Delaware 22-1467904 ----------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One ADP Boulevard, Roseland, New Jersey 07068 ----------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) |
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 December 31, 2003 there were 589,910,642 common shares outstanding.
ITEM 1. FINANCIAL STATEMENTS
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ----------------------
REVENUES: 2003 2002 2003 2002
---- ---- ---- ----
Revenues, other than interest
on funds held for clients
and PEO revenues $1,636,333 $1,510,396 $3,168,722 $2,986,820
Interest on funds held for
clients 82,202 87,762 165,136 177,627
PEO revenues (A) 108,865 84,837 213,819 165,233
---------- ---------- ---------- ----------
TOTAL REVENUES 1,827,400 1,682,995 3,547,677 3,329,680
---------- ---------- ---------- ----------
EXPENSES:
Operating expenses 810,300 702,716 1,604,541 1,411,184
Selling, general, and
administrative expenses 459,293 402,005 886,171 849,958
Systems development and
programming costs 133,125 121,380 264,879 241,278
Depreciation and amortization 73,609 68,699 148,335 136,383
Other income, net (14,067) (35,255) (32,659) (72,973)
---------- ---------- ---------- ----------
TOTAL EXPENSES 1,462,260 1,259,545 2,871,267 2,565,830
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 365,140 423,450 676,410 763,850
Provision for income taxes 136,560 161,760 252,980 291,760
---------- ---------- ---------- ----------
NET EARNINGS $ 228,580 $ 261,690 $ 423,430 $ 472,090
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ 0.39 $ 0.44 $ 0.71 $ 0.78
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ 0.38 $ 0.43 $ 0.71 $ 0.78
========== ========== ========== ==========
Basic average shares
outstanding 591,685 598,064 593,264 602,418
========== ========== ========== ==========
Diluted average shares
outstanding 597,624 604,791 599,242 608,783
========== ========== ========== ==========
Dividends per common share $ 0.1400 $ 0.1200 $ 0.2600 $ 0.2350
========== ========== ========== ==========
|
(A) Net of pass-through costs of $1,037,864 and $873,488 for the three months ended December 31, 2003 and 2002, respectively, and $1,949,433 and $1,636,867 for the six months ended December 31, 2003 and 2002, respectively.
See notes to the consolidated financial statements.
(Unaudited)
December 31, June 30,
2003 2003
------------- ------------
Assets
------
Current assets:
Cash and cash equivalents $ 835,630 $ 1,410,218
Short-term marketable securities 559,161 595,166
Accounts receivable, net 982,726 1,005,833
Other current assets 568,735 664,284
----------- ------------
Total current assets 2,946,252 3,675,501
Long-term marketable securities 854,481 338,959
Long-term receivables 172,875 180,354
Property, plant and equipment, net 607,336 614,701
Other assets 680,751 565,385
Goodwill 1,980,189 1,981,131
Intangible assets, net 654,499 669,891
----------- ------------
Total assets before funds held for clients 7,896,383 8,025,922
Funds held for clients 16,803,740 11,807,749
----------- ------------
Total assets $24,700,123 $ 19,833,671
=========== ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 137,802 $ 173,988
Accrued expenses and other liabilities 1,309,740 1,609,665
Income taxes payable 217,754 215,130
----------- ------------
Total current liabilities 1,665,296 1,998,783
Long-term debt 84,585 84,674
Other liabilities 318,938 270,267
Deferred income taxes 262,401 320,796
Deferred revenues 420,098 338,763
----------- ------------
Total liabilities before client funds
obligations 2,751,318 3,013,283
Client funds obligations 16,574,392 11,448,915
----------- ------------
Total liabilities 19,325,710 14,462,198
Shareholders' equity:
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 166,870 211,339
Retained earnings 6,982,368 6,710,863
Treasury stock, at cost: 48,792 and 43,863
shares, respectively (1,940,489) (1,773,418)
Accumulated other comprehensive income 101,794 158,819
----------- ------------
Total shareholders' equity 5,374,413 5,371,473
----------- ------------
Total liabilities and shareholders' equity $24,700,123 $ 19,833,671
=========== ============
|
See notes to the consolidated financial statements.
Six Months Ended
December 31,
2003 2002
---------- ----------
Cash Flows from Operating Activities:
-------------------------------------
Net earnings $ 423,430 $ 472,090
Adjustments to reconcile net earnings to net cash
flows provided by operating activities:
Expenses not requiring outlay of cash 287,813 170,481
Changes in operating net assets (154,701) (26,159)
---------- ----------
Net cash flows provided by operating activities 556,542 616,412
---------- ----------
Cash Flows from Investing Activities:
-------------------------------------
Purchases of marketable securities (3,574,698) (1,697,556)
Proceeds from sale of marketable securities 2,741,261 2,095,677
Net purchases of client fund money market
securities (4,965,783) (618,834)
Net change in client funds obligations 5,125,477 710,534
Capital expenditures (78,017) (56,936)
Additions to intangibles (45,247) (44,396)
Acquisitions of businesses, net of cash acquired (2,363) (38,928)
Proceeds from sale of businesses 2,049 -
Other 5,308 3,616
---------- ----------
Net cash flows (used in) provided by
investing activities (792,013) 353,177
---------- ----------
Cash Flows from Financing Activities:
-------------------------------------
Proceeds from short-term borrowings 217 766
Payments of debt (985) (826)
Proceeds from stock purchase plan and exercises
of stock options 75,259 64,419
Repurchases of common stock (270,602) (719,840)
Dividends paid (143,006) (141,436)
---------- ----------
Net cash flows used in financing activities (339,117) (796,917)
---------- ----------
Net change in cash and cash equivalents (574,588) 172,672
Cash and cash equivalents, beginning of period 1,410,218 798,810
---------- ----------
Cash and cash equivalents, end of period $ 835,630 $ 971,482
========== ==========
|
See notes to the consolidated financial statements.
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 (ADP or the Company) as of and for the year ended June 30, 2003. The results of operations for the three and six months ended December 31, 2003 may not be indicative of the results to be expected for the year ending June 30, 2004.
Note 2. Adoption of New Accounting Pronouncements
In March 2003, the Emerging Issues Task Force (EITF) published Issue No. 00-21 "Accounting for Revenue Arrangements with Multiple Deliverables" (EITF 00-21). EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it performs multiple revenue-generating activities and how to determine whether such an arrangement involving multiple deliverables contains more than one unit of accounting for purposes of revenue recognition. The guidance in this Issue is effective for revenue arrangements entered in fiscal periods beginning after June 15, 2003. Accordingly, the Company has adopted EITF 00-21 effective July 1, 2003. EITF 00-21 did not have a material impact on the Consolidated Financial Statements.
Note 3. Earnings Per Share (EPS)
Three months ended Six months ended
-------------------------- -------------------------
Net Average Net Average
Earnings Shares EPS Earnings Shares EPS
-------- ------- --- -------- ------- ---
Basic $228,580 591,685 $0.39 $423,430 593,264 $0.71
Effect of zero coupon
subordinated notes 491 1,598 817 1,602
Effect of stock
options - 4,341 - 4,376
-------- ------- -------- -------
Diluted $229,071 597,624 $0.38 $424,247 599,242 $0.71
======== ======= ===== ======== ======= ======
|
For the periods ended December 31, 2002
Three months ended Six months ended
-------------------------- --------------------------
Net Average Net Average
Earnings Shares EPS Earnings Shares EPS
-------- ------- --- -------- ------- ---
Basic $261,690 598,064 $0.44 $472,090 602,418 $0.78
Effect of zero coupon
subordinated notes 302 1,717 615 1,757
Effect of stock
options - 5,010 - 4,608
-------- ------- -------- -------
Diluted $261,992 604,791 $0.43 $472,705 608,783 $0.78
======== ======= ===== ======== ======= ======
|
Options to purchase 45.8 million and 36.9 million shares of common stock for the three months ended December 31, 2003 and 2002, respectively, and 49.9 million and 37.0 million shares of common stock for the six months ended December 31, 2003 and 2002, 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 and were therefore antidilutive.
Note 4. Fair Value Accounting for Stock-Based Compensation
The Company accounts for its stock option 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 option and 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 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.
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net earnings, as reported $228,580 $261,690 $423,430 $472,090
Deduct: Total stock-based employee
compensation expense determined
using the fair value based method
for all awards, net of related
tax effects (25,099) (30,917) (52,182) (65,342)
-------- -------- -------- --------
Pro forma net earnings $203,481 $230,773 $371,248 $406,748
======== ======== ======== ========
Earnings per share:
Basic - as reported $0.39 $0.44 $0.71 $0.78
===== ===== ===== =====
Basic - pro forma $0.34 $0.39 $0.63 $0.68
===== ===== ===== =====
Diluted - as reported $0.38 $0.43 $0.71 $0.78
===== ===== ===== =====
Diluted - pro forma $0.34 $0.38 $0.62 $0.67
===== ===== ===== =====
|
Note 5. Other Income, net
Three months ended Six months ended
December 31, December 31,
-------------------- ---------------------
2003 2002 2003 2002
---- ---- ---- ----
Interest income on corporate
funds $(23,642) $(34,348) $(45,742) $(74,052)
Interest expense 5,351 7,478 10,001 15,454
Realized gains on available-
for-sale securities (2,181) (9,689) (5,441) (16,592)
Realized losses on available-
for-sale securities 6,405 1,304 8,523 2,217
-------- -------- -------- --------
Other income, net $(14,067) $(35,255) $(32,659) $(72,973)
======== ======== ======== ========
|
Proceeds from the sale of available-for-sale securities were $1.8 billion and $1.1 billion for the three months ended December 31, 2003 and 2002, respectively, and $2.7 billion and $2.1 billion for the six months ended December 31, 2003 and 2002, respectively.
Note 6. Comprehensive Income
Three months ended Six months ended
December 31, December 31,
------------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
Net earnings $228,580 $261,690 $423,430 $472,090
Other comprehensive income:
Foreign currency translation
adjustments 89,448 30,723 25,790 39,673
Unrealized (losses) gains on
available-for-sale securities,
net (35,773) (5,337) (82,815) 96,368
-------- -------- -------- --------
Total comprehensive income $282,255 $287,076 $366,405 $608,131
======== ======== ======== ========
|
Note 7. Interim Financial Data by Segment
Employer Services, Brokerage Services and Dealer Services are the Company's largest business units. ADP evaluates the performance of its business units based on recurring 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 and motivation reasons. Other costs are recorded based on management responsibility. Prior year's business unit revenues and earnings before income taxes have been adjusted to reflect updated fiscal year 2004 budgeted foreign exchange rates. In addition, Employer Services' prior year's revenues and earnings before income taxes were adjusted to include interest earned on client funds credited at 4.5%. Prior to fiscal year 2004, Employer Services was credited with interest earned on client funds at 6.0%. Given the decline in interest rates over recent years, the standard rate has been changed to 4.5%. "Other" consists primarily of Claims Services, miscellaneous processing services and corporate. Reconciling items for revenues and earnings before income taxes include foreign exchange differences between the actual foreign exchange rates and the fiscal year 2004 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%. 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.
Segment Results (In millions):
Revenues
--------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -----------------
2003 2002 2003 2002
------- ------ ------ ------
Employer Services $1,159 $1,064 $2,269 $2,072
Brokerage Services 340 319 653 677
Dealer Services 218 201 429 397
Other 125 137 236 252
Reconciling items:
Foreign exchange 11 (33) 8 (65)
Client fund interest (26) (5) (47) (3)
------ ------ ------ ------
Total revenues $1,827 $1,683 $3,548 $3,330
====== ====== ====== ======
Earnings Before Income Taxes
------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -----------------
2003 2002 2003 2002
------ ------ ------ -----
Employer Services $ 263 $ 268 $ 469 $ 481
Brokerage Services 32 33 53 90
Dealer Services 37 35 69 64
Other 25 67 65 83
Reconciling items:
Foreign exchange 2 (5) 2 (9)
Client fund interest (26) (5) (47) (3)
Cost of capital
charge 32 30 65 58
------ ------ ------ -----
Total earnings before
|
Note 8: Corporate Investments and Funds Held for Clients
December 31, 2003 June 30, 2003
------------------------ -------------------------
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
Money market securities
and other cash equivalents:
Corporate investments $ 835,630 $ 835,630 $ 1,410,218 $1,410,218
Funds held for clients 7,573,861 7,573,861 2,865,957 2,865,957
----------- ---------- ----------- ----------
Total money market
securities and other
cash equivalents 8,409,491 8,409,491 4,276,175 4,276,175
----------- ----------- ----------- -----------
Available-for-sale
securities:
Corporate investments 1,401,754 1,413,642 917,026 934,125
Funds held for clients 9,000,531 9,229,879 8,582,958 8,941,792
----------- ----------- ----------- -----------
Total available-for-sale
securities 10,402,285 10,643,521 9,499,984 9,875,917
----------- ----------- ----------- -----------
Total corporate investments
|
All of the Company's marketable securities are considered to be "available-for-sale" at December 31, 2003 and June 30, 2003 and, accordingly, are carried on the Consolidated Balance Sheets at fair value.
Note 9. Goodwill and Intangible Assets, net
Changes in goodwill for the six months ended December 31, 2003 are as follows:
Employer Brokerage Dealer
Services Services Services Other Total
---------- -------- -------- ----- -----
Balance as of
June 30, 2003 $1,287,128 $366,775 $215,134 $112,094 $1,981,131
Additions 1,365 1,368 - 276 3,009
Sale of business (1,315) - - - (1,315)
Cumulative
translation
adjustments 7,993 216 36 332 8,577
Other (4,758) (6,455) - - (11,213)
---------- -------- -------- -------- ----------
Balance as of
December 31, 2003 $1,290,413 $361,904 $215,170 $112,702 $1,980,189
========== ======== ======== ======== ==========
|
Components of intangible assets are as follows:
December 31, June 30,
2003 2003
---------- ----------
Intangible assets:
Software licenses $ 609,504 $ 575,440
Customer contracts and lists 543,293 538,673
Other intangibles 423,114 415,986
---------- ----------
1,575,911 1,530,099
Less accumulated amortization (921,412) (860,208)
---------- ----------
Intangible assets, net $ 654,499 $ 669,891
========== ==========
|
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 11 years (3 years for software licenses, 14 years for customer contracts and lists and 12 years for other). Amortization of intangibles totaled $33.8 million and $27.4 million for the three months ended December 31, 2003 and 2002, respectively, and totaled $68.1 million and $54.7 million for the six months ended December 31, 2003 and 2002, respectively. Estimated amortization expenses of the Company's existing intangible assets over the remaining six months of fiscal year 2004 and the succeeding five fiscal years is as follows:
Amount
------
2004 $ 67,299
2005 113,961
2006 78,028
2007 58,033
2008 54,074
2009 39,439
|
Note 10. Short-term Financing
In September 2003, the Company entered into a new $4.5 billion, unsecured revolving credit agreement with certain financial institutions, replacing an existing $4.0 billion credit agreement. The interest rate applicable to the borrowings is tied to LIBOR or prime rate depending on the notification provided to the syndicated financial institutions prior to borrowing. The Company is also required to pay a facility fee on the credit agreement. The primary uses of the credit facility are to provide liquidity to the unsecured commercial paper program and to fund normal business operations, if necessary. The Company has had no borrowings through December 31, 2003 under the credit agreements. The new $4.5 billion credit agreement expires in September 2004.
In April 2002, the Company initiated a short-term commercial paper program providing for the issuance of up to $4.0 billion in aggregate maturity value of commercial paper at the Company's discretion. In November 2003, the Company increased the aggregate maturity value of commercial paper available under the program to $4.5 billion. 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 investment grade securities. Maturities of commercial paper can range from overnight to 270 days. The Company uses the commercial paper issuances as a primary instrument to meet short-term funding requirements related to client funds obligations. At December 31, 2003 and 2002, there was no commercial paper outstanding. For the three months ended December 31, 2003 and 2002, the Company had average borrowings of $1.4 billion and $1.3 billion, respectively, at an effective weighted average interest rate of 1.0% and 1.5%, respectively. For the six months ended December 31, 2003 and 2002, the Company had average borrowings of $1.3 billion at an effective weighted average interest rate of 1.0% and 1.6%, respectively. The weighted average maturity of the Company's commercial paper during the quarter and six months ended December 31, 2003 was less than two days.
The Company's short-term financing is 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 ten days. At December 31, 2003 and 2002, there were no outstanding repurchase agreements. For the three months ended December 31, 2003 and 2002, the Company had an average outstanding balance of $20.2 million and $4.9 million, respectively, at an average interest rate of 2.2% and 2.8%, respectively. For the six months ended December 31, 2003 and 2002, the Company had an average outstanding balance of $13.7 million and $6.6 million, respectively, at an average interest rate of 2.2% and 2.8%, respectively.
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 makes representations and warranties that guarantee the performance of the Company's products and services as well as other indemnifications entered into in the normal course of business. Historically, there have been no material losses related to such guarantees and indemnifications.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
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, 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). 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.
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 contract customer support, revenues are recognized ratably over the software license term as objective evidence of the fair values of the individual elements in the sales arrangement does not exist.
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.
Goodwill. We review the carrying value of all our goodwill in accordance with Statement of Financial Accounting Standard (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 various assumptions, including projections of future cash flows, our weighted average cost of capital and long-term growth rates for our business. Any significant adverse changes in key assumptions about our businesses and their prospects or an adverse change in market conditions may cause a change in the estimation of fair value and could result in an impairment charge. We have approximately $2.0 billion of goodwill as of December 31, 2003. 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 results of 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, results of IRS and other tax authorities' examinations of our tax returns). Fluctuations in the actual outcome of these future tax consequences could materially impact our consolidated financial statements.
RESULTS OF OPERATIONS
ANALYSIS OF CONSOLIDATED OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- ----------------------
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
Total revenues $1,827 $1,683 9% $3,548 $3,330 7%
----------------------- ----------------------
Total expenses $1,462 $1,260 16% $2,872 $2,566 12%
----------------------- ----------------------
Earnings before income
taxes $ 365 $ 423 (14)% $ 676 $ 764 (11)%
Margin 20.0% 25.2% 19.1% 22.9%
------------------------- -----------------------
Provision for income
taxes $ 136 $ 161 (16)% $ 253 $ 292 (13)%
Effective tax rate 37.4% 38.2% 37.4% 38.2%
------------------------- -----------------------
Net earnings $ 229 $ 262 (13)% $ 423 $ 472 (10)%
Diluted earnings per
share $ 0.38 $ 0.43 (12)% $ 0.71 $ 0.78 (9)%
----------------------- -----------------------
|
Our consolidated revenues for the quarter ended December 31, 2003 increased 9% to $1.8 billion, primarily due to an increase in Employer Services of 9% to $1.2 billion, an increase in Brokerage Services of 7% to $340 million and an increase at Dealer Services of 8% to $218 million. Interest income from funds held for clients decreased 6%, due to lower investment yields, despite higher average client fund balances during the period. Our average daily client fund balances were approximately $9.7 billion compared with $8.0 billion for the same quarter last year. Our revenues excluding the impact of acquisitions, primarily ProBusiness Solutions, grew 6% compared with the second quarter last year.
Year-to-date consolidated revenues increased 7% to $3.5 billion primarily due to increases in Employer Services of 9% to $2.3 billion and Dealer Services of 8% to $429 million. These increases were offset by a decrease in Brokerage Services revenues of 4% to $653 million and a decrease in interest income from funds held for clients of 7%, or $12 million, compared to the prior year.
Earnings before income taxes decreased 14% to $365 million for the quarter and decreased 11% to $676 million for the year-to-date period, driven primarily by decreases in Employer Services and Brokerage Services and a decrease in investment yields during the periods. Employer Services' earnings before income taxes declined 2% for the quarter and 3% for the year-to-date period due to previously announced incremental investments in our products and employer of choice initiatives and the integration of acquisitions completed during fiscal year 2003, specifically ProBusiness Solutions which was acquired in June 2003. Brokerage Services earnings before income taxes declined 3% to $32 million for the quarter and 41% to $53 million for the year-to-date period due to the declines in revenues in the trade processing business, caused primarily by continued industry consolidations. Earnings before income taxes during the second quarter in Brokerage Services improved compared to the first quarter of fiscal 2004, due to significant increases in investor communications activity, particularly non-proxy mutual fund mailings as well as higher trading activity in the back office transaction processing business. Other income declined $21 million during the quarter and $40 million for the year-to-date period due to lower yields on investments during the current periods.
For the quarter and year-to-date, the effective income tax rate decreased from 38.2% to 37.4%, primarily due to a favorable mix in income among foreign and state tax jurisdictions, including the effect of the decline in the Canadian rate.
Net earnings for the quarter decreased 13% to $229 million from $262 million and decreased 10% to $423 million from $472 million for the year-to-date period, reflecting the decrease in earnings before income taxes, slightly offset by a lower effective tax rate, during the current periods. Diluted earnings per share for the quarter decreased 12% to $0.38 per share from $0.43 per share and decreased 9% to $0.71 per share from $0.78 per share for the year-to-date period. The decrease in diluted earnings per share in both periods reflects the decrease in net earnings, partially offset by fewer shares outstanding due to share repurchases throughout fiscal year 2003 which continued into the second quarter of 2004.
ANALYSIS OF BUSINESS SEGMENTS
REVENUES
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
2003 2002 Change 2003 2002 Change
------ ------ ------ ------ ------ ------
Employer Services $1,159 $1,064 9% $2,269 $2,072 9%
Brokerage Services 340 319 7 653 677 (4)
Dealer Services 218 201 8 429 397 8
Other 125 137 (9) 236 252 (7)
Reconciling items
Foreign exchange 11 (33) 8 (65)
Client fund interest (26) (5) (47) (3)
------ ------ ------ ------
Total revenues $1,827 $1,683 9% $3,548 $3,330 7%
====== ====== ====== ======
|
EARNINGS BEFORE INCOME TAXES
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- ------------------------
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
Employer Services $ 263 $ 268 (2)% $ 469 $ 481 (3)%
Brokerage Services 32 33 (3) 53 90 (41)
Dealer Services 37 35 6 69 64 7
Other 25 67 (63) 65 83 (21)
Reconciling items
Foreign exchange 2 (5) 2 (9)
Client fund interest (26) (5) (47) (3)
Cost of capital
charge 32 30 65 58
------ ------ ------ ------
Total earnings before
income taxes $ 365 $ 423 (14)% $ 676 $ 764 (11)%
====== ====== ====== ======
|
Revenues in our Employer Services business increased 9% for both the quarter and the year-to-date period as compared to the prior year. Internal revenue growth was approximately 5% for the quarter and the year-to-date period. Employer Services continues to grow primarily due to increases in our traditional U.S. payroll and tax businesses of approximately 9% for the quarter and year-to-date, and strong growth of approximately 15% for the quarter and 17% year-to-date in our beyond payroll products, including our Professional Employer Organization business. Client retention continues to be strong over last year's record retention levels, improving 0.5% for the quarter and 0.7% for the year-to-date period. Pays per control, which represents the number of employees on our clients' payrolls, remained flat for the quarter and year-to-date period in North America. Pays per control in our European businesses is still declining, with individual countries ranging from flat to down 3% compared to last year. New business sales increased 2% for the quarter, which is our first quarterly increase since the first quarter of fiscal 2003. Earnings before income taxes in Employer Services decreased 2% for the quarter and 3% year-to-date due primarily to our previously announced incremental investments in our products and employee retention initiatives, and the integration of acquisitions completed during fiscal 2003.
Brokerage Services revenues increased 7% for the quarter and declined 4% for the year-to-date period ended December 31, 2003. The 7% increase in revenues during the second quarter compares to a 13% decrease during the first quarter of fiscal year 2004. The increase in revenue for the quarter ended December 31, 2003 was primarily due to an increase in certain investor communication activity, particularly non-proxy mutual fund mailings due to the increased communications related to the recent mutual fund industry regulatory oversight. Revenues from investor communications activity increased as pieces delivered in the quarter rose 22% from 133 million to 161 million. Year-to-date pieces delivered increased 6% from 288 million to 306 million. The increase in revenues was offset by the decline in trade processing revenues for the quarter and year-to-date period despite a 1% increase in average trades per day during the quarter ended December 31, 2003. The year-to-date average trades per day are down 6% from 1.36 million to 1.28 million. Revenues per trade have declined 9% for the quarter and year to date period, which reflects the effects of the continuing industry consolidation offset by higher retail versus institutional mix of trades. Earnings before income taxes declined 3% for the quarter and 41% for the year-to-date period ended December 31, 2003, due primarily to the decline in trade processing revenues during the year.
Dealer Services' revenues increased 8% for both the quarter and year-to-date periods ended December 31, 2003. Growth has been generated by strong client retention and increased revenues in the traditional core business from strong system sales as well as from new products, primarily Application Services Provider (ASP) managed services, Networking, and Customer Relationship Management. Earnings before income taxes for the quarter and year-to-date period grew 6% and 7%, respectively, primarily due to the increased revenues. Earnings growth for the quarter is slightly lower than the year-to-date revenue growth rate due to the previously announced incremental investments in our products.
The prior year's business unit revenues and earnings before income taxes have been adjusted to reflect updated fiscal year 2004 budgeted foreign exchange rates. In addition, Employer Services' prior year's revenues and earnings before income taxes were adjusted to include interest earned on client funds credited at 4.5%. Prior to fiscal year 2004, Employer Services was credited with interest earned on client funds at 6.0%. Given the decline in interest rates over recent years, the standard rate has been changed to 4.5%. "Other" consists primarily of Claims Services, miscellaneous processing services and corporate.
Reconciling items for revenues and earnings before income taxes include foreign exchange differences between the actual and the fiscal year 2004 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%.
The business unit results also include a 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
Our financial condition and balance sheet remain strong. At December 31, 2003, we had cash and marketable securities of $2.2 billion. Shareholders' equity was approximately $5.4 billion and the ratio of long-term debt to equity was approximately 1.6%.
Capital expenditures for fiscal year 2004 are expected to be approximately $175 million compared to $134 million in fiscal year 2003.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of our liquidity is our net earnings of $423 million for the six months ended December 31, 2003. Cash flows generated from operations of $557 million for the six months ended December 31, 2003 were down from $616 million in the prior year, due primarily to a decrease in net earnings and a decrease in working capital caused by the timing of certain cash activity.
Cash flows used in investing activities were $792 million for the six months ended December 31, 2003 compared with cash flows provided by investing activities of $353 million for the prior year. The fluctuation between periods is primarily due to the timing of purchases and proceeds from sale of marketable securities, net purchases of client fund money market securities and the net change in client funds obligations.
Cash flows used in financing activities totaled $339 million for the six months ended December 31, 2003 compared to $797 million in the prior year. The decrease in cash used in financing is primarily due to lower repurchases of common stock of approximately $449 million. We purchased approximately 7.1 million shares of common stock at an average price per share of approximately $38 during the period. As of December 31, 2003, we have remaining Board of Directors authorization to purchase up to 36.4 million additional shares.
During the six months ended December 31, 2003, approximately twenty percent of our overall investment portfolio was invested in cash and cash equivalents, which are impacted almost immediately by changes in short-term interest rates. The other eighty percent of our investment portfolio was invested in fixed-income securities, with varying maturities of less than ten years, which are also subject to interest rate risk, including reinvestment risk. We have historically had the ability to hold most of these investments until maturity and therefore, fluctuations in interest rates have not had an adverse impact on earnings or cash flows.
Details regarding our combined corporate investments and funds held for clients portfolios are as follows:
Three months ended Six months ended
December 31, December 31,
--------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
Average investment balances
at cost:
Corporate investments $ 3,677.3 $ 3,465.5 $ 3,492.8 $ 3,596.4
Funds held for clients 9,736.5 7,997.3 9,494.7 7,813.3
--- ------ --------- --------- ---------
Total $ 13,413.8 $11,462.8 $12,987.5 $11,409.7
========== ========= ========= =========
Average interest rates earned
exclusive of realized gains
(losses) for the total
combined corporate investments
and funds held for clients'
portfolios (pre-tax) 3.2% 4.2% 3.3% 4.4%
Realized gains on available-
for-sale securities $ 2.2 $ 9.7 $ 5.4 $ 16.6
Realized losses on available-
for-sale securities (6.4) (1.3) (8.5) (2.2)
--------- -------- -------- --------
Net realized (losses) gains $ (4.2) $ 8.4 $ (3.1) $ 14.4
========= ======== ======== ========
December 31, June 30,
2003 2003
----------- ---------
Unrealized pre-tax gains on available-for-
sale securities, net $ 241.2 $ 375.9
Total available-for-sale securities $10,643.5 $ 9,875.9
|
The earnings impact of future interest rate changes is based on many factors, which influence the return on our portfolio. These factors include, among others, 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 interest rates of 25 basis points applied to estimated average investment balances for fiscal year 2004 would result in approximately an $11.0 million impact to earnings before income taxes over the twelve-month period.
In September 2003, we entered into a new $4.5 billion unsecured revolving credit agreement with certain financial institutions, replacing an existing $4.0 billion credit agreement. The interest rate applicable to the borrowings is tied to LIBOR or prime rate depending on the notification provided to the syndicated financial institutions prior to borrowing. We are also required to pay a facility fee on the credit agreement. The primary uses of the credit facility are to provide liquidity to the unsecured commercial paper program and to fund normal business operations, if necessary. There have been no borrowings through December 31, 2003 under the credit agreements. The new $4.5 billion credit agreement expires in September 2004.
In April 2002, we initiated a short-term commercial paper program providing for the issuance of up to $4.0 billion in aggregate maturity value of commercial paper at our discretion. In November 2003, the Company increased the aggregate maturity value of commercial paper available under the program to $4.5 billion. Our commercial paper program is rated A-1+ by Standard and Poor's and Prime 1 by Moody's. These ratings denote the highest quality investment grade 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. At December 31, 2003 and 2002, there was no commercial paper outstanding. For the three months ended December 31, 2003 and 2002, the Company had average borrowings of $1.4 billion and $1.3 billion, respectively, at an effective weighted average interest rate of 1.0% and 1.5%, respectively. For the six months ended December 31, 2003 and 2002, the Company had average borrowings of $1.3 billion at an effective weighted average interest rate of 1.0% and 1.6%, respectively. The weighted average maturity of the Company's commercial paper during the three and six months ended December 31, 2003 was less than two days.
Our short-term financing is 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 ten days. At December 31, 2003 and 2002, there were no outstanding repurchase agreements. For the three months ended December 31, 2003 the Company had an average outstanding balance of $20.2 million and $4.9 million, respectively, at an average interest rate of 2.2% and 2.8%, respectively. For the six months ended December 31, 2003 and 2002, the Company had an average outstanding balance of $13.7 million and $6.6 million, respectively, at an average interest rate of 2.2% and 2.8%, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132). SFAS 132 retains the disclosure requirements of the original statement and requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefits plans and other defined benefit postretirement plans. The interim period disclosures required by SFAS 132 will be effective for the Company for the quarter ended March 31, 2004. The annual financial statement disclosures will be effective for the Company for the fiscal year ended June 30, 2004.
OTHER MATTERS
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," "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 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 December 31, 2003 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 December 31, 2003 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.
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the description in Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2003 of the litigation involving Universal Computer Systems, Inc., Universal Computer Consulting, Ltd., Universal Computer Services, Inc. and Dealer Computer Services, Inc. (collectively, "UCS"). On November 11, 2003, the arbitration panel appointed by the District Court entered an Award in favor of the Company and its co-defendants. The Award denied all relief to UCS. The Award has been affirmed and adopted by the District Court as a final judgment of the Court. Plaintiffs have stated they intend to appeal the judgment and have filed a motion for a new trial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of the Stockholders was held on November 11, 2003. There were present at the meeting, either in person or by proxy, holders of 493,276,704 common stockholders. The following members were elected to the Company's Board of Directors to hold office for the ensuing year. The votes cast for each director were as follows:
Nominee For Withheld ------- --- -------- Gregory D. Brenneman 462,886,101 30,390,603 Leslie A. Brun 486,594,039 6,682,665 Gary C. Butler 486,449,600 6,827,104 Joseph A. Califano, Jr. 477,058,234 16,218,470 Leon G. Cooperman 479,548,519 13,728,185 Ann Dibble Jordan 479,574,690 13,702,014 Harvey M. Krueger 479,149,639 14,127,065 Frederic V. Malek 469,716,537 23,560,167 Henry Taub 486,367,527 6,909,177 Arthur F. Weinbach 484,312,082 8,964,622 Josh S. Weston 486,222,931 7,053,773 |
The results of the voting on the additional items indicated below was as follows:
(a) To approve amendments to the Company's 2000 Key Employees' Stock Option Plan to increase by 35,000,000 shares the number of shares of common stock of the Company that may be acquired upon the exercise of options that may be granted to participants under such plans and to permit option grants to non-employee directors. The votes of the stockholders on this ratification were as follows:
For Against Abstained Broker ----------- ----------- --------- ------ 296,254,646 101,415,625 5,546,210 90,060,223 |
(b) To approve an amendment to the Company's Employee Savings-Stock Purchase Plan to increase by 10,000,000 shares the number of shares of common stock of the Company that may be acquired by employees under such plan. The votes of the stockholders on this ratification were as follows:
For Against Abstained Broker ----------- ---------- --------- ------ 352,366,948 46,831,505 4,013,052 90,065,199 |
(c) To approve the Company's 2003 Director Stock Plan, which provides for the grant of restricted stock units in lieu of the annual cash retainer. The votes of the stockholders on this ratification were as follows:
For Against Abstained Broker ----------- ---------- --------- ------ 349,848,492 48,779,881 4,587,656 90,060,675 |
(d) To ratify the appointment of Deloitte & Touche LLP to serve as the Company's independent certified public accountants for the fiscal year that began on July 1, 2003. The votes of the stockholders on this ratification were as follows:
For Against Abstained Broker ----------- ---------- --------- ------ 471,198,274 18,840,317 3,238,113 0 |
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number Exhibit
-------------- -------
10.4 2000 Stock Option Plan
10.5 Amended and Restated Employees' Savings-Stock Purchase
Plan
10.6 2003 Director Stock Plan
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
|
(b) Reports on Form 8-K filed during the fiscal quarter ended December 31, 2003.
None.
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.
Date: February 3, 2004 /s/ Karen E. Dykstra
----------------------
Karen E. Dykstra
|
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: February 3, 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: February 3, 2004
/s/ Karen E. Dykstra ---------------------- Karen E. Dykstra Chief Financial Officer |
18 U.S.C. SECTION 1350,
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 December 31, 2003 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 February 3, 2004 |
18 U.S.C. SECTION 1350,
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 December 31, 2003 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 February 3, 2004 |
(originally effective as of August 10, 1999, and effective as amended and restated as of August 11, 2003)
Automatic Data Processing, Inc., a Delaware corporation (the "Company"), hereby formulates and adopts the following amended and restated 2000 Stock Option Plan (the "Plan") for employees of the Company and its Subsidiaries (as defined in Paragraph 5) and non-employee directors of the Company:
1. PURPOSE. The purpose of the Plan is to secure for the Company the benefits of the additional incentive inherent in the ownership of common stock, par value $.10, of the Company ("Common Stock") by selected employees of the Company and its Subsidiaries, and non-employee directors of the Company, who, in the judgment of the Committee (as defined in Paragraph 2), are important to the success and the growth of the business of the Company and its Subsidiaries, and to help the Company and its Subsidiaries secure and retain the services of such persons.
2. ADMINISTRATION. Except to the extent required in order to qualify for exemptive relief under Rule 16b-3 or its successor provision under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or to satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), in which case the Board of Directors of the Company (the "Board of Directors"), or a committee appointed by the Board of Directors which satisfies the requirements of such provisions shall administer the Plan (and all applicable provisions of the Plan, including any reference herein to the "Committee", shall be construed accordingly), the Plan shall be administered by the Compensation Committee of the Board of Directors (the "Committee"). The Committee shall select one of its members as Chairman and shall make such rules and regulations as it shall deem appropriate concerning the holding of its meetings and transaction of its business. Any member of the Committee may be removed at any time either with or without cause by resolution adopted by the Board of Directors, and any vacancy on the Committee may at any time be filled by resolution adopted by the Board of Directors.
Subject to the express provisions of the Plan, the Committee shall have plenary authority to interpret the Plan, to prescribe, amend and rescind the rules and regulations relating to it and to make all other determinations deemed necessary and advisable for the administration of the Plan. The determinations of the Committee shall be conclusive.
3. STOCK SUBJECT TO OPTIONS. Subject to the adjustment provisions of Paragraph 13 below, a maximum of 71,750,000 shares of Common Stock may be made subject to Options (as defined below) granted under the Plan. In addition, subject to the adjustment provisions of Paragraph 13 below, no person may be granted Options under the Plan during any of the Company's fiscal years with respect to more than 500,000 shares of Common Stock.
If, and to the extent that, Options granted under the Plan shall terminate, expire or be canceled for any reason without having been exercised, new Options may be granted in respect of the shares covered by such terminated, expired or canceled Options. The granting and terms of such new Options shall comply in all respects with the provisions of the Plan.
Shares sold upon the exercise of any Option granted under the Plan may be shares of authorized and unissued Common Stock, shares of issued Common Stock held in the Company's treasury, or both.
There shall be reserved at all times for sale under the Plan a number of shares of Common Stock, of either authorized and unissued shares of Common Stock, shares of Common Stock held in the Company's treasury, or both, equal to the maximum number of shares that may be purchased pursuant to Options granted or that may be granted under the Plan.
4. GRANT OF OPTIONS. The Committee shall have the authority and responsibility, within the limitations of the Plan, to determine the employees and the non-employee directors to whom Options are to be granted, whether Options granted to employees shall be "incentive stock options" ("Incentive Options"), within the meaning of Section 422(b) of the Code, or Options which are not Incentive Options ("Nonqualified Options" and together with Incentive Options, "Options," individually, an "Option"), the number of shares that may be purchased under each Option and the Option price.
In determining the officers, key employees and non-employee directors to whom Options shall be granted and the number of shares to be covered by each such Option, the Committee shall take into consideration the individual's present and potential contribution to the success of the Company and its Subsidiaries (as defined below) and such other factors as the Committee may deem proper and relevant.
5. PERSONS ELIGIBLE. Incentive Options may be granted to any key employee of the Company or any of its Subsidiaries. Nonqualified Options may be granted to any key employee of the Company or any of its Subsidiaries or Affiliates and to any non-employee director of the Company. Options may be granted to employees and non-employee directors who hold or have held Options under this Plan or any similar or other awards under any other plan of the Company or any of its Subsidiaries or Affiliates. Employees who are also officers or directors of the Company or any of its Subsidiaries or Affiliates shall not by reason of such offices be ineligible as recipients of Options.
For purposes of the Plan, a "Subsidiary" of the Company shall mean any "subsidiary corporation" as such term is defined in Section 424(f) of the Code. An entity shall be deemed a Subsidiary of the Company only for such periods as the requisite ownership relationship is maintained.
Any employee who would own, directly or indirectly, immediately after the granting of an Option to such person, more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries shall only be eligible to receive an Incentive Option under the Plan if it satisfies the requirements of Section 422(c)(5) of the Code.
A person receiving an Option pursuant to the Plan is hereinafter referred to as an "Optionee".
6. PRICE. The exercise price of each share of Common Stock purchasable under any Option granted pursuant to the Plan shall not be less than the Fair Market Value (as defined below) thereof at the time the Option is granted. In no event shall the Committee cause or permit, without the prior approval of the Company's stockholders, any Options granted pursuant to the Plan to be repriced, replaced, or re-granted through cancellation, or to otherwise lower the exercise price of a previously granted Option.
For purposes of the Plan, "Fair Market Value" of a share of Common Stock means the average of the high and low sales prices of a share of Common Stock on the New York Stock Exchange Composite Tape on the date in question. If shares of Common Stock are not traded on the New York Stock Exchange on such date, "Fair Market Value" of a share of Common Stock shall be determined by the Committee in its sole discretion.
7. DURATION OF OPTIONS. Options granted hereunder shall become exercisable, in whole or in part, all as the Committee in its discretion may provide upon the granting thereof.
Notwithstanding any provision of the Plan to the contrary, except as otherwise provided in the applicable award agreement, the unexercised portion of any Option granted under the Plan shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:
(a) The expiration of 10 years (or, in the case of an Incentive Option, five years, in the case of an Optionee described in Section 422(c)(5) of the Code) from the date on which such Option was granted;
(b) The expiration of 60 days (or such longer period as the Committee may provide in the event of the Optionee's Permanent and Total Disability (as defined in Section 22(a)(3) of the Code) from the date of termination of the Optionee's employment or service with the Company or any of its Subsidiaries; provided, however, that if the Optionee shall die during such 60-day period (or such longer period as the Committee may provide in the event of the Optionee's Permanent and Total Disability) the provisions of subparagraph (c) below shall apply;
(c) The expiration of six months after the appointment and qualification of the executor or administrator of the Optionee's estate or 12 months after the date of the Optionee's death, whichever occurs earlier, if such death occurs either during employment by, or service with, the Company or any of its Subsidiaries or during the 60-day period (or such longer period as the Committee may provide in the event of the Optionee's Permanent and Total Disability) following the date of termination of such employment or service; and
(d) In whole or in part, at such earlier time or upon occurrence of such earlier event as the Committee in its discretion may provide upon the granting of such Option.
The Committee may determine whether any given leave of absence constitutes a termination of employment or service. Options granted under the Plan shall not be affected by any change of employment or service so long as the Optionee continues to be an employee of the Company or any of its Subsidiaries or non-employee director of the Company.
8. EXERCISE OF OPTIONS. Options shall be exercisable by the Optionee (or the Optionee's executor or administrator), as to all or part of the shares covered thereby, by the giving of written notice of the exercise thereof to the Company at its principal business office, directed to the attention of its Secretary. The Company shall cause certificates for the shares so purchased to be delivered to the Optionee (or the Optionee's executor or administrator) at the Company's principal business office, against payment in full of the purchase price, which payment may be made by cash, check or money order and, subject to the Committee's consent, by shares of the Company's Common Stock which are not subject to any pledge or security interest and have been held for at least 6 months or previously acquired on the open market or by delivery to the Committee of a copy of irrevocable instructions to a stockbroker to deliver promptly to the Company any amount of loan proceeds or proceeds of the sale of the shares subject to the Option sufficient to pay the exercise price on the date specified in the notice of exercise. Notwithstanding the foregoing, shares of the Company's Common Stock may not be used by Canadian Optionees to pay the exercise price of the shares being purchased pursuant to the exercise of an Option.
9. NONTRANSFERABILITY OF OPTIONS. No Option or any right evidenced thereby shall be transferable in any manner other than by will or the laws of descent and distribution, and, during the lifetime of an Optionee, only the Optionee (or the Optionee's court-appointed legal representative) may exercise an Option.
10. RIGHTS OF OPTIONEE. Neither the Optionee nor the Optionee's executor or administrator shall have any of the rights of a stockholder of the Company with respect to the shares subject to an Option until certificates for such shares shall actually have been issued upon the due exercise of such Option. No adjustment shall be made for any cash dividend or other right for which the record date is prior to the date of such due exercise and full payment for such shares has been made therefor.
11. RIGHT TO TERMINATE EMPLOYMENT OR SERVICE. Nothing in the Plan or in any Option shall confer upon any Optionee the right to continue in the employment or service of the Company or any of its Subsidiaries or affect the right of the Company or any of its Subsidiaries to terminate an Optionee's employment at any time, subject, however, to the provisions of any agreement of employment between the Company or any of its Subsidiaries and the Optionee.
13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event of any stock split, stock dividend, stock change, reclassification, recapitalization or combination of shares which changes the character or amount of Common Stock prior to exercise of any portion of an Option theretofore granted under the Plan, such Option, to the extent that it shall not have been exercised, shall entitle the Optionee (or the Optionee's executor or administrator) upon its exercise to receive in substitution such number and kind of shares as the Optionee would be entitled to receive if the Optionee had actually owned the stock subject to such Option at the time of the occurrence of such change and the Options shall be subject to such adjustments, as determined by the Committee, as to the number, price or kind of stock as determined to be equitable; provided, however, that if the change is of such a nature that the Optionee, upon exercise of the Option, would receive property other than shares of stock, then the Committee shall make an appropriate adjustment in the Option to provide that the Optionee (or the Optionee's executor or administrator) shall acquire upon exercise only shares of stock of such number and kind as the Committee, in its sole judgment, shall deem equitable; and, provided further, that any such adjustment shall be made so as to conform to the requirements of Section 424(a) or 162(m) of the Code and the regulations promulgated thereunder. The Committee shall also make appropriate adjustment in the number of shares subject to Options under the Plan and the maximum number of shares to be granted to any person in any fiscal year as determined to be equitable.
In the event that any transaction (other than a change specified in the preceding paragraph) described in Section 424(a) of the Code affects the Common Stock subject to any unexercised Option, the Board of the surviving or acquiring corporation shall make such similar adjustment as is permissible and appropriate.
If any such change or transaction shall occur, the number and kind of shares for which Options may thereafter be granted under the Plan shall be adjusted to give effect thereto.
14. PURCHASE FOR INVESTMENT. Whether or not the Options and shares covered by the Plan have been registered under the Securities Act of 1933, as amended, each person exercising an Option under the Plan may be required by the Company to give a representation in writing that such person is acquiring such shares for investment and not with a view to, or for sale in connection with, the distribution of any part thereof.
The Company will endorse any necessary legend referring to the foregoing restriction upon the certificate or certificates representing any shares issued or transferred to the Optionee upon the exercise of any Option granted under the Plan.
16. TERMINATION AND AMENDMENT OF PLAN AND OPTIONS. Unless the Plan shall theretofore have been terminated as hereinafter provided, Options may be granted under the Plan at any time, and from time to time, prior to the tenth anniversary of the Effective Date (as defined below), on which date the Plan will expire, except as to Options then outstanding under the Plan. Such Options shall remain in effect until they have been exercised, have expired or have been canceled.
The Plan may be terminated or modified at any time by the Board of Directors; provided, however, that any such modification shall comply with all applicable laws, applicable stock exchange listing requirements, and applicable requirements for exemption (to the extent necessary) under Rule 16b-3 under the Exchange Act.
No termination, modification or amendment of the Plan, without the consent of the Optionee, may adversely affect the rights of such person with respect to such Option. With the consent of an Optionee and subject to the terms and conditions of the Plan, the Committee may amend outstanding award agreements with such Optionee.
17. EFFECTIVE DATE OF PLAN. The Plan originally became effective on August 10, 1999, the date of its adoption by the Board of Directors (the "Effective Date"). The amendment and restatement of the Plan, generally effective as of August 11, 2003, is subject to approval by the Company's stockholders within 12 months of such date.
18. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations and such approvals by any governmental agency as may be required, including, without limitation, the effectiveness of any registration statement required under the Securities Act of 1933, as amended, and the rules and regulations of any securities exchange on which the Common Stock may be listed.
19. WITHHOLDING. The Company's obligation to deliver shares of Common Stock in respect of any Option granted under the Plan shall be subject to all applicable federal, state, local and foreign tax withholding requirements. Federal, state, local and foreign withholding taxes due upon the exercise of any Option (or upon any disqualifying disposition of shares of Common Stock subject to an Incentive Option), in the Committee's sole discretion, may be paid in shares of Common Stock (including the withholding of shares subject to an Option) upon such terms and conditions as the Committee may determine. Notwithstanding the foregoing, shares of the Company's Common Stock may not be used by Canadian Optionees to pay any taxes due upon the exercise of any Option.
21. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitation on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options and the awarding of stock and cash otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
22. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION. By acceptance of an Option, each Optionee shall be deemed to have agreed that such grant is special incentive compensation that will not be taken into account, in any manner, as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan of the Company or any of its Subsidiaries. In addition, each beneficiary of a deceased Optionee shall be deemed to have agreed that such Option will not affect the amount of any life insurance coverage, if any, provided by the Company on the life of the Optionee which is payable to such beneficiary under any life insurance plan covering employees of the Company or any of its Subsidiaries.
23. DEFERRAL. The Committee may, in its sole discretion, establish procedures whereby one or more Optionees may elect to defer the receipt of shares upon the exercise of Options for a specified period of time or until the occurrence of a specified event.
24. GOVERNING LAW. The Plan shall be governed by, and construed in accordance with, the laws of the State of New Jersey.
The following is an amendment and restatement, effective as of November 11, 2003, of the Employees' Savings-Stock Purchase Plan of Automatic Data Processing, Inc., originally adopted on May 2, 1968 and approved by stockholders on October 31, 1968.
1. Purpose. The purpose of the Plan is to provide eligible employees of the Company, its Designated Subsidiaries and its Designated Foreign Subsidiaries with a convenient opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.
(a) This Plan document is an omnibus document which includes, in addition to the Plan, separate sub-plans ("Non-Statutory Plans") that permit offerings of grants to employees of certain Designated Foreign Subsidiaries that are not intended to satisfy the requirements of Section 423 of the Code. Offerings under the Non-Statutory Plans may be made to achieve desired tax or other objectives in particular locations outside the United States of America or to comply with local laws applicable to offerings in such foreign jurisdictions. The Plan shall be a separate and independent plan from the Non-Statutory Plans.
(b) Although the Plan is a separate and independent plan from the Non-Statutory Plans, the total number of Shares authorized to be issued under the Plan applies in the aggregate to both the Plan and the Non-Statutory Plans. Section 11 of the Plan sets forth the maximum number of Shares to be offered under the Plan (together with the Non-Statutory Plans), subject to adjustments as permitted under Section 17. The Administration Committee shall determine from time to time the method for allocating the number of such total Shares to be offered under the Plan and each Non-Statutory Plan. Such determination shall be in the Administration Committee's discretion and shall not require stockholder approval.
(c) The Administration Committee may adopt Non-Statutory Plans applicable to particular Designated Foreign Subsidiaries or locations that are not participating in the Plan. The terms of each Non-Statutory Plan shall take precedence over other provisions in this Plan document in respect of any Designated Foreign Subsidiary participating therein, with the exception of Sections 11 and 17 with respect to the total number of Shares available to be offered under the Plan and all Non-Statutory Plans. Unless otherwise superseded by the terms of a Non-Statutory Plan, the provisions of this Plan document shall govern the operation of each Non-Statutory Plan. Except to the extent expressly set forth herein or where the context suggests otherwise, any reference herein to "Plan" shall be construed to include a reference to the Plan and the Non-Statutory Plans.
2. Definitions.
(a) "Administration Committee" means a committee appointed by the Board. Notwithstanding the above, in the absence of a contrary designation by the Board, the Administration Committee shall be the Compensation Committee of the Board.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the United States Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the Common Stock of the Company, $.10 par value per share.
(e) "Company" means Automatic Data Processing, Inc., a Delaware corporation.
(f) "Compensation" means the earnings received by an Employee from the Company, a Designated Subsidiary or a Designated Foreign Subsidiary as determined by the Administration Committee in a manner intended to comply with the requirements of Section 423 of the Code and the Treasury Regulations promulgated thereunder.
(g) "Continuous Status as an Employee" means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of: (i) sick leave, military leave, or other bona fide leave of absence which is required by law to be considered uninterrupted service or which is otherwise approved by the Administration Committee if the period of such leave does not exceed 90 days, or if longer, so long as the individual's right to reemployment as an Employee is guaranteed either by contract or statute; or (ii) transfers between locations of the Company or between and among the Company, its Designated Subsidiaries or Designated Foreign Subsidiaries. For purposes of clarification, the disposition of a Designated Subsidiary or Designated Foreign Subsidiary shall constitute a termination of the Continuous Status as an Employee of any Employee employed by such Designated Subsidiary or Designated Foreign Subsidiary.
(h) "Contributions" means all amounts credited to the account of a Participant pursuant to the Plan.
(i) "Corporate Transaction" means a sale of all or substantially all of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation, or any other transaction or series of related transactions in which the Company's stockholders immediately prior thereto own less than 50% of the voting stock of the Company (or its successor or parent) immediately thereafter.
(j) "Designated Broker" shall mean Smith Barney, or such other institution selected by the Administration Committee.
(k) "Designated Country" means a jurisdiction or country other than the United States of America that is designated by the Board or the Administration Committee from time to time.
(l) "Designated Foreign Subsidiaries" means all Subsidiaries organized under the laws of any Designated Country; provided, however, that Subsidiaries employing as a service for clients any worksite, leased, or similar type employees under a professional employer, employee leasing or similar type of employment relationship shall not be Designated Foreign Subsidiaries.
(m) "Designated Subsidiaries" means all Subsidiaries organized under the laws of any state of the United States of America, except with respect to any of such Subsidiaries which the Board or the Administration Committee has determined is not eligible to participate in the Plan; provided, however, that Subsidiaries employing as a service for clients any worksite, leased, or similar type employers under a professional employer, employee leasing, or similar type of employment relationship shall not be Designated Subsidiaries; provided, further, however, that at any given time, a Subsidiary that is a Designated Foreign Subsidiary in a Non-Statutory Plan may not be a Designated Subsidiary in the Plan.
(n) "Employee" means any person who is an employee of the Company or one of its Designated Subsidiaries or Designated Foreign Subsidiaries for tax purposes and who is customarily employed thereby for at least ten hours per week.
(o) "Exchange Act" means the United States Securities Exchange Act of 1934, as amended.
(p) "Fair Market Value" shall have the meaning ascribed to it in Section 7(b).
(q) "GAAP" shall mean United States generally accepted accounting principles as in effect from time to time.
(r) "New Purchase Date" shall have the meaning ascribed to it in Section 17(b).
(s) "Non-Statutory Plans" shall have the meaning ascribed to it in Section 1(a).
(t) "Offering Date" means the first day of each Offering Period, as determined in accordance with Section 4(a).
(u) "Offering Period" means the period described in Section 4(a).
(v) "Plan" means this Automatic Data Processing, Inc. Amended and Restated Employees' Savings-Stock Purchase Plan.
(w) "Participant" means an eligible Employee who has elected to participate in the Plan in accordance with Section 5.
(x) "Purchase Date" means the last day of each Purchase Period.
(y) "Purchase Period" means the period described in Section 4(b).
(z) "Purchase Price" means with respect to a Purchase Period an amount equal to 85% of the Fair Market Value of a Share of Common Stock on the Offering Date or on the Purchase Date, whichever is lower.
(aa) "Reserves" shall have the meaning ascribed to it in Section 17(a).
(bb) "Retirement" means an Employee's termination of employment under conditions prescribed by the Administration Committee from time to time.
(cc) "Rule 16b-3" means Rule 16b-3 adopted under Section 16 of the Exchange Act.
(dd) "Sales Benefit Earnings" means earnings of an Employee, determined in accordance with the Sales Benefit Earnings Calculation Summary, as established by the Company from time to time.
(ee) "Share" means a share of Common Stock, as adjusted in accordance with Section 17.
(ff) "Subsidiary" means a corporation which is a "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code; provided, however, that, with respect to determining Designated Foreign Subsidiaries, the term "Subsidiary" means a corporation or other entity organized or established under the laws of any country other than the United States of America, of which not less than 50% of the voting control is held, directly or indirectly, by the Company.
3. Eligibility.
(a) Any person who is an Employee of the Company or a Designated Subsidiary as of the Offering Date of a given Offering Period, or such later date established by the Administration Committee in respect of a given Offering Period, shall be eligible to participate in such Offering Period, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code; provided, however, that any Employee working in a country in which participation by such Employee in the Plan is prohibited by law, or where an alternative employee stock purchase plan of the Company, or a similar plan, is offered, is not eligible to participate in the Plan. Any person who is an Employee of a Designated Foreign Subsidiary as of the Offering Date of a given Offering Period, or such later date established by the Administration Committee in respect of a given Offering Period, shall be eligible to participate in such Offering Period under the Non-Statutory Plan in which such Designated Foreign Subsidiary participates, subject to the requirements of Section 5(a).
(b) Any provisions of the Plan to the contrary notwithstanding, each option
to purchase Shares under the Plan shall be limited as necessary to prevent any
Employee from (i) immediately after the grant, owning capital stock of the Company
and holding outstanding options to purchase capital stock of the Company possessing,
in the aggregate, more than five percent of the total combined voting power
or value of all classes of stock of the Company or of any Subsidiary, including
for this purpose any stock attributed to such Employee pursuant to Section 424(d)
of the Code, or (ii) acquiring rights to purchase stock under all employee stock
purchase plans (as described in Section 423 of the Code or any other similar
arrangements maintained by the Company or any of its Subsidiaries) of the Company
and its Subsidiaries which accrue at a rate that exceeds $25,000 of the fair
market value of such stock (determined at the time such option is granted in
accordance with the principles set forth in
Section 7(b)) for each calendar year in which such option is outstanding at
any time.
4. Offering Periods and Purchase Periods.
(a) Offering Periods. The Plan shall be implemented by a series of consecutive
Offering Periods of 27 months' duration, with new Offering Periods commencing
on October 1 of each year, or the first business day thereafter if October 1
is not a business day; provided, however, that the Administration Committee
may determine that any Offering Period shall commence on a different date and/or
be of a different duration (so long as such duration is not greater than 27
months). The Plan shall continue until terminated in accordance with
Section 18 hereof.
(b) Purchase Periods. Subject to Section 17(b), each Offering Period shall include one Purchase Period of 24 months' duration, commencing on the January 1 following the Offering Date in respect of such Offering Period and ending on December 31 of the following year; provided, however, that the Administration Committee may determine that any Purchase Period may have a different commencement date and a different duration, so long as such duration is no longer than that of the associated Offering Period.
5. Participation.
(a) An eligible Employee may become a Participant in respect of an Offering Period by electing to participate on the Company's internet or intranet site or calling the Company's Associate Benefit System, in each case, as approved by the Administration Committee, or in such other manner as the Administration Committee shall approve, in each case prior to the tenth day preceding the first day of the Purchase Period related to such Offering Period, unless a different time for electing to participate is set by the Administration Committee with respect to a given Offering Period.
(b) In accordance with Section 6(a), payroll deductions in an amount necessary to purchase the number of Shares elected to be purchased by the Participant in respect of any Offering Period pursuant to Section 7 shall commence on the first full payroll following the first day of the associated Purchase Period and shall end on the last payroll paid on or prior to the Purchase Date of such Purchase Period, unless sooner terminated by the Participant as provided in Section 10.
6. Method of Payment of Contributions.
(a) Payroll deductions shall be made from a Participant's Compensation during a Purchase Period in an amount necessary to purchase that number of Shares indicated by the Participant on his or her participation election, subject to the limitations of Section 7(a). All payroll deductions made by a Participant shall be credited to his or her account under the Plan. Except as permitted in Section 6(d), a Participant may not make a prepayment or any additional payments into such account.
(b) A Participant may discontinue his or her participation in the Plan as provided in Section 10. A Participant may elect at any time during an Offering Period to reduce (but not increase) the number of Shares he or she has elected to purchase in respect of such Offering Period in accordance with such procedures as may be established by the Administration Committee, and the Participant's payroll deductions shall be reduced accordingly.
(c) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a Participant's payroll deductions may be decreased by the Company during any Purchase Period to zero.
(d) Participants on an authorized leave of absence during the first 22 months of a Purchase Period may continue to participate in such Purchase Period for up to 12 months. Upon return from the leave of absence, the Participant may make up any deficit in the total amount which would have been in such Participant's account but for such leave of absence through increased uniform payroll deductions over the remaining payroll periods in the Purchase Period, or the Participant may elect to submit a certified check for the full deficit in the account. If, however, the authorized leave of absence begins after the twenty-second month of a Purchase Period, then the Participant may only make up any deficit in the amount required to purchase the number of Shares that the Participant elected to purchase by certified check.
(e) At the time an option granted under the Plan is exercised, in whole or in part, or at the time some or all of the Common Stock issued to a Participant under the Plan is disposed of, the Participant must make adequate provisions for any applicable federal, state or other tax withholding obligations, if any, which arise upon the Purchase Date or the disposition of the Common Stock. At any time, the Company, a Designated Subsidiary or a Designated Foreign Subsidiary may, but will not be obligated to, withhold from the Participant's compensation the amount necessary to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to the sale or disposition of Common Stock by the Participant earlier than as described in Section 423(a)(1) of the Code.
7. Grant of Option.
(a) At any time after the Offering Date of each Offering Period and prior to the tenth day preceding the first day of the Purchase Period related to such Offering Period (unless a different time for electing to participate is set by the Administration Committee with respect to a given Offering Period) each Participant shall be entitled to elect to receive (using the procedures set forth in Section 5) an option for a number of Shares not to exceed the amount that is equal to (i) ten percent of such Participant's Compensation on the related Offering Date (or such other day as may be determined by the Administration Committee), divided by (ii) 85% of the Fair Market Value of a Share on the related Offering Date; provided, however, that (x) the number of Shares for which an election is made shall not exceed that number of Shares permitted under Section 3(b) and (y) such election shall be subject to the limitations set forth in Section 11, if applicable. Upon making a proper election, a Participant shall be granted an option to purchase on the Purchase Date the number of Shares so elected (subject to Sections 3(b) and 11). The option granted hereunder may be reduced pursuant to Section 6.
(b) The fair market value of the Company's Common Stock on a given date (the "Fair Market Value") shall be the average of the high and low sales prices of a Share on the primary exchange over which the Common Stock is traded for such date or, in the event that the Common Stock is not traded on such date, then the immediately preceding trading date.
8. Exercise of Option; Interest.
(a) Except as otherwise provided in Section 10, unless a Participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of Shares will be exercised automatically on each Purchase Date, and the number of full Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account and the interest on such Contributions as calculated in accordance with Section 8(b). No fractional Shares shall be issued. Any amounts accumulated in a Participant's account (including interest) that are in excess of that required to purchase the number of Shares that the Participant elected to purchase, or that are not sufficient to purchase a full Share, shall be refunded to the Participant in cash. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the Participant as of the Purchase Date. During his or her lifetime, a Participant's option to purchase Shares hereunder is exercisable only by him or her.
(b) Each Participant's account shall be credited on the last business day of each calendar year with interest at an annual rate determined by the Administration Committee and such interest shall be compounded annually. In addition, the accounts of Participants whose Continuous Status as an Employee ends due to Retirement or death shall be credited with simple interest at a rate determined by the Administration Committee for the period commencing on January 1 of the calendar year in which such Retirement or death occurs and ending on the last business day of the month of such Retirement or death.
9. Delivery. As promptly as practicable after each Purchase Date, the number
of Shares purchased by each Participant upon exercise of his or her option shall
be deposited into an account established in the Participant's name with the
Designated Broker. The Administration Committee may determine that, for one
year following each Purchase Date, no Share purchased on such Purchase Date
may be transferred out of such Participant's account with the Designated Broker
other than in connection with the "disposition," as such term is used
in Section
423(a)(1) of the Code, of such Share.
10. Voluntary Withdrawal; Termination of Employment.
(a) A Participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Company in the manner directed by the Company. All of the Participant's Contributions, plus any interest, credited to his or her account with respect to an Offering Period will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current Offering Period will be automatically terminated, and no further Contributions for the purchase of Shares may be made by the Participant with respect to such Offering Period.
(b) Upon termination of the Participant's Continuous Status as an Employee prior to a Purchase Date for any reason other than Retirement or death, the Contributions, plus any interest, credited to his or her account will be returned to him or her and his or her option will be automatically terminated.
(c) Upon termination of a Participant's Continuous Status as an Employee prior to a Purchase Date due to Retirement, the Participant may elect to purchase Shares with amounts accumulated in his or her account through the date of Retirement in accordance with Section 10(d) or the Participant may elect to cease participation in the Plan in respect of the then-current Offering Period and receive a full refund of the amounts accumulated in his or her account up to the date of Retirement. Upon termination of the Participant's Continuous Status as an Employee prior to a Purchase Date due to death, the Participant's election to participate in the Plan shall cease on the date the Participant dies and Shares will be purchased with amounts accumulated in his or her account in accordance with Section 10(d).
(d) If a Participant who retires elects to purchase Shares with funds collected through the date of Retirement in accordance with Section 10(c), or if a Participant dies, on the last business day of the month in which the Participant retires or dies all amounts accumulated in his or her account, including any interest thereon, will be used to purchase, at a price equal to 85% of the Fair Market Value of one Share on the related Offering Date, as many whole Shares as such amount will purchase up to the maximum number of Shares that the Participant had elected to purchase during the Purchase Period, and the balance of funds, if any, will be paid in cash. All Shares purchased on behalf of deceased Participants will be issued, and all payments of excess funds will be made, in accordance with Section 13.
(e) A Participant's withdrawal from the Plan during an Offering Period will not have any effect upon his or her eligibility to participate in a succeeding Offering Period or in any similar plan that may hereafter be adopted by the Company.
11. Shares.
(a) Subject to adjustment as provided in Section 17, the maximum number of Shares which shall be made available for sale under the Plan shall be 60,000,000. If the Administration Committee determines at any time that, on a given Purchase Date, the number of Shares with respect to which options are to be exercised may exceed the number of Shares that are available for sale under the Plan on such Purchase Date, the Board or the Administration Committee may in its discretion provide (x) that the Company shall make a pro rata allocation of the Shares available for purchase on such Purchase Date, in as uniform a manner as shall be practicable and as it shall determine to be equitable among all Participants exercising options to purchase Common Stock on such Purchase Date, and continue all Offering Periods then in effect, or (y) that the Company shall make a pro rata allocation of the Shares available for purchase on such Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine to be equitable among all Participants exercising options to purchase Common Stock on such Purchase Date, and terminate any or all Offering Periods then in effect pursuant to Section 18 below.
(b) The Participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a Participant under the Plan will be registered in the name of the Participant.
12. Administration.
(a) Subject to the express provisions of the Plan, the Administration Committee shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The determinations of the Administration Committee shall be final, binding, and conclusive.
(b) The Board and the Administration Committee may delegate any or all of their authority and obligations under this Plan to such committee or committees (including without limitation, a committee of the Board) or officer(s) of the Company as they may designate. Notwithstanding any such delegation of authority, the Board may itself take any action under the Plan in its discretion at any time, and any reference in this Plan document to the rights and obligations of the Administration Committee shall be construed to apply equally to the Board. Any references to the Board mean only the Board. The authority of the Administration Committee includes, without limitation, the authority to (i) establish Non-Statutory Plans and determine the terms of such Non-Statutory Plans, (ii) designate from time to time which Subsidiaries will be Designated Foreign Subsidiaries, and which Designated Foreign Subsidiaries will participate in a particular Non-Statutory Plan, (iii) determine procedures for eligible Employees to enroll in or withdraw from a Non-Statutory Plan, setting or changing payroll deduction percentages, and obtaining necessary tax withholdings, (iv) allocate the available Shares under the Plan to the Non-Statutory Plans for particular offerings, and (v) adopt amendments to the Plan or any Non-Statutory Plan in accordance with Section 18.
(c) The authority of the Administration Committee will specifically include, without limitation, the power to make any changes to the Plan with respect to the participation of Employees of any Designated Foreign Subsidiary when the Administration Committee deems such changes to be necessary or appropriate to achieve a desired tax treatment in such foreign jurisdiction or to comply with the laws applicable to such Designated Foreign Subsidiary. Such changes may include, without limitation, the exclusion of particular Designated Foreign Subsidiaries from participation in the Plan; modifications to eligibility criteria, maximum number or value of Shares that may be purchased in a given period, or other requirements set forth herein; and procedural or administrative modifications. Any modification relating to offerings to a particular Designated Foreign Subsidiary will apply only to such Designated Foreign Subsidiary, and will apply equally to all similarly situated employees of such Designated Foreign Subsidiary.
13. Delivery Following the Death of a Participant. In the event of the death of a Participant, the Company shall deliver to the executor or administrator of the estate of the Participant any Shares and/or cash due to the Participant in accordance with the Plan or, if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant.
14. Transferability. Neither amounts accumulated in a Participant's account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 13) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10.
15. Use of Funds. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions.
16. Reports. Statements of account will be made available to Participants by the Company or the Designated Broker in the form and manner designated by the Administration Committee.
17. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the stockholders of the Company, the number of Shares covered by each option under the Plan that has not yet been exercised and the number of Shares that have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the maximum number of Shares that may be purchased by a Participant in a Purchase Period, the number of Shares set forth in Section 11 above, and the price per Share covered by each option under the Plan that has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, subdivision, combination or reclassification of the Common Stock (including any such change in the number of shares of Common Stock effected in connection with a change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administration Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of Shares of stock of any class, or securities convertible into Shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or liquidation of the Company, any Purchase Period and Offering Period then in progress will terminate immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, each Purchase Period and Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as of which date any Purchase Period and Offering Period then in progress will terminate. The New Purchase Date shall be on or before the date of consummation of the transaction and the Board shall notify each Participant in writing, at least ten days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section 17, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of Shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Section 17); provided, however, that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction.
The Administration Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Share covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company's being consolidated with or merged into any other corporation.
18. Amendment or Termination.
(a) The Board may at any time and for any reason terminate the Plan. Except as provided in Section 17, no such termination of the Plan may affect options previously granted, provided that the Plan or an Offering Period may be terminated by the Board on a Purchase Date or by the Board's setting a new Purchase Date with respect to an Offering Period and Purchase Period then in progress if the Board determines that termination of the Plan and/or the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Plan and/or the Offering Period would cause the Company to incur adverse accounting charges as a result of a change after the effective date of the Plan in the GAAP rules applicable to the Plan. Either the Board or the Administration Committee may amend the Plan, provided, however, that the Administration Committee may amend the Plan only to the extent required to comply with applicable law. Except as provided in Section 17 and in this Section 18, no amendment to the Plan shall make any change in any option previously granted that adversely affects the rights of any Participant. In addition, to the extent necessary to comply with Rule 16b-3 or Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, the Board or the Administration Committee shall be entitled to change the Offering Periods and Purchase Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant's Compensation, and establish such other limitations or procedures as the Board or the Administration Committee determines in its sole discretion advisable that are consistent with the Plan.
19. Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
20. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
21. Term of Plan; Effective Date. The Plan was originally adopted by the Board on May 2, 1968, and approved by the Company's stockholders on October 31, 1968, and has been amended and approved by stockholders from time to time since then. The Plan, as amended and restated herein, is effective as of November 11, 2003 and shall continue in force and effect until terminated under Section 18.
22. Additional Restrictions of Rule 16b-3. The terms and conditions of options
granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain,
and the Shares issued upon exercise thereof shall be subject to, such additional
conditions and restrictions as may be required by Rule 16b-3 to qualify for
the maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
Automatic Data Processing, Inc., a Delaware corporation (the
"Company"), hereby formulates and adopts the following 2003 Director Stock Plan
(the "Plan") for non-employee directors of the Company ("Non-employee
Directors"):
I. Purpose. The purpose of the Plan is to secure for the Company the benefits of
the additional incentive inherent in the payment of Non-employee Director annual
retainer fees in the form of restricted stock units ("Restricted Stock Units")
which entitle the Non-employee Directors to receive, under the terms and
conditions described herein, shares of the common stock of the Company, par
value $.10 per share ("Common Stock"). The Plan is first effective as of August
11, 2003, subject to the approval of the Company's stockholders at the Company's
2003 annual stockholder meeting.
II. Definitions. As used in the Plan, the following terms shall have the
meanings set forth below:
A. "Account" means the bookkeeping account established and maintained by
the Company for each Participant. In accordance with Section VI, amounts
credited to an Account will be expressed as a number of Restricted Stock Units.
B. "Annual Retainer Dollar Amount" means a dollar amount established by the
Board of Directors from time to time as the amount of the annual retainer for
Non-employee Directors.
C. "Beneficiary" means the person or persons designated by a Participant in
accordance with Section VIII to receive the benefits specified hereunder in the
event of the Participant's death or, if there is no surviving designated
Beneficiary, the Participant's estate.
D. "Board of Directors" means the Board of Directors of the Company.
E. "Distribution Date" means, with respect to each Participant (or his
Beneficiary, if the Participant dies before distribution of his Account), the
date he receives a distribution in respect of his Account interests in
accordance with Section VII. A Participant's Distribution Date shall be the
earliest practicable date following the date on which Participant's service as a
Non-employee Director ceases.
F. "Dividend Equivalents" means, with respect to each Restricted Stock
Unit, an amount equal to the cash dividends, if any, which would have been paid
with respect to such Restricted Stock Unit, if such Restricted Stock Unit were
an actual share of Common Stock.
G. "Fair Market Value" of a share of Common Stock means the average of the
high and low sales prices of a share of Common Stock on the New York Stock
Exchange Composite Tape on the date in question. If shares of Common Stock are
not traded on the New York Stock Exchange on such date, "Fair Market Value" of a
share of Common Stock shall be determined by the Board of Directors in its sole
discretion.
H. "Participant" means any Non-employee Director or former Non-employee
Director for whom the Company maintains an Account under the Plan.
I. "Payment Date" means an annual date established by the Board of
Directors from time to time for the crediting of the annual retainer to
Non-employee Directors in the form of Restricted Stock Units under the Plan.
III. Participation. Only Non-employee Directors may participate in the Plan, and
all Non-employee Directors shall participate in the Plan unless determined by a
majority vote of the entire Board of Directors.
IV. Administration.
A. Authority of the Board of Directors. The Board of Directors shall
administer and enforce the Plan in accordance with its terms, and shall have all
powers necessary to accomplish those purposes, including but not limited to the
power to: (i) compute the number of Restricted Stock Units to be credited to
each Account; (ii) maintain or to designate any person or entity to maintain all
records necessary for the administration of the Plan; (iii) establish rules for
the regulation of the Plan that are consistent with the terms hereof; (iv)
interpret the Plan and correct any defect or omission or reconcile any
inconsistency in the Plan; and (v) provide for the disclosure of information to
Participants or Beneficiaries. Any determinations made by the Board of Directors
regarding the Plan shall be final and binding on all affected Participants and
Beneficiaries.
Notwithstanding the above, no member of the Board of Directors shall
participate in any matter which involves solely a determination of the benefits
payable to him under the Plan. Any action of the Board of Directors with respect
to the Plan shall be conclusive and binding upon all persons interested in the
Plan except to the extent otherwise specifically indicated herein. The Board of
Directors may appoint agents and delegate thereto such powers
to time prescribe.
B. Indemnification of the Board of Directors. To the maximum extent
permitted by applicable law, the Board of Directors, and each member thereof,
shall not be liable for, and the Company shall indemnify the Board of Directors,
and each member thereof, and agree to hold the Board of Directors, and each
member thereof, harmless from, all liabilities and claims (including reasonable
attorney's fees and expenses in defending against such liabilities and claims)
against the Board of Directors, and each member thereof, arising from any
actions taken thereby in connection with the administration of the Plan unless
such liabilities or claims are the result of the gross negligence or willful
misconduct thereof.
V. Common Stock Subject to the Plan. Subject to the adjustment provisions of
Section VI.B. below, a maximum of 150,000 shares of Common Stock may be
delivered under the Plan. There shall be reserved at all times for delivery
under the Plan a number of shares of Common Stock, of either authorized and
unissued shares of Common Stock, shares of Common Stock held in the Company's
treasury, or both, equal to the maximum number of shares that may be delivered
under the Plan.
VI. Participant Accounts.
A. Crediting of Restricted Stock Units. On each Payment Date, the Account
of each Non-employee Director shall be credited with a number of Restricted
Stock Units (rounded down to the nearest whole share) equal to the Annual
Retainer Dollar Amount divided by the Fair Market Value of a share of Common
Stock on such Payment Date.
dividend, stock change, reclassification, recapitalization or combination of
shares which changes the character or amount of Common Stock prior to the
distribution of any Account, the number of Restricted Stock Units in each
Account shall be adjusted to entitle the Participant to receive the same number
and kind of shares as the Participant would be entitled to receive if the
Participant had actually owned the stock represented by such Restricted Stock
Units at the time of the occurrence of such change and the Restricted Stock
Units shall be subject to such adjustments, as determined by the Board of
Directors, as to the number, price or kind of stock as determined to be
equitable; provided, however, that if the change is of such a nature that the
Participant, upon distribution of the Account, would receive property other than
shares of stock, then the Board of Directors shall make an appropriate
adjustment to provide that the Participant (or the Participant's Beneficiary)
shall acquire upon distribution of the Account only shares of stock of such
number and kind as the Board of Directors, in its sole judgment, shall deem
equitable. If any such change or transaction shall occur, the number of shares
of Common Stock specified in Section V and kind of shares for which Restricted
Stock Units may thereafter be granted under the Plan shall be adjusted to give
effect thereto.
C. Vesting. The interest of each Participant in any benefit payable with
respect to an Account hereunder shall be at all times fully vested and
non-forfeitable. Notwithstanding the previous sentence, a Participant's
interest in his Account constitutes an unsecured promise of the Company, and a
Participant shall have only the rights of a general unsecured creditor of the
Company with respect to his Account.
D. Dividend Equivalents. Each Account shall be credited with Dividend
Equivalents on each date a dividend is paid on Common Stock, in respect of the
Restricted Stock Units
an Account shall accrue interest (compounding annually) from the date of such
crediting through the Distribution Date, with the applicable interest rate for
each twelve month period beginning on November 1 during such period, or any
applicable portion thereof, being the rate for five-year U.S. Treasury Notes
published in The Wall Street Journal (or, in the absence of such reference,
such alternate publication the Board of Directors may select from time to time)
on the first business day of November of such twelve month period plus 0.50%,
rounded up to the nearest 0.25%.
VII. Distributions.
A. Distributions. On his Distribution Date, each Participant shall receive
(i) a number of shares of Common Stock equal to the number of Restricted Stock
Units in such Participant's Account and (ii) a cash payment equal to the accrued
Dividend Equivalents, plus interest then credited to such Account.
B. Receipt and Release. Any distribution to any Participant or Beneficiary
in accordance with the provisions of this Section VII shall be in full
satisfaction of all claims under the Plan against the Company and the Board of
Directors. The Board of Directors may require any Participant or Beneficiary, as
a condition to payment, to execute a receipt and release to such effect.
VIII. Beneficiaries. Each Participant may designate one or more Beneficiaries to
receive the amounts distributable from such Participant's Account under the Plan
in the event of such Participant's death. Such designations shall be made on
forms provided by the Board of Directors. A Participant may from time to time
change his designated Beneficiaries, without the
Board of Directors. The Company and Board of Directors may rely conclusively
upon the Beneficiary designation last filed in accordance with the terms of the
Plan.
IX. Amendments to the Plan; Termination of the Plan. The Board of Directors may
amend, alter, suspend, discontinue or terminate the Plan without the consent of
any Participant; provided, however, that no such amendment, alteration,
suspension, discontinuation, or termination of the Plan shall materially and
adversely affect the rights of any Participant with respect to amounts already
credited to such Participant's Account. The Plan has no fixed termination date.
X. General Provisions.
A. Limits on Transfer of Rights; Beneficiaries. No right or interest of a
Participant under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment by creditors of the Participant or his Beneficiary, or shall be
transferable by a Participant otherwise than by will or the laws of descent and
distribution; provided, however, that a Participant may designate a Beneficiary
in accordance with Section VIII to receive any payment or distribution under the
Plan in the event of the death of the Participant. A Beneficiary, guardian,
legal representative or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the Plan
applicable to such Participant, except to the extent the Plan otherwise provides
with respect to such persons.
B. No Rights of a Stockholder. No Participant shall have any of the rights
or privileges of a stockholder of the Company as a result of the establishing of
or crediting of any
to the Participant pursuant to Section VII of the Plan.
C. No Right to Continued Election as a Director. Nothing contained in the
Plan shall confer, and no establishment of or crediting of any amounts to an
Account shall be construed as conferring, upon any Participant, any right to
continue as a member of the Board of Directors, or to interfere in any way with
the right of the Board of Directors to increase or decrease the amount of the
Annual Retainer Dollar Amount, or any other compensation payable to Non-employee
Directors.
D. Governing Law. The validity, construction and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of New Jersey, without giving effect to principles of
conflicts of laws.
E. Interpretation. Whenever necessary or appropriate in the Plan, where the
context admits, the singular term and the related pronouns shall include the
plural and the masculine gender shall include the feminine gender.
F. Nonalienation of Benefits. No right or benefit under the Plan shall be
subject to anticipation, alienation, sale, assignment, hypothecation, pledge,
exchange, transfer, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or
charge the same shall be void. To the extent permitted by applicable law, no
right or benefit hereunder shall in any manner be liable for or subject to the
debts, contracts, liabilities or torts of the person entitled to such benefits.
or incapable of being enforced by any court of competent jurisdiction, all of
the remaining provisions of the Plan shall nevertheless continue in full force
and effect and no provisions shall be deemed dependent upon any other provision
unless expressly set forth herein.