicative of the results to be expected for the fiscal year ending June
30, 2005.
Options to purchase 36.0 million and 39.9 million shares of common stock
for the three months ended September 30, 2004 and 2003, respectively, were
excluded from the calculation of diluted earnings per share because their
exercise prices exceeded the average market price of outstanding common shares
for the period.
Note 3. Fair Value Accounting for Stock-Based Compensation
The Company accounts for its stock options and employee stock purchase plans
under the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations, as permitted by Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123). No stock-based employee compensation expense related to the
Company's stock options and employee stock purchase plans is reflected in
net earnings, as all options granted under the stock option plans had an exercise
price equal to the market value of the underlying common stock on the date
of grant, and for the employee stock purchase plans, the discount does not
exceed fifteen percent.
The following table illustrates the effect on net earnings and earnings
per share if the Company had applied the fair value recognition provisions
of SFAS No. 123 to stock-based employee compensation.
Proceeds from sales or maturities of available-for-sale securities were
$1.9 billion and $0.9 billion for the three months ended September 30, 2004
and 2003, respectively.
Note 6. Interim Financial Data by Segment
Employer Services, Brokerage Services and Dealer Services are the Company's
largest business units. The primary components of "Other" are Claims
Services, miscellaneous processing services, and corporate allocations and
expenses. The Company evaluates the performance of its business units based
on operating results before interest on corporate funds, foreign currency
gains and losses, and income taxes. Certain revenues and expenses are charged
to business units at a standard rate for management reasons. Other costs are
recorded based on management responsibility. The prior year's business unit
revenues and earnings before income taxes have been adjusted to reflect updated
fiscal year 2005 budgeted foreign exchange rates. Reconciling items include
foreign exchange differences between the actual foreign exchange rates and
the fiscal year 2005 budgeted foreign exchange rates, and the adjustment for
the difference between actual interest income earned on invested funds held
for clients and interest credited to Employer Services at a standard rate
of 4.5%. Both of these adjustments are eliminated in consolidation and as
such represent a reconciling item to revenues and earnings before income taxes.
The business unit results also include an internal cost of capital charge
related to the funding of acquisitions and other investments. This charge
is eliminated in consolidation and as such represents a reconciling item to
earnings before income taxes.
Gross unrealized gains and losses on the available-for-sale securities are
as follows:
All of the Company's marketable securities are considered to be "available-for-sale"
at September 30, 2004 and June 30, 2004 and, accordingly, are carried on the
Consolidated Balance Sheets at fair value.
The Company believes that the available-for-sale securities which have fair
values that are below cost are not other-than-temporarily impaired since it
is probable that principal and interest will be collected in accordance with
the applicable contractual terms and the Company has the ability to hold the
available-for-sale securities until maturity.
Changes in goodwill for the three months ended September 30, 2004 are as
follows:
Components of intangible assets, net are as follows:
Other intangible assets consist primarily of purchased rights, covenants,
patents and trademarks (acquired directly or through acquisitions). All of
the intangible assets have finite lives and as such are subject to amortization.
The weighted average remaining useful life of the intangible assets is 9 years
(3 years for software licenses, 13 years for customer contracts and lists
and 12 years for other). Amortization of intangibles totaled $35.8 million
and $34.3 million for the three months ended September 30, 2004 and 2003,
respectively. Estimated amortization expense of the Company's existing intangible
assets for the remaining nine months of fiscal year 2005 and the succeeding
five fiscal years is as follows:
Note 9. Short-term Financing
In June 2004, the Company entered into two new unsecured revolving credit
agreements, each for $2.25 billion, with certain financial institutions, replacing
a previous $4.5 billion credit agreement. The two unsecured revolving credit
agreements expire in June 2005 and June 2009, respectively. 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 borrowing. 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 unsecured commercial paper program and to provide funding
for general corporate purposes, if necessary. The Company had no borrowings
through September 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 aggregate maturity value of commercial paper at the Company's
discretion. The Company's commercial paper program is rated A-1+ by Standard
and Poor's and Prime 1 by Moody's. These ratings denote the highest quality
commercial paper securities. Maturities of commercial paper can range from
overnight to 270 days. At September 30, 2004 and 2003, there was no commercial
paper outstanding. For the three months ended September 30, 2004 and 2003,
the Company had average borrowings of $1.4 billion and $1.1 billion, respectively,
at an effective weighted average interest rate of 1.5% and 1.0%, respectively.
The weighted average maturity of the Company's commercial paper during the
three months ended September 30, 2004 and 2003 was less than two days for
both periods.
The Company's U.S. and Canadian short-term funding requirements 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 up to five business days. At September 30, 2004
and 2003, there were no outstanding repurchase agreements. For the three months
ended September 30, 2004 and 2003, the Company had an average outstanding
balance of $390.1 million and $7.2 million, respectively, at a weighted average
interest rate of 1.4% and 2.5%, respectively.
The components of net pension expense were as follows:
The minimum required contribution to the Company's pension plans is $0 in
fiscal 2005. For the three months ending September 30, 2004, the Company did
not make any contributions to the pension plans; however, the Company expects
to contribute approximately $25 million during fiscal 2005.
Note 11. Commitments and Contingencies
It is not the Company's practice to enter into off-balance sheet arrangements.
However, in the normal course of business, the Company does enter into contracts
in which it guarantees the performance of the Company's products and services.
Historically, there have been no material losses related to such guarantees.
Item 2. Management's Discussion And Analysis Of Financial Condition
And (Tabular dollars are presented in millions, except per share amounts)
CRITICAL ACCOUNTING POLICIES Our Consolidated Financial Statements and accompanying notes have been prepared
in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires
management to make estimates, judgments and assumptions that affect reported
amounts of assets, liabilities, revenues and expenses. We continually evaluate
the accounting policies and estimates used to prepare the consolidated financial
statements. The estimates are based on historical experience and assumptions
believed to be reasonable under current facts and circumstances. Actual amounts
and results could differ from these estimates made by management. Certain
accounting policies that require significant management estimates and are
deemed critical to our results of operations or financial position are discussed
below.
Revenue Recognition. Our revenues are primarily attributable to fees for
providing services (e.g., Employer Services' payroll processing fees and Brokerage
Services' trade processing fees) as well as investment income on payroll funds,
payroll tax filing funds and other Employer Services' client-related funds.
We typically enter into agreements for a fixed fee per transaction (e.g.,
number of payees or number of trades). Fees associated with services are recognized
in the period services are rendered and earned under service arrangements
with clients where service fees are fixed or determinable and collectibility
is reasonably assured. Interest income on collected but not yet remitted funds
held for clients is recognized in revenues as earned, as the collection, holding
and remittance of these funds are critical components of providing these services.
We also recognize revenues associated with the sale of software systems
and associated software licenses. For a majority of our software sales arrangements,
which provide hardware, software licenses, installation and post-customer
support, revenues are recognized ratably over the software license term as
vendor-specific objective evidence of the fair values of the individual elements
in the sales arrangement does not exist. Changes to the elements in an arrangement
and the ability to establish vendor-specific objective evidence for those
elements could affect the timing of the revenue recognition.
The majority of our revenues are generated from a fee for service model
(e.g., fixed-fee per transaction processed) in which revenue is recognized
when the related services have been rendered under written price quotations
or service agreements having stipulated terms and conditions which do not
require management to make any significant judgments or assumptions regarding
any potential uncertainties.
We assess collectibility of our revenues based primarily on the creditworthiness
of the customer as determined by credit checks and analysis, as well as the
customer's payment history. We do not believe that a change in our assumptions
utilized in the collectibility determination would result in a material change
to revenues as no one customer accounts for a significant portion of our revenues.
Goodwill. We review the carrying value of all our goodwill in accordance
with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill
and Other Intangible Assets," by comparing the carrying value of our
reporting units to their fair values. We are required to perform this comparison
at least annually or more frequently if circumstances indicate possible impairment.
When determining fair value, we utilize a discounted future cash flow approach
using various assumptions, including projections of revenues based on assumed
long-term growth rates, estimated costs, and appropriate discount rates based
on the particular businesses' weighted average cost of capital. Our estimates
of long-term growth and costs are based on historical data, various internal
estimates and a variety of external sources, and are developed as part of
our routine long-range planning process. The estimated fair value of the Company's
reporting units exceeds the carrying value of the reporting units. We had
approximately $2.2 billion of goodwill as of September 30, 2004. Given the
significance of our goodwill, an adverse change to the fair value could result
in an impairment charge, which could be material to our consolidated earnings.
Income taxes. We account for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which establishes financial accounting
and reporting standards for the effect of income taxes. The objectives of
accounting for income taxes are to recognize the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets for
the future tax consequences of events that have been recognized in an entity's
financial statements or tax returns. Judgment is required in addressing the
future tax consequences of events that have been recognized in our financial
statements or tax returns (e.g., realization of deferred tax assets, changes
in tax laws or interpretations thereof). In addition, we are subject to the
continuous examination of our income tax returns by the Internal Revenue Service
and other tax authorities. A change in the assessment of the outcomes of such
matters could materially impact our consolidated financial statements.
Analysis of Consolidated Operations
Revenues
Our consolidated revenues for the quarter ended September 30, 2004 grew
8% to $1.9 billion primarily due to increases in Employer Services of 6%,
or $65 million, to $1.2 billion, Brokerage Services of 6%, or $17 million,
to $331 million, and Dealer Services of 13%, or $27 million, to $238 million.
Our consolidated revenues, excluding the impact of acquisitions and divestitures,
grew 8% in the quarter ending September 30, 2004 as compared with the prior
year. Revenue growth for the quarter was also favorably impacted by $24 million,
or 1.4%, due to fluctuations in foreign currency exchange rates. Our consolidated
revenues for the quarter ending September 30, 2004 includes interest on funds
held for clients of $85 million, as compared to $83 million in the prior year.
The increase in the consolidated interest earned on funds held for clients
resulted from the increase of 10% in our average client fund balances to $10.2
billion for the quarter, offset by a decrease in the interest yield. The difference
between the 4.5% standard rate allocation in Employer Services and the actual
interest earned is a reconciling item that is eliminated in consolidation
and reduces revenues by $30 million and $21 million in the quarters ending
September 30, 2004 and 2003, respectively.
Expenses
Our consolidated expenses for the quarter increased by $115 million, from
$1.4 billion to $1.5 billion. The increase in our consolidated expenses is
primarily due to our increase in revenues, including the additional expenses
associated with acquisitions. In addition, consolidated expenses increased
by $21 million, or 1.5%, due to fluctuations in foreign currency exchange
rates. Operating expenses increased by $73 million, or 9%, primarily due to
the increase in revenues. Selling, general and administrative expenses increased
by $19 million to $446 million primarily due to the additional sales force
to support the revenue growth. Systems development and programming costs increased
by $17 million to $149 million due to continued investments in sustaining
our products, primarily in our Employer Services business, and the maintenance
of our existing technology throughout all of our businesses. In addition,
other income, net, decreased $6 million primarily due to the net realized
loss of $5 million in the quarter ending September 30, 2004 as compared to
the net realized gain of $1 million in the prior year on our available-for-sale
securities.
Earnings Before Income Taxes
Earnings before income taxes increased by $20 million, or 6%, to $331 million
for the quarter ending September 30, 2004 due to the increase in revenues
and expenses discussed above.
Provision for Income Taxes
Our effective tax rate for the quarter ending September 30, 2004 was 37.1%
as compared to 37.4% for the comparable quarter of the prior year. The decrease
is attributable to a favorable mix in income among tax jurisdictions.
Net Earnings
Net earnings for the quarter increased 7% to $208 million from $195 million
and the related diluted earnings per share increased 9% to $0.35. The increase
in net earnings reflects the increase in earnings before income taxes and
the impact of the lower effective tax rate. The increase in diluted earnings
per share reflects the increase in net earnings and the impact of fewer shares
outstanding due to the repurchase of 5.5 million shares during the quarter
and 43.2 million shares in the prior two fiscal years.
Revenues
Employer Services' revenues increased 6% in the quarter primarily due to
new business sales, strong client retention and interest earned on client
fund balances. Internal revenue growth, which represents revenue growth excluding
the impact of acquisitions and divestitures, was approximately 6% for the
quarter. New business sales grew 14%, continuing the momentum of double-digit
sales growth from the second half of fiscal 2004. The number of employees
on our clients' payrolls, "pays per control", increased 1.8% in
the United States. This employment metric represents over 125 thousand payrolls
across a broad range of U.S. geographies ranging from small to very large
businesses. Our client retention in the United States continues to improve
from record retention levels in fiscal 2004 due to our continued investment
and commitment to client service. Interest income is credited to Employer
Services at a standard rate of 4.5%. The average client funds balance was
$10.2 billion during the quarter as compared to $9.3 billion in the first
quarter of fiscal 2004, representing an increase of 10%. Revenues from our
"beyond payroll" products continued to grow at a faster rate than
the traditional payroll and payroll tax revenues. Our Professional Employer
Organization (PEO) revenues grew 20% to $125 million primarily due to 15%
growth in the number of PEO worksite employees and additional pass-through
benefits. In addition, "beyond payroll" revenues increased due to
increased number of clients utilizing services such as Time and Labor Management
and TotalPay Services. Earnings before income taxes in Employer Services increased 6%, from $207
million to $219 million for the quarter ending September 30, 2004 primarily
due to the increase in revenues of 6%. Operating expenses, selling, general
and administrative expenses and systems development and programming costs
increased 6% due to the increase in operating and sales personnel, and maintenance
of our products and services to support the revenue growth.
Brokerage Services
Revenues
Brokerage Services' revenues increased 6% for the quarter when compared
to first quarter of fiscal 2004 primarily due to an increase in certain investor
communications activity. Revenues from investor communications increased by
$19 million, or 9%, to $224 million primarily due to increases in the volume
of our proxy and interim communications services, as well as increases in
our distribution services revenues for post-sale mutual fund documents and
new business sales. Our proxy and interim communication pieces delivered increased
22%, from 144 million to 175 million, stemming from more holders of equities
and incremental activity from recent mutual fund industry regulatory activity.
Our back-office trade processing revenues remained flat at $82 million. For
the quarter ending September 30, 2004, the average trades per day increased
10% from 1.25 million to 1.37 million primarily due to net new business sales
and growth in our existing client base. This increase was offset by the decline
in the average revenue per trade of 15% primarily due to higher institutional
trade volume, as well as our client mix and volume processed under tier pricing
agreements during the quarter.
Earnings Before Income Taxes
Earnings before income taxes increased $19 million to $39 million primarily
due to increased revenues in our investor communication activities. Our operating
expenses increased in line with our revenue growth. Selling, general and administrative
expenses declined approximately $4 million primarily due to a decline in expenses
relating to potential acquisitions during the quarter. Depreciation and amortization
expense declined $3 million primarily due to the renewal of software and equipment
leases at more favorable rates. In addition, earnings before income taxes
increased approximately $5 million as a result of the elimination of unprofitable
business lines and alignment of our cost structure in our underperforming
businesses that occurred during fiscal 2004.
Dealer Services
Revenues
Dealer Services' revenues increased 13% for the quarter when compared to
the first quarter of fiscal 2004. Internal revenue growth was approximately
7% for the quarter. Revenues increased for our dealer business systems in
North America by $27 million to $199 million primarily due to growth in our
key products and the effect of acquisitions. The growth in our key products
was primarily driven by the increased users for Application Service Provider
(ASP) managed services, new network installations, and increased market penetration
of our Customer Relationship Management (CRM) product. Earnings before income taxes grew 8% primarily due to the increase in revenues
of 13% offset by costs relating to the integration of acquisitions that occurred
during the fourth quarter of 2004 and additional sales expenses relating to
headcount additions to support the revenue growth.
Other
The primary components of "Other" are Claims Services, miscellaneous
processing services, and corporate allocations and expenses.
Reconciling Items
The prior year's business unit revenues and earnings before income taxes
have been adjusted to reflect updated fiscal year 2005 budgeted foreign exchange
rates. Reconciling items include foreign exchange differences between the
actual foreign exchange rates and the fiscal year 2005 budgeted foreign exchange
rates, and the adjustment for the difference between actual interest income
earned on invested funds held for clients and interest credited to Employer
Services at a standard rate of 4.5%. Both of these adjustments are eliminated
in consolidation and as such represent a reconciling item to revenues and
earnings before income taxes. The business unit results also include an internal
cost of capital charge related to the funding of acquisitions and other investments.
This charge is eliminated in consolidation and as such represents a reconciling
item to earnings before income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our financial condition and balance sheet remain strong. At September 30,
2004, cash and marketable securities were $2.0 billion. Stockholders' equity
was $5.4 billion and the ratio of long-term debt-to-equity was 1.4% at September
30, 2004.
At September 30, 2004, working capital was $1.4 billion compared to $1.0
billion at September 30, 2003. The increase in the Company's working capital
arose primarily from the movement of long-term marketable securities to cash
and cash equivalents due to the expected closing of various acquisitions as
well as other short-term cash requirements.
Our principal sources of liquidity are derived from cash generated through
operations and our cash and marketable securities on hand. We also have the
ability to generate cash through our financing arrangements under our U.S.
short-term commercial paper program and our U.S. and Canadian short-term repurchase
agreements. In addition, we have two unsecured revolving credit agreements
that allow us to borrow $4.5 billion in the aggregate. Our short-term commercial
paper program and repurchase agreements are utilized as the primary instruments
to meet short-term funding requirements related to client funds obligations.
Our revolving credit agreements, totaling $4.5 billion, are in place to provide
additional liquidity, if needed. We have never had borrowings under the current
or previous revolving credit agreements. The Company believes that the internally
generated cash flows and financing arrangements are adequate to support business
operations and capital expenditures. Cash flows generated from operations
were $266 million for the three months ended September 30, 2004. This amount
compares to cash flows from operations of $164 million in the prior year.
The increase in cash flow from operations was primarily due to the increase
in net earnings of $13 million, a decrease in receivables and other assets
of $79 million primarily due to the funding of the pension plans in the prior
year. The increase in cash generated from operations was offset by the change
in deferred income taxes of $30 million.
Cash flows provided by investing activities in the three months ended September
30, 2004 totaled $399 million compared to cash flows used in investing activities
in the prior year of $126 million. The fluctuation between periods was primarily
due to the timing of purchases and proceeds of marketable securities and client
fund money market securities, and net change in client funds obligations in
the quarter.
Cash flows used in financing activities in the three months ended September
30, 2004 totaled $275 million compared to $97 million in the prior year. The
increase in cash used in financing was primarily due to an increase in repurchases
of common stock of $170 million. We purchased 5.5 million shares of common
stock at an average price per share of $40.18 during the quarter. As of September
30, 2004, we had remaining Board of Directors' authorization to purchase up
to 22.2 million additional shares.
In June 2004, we entered into two new unsecured revolving credit agreements,
each for $2.25 billion, with certain financial institutions, replacing a previous
$4.5 billion credit agreement. The two unsecured revolving credit agreements
expire in June 2005 and June 2009, respectively. 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
borrowing. 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 unsecured commercial paper program and to provide funding for general
corporate purposes, if necessary. We had no borrowings through June 30, 2004
under the credit agreements.
We maintain a U.S. short-term commercial paper program providing for the
issuance of up to $4.5 billion in aggregate maturity value of commercial paper
at our discretion. Our commercial paper program is rated A-1+ by Standard
& Poor's and Prime 1 by Moody's. These ratings denote the highest quality
commercial paper securities. Maturities of commercial paper can range from
overnight to 270 days. We use the commercial paper issuances as a primary
instrument to meet short-term funding requirements related to client funds
obligations that occur as a result of our decision to extend maturities of
our client fund marketable securities. We also use commercial paper issuances
to fund general corporate purposes, if needed. This commercial paper program
allows us to take advantage of higher extended term yields, rather than liquidating
portions of our marketable securities, in order to provide more cost effective
liquidity to the Company. At September 30, 2004 and 2003, there was no commercial
paper outstanding. For the three months ended September 30, 2004 and 2003,
our average borrowings were $1.4 billion and $1.1 billion, respectively, at
a weighted average interest rate of 1.5% and 1.0%, respectively. The weighted
average maturity of the Company's commercial paper during the three months
ended September 30, 2004 and 2003 was less than two days for both periods.
Our U.S. and Canadian short-term funding requirements 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 up to five business days. At September 30, 2004 and 2003, there
were no outstanding repurchase agreements. For the three months ended September
30, 2004 and 2003, the Company had an average outstanding balance of $390.1
million and $7.2 million, respectively, at a weighted average interest rate
of 1.4% and 2.5%, respectively. On June 22, 2004, our Brokerage Services Group announced plans to implement
a new business process outsourcing (BPO) strategy that is intended to strengthen
its service offerings to meet the needs of a broader array of firms in the
financial services marketplace. As part of this BPO strategy, we reached an
agreement to acquire the U.S. Clearing and BrokerDealer Services divisions
of Bank of America Corporation, which provide third-party clearing operations.
The transaction closed on November 1, 2004. The acquisition of U.S. Clearing
and BrokerDealer Services enables the Company to offer traditional clearing
services to retail and institutional broker/dealers in the United States that
want to outsource their entire back-office function.
It is not our business practice to enter into off-balance sheet arrangements.
However, in the normal course of business, we do enter into contracts in which
we guarantee the performance of our products and services. There have historically
been no material losses related to such guarantees and we do not expect there
to be any in the future.
Quantitative and Qualitative Disclosures about Market Risk
During the three months ended September 30, 2004, approximately fifteen
percent of our overall investment portfolio was invested in cash and cash
equivalents, and therefore was impacted almost immediately by changes in short-term
interest rates. The other eighty-five percent of our investment portfolio
was invested in fixed-income securities, with varying maturities of less than
ten years, which were also subject to interest rate risk including reinvestment
risk. We have historically had the ability to hold these investments until
maturity.
Details regarding our corporate investments and funds held for clients portfolios
are as follows:
The return on our portfolio is impacted by interest rate changes. Factors
that influence the earnings impact of the interest rate changes include, among
others, the amount of invested funds and the overall portfolio mix between
short-term and long-term investments. This mix varies during the year and
is impacted by daily interest rate changes. A hypothetical change in both
the short-term interest rates and the long-term interest rates of 25 basis
points applied to the estimated fiscal 2005 average investment balances and
any related borrowings would result in approximately a $12.0 million impact
to interest revenues on funds held for clients and approximately an $8.0 million
impact to earnings before income taxes over a twelve-month period. A hypothetical
change in only short-term interest rates of 25 basis points applied to the
estimated fiscal 2005 average short-term investment balances and any related
short-term borrowing would result in approximately a $1.0 million impact to
earnings before income taxes over a twelve-month period.
The Company is exposed to credit risk in connection with our available-for-sale
securities through the possible inability of the borrowers to meet the terms
of the bonds. The Company limits credit risk by investing primarily in AAA
and AA rated securities, as rated by Moody's, Standard & Poor's, and Dominion
Bond Rating Service, and by limiting amounts that can be invested in any single
issuer. At September 30, 2004, approximately 95% of our available-for-sale
securities held a AAA or AA rating.
FORWARD-LOOKING INFORMATION
This report and other written or oral statements made from time to time
by ADP may contain "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Statements that are
not historical in nature and which may be identified by the use of words like
"expects," "assumes," "projects," "anticipates,"
"estimates," "we believe," "could be" and other
words of similar meaning, are forward-looking statements. These statements
are based on management's expectations and assumptions and are subject to
risks and uncertainties that may cause actual results to differ materially
from those expressed. Factors that could cause actual results to differ materially
from those contemplated by the forward-looking statements include: ADP's success
in obtaining, retaining and selling additional services to clients; the pricing
of products and services; changes in laws regulating payroll taxes, professional
employer organizations and employee benefits; overall market and economic
conditions, including interest rate and foreign currency trends; competitive
conditions; stock market activity; auto sales and related industry changes;
employment and wage levels; changes in technology; availability of skilled
technical associates and the impact of new acquisitions and divestitures.
ADP disclaims any obligation to update any forward-looking statements, whether
as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is provided under the caption "Quantitative
and Qualitative Disclosures about Market Risk" under Item 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Item 4. Controls and Procedures
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Company's
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities and Exchange Act of 1934. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures as of September 30, 2004 were
effective to ensure that information required to be disclosed by the Company
in reports that it files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission's rules and forms.
There were no changes in the Company's internal control over financial reporting
that occurred during the quarter ended September 30, 2004 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Except as noted below, all other items are either inapplicable or would
result in negative responses and, therefore, have been omitted.
(1) In March 2001, the Registrant received the Board of Directors' approval
to repurchase up to 50 million shares of the Registrant's common stock. In
November 2002, the Registrant received the Board of Directors' approval to
repurchase an additional 35 million shares of the Registrant's common stock.
There is no expiration date for the common stock repurchase plan.
(2) During fiscal 2005, pursuant to the terms of the Registrant's restricted
stock program, the Registrant (i) made repurchases of 3,451 shares during
July 2004, 2,228 shares during August 2004 and 3,352 shares during September
2004 at the then market value of the shares in connection with the exercise
by employees of their option under such program to satisfy certain tax withholding
requirements through the delivery of shares to the Registrant instead of cash
and (ii) made purchases of 26,000 shares during July 2004 and 1,807 shares
during August 2004 at a price of $.10 per share under the terms of such program
to repurchase stock granted to employees who have left the Registrant.
(3) The average price per share does not include the repurchases described
in clause (ii) of the preceding footnote.
31.1 Certification by Arthur F. Weinbach pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934
31.2 Certification by Karen E. Dykstra pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934
32.1 Certification by Arthur F. Weinbach pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification by Karen E. Dykstra pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Automatic Data Processing, Inc. and Subsidiaries Consolidated Statements of
Earnings
Three Months Ended
September 30,
-------------------------
2004 2003
---------- ----------
REVENUES:
Revenues other than interest on funds
held for clients and PEO revenues $1,644,533 $1,532,389
Interest on funds held for clients 84,663 82,934
PEO revenues (A) 125,486 104,954
---------- ----------
TOTAL REVENUES 1,854,682 1,720,277
---------- ----------
EXPENSES:
Operating expenses 867,020 794,241
Selling, general and administrative
expenses 446,158 426,878
Systems development and programming costs 148,724 131,754
Depreciation and amortization 74,421 74,726
Other income, net (12,581) (18,592)
---------- ----------
TOTAL EXPENSES 1,523,742 1,409,007
---------- ----------
EARNINGS BEFORE INCOME TAXES 330,940 311,270
Provision for income taxes 122,779 116,420
---------- ----------
NET EARNINGS $ 208,161 $ 194,850
========== ==========
BASIC EARNINGS PER SHARE $ 0.36 $ 0.33
========== ==========
DILUTED EARNINGS PER SHARE $ 0.35 $ 0.32
========== ==========
Basic average shares outstanding 583,551 594,843
========== ==========
Diluted average shares outstanding 589,952 600,849
========== ==========
Dividends per common share $ 0.1400 $ 0.1200
========== ==========
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
September 30, June 30,
2004 2004
----------- -----------
Assets
------
Current Assets:
Cash and cash equivalents $ 1,103,525 $ 712,998
Short-term marketable securities 333,335 416,077
Accounts receivable, net 986,292 1,057,938
Other current assets 605,381 574,576
----------- -----------
Total current assets 3,028,533 2,761,589
Long-term marketable securities 587,887 963,501
Long-term receivables 200,667 196,828
Property, plant and equipment, net 645,204 642,353
Other assets 735,064 720,936
Goodwill 2,217,787 2,195,539
Intangible assets, net 720,186 736,281
----------- -----------
Total assets before funds held for clients 8,135,328 8,217,027
Funds held for clients 15,652,150 12,903,532
----------- -----------
Total assets $23,787,478 $21,120,559
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 128,514 $ 175,175
Accrued expenses and other current liabilities 1,354,476 1,482,703
Income taxes payable 176,943 110,546
----------- -----------
Total current liabilities 1,659,933 1,768,424
Long-term debt 76,508 76,200
Other liabilities 340,313 319,495
Deferred income taxes 323,950 283,781
Deferred revenue 439,065 414,764
----------- -----------
Total liabilities before client funds
obligations 2,839,769 2,862,664
Client funds obligations 15,534,175 12,840,225
----------- -----------
Total liabilities 18,373,944 15,702,889
Stockholders' equity:
Preferred stock, $1.00 par value:
authorized 300 shares, issued, none - -
Common stock, $0.10 par value:
authorized 1,000,000 shares; issued 638,702
shares 63,870 63,870
Capital in excess of par value 62,710 79,646
Retained earnings 7,453,521 7,326,918
Treasury stock - at cost: 56,165 and 44,264,
respectively (2,205,476) (2,033,254)
Accumulated other comprehensive income (loss) 38,909 (19,510)
----------- -----------
Total stockholders' equity 5,413,534 5,417,670
----------- -----------
Total liabilities and stockholders' equity $23,787,478 $21,120,559
=========== ===========
See notes to the consolidated financial statements.
(Unaudited)
Three Months Ended
September 30,
------------------------
2004 2003
Cash Flows From Operating Activities:
-------------------------------------
Net earnings $ 208,161 $ 194,850
Adjustments to reconcile net earnings to net cash
flows provided by operating activities:
Depreciation and amortization 74,421 74,726
Deferred income taxes 26,822 56,868
Amortization of premiums and discounts on
available-for-sale securities 33,521 27,425
Other 29,459 1,374
Changes in operating assets and liabilities, net of
effects from acquisitions of businesses:
Decrease (increase) in receivables and other
assets 14,835 (64,138)
Decrease in accounts payable and accrued
expenses (121,000) (126,785)
---------- -----------
Net cash flows provided by operating activities 266,219 164,320
---------- -----------
Cash Flows From Investing Activities:
-------------------------------------
Purchases of marketable securities (1,663,453) (1,440,879)
Proceeds from the sale or maturity of marketable
securities 1,912,278 910,078
Net proceeds from client fund money
market securities (2,482,023) 1,315,541
Net change in client funds obligations 2,693,950 (855,846)
Capital expenditures (42,486) (37,731)
Additions to intangibles (20,595) (20,047)
Acquisitions of businesses, net of cash acquired (777) (645)
Other 2,450 3,902
---------- -----------
Net cash flows provided by (used in) investing
activities 399,344 (125,627)
---------- -----------
Cash Flows From Financing Activities:
-------------------------------------
Payments of debt (306) (441)
Proceeds from issuance of notes 119 109
Repurchases of common stock (234,674) (64,332)
Proceeds from stock purchase plan and exercises
of stock options 42,307 38,772
Dividends paid (82,482) (71,308)
---------- -----------
Net cash flows used in financing activities (275,036) (97,200)
---------- -----------
Net change in cash and cash equivalents 390,527 (58,507)
Cash and cash equivalents, at beginning of period 712,998 1,410,218
---------- -----------
Cash and cash equivalents, at end of period $1,103,525 $ 1,351,711
========== ===========
Notes to the Consolidated Financial Statements
Note 2. Earnings Per Share (EPS)
For the three months ended September 30,
----------------------------------------------------
2004 2003
----------------------- ------------------------
Net Average Net Average
Earnings Shares EPS Earnings Shares EPS
-------- ------- --- -------- ------- ---
Basic $208,161 583,551 $0.36 $194,850 594,843 $0.33
Effect of zero coupon
subordinated notes 265 1,235 327 1,606
Effect of stock
options - 5,166 - 4,400
-------- ------- -------- -------
Diluted $208,426 589,952 $0.35 $195,177 600,849 $0.32
======== ======= ===== ======== ======= =====
Three Months Ended
September 30,
2004 2003
-------- --------
Net earnings, as reported $208,161 $194,850
Add: Stock-based employee compensation
expense for restricted stock included
in reported net earnings, net of
related tax effects 2,175 1,817
Deduct: Total stock-based employee
compensation expense determined
using the fair value-based method
for all awards, net of related
tax effects (33,455) (28,901)
-------- --------
Pro forma net earnings $176,881 $167,766
======== ========
Earnings per share:
Basic - as reported $0.36 $0.33
===== =====
Basic - pro forma $0.30 $0.28
===== =====
Diluted - as reported $0.35 $0.32
===== =====
Diluted - pro forma $0.30 $0.28
===== =====
Note 4. Other Income, net
Three Months Ended
September 30,
2004 2003
-------- --------
Interest income on corporate
funds $(25,870) $(22,100)
Interest expense 8,108 4,651
Realized gains on available-
for-sale securities (2,603) (3,260)
Realized losses on available-
for-sale securities 7,784 2,117
-------- --------
Other income, net $(12,581) $(18,592)
======== ========
Three Months Ended
September 30,
2004 2003
-------- --------
Net earnings $208,161 $194,850
Other comprehensive income:
Foreign currency translation
adjustments 20,099 (63,658)
Unrealized net gain (loss) on
available-for-sale securities 38,320 (47,042)
-------- --------
Comprehensive income $266,580 $ 84,150
======== ========
Segment Results (In millions):
Revenues
-------------------
Three Months Ended
September 30,
-------------------
2004 2003
------ ------
Employer Services $1,176 $1,111
Brokerage Services 331 314
Dealer Services 238 211
Other 121 110
Reconciling items:
Foreign exchange 19 (5)
Client fund interest (30) (21)
------ ------
Total revenues $1,855 $1,720
====== ======
Earnings Before
Income Taxes
------------------
Three Months Ended
September 30,
------------------
2004 2003
------ ------
Employer Services $ 219 $ 207
Brokerage Services 39 20
Dealer Services 35 32
Other 31 40
Reconciling items:
Foreign exchange 3 -
Client fund interest (30) (21)
Cost of capital
charge 34 33
------ ------
Total earnings before
income taxes $ 331 $ 311
====== ======
Note 7. Corporate Investments and Funds Held for Clients
September 30, 2004 June 30, 2004
------------------------ -----------------------
Cost Fair Value Cost Fair Value
----------- ----------- ---------- ----------
Type of issue:
Money market securities
and other cash
equivalents $ 5,691,728 $ 5,691,728 $ 2,903,284 $ 2,903,284
Available-for-sale
securities:
U.S. Treasury and direct
obligations of U.S.
government agencies 5,660,786 5,723,735 5,449,694 5,485,632
Asset backed securities 2,302,372 2,321,060 2,570,424 2,580,609
Corporate bonds 2,228,423 2,240,904 2,342,017 2,341,015
Canadian government
obligations and Canadian
government agency
obligations 790,617 803,004 765,908 774,877
Other debt securities 876,770 887,285 899,216 900,550
Other equity securities 5,696 9,181 5,696 10,141
---------- ----------- ----------- -----------
Total available-for-sale
securities 11,864,664 11,985,169 12,032,955 12,092,824
----------- ----------- ----------- -----------
Total corporate investments
and funds held for
clients $17,556,392 $17,676,897 $14,936,239 $14,996,108
=========== =========== =========== ===========
Classification of
investments on the
Consolidated Balance
Sheets
Corporate investments $ 2,022,217 $ 2,024,747 $ 2,096,014 $ 2,092,576
Funds held for clients 15,534,175 15,652,150 12,840,225 12,903,532
----------- ----------- ----------- -----------
Total corporate investments
and funds held for
clients $17,556,392 $17,676,897 $14,936,239 $14,996,108
=========== ========== =========== ===========
Gross Gross Unrealized
unrealized gains unrealized losses gains, net
---------------- ----------------- ----------
September 30, 2004 $144,551 $(24,046) $120,505
June 30, 2004 $125,585 $(65,716) $ 59,869
Note 8. Goodwill and Intangible Assets, net
Employer Brokerage Dealer
Services Services Services Other Total
---------- -------- -------- -------- -----
Balance as of
June 30, 2004 $1,314,579 $366,299 $324,111 $190,550 $2,195,539
Additions 777 - 671 16,176 17,624
Cumulative
translation
adjustments 3,746 150 142 586 4,624
---------- --------- -------- -------- ----------
Balance as of
September 30, 2004 $1,319,102 $366,449 $324,924 $207,312 $2,217,787
========== ======== ======== ======== ==========
September 30, June 30,
2004 2004
---------- ----------
Intangible assets:
Software and software licenses $ 751,965 $ 729,399
Customer contracts and lists 599,067 594,841
Other 387,680 391,906
---------- ----------
1,738,712 1,716,146
Less accumulated amortization (1,018,526) (979,865)
---------- ----------
Intangible assets, net $ 720,186 $ 736,281
========== ==========
Amount
--------
2005 $112,702
2006 $121,415
2007 $ 97,361
2008 $ 75,793
2009 $ 46,133
2010 $ 40,227
Three months ended
September 30
---------------------
2004 2003
-------- --------
Service Cost- benefits
earned during the period $ 7,383 $ 5,743
Interest cost on projected
benefits 9,430 8,422
Expected return on plan
assets (13,045) (12,624)
Net amortization and
deferral 2,779 2,549
-------- --------
Net pension expense $ 6,547 $ 4,090
======== ========
Results Of Operations
Three Months Ended
September 30,
-----------------------
2004 2003 Change
---- ---- ------
Total revenues $1,855 $1,720 8%
-----------------------
Total expenses $1,524 $1,409 8%
-----------------------
Earnings before income
taxes $ 331 $ 311 6%
Margin 17.8% 18.1%
----------------------
Provision for income
taxes $ 123 $ 116 5%
Effective tax rate 37.1% 37.4%
----------------------
Net earnings $ 208 $ 195 7%
Diluted earnings per
share $ 0.35 $ 0.32 9%
----------------------
Revenues
(In millions)
Three Months Ended
September 30,
------------------------
2004 2003 Change
------ ------ ------
Employer Services $1,176 $1,111 6%
Brokerage Services 331 314 6%
Dealer Services 238 211 13%
Other 121 110 10%
Reconciling items:
Foreign exchange 19 (5)
Client fund interest (30) (21)
------ ------
Total revenues $1,855 $1,720 8%
====== ======
Earnings Before Income Taxes
(In millions)
Three Months Ended
September 30,
---------------------
2004 2003 Change
---- ---- ------
Employer Services $219 $207 6%
Brokerage Services 39 20 94%
Dealer Services 35 32 8%
Other 31 40 (23%)
Reconciling items:
Foreign exchange 3 -
Client fund interest (30) (21)
Cost of capital charge 34 33
---- ----
Total earnings before
income taxes $331 $311 6%
==== ====
Employer Services
Earnings Before Income Taxes
Earnings Before Income Taxes
For the three months ended September 30, 2004, capital expenditures were $42
million. Capital expenditures for fiscal 2005 are expected to be approximately
$225 to $245 million compared to $204 million in fiscal 2004.
Three Months Ended
(In millions) September 30,
---------------------
2004 2003
---- ----
Average investment balances at cost:
Corporate investments $ 3,811.9 $ 3,307.2
Funds held for clients 10,227.1 9,277.7
--------- ---------
Total $14,039.0 $12,584.9
========= =========
Average interest rates earned
exclusive of realized gains/
(losses) on corporate investments
and funds held for clients 3.2% 3.4%
Realized gains on available-
for-sale securities $ 2.6 $ 3.2
Realized losses on available-
for-sale securities (7.8) (2.1)
--------- ---------
Net realized (losses) gains $ (5.2) $ 1.1
========= =========
September 30, June 30,
2004 2004
----------------------
Net unrealized pre-tax gains on
available-for-sale securities $ 120.5 $ 59.9
Total available-for-sale securities $11,985.2 $12,092.8
Item 2. Changes in Securities and Use of Proceeds.
Issuer Purchases of Equity Securitites
(a) (b) (c) (d)
Total Number of
Shares Purchased Maximum Number
as Part of the of Shares that
Publicly may yet be
Announced Purchased under
Total Number Average Price Common Stock the Common Stock
of Shares Paid per Repurchase Repurchase
Period Purchased Share (3) Plan (1) Plan (1)
------ --------- --------- -------- --------
July 1, 2004 to
July 31, 2004 1,829,451 $40.93 1,800,000 25,878,800
August 1, 2004
to August 31,
2004 3,411,735 $39.74 3,407,700 22,471,100
September 1,
2004 to
September 30,
2004 247,652 $40.74 244,300 22,226,800
--------- ---------
Total 5,488,838(2) 5,452,000
Item 6. Exhibits.
Exhibit Number Exhibit
-------------- --------
Date: November 4, 2004 /s/ Karen E. Dykstra
---------------------
Karen E. Dykstra
AUTOMATIC DATA PROCESSING, INC. (the "Company"), pursuant to the 2000 Stock Option Plan (the "Plan"), hereby irrevocably grants to <<FirstName>> <<LastName>>, (the "Participant"), on <<Date>> the right and option to purchase <<Shares>> shares of the Common Stock of the Company on the following terms and conditions:
1. The option herein granted shall become exercisable in whole or in part as follows:
(a) Exercisable as to <<Vesting1>> shares on and after <<Date1>>; (b) Exercisable as to an additional <<Vesting2>> shares on and after <<Date2>>; (c) Exercisable as to an additional <<Vesting3>> shares on and after <<Date3>>; (d) Exercisable as to an additional <<Vesting4>> shares on and after <<Date4>>; (e) Exercisable in its entirety on and after <<Date5>>; and (f) Exercisable in full (i) upon the death of the Participant, or (ii) in the event of total and permanent disability of the Participant.
(g) Notwithstanding the foregoing, no shares shall become exercisable following termination of the Participant's employment from the Company or any of its subsidiaries (and no shares shall become exercisable following the Company's sale of the subsidiary, or the Company's or a subsidiary's sale of the division or business unit, that employs such Participant).
2. The unexercised portion of the option herein granted shall automatically and without notice terminate and become null and void at the time of the earliest of the following to occur:
(a) the expiration of ten years from the date on which the option was granted;
(b) the expiration of 60 days from the date of termination of the Participant's employment from the Company (including in connection with the sale of the subsidiary, division or business unit that employs such Participant) or any of its subsidiaries; provided, however, that (i) if the Participant's employment from the Company or any of its subsidiaries terminates because of total and permanent disability, the provisions of sub-paragraph (c) shall apply, (ii) if the Participant shall die during employment by the Company or any of its subsidiaries or during the 60-day period following the date of termination of such employment, the provisions of sub-paragraph (d) below shall apply, and (iii) (I) if the Participant shall retire (and satisfy the Company's criteria for retirement at such time) from the Company or any of its subsidiaries, divisions or business units, as the case may be, (II) shall be at least 55 years of age at the time of such retirement and (III) (x) shall have at least ten credited years of service with the Company and its subsidiaries at the time of such retirement, the provisions of sub-paragraph (e) below shall apply, or (y) shall have at least five (but less than ten) credited years of service with the Company and its subsidiaries at the time of such retirement, the provisions of sub-paragraph (f) below shall apply;
(c) if Section 2(b)(i) applies, the expiration of twelve months after termination of Participant's employment from the Company or any of its subsidiaries because of total and permanent disability; provided, however, that if such Participant shall die during such twelve month period, then the unexercised portion shall become null and void on the earlier of (i) six months after the appointment and qualification of the executor or administrator of the Participant, or (ii) twelve months after death of the Participant;
(d) if Section 2(b)(ii) applies, the expiration of (i) six months after the appointment and qualification of the executor or administrator of the Participant, or (ii) twelve months after death of the Participant, whichever occurs earlier;
(e) if Section 2(b)(iii)(x) applies, the expiration of 36 months after the retirement of Participant; provided, however, that if such Participant shall die during the 36 month period following the date of such Participant's retirement, then the unexercised portion shall become null and void on the later of (i) the expiration of 36 months after the retirement of Participant and (ii) the earlier of (I) six months after the appointment and qualification of the executor or administrator of the Participant, or (II) twelve months after death of the Participant; and
(f) if Section 2(b)(iii)(y) applies, the expiration of 12 months after the retirement of Participant; provided, however, that if such Participant shall die during the 12 month period following the date of such Participant's retirement, then the unexercised portion shall become null and void on the later of (i) the expiration of 12 months after the retirement of Participant and (ii) the earlier of (I) six months after the appointment and qualification of the executor or administrator of the Participant, or (II) twelve months after death of the Participant.
3. For the avoidance of doubt, and notwithstanding any provision (or interpretation) of Section 2 to the contrary, the unexercised portion of the option herein granted shall automatically and without notice terminate and become null and void upon the expiration of ten years from the date on which the option was granted.
4. The full price for each of the shares purchased pursuant to the option granted herein shall be <<Share Price>>.
5. Full payment for shares purchased by the Participant shall be made at the time of the exercise of the option in whole or in part, and certificates for such shares, when appropriate, shall be delivered to the Participant promptly thereafter. No shares shall be transferred to the Participant until full payment therefore has been made and the Participant shall have none of the rights of a shareholder with respect to any shares subject to this option until a certificate for such shares shall have been issued.
6. The option herein granted is non-assignable and non-transferable, other than by will or by the laws of descent and distribution, and during the Participant's lifetime shall be exercisable only by the Participant.
7. In the event of one or more stock splits, stock dividends, stock changes, reclassifications, recapitalizations or combinations of shares prior to complete exercise of the option herein granted which change the character or amount of the shares subject to the option, this option to the extent that it shall not have been exercised, shall entitle the Participant or the Participant's executors or administrators to receive in substitution such number and kind of shares as he, she or they would have been entitled to receive if the Participant or the Participant's executors or administrators had actually owned the shares subject to this option at the time of the occurrence of such change; provided, however that if the change is of such nature that the Participant or the Participant's executors or administrators, upon exercise of the option, would receive property other than shares of stock, then the Board of Directors shall adjust the option so that he, she or they shall acquire only shares of stock upon exercise, making such adjustment in the number and kind of shares to be received as the Board shall, in its sole judgment, deem equitable.
8. The effectiveness of the option granted hereunder is conditioned upon (i) the Participant having executed and delivered to the Company in connection with previous stock option grants a restrictive covenant, or (ii) the execution and delivery by the Participant of the restrictive covenant enclosed herewith. If the Participant has not previously executed and delivered to the Company a restrictive covenant, the Participant must sign the enclosed restrictive covenants and return one to ADP, 1 ADP Boulevard, Roseland, New Jersey 07068, Attention Stock Option Group, within six months from the date of this option. If the Company does not receive the signed restrictive covenant within such six-month period, this option grant shall be terminable by the Company.
9. It is understood and agreed that this option has been granted pursuant to the Plan adopted by the Board of Directors and stockholders of the Company, which shall be governed by, and construed in accordance with, the laws of the State of New Jersey.
AUTOMATIC DATA PROCESSING, INC. (the "Company"), pursuant to the 2000 Stock Option Plan (the "Plan"), hereby irrevocably grants to <<FirstName>> <<LastName>>, (the "Participant"), on <<Date>> the right and option to purchase <<Shares>> shares of the Common Stock of the Company on the following terms and conditions:
1) The option herein granted shall become exercisable in whole or in part as follows:
a) Exercisable as to <<Vesting1>> shares on and after <<Date1>>; b) Exercisable as to an additional <<Vesting2>> shares on and after <<Date2>>; c) Exercisable as to an additional <<Vesting3>> shares on and after <<Date3>>; d) Exercisable as to an additional <<Vesting4>> shares on and after <<Date4>>; e) Exercisable in its entirety on and after <<Date5>>; and f) Exercisable in full (i) upon the death of the Participant, or (ii) in the event of total and permanent disability of the Participant.
g) Notwithstanding the foregoing, no shares shall become exercisable following termination of the Participant's employment from the Company or any of its subsidiaries (and no shares shall become exercisable following the Company's sale of the subsidiary, or the Company's or a subsidiary's sale of the division or business unit, that employs such Participant).
2) The unexercised portion of the option herein granted shall automatically and without notice terminate and become null and void at the time of the earliest of the following to occur:
a) the expiration of ten years from the date on which the option was granted; b) the expiration of 60 days from the date of termination of the |
c) if Section 2(b)(i) applies, the expiration of twelve months after termination of Participant's employment from the Company or any of its subsidiaries because of total and permanent disability; provided, however, that if such Participant shall die during such twelve month period, then the unexercised portion shall become null and void on the expiration of six months after death of the Participant;
d) if Section 2(b)(ii) applies, the expiration of six months after death of the Participant;
e) if Section 2(b)(iii)(x) applies, the expiration of 36 months after the retirement of Participant; provided, however, that if such Participant shall die during the 36 month period following the date of such Participant's retirement, then the unexercised portion shall become null and void on the expiration of six months after death of the Participant; and
f) if Section 2(b)(iii)(y) applies, the expiration of 12 months after the retirement of Participant; provided, however, that if such Participant shall die during the 12 month period following the date of such Participant's retirement, then the unexercised portion shall become null and void on the expiration of six months after death of the Participant.
3) For the avoidance of doubt, and notwithstanding any provision (or interpretation) of Section 2 to the contrary, the unexercised portion of the option herein granted shall automatically and without notice terminate and become null and void upon the expiration of ten years from the date on which the option was granted.
4) The full price for each of the shares purchased pursuant to the option granted herein shall be <<Share Price>>.
5) Full payment for shares purchased by the Participant shall be made at the time of the exercise of the option in whole or in part, and certificates for such shares, when appropriate, shall be delivered to the Participant promptly thereafter. No shares shall be transferred to the Participant until full payment therefore has been made and the Participant shall have none of the rights of a shareholder with respect to any shares subject to this option until a certificate for such shares shall have been issued.
6) The option herein granted is non-assignable and non-transferable, other than by will or by the laws of descent and distribution, and during the Participant's lifetime shall be exercisable only by the Participant.
7) In the event of one or more stock splits, stock dividends, stock changes, reclassifications, recapitalizations or combinations of shares prior to complete exercise of the option herein granted which change the character or amount of the shares subject to the option, this option to the extent that it shall not have been exercised, shall entitle the Participant or the Participant's executors or administrators to receive in substitution such number and kind of shares as he, she or they would have been entitled to receive if the Participant or the Participant's executors or administrators had actually owned the shares subject to this option at the time of the occurrence of such change; provided, however that if the change is of such nature that the Participant or the Participant's executors or administrators, upon exercise of the option, would receive property other than shares of stock, then the Board of Directors shall adjust the option so that he, she or they shall acquire only shares of stock upon exercise, making such adjustment in the number and kind of shares to be received as the Board shall, in its sole judgment, deem equitable.
8) The effectiveness of the option granted hereunder is conditioned upon (i) the Participant having executed and delivered to the Company in connection with previous stock option grants a restrictive covenant, or (ii) the execution and delivery by the Participant of the restrictive covenant enclosed herewith. If the Participant has not previously executed and delivered to the Company a restrictive covenant, the Participant must sign the enclosed restrictive covenants and return one to ADP, 1 ADP Boulevard, Roseland, New Jersey 07068, Attention Stock Option Group, within six months from the date of this option. If the Company does not receive the signed restrictive covenant within such six-month period, this option grant shall be terminable by the Company.
9) It is understood and agreed that this option has been granted pursuant to the Plan adopted by the Board of Directors and stockholders of the Company, which shall be governed by, and construed in accordance with, the laws of the State of New Jersey.
AUTOMATIC DATA PROCESSING, INC. (the "Company"), pursuant to the 2000 Stock Option Plan (the "Plan"), hereby irrevocably grants to <<FirstName>> <<LastName>>, (the "Participant"), on <<Date>> the right and option to purchase <<Shares>> shares of the Common Stock of the Company on the following terms and conditions:
1. The option herein granted shall become exercisable in whole or in part as follows:
a. Exercisable as to <<Vesting1>> shares on and after <<Date1>>; b. Exercisable as to an additional <<Vesting2>> shares on and after <<Date2>>; c. Exercisable as to an additional <<Vesting3>> shares on and after <<Date3>>; d. Exercisable as to an additional <<Vesting4>> shares on and after <<Date4>>; e. Exercisable in its entirety on the earlier of (i) on and after <<Date5>> and (ii) the date such Participant retires from the Company's Board of Directors, but only if the Accelerated Vesting Criteria (as defined in Section 8 hereof) is satisfied at the time of such retirement; and
f. Exercisable in full (i) upon the death of the Participant, or (ii) in the event of total and permanent disability of the Participant.
g. Except as specifically set forth in Section 1(e) above, no shares shall become exercisable following the cessation of the Participant's membership on the Company's Board of Directors.
2. The unexercised portion of the option herein granted shall automatically and without notice terminate and become null and void at the time of the earliest of the following to occur:
a. the expiration of ten years from the date on which the option was granted;
b. the expiration of 60 days from the date the Participant ceases to be a member of the Company's Board of Directors; provided, however, that (i) if the Participant ceases to be a member of the Company's Board of Directors because of total and permanent disability, the provisions of sub-paragraph (c) shall apply, (ii) if the Participant shall die while a member of the Company's Board of Directors or during the 60-day period following the date the Participant ceases to be a member of the Company's Board of Directors, the provisions of sub-paragraph (d) below shall apply, and (iii) if the Participant shall retire from the Company's Board of Directors, and shall have been a member of the Company's Board of Directors for at least ten years at the time of such retirement, the provisions of sub-paragraph (e) below shall apply;
c. if Section 2(b)(i) applies, the expiration of twelve months after the date the Participant ceases to be a member of the Company's Board of Directors because of total and permanent disability; provided, however, that if such Participant shall die during such twelve month period, then the unexercised portion shall become null and void on the earlier of (i) six months after the appointment and qualification of the executor or administrator of the Participant, or (ii) twelve months after death of the Participant;
d. if Section 2(b)(ii) applies, the expiration of (i) six months after the appointment and qualification of the executor or administrator of the Participant, or (ii) twelve months after death of the Participant, whichever occurs earlier; and
e. if Section 2(b)(iii) applies, the expiration of 36 months after the retirement of the Participant from the Company's Board of Directors; provided, however, that if such Participant shall die during the 36 month period following the date of such Participant's retirement, then the unexercised portion shall become null and void on the later of (i) the expiration of 36 months after the retirement of Participant and (ii) the earlier of (I) six months after the appointment and qualification of the executor or administrator of the Participant, or (II) twelve months after death of the Participant.
3. For the avoidance of doubt, and notwithstanding any provision (or interpretation) of Section 2 to the contrary, the unexercised portion of the option herein granted shall automatically and without notice terminate and become null and void upon the expiration of ten years from the date on which the option was granted.
4. The full price for each of the shares purchased pursuant to the option granted herein shall be <<Share Price>>.
5. Full payment for shares purchased by the Participant shall be made at the time of the exercise of the option in whole or in part, and certificates for such shares, when appropriate, shall be delivered to the Participant promptly thereafter. No shares shall be transferred to the Participant until full payment therefore has been made and the Participant shall have none of the rights of a shareholder with respect to any shares subject to this option until a certificate for such shares shall have been issued.
6. The option herein granted is non-assignable and non-transferable, other than by will or by the laws of descent and distribution, and during the Participant's lifetime shall be exercisable only by the Participant.
7. In the event of one or more stock splits, stock dividends, stock changes, reclassifications, recapitalizations or combinations of shares prior to complete exercise of the option herein granted which change the character or amount of the shares subject to the option, this option to the extent that it shall not have been exercised, shall entitle the Participant or the Participant's executors or administrators to receive in substitution such number and kind of shares as he, she or they would have been entitled to receive if the Participant or the Participant's executors or administrators had actually owned the shares subject to this option at the time of the occurrence of such change; provided, however that if the change is of such nature that the Participant or the Participant's executors or administrators, upon exercise of the option, would receive property other than shares of stock, then the Board of Directors shall adjust the option so that he, she or they shall acquire only shares of stock upon exercise, making such adjustment in the number and kind of shares to be received as the Board shall, in its sole judgment, deem equitable.
8. As used herein, the term "Accelerated Vesting Criteria" means retirement from the Company's Board of Directors and, at the time of such retirement, having been a member of the Company's Board of Directors for at least ten years.
9. It is understood and agreed that this option has been granted pursuant to the Plan adopted by the Board of Directors and stockholders of the Company, which shall be governed by, and construed in accordance with, the laws of the State of New Jersey.
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Arthur F. Weinbach, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Automatic Data Processing, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 4, 2004 /s/ Arthur F. Weinbach ----------------------- Arthur F. Weinbach Chairman and Chief Executive Officer |
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Karen E. Dykstra, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Automatic Data Processing, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 4, 2004 /s/ Karen E. Dykstra ----------------------- Karen E. Dykstra Chief Financial Officer |
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Automatic Data Processing, Inc. (the "Company") on Form 10-Q for the fiscal quarter ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Arthur F. Weinbach, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Arthur F. Weinbach ----------------------- Arthur F. Weinbach Chairman and Chief Executive Officer November 4, 2004 |
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Automatic Data Processing, Inc. (the "Company") on Form 10-Q for the fiscal quarter ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Karen E. Dykstra, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Karen E. Dykstra ----------------------- Karen E. Dykstra Chief Financial Officer November 4, 2004 |