[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
Commission File Number 0-14278
Delaware 22-1467904
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One ADP Boulevard, Roseland, New Jersey 07068
(Address of principal executive office) (Zip Code)
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of December 31, 2004 was 583,096,967.
Automatic Data Processing, Inc. and Subsidiaries
See notes to the consolidated financial statements.
Automatic Data Processing, Inc. and Subsidiaries See notes to the consolidated financial statements.
See notes to the consolidated financial statements.
Automatic Data Processing, Inc. and Subsidiaries Note 1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. Adjustments are of a
normal recurring nature. These unaudited Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements and
related notes of Automatic Data Processing, Inc. and Subsidiaries (ADP or
the Company) as of and for the year ended June 30, 2004. The results of operations
for the three and six months ended December 31, 2004 may not be indicative
of the results to be expected for the fiscal year ending June 30, 2005.
Note 2. New Accounting Pronouncement
In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123R, "Share-Based Payment"
(SFAS No. 123R). SFAS No. 123R is effective for the Company's quarterly period
ending September 30, 2005. Among other things, SFAS No. 123R requires that
compensation cost relating to share-based payment transactions be recognized
in the consolidated financial statements. Note 5, Fair Value Accounting for
Stock-Based Compensation, of the Notes to the Consolidated Financial Statements
of this Quarterly Report on Form 10-Q, contains pro forma disclosures regarding
the effect on net earnings and earnings per share as if the Company had applied
the fair value method of accounting for stock-based compensation under SFAS
No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123).
However, the calculation of compensation cost for share-based payment transactions
in accordance with SFAS No. 123R may be different from the calculation of
compensation cost under SFAS No. 123. The Company is currently evaluating
the new standard and models which may be used to calculate the expense for
future share-based payment transactions.
Note 3. Acquisitions
The Company acquired three businesses during the six months ended December
31, 2004 for approximately $320 million, net of cash acquired. These acquisitions
resulted in approximately $134 million of goodwill. Intangible assets acquired,
which total approximately $36 million, consisted primarily of software, and
customer contracts and lists that are being amortized over a weighted average
life of 14 years. The Company also made $6 million of contingent payments
relating to previously consummated acquisitions.
On November 1, 2004, the Company acquired the U.S. Clearing and BrokerDealer
Services divisions of Bank of America Corporation (U.S. Clearing and BrokerDealer
Business), which provide third-party clearing operations. The acquisition
of the U.S. Clearing and BrokerDealer Business enables the Company to offer
traditional clearing services to retail and institutional broker-dealers in
the United States that want to outsource their entire back-office and clearing
operations while maintaining their status as clearing brokers.
Options to purchase 26.6 million and 45.8 million shares of common stock
for the three months ended December 31, 2004 and 2003, respectively, and 34.9
million and 49.9 million shares of common stock for the six months ended December
31, 2004 and 2003, respectively, were excluded from the calculation of diluted
earnings per share because their exercise prices exceeded the average market
price of outstanding common shares for each respective period.
Note 5. Fair Value Accounting for Stock-Based Compensation
The Company accounts for its stock options and employee stock purchase plans
under the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations, as permitted by SFAS No. 123. No stock-based
employee compensation expense related to the Company's stock options and employee
stock purchase plans is reflected in net earnings, as all options granted
under the stock option plans had an exercise price equal to the market value
of the underlying common stock on the date of grant, and for the employee
stock purchase plans, the discount does not exceed fifteen percent.
The following table illustrates the effect on net earnings and earnings
per share if the Company had applied the fair value recognition provisions
of SFAS No. 123 to stock-based employee compensation.
Proceeds from sales or maturities of available-for-sale securities were
$1.7 billion and $1.8 billion for the three months ended December 31, 2004
and 2003, respectively, and $3.6 billion and $2.7 billion for the six months
ended December 31, 2004 and 2003, respectively.
Note 8. Interim Financial Data by Segment
As discussed in Note 3, the Company acquired the U.S. Clearing and BrokerDealer
Business on November 1, 2004. The Company has determined that the acquired
operations constitute a separate reportable segment in accordance with Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information." The Company established a
reportable segment called Securities Clearing and Outsourcing Services as
of November 1, 2004 to report the results of this acquired business.
Employer Services, Brokerage Services, Dealer Services, and Securities Clearing
and Outsourcing Services are the Company's reportable segments. The primary
components of "Other" are Claims Services, miscellaneous processing
services, and corporate allocations and expenses.
The Company evaluates the performance of its segments based on operating
results before interest on corporate funds, foreign currency gains and losses,
and income taxes. Certain revenues and expenses are charged to segments at
a standard rate for management reasons. Other costs are recorded based on
management responsibility. The prior year's segment revenues and earnings
before income taxes have been adjusted to reflect updated fiscal year 2005
budgeted foreign exchange rates. Reconciling items include foreign exchange
differences between the actual foreign exchange rates and the fiscal year
2005 budgeted foreign exchange rates, and the adjustment for the difference
between actual interest income earned on invested funds held for clients and
interest credited to Employer Services at a standard rate of 4.5%. Both of
these adjustments are eliminated in consolidation and as such represent a
reconciling item to revenues and earnings before income taxes. The segment
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.
The Company's "trading" securities represent securities that have
been pledged as collateral to exchanges and clearinghouses for security transactions
of the Securities Clearing and Outsourcing Services segment. These investments
are recorded at fair value with the resulting net unrealized gains and losses
reflected in "Revenues, Other Than Interest on Funds Held for Employer
Services Clients and PEO revenues" in the Consolidated Statements of
Earnings.
Gross unrealized gains and losses on the available-for-sale securities are
as follows:
The Company's "available-for-sale" securities are carried on the
Consolidated Balance Sheets at fair value at December 31, 2004 and June 30,
2004. The Company believes that the available-for-sale securities that have
fair values that are below cost are not other-than-temporarily impaired since
it is probable that principal and interest will be collected in accordance
with the applicable contractual terms and the Company has the ability and
intent to hold the available-for-sale securities until maturity.
Note 10. Securities Clearing and Outsourcing Services
As discussed in Note 3, the Company acquired the U.S. Clearing and BrokerDealer
Business on November 1, 2004. The operations of the acquired business are
reported in the newly formed Securities Clearing and Outsourcing Services
segment. The summary of the significant accounting policies associated with
the Securities Clearing and Outsourcing Services segment are as follows:
Receivables from and payables to clearing customers represent the amounts
receivable from and payable to clearing customers in connection with cash
and margin securities transactions. Clearing customer receivables are included
in "Securities Clearing and Outsourcing Receivables" and clearing
customer payables are included in "Securities Clearing and Outsourcing
Payables" on the Consolidated Balance Sheets. Receivables from customers
are collateralized by securities that are not reflected in the Consolidated
Balance Sheets.
Securities borrowed and loaned represent deposits made to or received from
other broker-dealers. Securities borrowed and securities loaned are recorded
on the settlement date based upon the amount of cash advanced or received.
Securities borrowed are included in "Securities Clearing and Outsourcing
Receivables" and securities loaned are included in "Securities Clearing
and Outsourcing Payables" on the Consolidated Balance Sheets. The Company
takes possession of securities borrowed, monitors the market value of securities
loaned and obtains additional collateral as appropriate.
Customer clearing security transactions and the related revenues, primarily
consisting of customer margin interest, and expenses, primarily consisting
of brokerage clearing expenses and interest expense, are recorded on a settlement
date basis. Revenues for the fees charged to an introducing broker-dealer
to process trades in clearing accounts are recorded on a trade date basis.
Securities clearing and outsourcing receivables and payables consist of
the following as of December 31, 2004:
Securities failed to deliver and failed to receive represent the contract
value of securities that have not been delivered or received as of the settlement
date.
As of December 31, 2004, the Company has received collateral, primarily
in connection with securities borrowed and customer margin loans, with a market
value of approximately $2.0 billion which it can sell or repledge. Of this
amount, approximately $0.4 billion has been pledged or sold as of December
31, 2004 in connection with securities loaned and deposits with clearing organizations.
Changes in goodwill for the six months ended December 31, 2004 are as follows:
Securities Clearing and Employer Brokerage Dealer Outsourcing
Components of intangible assets are as follows: Other intangible assets consist primarily of purchased rights, covenants,
patents and trademarks (acquired directly or through acquisitions). All of
the intangible assets have finite lives and as such are subject to amortization.
The weighted average remaining useful life of the intangible assets is 10
years (2 years for software and software licenses, 15 years for customer contracts
and lists and 11 years for other). Amortization of intangibles totaled $37.3
million and $33.8 million for the three months ended December 31, 2004 and
2003, respectively, and totaled $73.1 million and $68.1 million for the six
months ended December 31, 2004 and 2003, respectively. Estimated amortization
expense of the Company's existing intangible assets for the remaining six
months of fiscal year 2005 and the succeeding five fiscal years is as follows:
Note 12. Short-term Financing
In June 2004, the Company entered into two new unsecured revolving credit
agreements, each for $2.25 billion, with certain financial institutions, replacing
a previous $4.5 billion credit agreement. The two unsecured revolving credit
agreements expire in June 2005 and June 2009, respectively. The interest rate
applicable to the borrowings is tied to LIBOR or prime rate, depending on
the notification provided by the Company to the syndicated financial institutions
prior to borrowing. The Company is also required to pay facility fees on the
credit agreements. The primary uses of the credit facilities are to provide
liquidity to the unsecured commercial paper program and to provide funding
for general corporate purposes, if necessary. The Company had no borrowings
through December 31, 2004 under the two new credit agreements.
The Company maintains a U.S. short-term commercial paper program providing
for the issuance of up to $4.5 billion in aggregate maturity value of commercial
paper at the Company's discretion. The Company's commercial paper program
is rated A-1+ by Standard and Poor's and Prime 1 by Moody's. These ratings
denote the highest quality commercial paper securities. Maturities of commercial
paper can range from overnight to 270 days. At December 31, 2004 and 2003,
there was no commercial paper outstanding. For the three months ended December
31, 2004 and 2003, the Company had average borrowings of $1.5 billion and
$1.4 billion, respectively, at an effective weighted average interest rate
of 2.0% and 1.0%, respectively. For the six months ended December 31, 2004
and 2003, the Company had average borrowings of $1.4 billion and $1.3 billion,
respectively, at an effective weighted average interest rate of 1.7% and 1.0%,
respectively. The weighted average maturity of the Company's commercial paper
during the three and six months ended December 31, 2004 was less than two
days for both periods.
The Company's U.S. and Canadian short-term funding requirements related
to client funds obligations are sometimes obtained on a secured basis through
the use of repurchase agreements, which are collateralized principally by
government and government agency securities. These agreements generally have
terms ranging from overnight to up to five business days. At December 31,
2004 and 2003, there were no outstanding repurchase agreements. At December
31, 2004, the Company held cash of $48.7 million from a reverse repurchase
transaction, for which the terms had ended, but for which the security had
not yet been received by the Company. The Company has a $48.7 million liability
recorded in accrued expenses on the Consolidated Balance Sheets to settle
the transaction. The security was received subsequent to December 31, 2004.
For the three months ended December 31, 2004 and 2003, the Company had an
average outstanding balance for repurchase agreements of $401.4 million and
$20.2 million, respectively, at a weighted average interest rate of 1.8% and
2.2%, respectively. For the six months ended December 31, 2004 and 2003, the
Company had an average outstanding balance for repurchase agreements of $395.7
million and $13.7 million, respectively, at a weighted average interest rate
of 1.6% and 2.2%, respectively.
The components of net pension expense were as follows:
The minimum required contribution to the Company's pension plans is $0 in
fiscal year 2005. For the six months ending December 31, 2004, the Company
did not make any contributions to the pension plans; however, the Company
expects to contribute approximately $40 million during fiscal year 2005.
Note 14. Commitments and Contingencies
It is not the Company's practice to enter into off-balance sheet arrangements.
However, in the normal course of business, the Company does enter into contracts
in which it guarantees the performance of the Company's products and services.
In addition, the securities transactions of the Securities Clearing and Outsourcing
Services segment involve collateral arrangements required by various regulatory
and internal guidelines that are monitored daily. The Company does not expect
any material losses related to such guarantees or collateral arrangements.
The Company is a member of numerous exchanges and clearinghouses. Under
the membership agreements, members are generally required to guarantee the
performance of other members. Additionally, if a member becomes unable to
satisfy its obligations to the clearinghouse, other members would be required
to meet these shortfalls. To mitigate these performance risks, the exchanges
and clearinghouses often require members to post collateral. The Company's
maximum potential liability under these arrangements cannot be quantified.
However, the Company believes that it is unlikely that the Company will be
required to make payments under these arrangements. Accordingly, no contingent
liability is recorded in the consolidated financial statements for these arrangements.
The Company's securities clearing and outsourcing subsidiary is subject
to the Uniform Net Capital Rule of the Securities and Exchange Commission.
At December 31, 2004, the aggregate net capital of such subsidiary was $235.9
million, exceeding the net capital requirement by $215.9 million. The Company's
securities clearing and outsourcing subsidiary has secured unlimited Securities
Industry Protection Corporation (SIPC) insurance coverage. Under the terms
of this program, the Company's securities and outsourcing subsidiary is required
to maintain an aggregate net capital of $200 million.
Note 15. Income Taxes
On October 22, 2004, the American Jobs Creation Act (the AJCA) was signed
into law. The AJCA includes a deduction of 85% of certain foreign earnings
that are repatriated, as defined in the AJCA. The Company may elect to apply
this provision to qualifying earnings repatriations in either the balance
of fiscal year 2005 or in fiscal year 2006. The Company has started an evaluation
of the effects of the repatriation provision; however, the Company does not
expect to be able to complete this evaluation until Congress acts on the pending
Technical Corrections Bill and the Treasury Department provides additional
clarifying language on key elements of the provision. The Company expects
to complete its evaluation of the effects of the repatriation provision within
a reasonable period of time following these actions. The range of possible
amounts that the Company could repatriate under this provision is between
zero and $500 million. The related potential range of income tax is between
zero and $35 million. The actual cost to the Company is dependent on the factors
discussed above.
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations.
(Tabular dollars are presented in millions, except per share amounts)
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements and accompanying notes have been prepared
in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires
management to make estimates, judgments and assumptions that affect reported
amounts of assets, liabilities, revenues and expenses. We continually evaluate
the accounting policies and estimates used to prepare the consolidated financial
statements. The estimates are based on historical experience and assumptions
believed to be reasonable under current facts and circumstances. Actual amounts
and results could differ from these estimates made by management. Certain
accounting policies that require significant management estimates and are
deemed critical to our results of operations or financial position are discussed
below.
Revenue Recognition. Our revenues are primarily attributable to fees for
providing services (e.g., Employer Services' payroll processing fees and Brokerage
Services' trade processing fees) as well as investment income on payroll funds,
payroll tax filing funds and other Employer Services' client-related funds.
We typically enter into agreements for a fixed fee per transaction (e.g.,
number of payees or number of trades). Fees associated with services are recognized
in the period services are rendered and earned under service arrangements
with clients where service fees are fixed or determinable and collectibility
is reasonably assured. Interest income on collected but not yet remitted funds
held for clients is recognized in revenues as earned, as the collection, holding
and remittance of these funds are critical components of providing these services.
We also recognize revenues associated with the sale of software systems
and associated software licenses. For a majority of our software sales arrangements,
which provide hardware, software licenses, installation and post-customer
support, revenues are recognized ratably over the software license term as
vendor-specific objective evidence of the fair values of the individual elements
in the sales arrangement does not exist. Changes to the elements in an arrangement
and the ability to establish vendor-specific objective evidence for those
elements could affect the timing of the revenue recognition.
The majority of our revenues are generated from a fee for service model
(e.g., fixed-fee per transaction processed) in which revenue is recognized
when the related services have been rendered under written price quotations
or service agreements having stipulated terms and conditions which do not
require management to make any significant judgments or assumptions regarding
any potential uncertainties.
We assess collectibility of our revenues based primarily on the creditworthiness
of the customer as determined by credit checks and analysis, as well as the
customer's payment history. We do not believe that a change in our assumptions
utilized in the collectibility determination would result in a material change
to revenues as no single customer accounts for a significant portion of our
revenues.
Goodwill. We review the carrying value of all our goodwill in accordance
with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill
and Other Intangible Assets," by comparing the carrying value of our
reporting units to their fair values. We are required to perform this comparison
at least annually or more frequently if circumstances indicate possible impairment.
When determining fair value, we utilize a discounted future cash flow approach
using various assumptions, including projections of revenues based on assumed
long-term growth rates, estimated costs, and appropriate discount rates based
on the particular businesses' weighted average cost of capital. Our estimates
of long-term growth and costs are based on historical data, various internal
estimates and a variety of external sources, and are developed as part of
our routine long-range planning process. The estimated fair value of the Company's
reporting units exceeds the carrying value of the reporting units. We had
approximately $2.4 billion of goodwill as of December 31, 2004. Given the
significance of our goodwill, an adverse change to the fair value could result
in an impairment charge, which could be material to our consolidated earnings.
Income taxes. We account for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which establishes financial accounting
and reporting standards for the effect of income taxes. The objectives of
accounting for income taxes are to recognize the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets for
the future tax consequences of events that have been recognized in an entity's
financial statements or tax returns. Judgment is required in addressing the
future tax consequences of events that have been recognized in our financial
statements or tax returns (e.g., realization of deferred tax assets, changes
in tax laws or interpretations thereof). In addition, we are subject to the
continuous examination of our income tax returns by the Internal Revenue Service
and other tax authorities. A change in the assessment of the outcomes of such
matters could materially impact our consolidated financial statements.
Analysis of Consolidated Operations
Revenues
Our consolidated revenues for the quarter ended December 31, 2004 grew 9%
to $2.0 billion primarily due to increases in Employer Services of 7%, or
$75 million, to $1.2 billion, Brokerage Services of 4%, or $14 million, to
$355 million, Dealer Services of 11%, or $25 million, to $243 million as well
as $15 million from our newly formed Securities Clearing and Outsourcing Services
segment. Our consolidated revenues, excluding the impact of acquisitions and
divestitures, grew 9% in the quarter ending December 31, 2004 as compared
with the prior year. Revenue growth for the quarter was also favorably impacted
by $28 million, or 1.5%, due to fluctuations in foreign currency exchange
rates.
Our consolidated revenues for the quarter ending December 31, 2004 includes
interest on funds held for Employer Services clients of $91 million as compared
to $82 million in the prior year. The increase in the consolidated interest
earned on funds held for Employer Services clients primarily resulted from
the increase of 10% in our average client fund balances to $10.7 billion for
the quarter. The difference between the 4.5% standard rate allocation in Employer
Services and the actual interest earned is a reconciling item that is eliminated
in consolidation and reduces revenues by $29 million and $26 million in the
quarters ending December 31, 2004 and 2003, respectively.
Our consolidated revenues for the year-to-date period ended December 31,
2004 grew 8% to $3.8 billion primarily due to increases in Employer Services
of 6%, or $141 million, to $2.4 billion, Brokerage Services of 5%, or $31
million, to $686 million, Dealer Services of 12%, or $52 million, to $481
million, as well as $15 million from our newly formed Securities Clearing
and Outsourcing Services segment. Our consolidated revenues, excluding the
impact of acquisitions and divestitures, grew 8% in the year-to-date period
ending December 31, 2004 as compared with the prior year. Revenue growth for
the year-to-date period was also favorably impacted by $52 million, or 1.5%,
due to fluctuations in foreign currency exchange rates.
Our consolidated revenues for the year-to-date period ending December 31,
2004 includes interest on funds held for Employer Services clients of $176
million, as compared to $165 million in the prior year. The increase in the
consolidated interest earned on funds held for Employer Services clients resulted
from the increase of 10% in our average client fund balances to $10.4 billion
for the year-to-date period. The difference between the 4.5% standard rate
allocation in Employer Services and the actual interest earned is a reconciling
item that is eliminated in consolidation and reduces revenues by $59 million
and $47 million in the year-to-date periods ending December 31, 2004 and 2003,
respectively.
Expenses
Our consolidated expenses for the quarter ending December 31, 2004 increased
by $134 million, from $1.5 billion to $1.6 billion. The increase in our consolidated
expenses is primarily due to our increase in revenues, including the additional
expenses associated with acquisitions. In addition, consolidated expenses
increased by $22 million, or 1.5%, due to fluctuations in foreign currency
exchange rates. Operating expenses increased by $105 million, or 13%, primarily
due to the increase in revenues, including the increases in the Professional
Employer Organization (PEO) business and investor communications activity,
which both have pass-through costs. Selling, general and administrative expenses
increased by $6 million to $465 million primarily due to the additional sales
force to support the revenue growth. Systems development and programming costs
increased by $17 million to $150 million due to continued investments in sustaining
our products, primarily in our Employer Services business, and the maintenance
of our existing technology throughout all of our businesses.
Our consolidated expenses for the year-to-date period increased by $248
million, from $2.9 billion to $3.1 billion. The increase in our consolidated
expenses is primarily due to our increase in revenues, including the additional
expenses associated with acquisitions. In addition, consolidated expenses
increased by $44 million, or 1.5%, due to fluctuations in foreign currency
exchange rates. Operating expenses increased by $178 million, or 11%, primarily
due to the increase in revenues, primarily in the PEO business and investor
communications activity. Selling, general and administrative expenses increased
by $25 million to $912 million primarily due to the additional sales force
to support the revenue growth. Systems development and programming costs increased
by $34 million to $299 million due to continued investments in sustaining
our products, primarily in our Employer Services business, and the maintenance
of our existing technology throughout all of our businesses. In addition,
other income, net, decreased $9 million primarily due to the increase in interest
expense of $9 million due to the increase in the interest rates on our short-term
financing arrangements.
Earnings Before Income Taxes
Earnings before income taxes increased by $32 million, or 9%, to $398 million
for the quarter ending December 31, 2004 and $52 million, or 8%, to $729 million
during the year-to-date period ending December 31, 2004 due to the increase
in revenues and expenses discussed above.
Provision for Income Taxes
Our effective tax rate for both the quarter and year-to-date period ending
December 31, 2004 was 37.1% as compared to 37.4% for the comparable period
of the prior year. The decrease in the effective tax rate for both periods
is attributable to a favorable mix in income among tax jurisdictions.
Net Earnings
Net earnings for the quarter increased 9% to $250 million from $229 million
and the related diluted earnings per share increased 11% to $0.42. Net earnings
for the year-to-date period increased 8% to $458 million from $423 million
and the related diluted earnings per share increased 10% to $0.78. The increase
in net earnings for both the quarter and year-to-date period reflects the
increase in earnings before income taxes and the impact of the lower effective
tax rate. The increase in diluted earnings per share for both the quarter
and year-to-date period reflects the increase in net earnings and the impact
of fewer shares outstanding due to the repurchase of 6.3 million shares during
the year-to-date period and 15.8 million shares in fiscal year 2004.
Revenues
Revenues
Employer Services' revenues increased 7% for the quarter and 6% for the
year-to-date period ended December 31, 2004 as compared to the prior year
primarily due to new business started in the period, the number of employees
on our clients' payrolls, strong client retention and an increase in interest
earned on client fund balances. Internal revenue growth, which represents
revenue growth excluding the impact of acquisitions and divestitures, was
approximately 6% for both the quarter and year-to-date period. New business
sales grew 8% during the quarter due to the increased growth in the salesforce
and productivity. The number of employees on our clients' payrolls, "pays
per control," increased 2.0% for the quarter and 1.9% for the year-to-date
period in the United States. This employment metric represents over 125 thousand
payrolls across a broad range of U.S. geographies ranging from small to very
large businesses. Our client retention in the United States improved by one
percentage point in the quarter and 0.7 percentage points for the year-to-date
period from record retention levels in fiscal year 2004 due to our continued
investment and commitment to client service.
Interest income is credited to Employer Services at a standard rate of 4.5%.
Interest income increased for the quarter and year-to-date periods due to
the increase in the average client fund balances as compared to the prior
year. The average client funds balance was $10.7 billion during the quarter
as compared to $9.7 billion in the second quarter of fiscal year 2004 and
$10.4 billion during the year-to-date period as compared to $9.5 billion for
the prior year, representing an increase of 10% for both periods.
Revenues from our "beyond payroll" products continued to grow
at a faster rate than the traditional payroll and payroll tax revenues. Our
PEO revenues grew 23%, to $133 million, during the quarter and 21%, to $259
million, for the year-to-date period primarily due to 15% growth in the number
of PEO worksite employees and additional pass-through benefits. In addition,
"beyond payroll" revenues increased due to increased number of clients
utilizing services such as Time and Labor Management and TotalPay Services.
Earnings Before Income Taxes
Earnings before income taxes in Employer Services increased 9%, from $263
million to $286 million for the quarter and 8%, from $470 million to $505
million, for the year-to-date period, primarily due to the increase in revenues
in the respective periods. Operating expenses, selling, general and administrative
expenses and systems development and programming costs increased 6% for the
quarter and year-to-date period due to the increase in operating and sales
personnel, and maintenance of our products and services to support the revenue
growth. Our expenses at Employer Services did not increase comparably with
our revenue primarily due to the leveraging of our increasing revenues, which
favorably impacted certain selling, general and administrative expenses. In
addition, earnings before income taxes increased approximately $7 million
during the quarter and $11 million during the year-to-date period as a result
of the completion of integration of certain acquisitions, primarily ProBusiness
Services, Inc., in the prior year.
Brokerage Services
Revenues
Brokerage Services' revenues increased 4% for the quarter and 5% for the
year-to-date period ended December 31, 2004 primarily due to an increase in
certain investor communications activity. Revenues from investor communications
increased by 8% to $245 million for the quarter and by 8% to $469 million
for the year-to-date period primarily due to increases in the volume of our
proxy and interim communications services, as well as increases in our distribution
services revenues for post-sale mutual fund documents and statements and new
business sales. Our proxy and interim communication pieces delivered increased
18% for the quarter, from 167 million to 197 million, and 19% for the year-to-date
period, from 311 million to 372 million. The increase in the quarterly and
year-to-date proxy and interim communication activity resulted from more holders
of equities and increased activity related to additional mutual fund meetings.
Our back-office trade processing revenues of $84 million for the quarter and
$166 million for the year-to-date period remained flat for both periods due
to a number of offsetting items. The acquisition of the U.S. Clearing and
BrokerDealer Services Divisons of Bank of America, which was previously a
customer of Brokerage Services, reduced revenues slightly, as the back-office
services previously provided to such third-party became an internal (intercompany)
service. The average trades per day increased 18%, from 1.31 million to 1.55
million, for the quarter and 14%, from 1.28 million to 1.46 million, for the
year-to-date period. These increases are primarily due to net new business
sales and growth in our existing client base. These increases were offset
by the decline in the average revenue per trade of 15% for both the quarter
and the year-to-date period primarily due to the volume processed under tiered
pricing agreements and the increase in electronic retail trades.
Earnings Before Income Taxes
Earnings before income taxes increased $16 million, to $49 million, for
the quarter and $35 million, to $88 million, for the year-to-date period primarily
due to increased revenues in our investor communication activities. Selling,
general and administrative expenses for the quarter and year-to-date period
were favorably impacted due to collections of receivables which were previously
reserved. In addition, earnings before income taxes increased approximately
$3 million during the quarter and $8 million during the year-to-date period
as a result of the elimination of unprofitable business lines and alignment
of our cost structure in our underperforming businesses that occurred during
fiscal year 2004.
Dealer Services
Revenues
Dealer Services' revenues increased 11% for the quarter and 12% for the
year-to-date period ended December 31, 2004 when compared to the prior year.
Internal revenue growth was approximately 6% for both the quarter and year-to-date
period. Revenues increased for our dealer business systems in North America
by $26 million to $199 million for the quarter and by $53 million to $398
million for the year-to-date period primarily due to growth in our key products
and the effect of acquisitions. The growth in our key products was primarily
driven by the increased users for Application Service Provider (ASP) managed
services, new network installations, and increased market penetration of our
Customer Relationship Management (CRM) product.
Earnings Before Income Taxes
Earnings before income taxes remained flat for the quarter and increased
by 4% for the year-to-date period primarily due to the increase in revenues
offset by costs relating to the integration of acquisitions that occurred
during the fourth quarter of fiscal year 2004 and additional sales expenses
relating to headcount additions to support the revenue growth for both periods.
Securities Clearing and Outsourcing Services
On November 1, 2004, the Company acquired the U.S. Clearing and BrokerDealer
Services divisions of Bank of America Corporation (U.S. Clearing and BrokerDealer
Business), which provides third-party clearing operations. The results of
the acquired business are reported in the newly formed Securities Clearing
and Outsourcing Services segment.
The Securities Clearing and Outsourcing Services segment provides execution,
clearing, margin lending and securities borrowing to facilitate customer short
sales to clearing clients. Prime brokerage clients include hedge funds and
clients of money managers, short sellers, arbitrageurs and other professional
investors. Fully disclosed clients engage in either the retail or institutional
brokerage business.
Revenues
Revenues for Securities Clearing and Outsourcing Services was $15 million
for the quarter and year-to-date period ended December 31, 2004 as compared
to $0 in the prior year due to the acquisition of the business on November
1, 2004. Average customer margin balances were $1.1 billion during the quarter
and the year-to-date period. The average number of trades that were cleared
per day was 27 thousand for both the quarter and the year-to-date period.
Loss Before Income Taxes
Loss before income taxes was $5 million for the quarter and year-to-date
period due to the current alignment of the cost structure associated with
the revenues of the business as well as the integration costs incurred since
the acquisition of the business on November 1, 2004.
Other
The primary components of "Other" are Claims Services, miscellaneous
processing services, and corporate allocations and expenses.
Reconciling Items
The prior year's business unit revenues and earnings before income taxes
have been adjusted to reflect updated fiscal year 2005 budgeted foreign exchange
rates. Reconciling items include foreign exchange differences between the
actual foreign exchange rates and the fiscal year 2005 budgeted foreign exchange
rates, and the adjustment for the difference between actual interest income
earned on invested funds held for clients and interest credited to Employer
Services at a standard rate of 4.5%. Both of these adjustments are eliminated
in consolidation and as such represent a reconciling item to revenues and
earnings before income taxes. The business unit results also include an internal
cost of capital charge related to the funding of acquisitions and other investments.
This charge is eliminated in consolidation and as such represents a reconciling
item to earnings before income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our financial condition and balance sheet remain strong. At December 31,
2004, cash and marketable securities were $2.0 billion. Stockholders' equity
was $5.7 billion and the ratio of long-term debt-to-equity was 1.3% at December
31, 2004.
At December 31, 2004, working capital was $1.6 billion compared to $1.0
billion at June 30, 2004. The increase in the Company's working capital arose
primarily from the movement of long-term marketable securities to cash and
cash equivalents and the increase in working capital as a result of the acquisition
of the Securities Clearing and Outsourcing Services segment.
Our principal sources of liquidity are derived from cash generated through
operations and our cash and marketable securities on hand. We also have the
ability to generate cash through our financing arrangements under our U.S.
short-term commercial paper program and our U.S. and Canadian short-term repurchase
agreements. In addition, we have two unsecured revolving credit agreements
that allow us to borrow up to $4.5 billion in the aggregate. Our short-term
commercial paper program and repurchase agreements are utilized as the primary
instruments to meet short-term funding requirements related to client funds
obligations. Our revolving credit agreements, totaling $4.5 billion, are in
place to provide additional liquidity, if needed. We have never had borrowings
under the current or previous revolving credit agreements. The Company believes
that the internally generated cash flows and financing arrangements are adequate
to support business operations and capital expenditures.
Cash flows generated from operations were $692 million for the six months
ended December 31, 2004. This amount compares to cash flows from operations
of $557 million in the comparable period for the prior fiscal year. The increase
in cash flow from operations was primarily due to the increase in net earnings
of $35 million and the change in accounts receivable and other assets of $48
million, primarily due to the funding of the pension plans in the prior fiscal
year. These increases in cash generated from operations were offset by the
change in deferred income taxes of $18 million and the net change of $18 million
in securities clearing and outsourcing receivables and payables.
Cash flows provided by investing activities in the six months ended December
31, 2004 totaled $15 million compared to cash flows used in investing activities
in the comparable period for the prior fiscal year of $792 million. The fluctuation
between periods was primarily due to the timing of purchases and proceeds
of marketable securities and the net change in client fund obligations, offset
by the increase in cash paid for acquisitions in the current year-to-date
period.
Cash flows used in financing activities in the six months ended December
31, 2004 totaled $289 million compared to $339 million in the comparable period
for the prior fiscal year. The decrease in cash used in financing activities
was primarily due to cash received for a reverse repurchase agreement transaction
for which the security had not been received at December 31, 2004. We purchased
6.3 million shares of our common stock at an average price per share of $40.77
during the year-to-date period. As of December 31, 2004, we had remaining
Board of Directors' authorization to purchase up to 21.3 million additional
shares.
In June 2004, we entered into two new unsecured revolving credit agreements,
each for $2.25 billion, with certain financial institutions, replacing a previous
$4.5 billion credit agreement. The two unsecured revolving credit agreements
expire in June 2005 and June 2009, respectively. The interest rate applicable
to the borrowings is tied to LIBOR or prime rate depending on the notification
provided by the Company to the syndicated financial institutions prior to
borrowing. The Company is also required to pay facility fees on the credit
agreements. The primary uses of the credit facilities are to provide liquidity
to the unsecured commercial paper program and to provide funding for general
corporate purposes, if necessary. We had no borrowings through December 31,
2004 under the two new credit agreements.
We maintain a U.S. short-term commercial paper program providing for the
issuance of up to $4.5 billion in aggregate maturity value of commercial paper
at our discretion. Our commercial paper program is rated A-1+ by Standard
& Poor's and Prime 1 by Moody's. These ratings denote the highest quality
commercial paper securities. Maturities of commercial paper can range from
overnight to 270 days. We use the commercial paper issuances as a primary
instrument to meet short-term funding requirements related to client funds
obligations that occur as a result of our decision to extend maturities of
our client fund marketable securities. We also use commercial paper issuances
to fund general corporate purposes, if needed. This commercial paper program
allows us to take advantage of higher extended term yields, rather than liquidating
portions of our marketable securities, in order to provide more cost effective
liquidity to the Company. At December 31, 2004 and 2003, there was no commercial
paper outstanding. For the three months ended December 31, 2004 and 2003,
the Company had average borrowings of $1.5 billion and $1.4 billion, respectively,
at an effective weighted average interest rate of 2.0% and 1.0%, respectively.
For the six months ended December 31, 2004 and 2003, the Company had average
borrowings of $1.4 billion and $1.3 billion, respectively, at an effective
weighted average interest rate of 1.7% and 1.0%, respectively. The weighted
average maturity of our commercial paper during the three and six months ended
December 31, 2004 was less than two days for both periods.
Our U.S. and Canadian short-term funding requirements related to client
funds obligations are sometimes obtained on a secured basis through the use
of repurchase agreements, which are collateralized principally by government
and government agency securities. These agreements generally have terms ranging
from overnight to up to five business days. At December 31, 2004 and 2003,
there were no outstanding repurchase agreements. For the three months ended
December 31, 2004 and 2003, the Company had an average outstanding balance
of $401.4 million and $20.2 million, respectively, at a weighted average interest
rate of 1.8% and 2.2%, respectively. For the six months ended December 31,
2004 and 2003, the Company had an average outstanding balance of $395.7 million
and $13.7 million, respectively, at an average interest rate of 1.6% and 2.2%,
respectively.
For the six months ended December 31, 2004, capital expenditures were $86
million. Capital expenditures for fiscal year 2005 are expected to be approximately
$225 to $245 million compared to $204 million in fiscal year 2004.
It is not our business practice to enter into off-balance sheet arrangements.
However, in the normal course of business, we do enter into contracts in which
we guarantee the performance of our products and services. In addition, the
securities transactions of the Securities Clearing and Outsourcing Services
segment involve requiring collateral arrangements in compliance with various
regulatory and internal guidelines, which are monitored daily. We do not expect
any material losses related to such guarantees or collateral arrangements.
We are a member of numerous exchanges and clearinghouses. Under the membership
agreements, members are generally required to guarantee the performance of
other members. Additionally, if a member becomes unable to satisfy its obligations
to the clearinghouse, other members would be required to meet these shortfalls.
To mitigate these performance risks, the exchanges and clearinghouses often
require members to post collateral. Our maximum potential liability under
these arrangements cannot be quantified. However, we believe that it is unlikely
that the Company will be required to make payments under these arrangements.
Accordingly, no contingent liability is recorded in the consolidated financial
statements for these arrangements.
Quantitative and Qualitative Disclosures about Market Risk
During the six months ended December 31, 2004, approximately fifteen percent
of our overall investment portfolio was invested in cash and cash equivalents,
and therefore was impacted almost immediately by changes in short-term interest
rates. The other eighty-five percent of our investment portfolio was invested
in fixed-income securities, with varying maturities of less than ten years,
which were also subject to interest rate risk including reinvestment risk.
We have historically had the ability to hold these investments until maturity.
Details regarding our corporate investments and funds held for clients portfolios
are as follows:
The return on our portfolio is impacted by interest rate changes. Factors
that influence the earnings impact of the interest rate changes include, among
others, the amount of invested funds and the overall portfolio mix between
short-term and long-term investments. This mix varies during the year and
is impacted by daily interest rate changes. A hypothetical change in both
the short-term interest rates and the long-term interest rates of 25 basis
points applied to the estimated fiscal year 2005 average investment balances
and any related borrowings would result in approximately a $12.0 million impact
to interest revenues on funds held for Employer Services clients and approximately
an $8.0 million impact to earnings before income taxes over a twelve-month
period. A hypothetical change in only short-term interest rates of 25 basis
points applied to the estimated fiscal year 2005 average short-term investment
balances and any related short-term borrowing would result in approximately
a $1.0 million impact to earnings before income taxes over a twelve-month
period.
The Company is exposed to credit risk in connection with our available-for-sale
securities through the possible inability of the borrowers to meet the terms
of the bonds. The Company limits credit risk by investing primarily in AAA
and AA rated securities, as rated by Moody's, Standard & Poor's, and Dominion
Bond Rating Service, and by limiting amounts that can be invested in any single
issuer. At December 31, 2004, approximately 95% of our available-for-sale
securities held a AAA or AA rating.
In the normal course of business, the securities activities of the Securities
Clearing and Outsourcing Services segment involve execution, settlement and
financing of various securities transactions for a nationwide client base.
These activities may expose the Company to risk in the event customers, other
broker-dealers, banks, clearing organizations or depositories are unable to
fulfill contractual obligations.
For securities activities of the Securities Clearing and Outsourcing Services
segment in which the Company extends credit to customers and non-customers,
we seek to control the risk associated with these activities by requiring
customers and non-customers to maintain margin collateral in compliance with
various regulatory and internal guidelines. We monitor margin levels and,
pursuant to such guidelines, request the deposit of additional collateral
or the reduction of securities positions, when necessary. In addition, broker-dealers
may be required to maintain deposits relating to any security clearance activities
we perform on their behalf.
We record customers' security clearing transactions on a settlement date
basis, which is generally three business days after trade date. The Company
is therefore exposed to off-balance sheet risk of loss on unsettled transactions
in the event customers and other counterparties are unable to fulfill contractual
obligations.
New Accounting Pronouncement
In December 2004, the Financial Accounting Standards Board issued SFAS No.
123R, "Share-Based Payment" (SFAS No. 123R). SFAS No. 123R is effective
for our quarterly period ending September 30, 2005. Among other things, SFAS
No. 123R requires that compensation cost relating to share-based payment transactions
be recognized in the consolidated financial statements. Note 5, Fair Value
Accounting for Stock-Based Compensation, of the Notes to the Consolidated
Financial Statements of this Quarterly Report on Form 10-Q contains pro forma
disclosures regarding the effect on net earnings and earnings per share as
if we had applied the fair value method of accounting for stock-based compensation
under SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS
No. 123). However, the calculation of compensation cost for share-based payment
transactions in accordance with SFAS No. 123R may be different from the calculation
of compensation cost under SFAS No. 123. We are currently evaluating the new
standard and models which may be used to calculate the expense for future
share-based payment transactions.
Income Taxes
On October 22, 2004, the American Jobs Creation Act (the AJCA) was signed
into law. The AJCA includes a deduction of 85% of certain foreign earnings
that are repatriated, as defined in the AJCA. We may elect to apply this provision
to qualifying earnings repatriations in either the balance of fiscal year
2005 or in fiscal year 2006. We have started an evaluation of the effects
of the repatriation provision; however, we do not expect to be able to complete
this evaluation until Congress acts on the pending Technical Corrections Bill
and the Treasury Department provides additional clarifying language on key
elements of the provision. We expect to complete our evaluation of the effects
of the repatriation provision within a reasonable period of time following
these actions. The range of possible amounts that the Company could repatriate
under this provision is between zero and $500 million. The related potential
range of income tax is between zero and $35 million. The actual cost to the
Company is dependent on the factors discussed above.
FORWARD-LOOKING INFORMATION
This report and other written or oral statements made from time to time
by ADP may contain "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Statements that are
not historical in nature and which may be identified by the use of words like
"expects," "assumes," "projects," "anticipates,"
"estimates," "we believe," "could be" and other
words of similar meaning, are forward-looking statements. These statements
are based on management's expectations and assumptions and are subject to
risks and uncertainties that may cause actual results to differ materially
from those expressed. Factors that could cause actual results to differ materially
from those contemplated by the forward-looking statements include: ADP's success
in obtaining, retaining and selling additional services to clients; the pricing
of products and services; changes in laws regulating payroll taxes, professional
employer organizations, employee benefits and registered clearing agencies
and broker-dealers; overall market and economic conditions, including interest
rate and foreign currency trends; competitive conditions; stock market activity;
auto sales and related industry changes; employment and wage levels; changes
in technology; availability of skilled technical associates and the impact
of new acquisitions and divestitures. ADP disclaims any obligation to update
any forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The information called for by this item is provided under the caption "Quantitative
and Qualitative Disclosures about Market Risk" under Item 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Item 4. Controls and Procedures.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Company's
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities and Exchange Act of 1934. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures as of December 31, 2004 were
effective to ensure that information required to be disclosed by the Company
in reports that it files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission's rules and forms.
There were no changes in the Company's internal control over financial reporting
that occurred during the quarter ended December 31, 2004 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Except as noted below, all other items are either inapplicable or would
result in negative responses and, therefore, have been omitted.
Issuer Purchases of Equity Securities
(1) In March 2001, the Registrant received the Board of Directors' approval
to repurchase up to 50 million shares of the Registrant's common stock. In
November 2002, the Registrant received the Board of Directors' approval to
repurchase an additional 35 million shares of the Registrant's common stock.
There is no expiration date for the common stock repurchase program.
(2) During fiscal year 2005, pursuant to the terms of the Registrant's restricted
stock plan, the Registrant made purchases of 6,672 shares during October 2004
and 7,000 shares during December 2004 at a price of $.10 per share under the
terms of such program to repurchase stock granted to employees who have left
the Registrant.
(3) The average price per share does not include the repurchases described
in the preceding footnote.
The Company's Annual Meeting of the Stockholders was held on November 9,
2004. There were present at the meeting, either in person or by proxy, holders
of 493,526,698 shares of common stock. The following nominees were elected
to the Company's Board of Directors to hold office for the ensuing year. The
votes cast for each nominee were as follows:
The results of the voting 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, 2004 were as follows:
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.
Consolidated Statements of Earnings
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ----------------------
REVENUES: 2004 2003 2004 2003
---- ---- ---- ----
Revenues, other than interest
on funds held for Employer
Services clients and PEO
revenues $1,769,094 $1,636,333 $3,413,627 $3,168,722
Interest on funds held for
Employer Services clients 91,129 82,202 175,792 165,136
PEO revenues (A) 133,361 108,865 258,847 213,819
---------- ---------- ---------- ----------
TOTAL REVENUES 1,993,584 1,827,400 3,848,266 3,547,677
---------- ---------- ---------- ----------
EXPENSES:
Operating expenses 915,719 810,300 1,782,739 1,604,541
Selling, general, and
administrative expenses 465,363 459,293 911,521 886,171
Systems development and
programming costs 150,070 133,125 298,794 264,879
Depreciation and amortization 76,161 73,609 150,582 148,335
Other income, net (11,349) (14,067) (23,930) (32,659)
---------- ---------- ---------- ----------
TOTAL EXPENSES 1,595,964 1,462,260 3,119,706 2,871,267
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 397,620 365,140 728,560 676,410
Provision for income taxes 147,517 136,560 270,296 252,980
---------- ---------- ---------- ----------
NET EARNINGS $ 250,103 $ 228,580 $ 458,264 $ 423,430
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ 0.43 $ 0.39 $ 0.79 $ 0.71
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ 0.42 $ 0.38 $ 0.78 $ 0.71
========== ========== ========== ==========
Basic average shares
outstanding 583,230 591,685 583,389 593,264
========== ========== ========== ==========
Diluted average shares
outstanding 591,086 597,624 590,473 599,242
========== ========== ========== ==========
Dividends per common share $ 0.1550 $ 0.1400 $ 0.2950 $ 0.2600
========== ========== ========== ==========
(A) Net of pass-through costs of $1,352,004 and $1,037,864 for the
three months ended December 31, 2004 and 2003, respectively, and
$2,501,491 and $1,949,433 for the six months ended December 31,
2004 and 2003, respectively.
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
December 31, June 30,
2004 2004
----------- ------------
Assets
------
Current assets:
Cash and cash equivalents $ 1,131,117 $ 712,998
Short-term marketable securities 425,354 416,077
Accounts receivable, net 1,108,462 1,057,938
Securities clearing and outsourcing
receivables 947,011 -
Other current assets 581,929 574,576
----------- ------------
Total current assets 4,193,873 2,761,589
Long-term marketable securities 442,991 963,501
Long-term receivables 202,678 196,828
Property, plant and equipment, net 650,058 642,353
Other assets 771,924 720,936
Goodwill 2,385,278 2,195,539
Intangible assets, net 766,746 736,281
----------- ------------
Total assets before funds held for clients 9,413,548 8,217,027
Funds held for clients 18,775,831 12,903,532
----------- ------------
Total assets $28,189,379 $ 21,120,559
=========== ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 146,073 $ 175,175
Accrued expenses and other liabilities 1,500,501 1,482,703
Securities clearing and outsourcing payables 769,965 -
Income taxes payable 184,101 110,546
----------- ------------
Total current liabilities 2,600,640 1,768,424
Long-term debt 75,926 76,200
Other liabilities 360,191 319,495
Deferred income taxes 313,635 283,781
Deferred revenues 472,263 414,764
----------- ------------
Total liabilities before client funds
obligations 3,822,655 2,862,664
Client funds obligations 18,710,201 12,840,225
----------- ------------
Total liabilities 22,532,856 15,702,889
Stockholders' Equity:
Preferred stock, $1.00 par value:
authorized 300 shares, issued, none - -
Common stock, $0.10 par value:
authorized 1,000,000 shares; issued 638,702
shares 63,870 63,870
Capital in excess of par value 35,462 79,646
Retained earnings 7,613,142 7,326,918
Treasury stock - at cost: 55,606 and 51,587
shares, respectively (2,167,135) (2,033,254)
Accumulated other comprehensive income (loss) 111,184 (19,510)
----------- ------------
Total stockholders' equity 5,656,523 5,417,670
----------- ------------
Total liabilities and stockholders' equity $28,189,379 $ 21,120,559
=========== ============
Automatic Data Processing, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
2004 2003
---------- ----------
Cash Flows from Operating Activities:
-------------------------------------
Net earnings $ 458,264 $ 423,430
Adjustments to reconcile net earnings to net
cash flows provided by operating activities:
Depreciation and amortization 150,583 148,335
Deferred income taxes 26,736 44,785
Amortization of premiums and discounts on
available-for-sale securities 65,093 58,438
Other 69,353 52,055
Changes in operating assets and liabilities, net
of effects from acquisitions of businesses:
Increase in accounts receivable
and other assets (57,762) (105,852)
Net change in securities clearing and outsourcing
receivables and payables (17,789) -
Decrease in accounts payable and accrued
expenses (2,629) (64,649)
---------- ----------
Net cash flows provided by operating activities 691,849 556,542
---------- ----------
Cash Flows from Investing Activities:
-------------------------------------
Purchases of marketable securities (3,564,849) (3,574,698)
Proceeds from the sale or maturity of marketable
securities 3,576,289 2,741,261
Net proceeds from client fund money market
securities (5,436,679) (4,965,783)
Net change in client funds obligations 5,869,976 5,125,477
Capital expenditures (85,968) (78,017)
Additions to intangibles (39,311) (45,247)
Acquisitions of businesses, net of cash acquired (325,724) (2,363)
Proceeds from sale of businesses 17,234 2,049
Other 4,528 5,308
---------- ----------
Net cash flows provided by (used in) investing
activities 15,496 (792,013)
---------- ----------
Cash Flows from Financing Activities:
-------------------------------------
Payments of debt (793) (985)
Proceeds from issuance of notes 239 217
Net proceeds from reverse repurchase agreements 48,681 -
Repurchases of common stock (270,032) (270,602)
Proceeds from stock purchase plan and exercises
of stock options 96,774 75,259
Dividends paid (164,095) (143,006)
---------- ----------
Net cash flows used in financing activities (289,226) (339,117)
---------- ----------
Net change in cash and cash equivalents 418,119 (574,588)
Cash and cash equivalents, beginning of period 712,998 1,410,218
---------- ----------
Cash and cash equivalents, end of period $1,131,117 $ 835,630
========== ==========
Notes to the Consolidated Financial Statements
(Unless otherwise noted, amounts in thousands, except per share amounts)
(Unaudited)
Note 4. Earnings Per Share (EPS)
For the periods ended December 31, 2004
-------------------------------------------------------
Three months ended Six months ended
-------------------------- -------------------------
Net Average Net Average
Earnings Shares EPS Earnings Shares EPS
-------- ------- --- -------- ------ ---
Basic $250,103 583,230 $0.43 $458,264 583,389 $0.79
Effect of zero coupon
subordinated notes 264 1,209 529 1,222
Effect of stock
options - 6,647 - 5,862
-------- ------- -------- -------
Diluted $250,367 591,086 $0.42 $458,793 590,473 $0.78
======== ======= ===== ======== ======= =====
For the periods ended December 31, 2003
--------------------------------------------------------
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
======== ======= ===== ======== ======= =====
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net earnings, as reported $250,103 $228,580 $458,264 $423,430
Add: Stock-based employee compensation
expense for restricted stock included
in reported net earnings, net of
related tax effects 2,439 2,242 4,614 4,059
Deduct: Total stock-based employee
compensation expense determined
using the fair value-based method
for all awards, net of related
tax effects (31,673) (27,341) (65,128) (56,241)
-------- -------- -------- --------
Pro forma net earnings $220,869 $203,481 $397,750 $371,248
======== ======== ======== ========
Earnings per share:
Basic - as reported $0.43 $0.39 $0.79 $0.71
===== ===== ===== =====
Basic - pro forma $0.38 $0.34 $0.68 $0.63
===== ===== ===== =====
Diluted - as reported $0.42 $0.38 $0.78 $0.71
===== ===== ===== =====
Diluted - pro forma $0.37 $0.34 $0.67 $0.62
===== ===== ===== =====
Three months ended Six months ended
December 31, December 31,
------------------- -----------------
2004 2003 2004 2003
---- ---- ---- ----
Interest income on corporate
funds $(26,114) $(23,642) $(51,984) $(45,742)
Interest expense 10,799 5,351 18,907 10,001
Realized gains on available-
for-sale securities (6,058) (2,181) (8,661) (5,441)
Realized losses on available-
for-sale securities 10,024 6,405 17,808 8,523
-------- -------- -------- --------
Other income, net $(11,349) $(14,067) $(23,930) $(32,659)
======== ======== ======== ========
Three months ended Six months ended
December 31, December 31,
------------------- ------------------
2004 2003 2004 2003
---- ---- ---- ----
Net earnings $250,103 $228,580 $458,264 $423,430
Other comprehensive income:
Foreign currency translation
adjustments 109,428 89,448 129,527 25,790
Unrealized net (loss) gain on
available-for-sale securities (37,153) (35,773) 1,167 (82,815)
-------- -------- -------- --------
Comprehensive income $322,378 $282,255 $588,958 $366,405
======== ======== ======== ========
Revenues
------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -----------------
2004 2003 2004 2003
------ ------ ------ ------
Employer Services $1,235 $1,160 $2,412 $2,271
Brokerage Services 355 341 686 655
Dealer Services 243 218 481 429
Securities Clearing and
Outsourcing Services 15 - 15 -
Other 137 124 256 235
Reconciling items:
Foreign exchange 38 10 57 5
Client fund interest (29) (26) (59) (47)
------ ------ ------ ------
Total revenues $1,994 $1,827 $3,848 $3,548
====== ====== ====== ======
Earnings Before Income Taxes
------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -----------------
2004 2003 2004 2003
------ ------ ------ ------
Employer Services $ 286 $ 263 $ 505 $ 470
Brokerage Services 49 33 88 53
Dealer Services 37 37 72 69
Securities Clearing and
Outsourcing Services (5) - (5) -
Other 14 24 45 64
Reconciling items:
Foreign exchange 8 2 11 2
Client fund interest (29) (26) (59) (47)
Cost of capital
charge 38 32 72 65
------ ------ ------ -----
Total earnings before
income taxes $ 398 $ 365 $ 729 $ 676
====== ====== ====== =====
December 31, 2004 June 30, 2004
------------------------ ------------------------
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
Type of issue:
Money market securities
and other cash
equivalents $ 8,590,125 $ 8,590,125 $ 2,903,284 $ 2,903,284
----------- ----------- ----------- -----------
Trading securities: U.S.
Treasury and direct
obligations of U.S.
government agencies 26,450 26,450 - -
----------- ----------- ----------- -----------
Available-for-sale
securities:
U.S. Treasury and direct
obligations of U.S.
government agencies 5,900,521 5,933,517 5,449,694 5,485,632
Asset backed securities 2,126,363 2,131,866 2,570,424 2,580,609
Corporate bonds 2,303,456 2,303,298 2,342,017 2,341,015
Canadian government
obligations and Canadian
government agency
obligations 901,975 918,535 765,908 774,877
Other debt securities 863,508 870,429 899,216 900,550
Other equity securities 1,465 1,073 5,696 10,141
----------- ---------- ----------- -----------
Total available-for-sale
securities 12,097,288 12,158,718 12,032,955 12,092,824
----------- ----------- ----------- -----------
Total corporate investments
and funds held for
clients $20,713,863 $20,775,293 $14,936,239 $14,996,108
=========== =========== =========== ===========
Classification of
investments on the
Consolidated Balance
Sheets:
Corporate investments $ 2,003,662 $ 1,999,462 $ 2,096,014 $ 2,092,576
Funds held for clients 18,710,201 18,775,831 12,840,225 12,903,532
---------- ----------- ----------- -----------
Total corporate investments
and funds held for
clients $20,713,863 $20,775,293 $14,936,239 $14,996,108
=========== =========== =========== ===========
Gross Gross Unrealized
unrealized gains unrealized losses gains, net
---------------- ----------------- ----------
December 31, 2004 $105,438 $(44,008) $ 61,430
June 30, 2004 $125,585 $(65,716) $ 59,869
Receivables
-----------
Clearing customers $865,172
Securities borrowed 53,227
Broker-dealers and other 9,335
Clearing organizations 5,779
Securities failed to deliver 13,498
--------
Total $947,011
=======
Payables
--------
Clearing customers $382,296
Securities loaned 315,780
Broker-dealers and other 49,220
Securities failed to receive 22,669
--------
Total $769,965
=======
Services Services Services Services Other Total
-------- -------- -------- -------- ----- -----
Balance as of
June 30, 2004 $1,314,579 $366,299 $324,111 $ - $190,550 $2,195,539
Additions/
adjustments (1,506) 515 28,692 109,403 2,859 139,963
Sale of business - - (1,445) - - (1,445)
Cumulative
translation
adjustments 34,780 2,262 2,080 - 12,099 51,221
---------- -------- -------- -------- -------- ----------
Balance as of
December 31,
2004 $1,347,853 $369,076 $353,438 $109,403 $205,508 $2,385,278
========== ======== ======== ======== ======== ==========
December 31, June 30,
2004 2004
----------- ----------
Intangible assets:
Software and software licenses $ 760,624 $ 729,399
Customer contracts and lists 677,798 594,841
Other intangibles 393,252 391,906
---------- ----------
1,831,674 1,716,146
Less accumulated amortization (1,064,928) (979,865)
---------- ----------
Intangible assets, net $ 766,746 $ 736,281
========== ==========
Amount
------
2005 $ 78,558
2006 132,971
2007 108,308
2008 79,985
2009 44,810
2010 38,071
Three months ended Six months ended
December 31 December 31
--------------------- ----------------
2004 2003 2004 2003
-------- -------- ------- -------
Service Cost- benefits
earned during the period $ 7,506 $ 5,743 $14,889 $11,486
Interest cost on projected
benefits 9,472 8,422 18,902 16,844
Expected return on plan
assets (13,072) (12,624) (26,116) (25,248)
Net amortization and
deferral 2,779 2,549 5,557 5,098
-------- -------- ------- -------
Net pension expense $ 6,685 $ 4,090 $13,232 $ 8,180
======== ======== ======= =======
(In millions, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- ----------------------
2004 2003 Change 2004 2003 Change
---- ---- ------ ---- ---- ------
Total revenues $1,994 $1,827 9% $3,848 $3,548 8%
----------------------- ----------------------
Total expenses $1,596 $1,462 9% $3,119 $2,872 9%
----------------------- ----------------------
Earnings before income
taxes $ 398 $ 365 9% $ 729 $ 676 8%
Margin 19.9% 20.0% 18.9% 19.1%
Provision for income
taxes $ 148 $ 136 8% $ 271 $ 253 7%
Effective tax rate 37.1% 37.4% 37.1% 37.4%
Net earnings $ 250 $ 229 9% $ 458 $ 423 8%
Diluted earnings per
share $ 0.42 $ 0.38 11% $ 0.78 $ 0.71 10%
---------------------- ----------------------
(In millions)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
2004 2003 Change 2004 2003 Change
------ ------ ------ ------ ------ ------
Employer Services $1,235 $1,160 7% $2,412 $2,271 6%
Brokerage Services 355 341 4 686 655 5
Dealer Services 243 218 11 481 429 12
Securities Clearing and
Outsourcing Services 15 - - 15 - -
Other 137 124 10 256 235 9
Reconciling items:
Foreign exchange 38 10 57 5
Client fund interest (29) (26) (59) (47)
------ ------ ------ ------
Total revenues $1,994 $1,827 9% $3,848 $3,548 8%
====== ====== ====== ======
(In millions)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- ------------------------
2004 2003 Change 2004 2003 Change
------ ------ ------ ------ ------ ------
Employer Services $ 286 $ 263 9% $ 505 $ 470 8%
Brokerage Services 49 33 52 88 53 68
Dealer Services 37 37 - 72 69 4
Securities Clearing and
Outsourcing Services (5) - - (5) - -
Other 14 24 (42) 45 64 (30)
Reconciling items:
Foreign exchange 8 2 11 2
Client fund interest (29) (26) (59) (47)
Cost of capital
charge 38 32 72 65
------ ------ ------ ------
Total earnings before
income taxes $ 398 $ 365 9% $ 729 $ 676 8%
====== ====== ====== ======
Employer Services
Three Months Ended Six Months Ended
(In millions) December 31, December 31
-------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Average investment balances at cost:
Corporate investments $ 3,707.6 $ 3,677.3 $ 3,759.5 $ 3,492.8
Funds held for clients 10,667.7 9,736.5 10,447.4 9,494.7
--------- --------- --------- ---------
Total $14,375.3 $13,413.8 $14,206.9 $12,987.5
========= ========= ========= =========
Average interest rates earned
exclusive of realized gains/
(losses) on corporate investments
and funds held for clients 3.3% 3.2% 3.2% 3.3%
Realized gains on available-
for-sale securities $ 6.0 $ 2.2 $ 8.7 $ 5.4
Realized losses on available-
for-sale securities (10.0) (6.4) (17.8) (8.5)
--------- --------- --------- ---------
Net realized losses $ (4.0) $ (4.2) $ (9.1)$ (3.1)
========= ========= ========= =========
December 31, June 30,
2004 2004
------------ ---------
Net unrealized pre-tax gains on
available-for-sale securities $ 61.4 $ 59.9
Total available-for-sale securities $12,158.7 $12,092.8
(a) (b) (c) (d)
Total Number of
Shares Purchased Maximum Number
as Part of the of Shares that
Publicly may yet be
Announced Purchased under
Total Number Average Price Common Stock the Common Stock
of Shares Paid per Repurchase Repurchase
Period Purchased Share (3) Plan (1) Plan (1)
------ --------- --------- -------- --------
October 1, 2004
to October 31,
2004 24,072 $40.98 17,400 22,209,400
November 1, 2004
to November 30,
2004 - - - 22,209,400
December 1,
2004 to
December 31,
2004 859,000 $44.58 852,000 21,357,400
--------- ---------
Total 883,072(2) 869,400
Nominee For Withheld
------- --- --------
Gregory D. Brenneman 468,787,585 24,739,113
Leslie A. Brun 471,180,266 22,346,432
Gary C. Butler 483,405,243 10,121,455
Joseph A. Califano, Jr. 465,050,117 28,476,581
Leon G. Cooperman 483,669,485 9,857,213
R. Glenn Hubbard 488,841,402 4,685,296
Ann Dibble Jordan 483,320,701 10,205,997
Harvey M. Krueger 471,844,932 21,681,766
Frederic V. Malek 465,310,516 28,216,182
Henry Taub 441,181,280 52,345,418
Arthur F. Weinbach 482,698,268 10,828,430
For Against Abstained
--- ------- ---------
484,987,608 5,267,934 3,271,156
Exhibit Number Exhibit
-------------- -------
10.4 Supplemental Officers' Retirement Plan, as amended
10.8 2000 Stock Option Plan, as amended
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
Date: February 8, 2005 /s/ Karen E. Dykstra
--------------------
Karen E. Dykstra
AUTOMATIC DATA PROCESSING, INC.SUPPLEMENTAL OFFICERS RETIREMENT PLAN (as amended on May 14, 2002 and as further amended on January 27, 2005)
The purpose of this Supplemental Officers Retirement Plan (the "Plan") is to provide an additional means by which AUTOMATIC DATA PROCESSING, INC. may attract, retain and encourage the productive efforts of a select group of corporate vice presidents and more senior corporate officers who provide valuable services to AUTOMATIC DATA PROCESSING, INC. and its subsidiaries. The Plan provides supplemental retirement benefits to qualifying participants.
The Plan is as follows:
The following terms when used in this Plan shall have the designated meaning, unless a different meaning is clearly required by the context.
1.1 Annual Plan Benefit. The Annual Plan Benefit shall be the annual amount of a Participant's Plan benefit calculated in accordance with the provisions of Section 3.1 below.
1.2 Annual Benefit Multiplier. The Annual Benefit Multiplier shall be 1-1/2%.
1.3 Committee. Three board members or senior officers of the Corporation appointed from time to time by the Board of Directors of the Company.
1.4 Board. The Board of Directors of the Company.
1.5 Code. The Internal Revenue Code of 1986, as amended.
1.6 Company. Automatic Data Processing, Inc. ("ADP") and its subsidiaries, and ADP's successors.
1.7 Early Retirement Date. The date on which a Participant attains age sixty (60).
1.8 Final Average Annual Pay. The average annual compensation of a Participant for the five full consecutive calendar years during his Future Service period during which he received the largest total amount of compensation. For this purpose a Participant's "compensation" shall mean his total compensation actually paid or accrued by the Company to or for a Participant including, without limitation, bonuses paid or accrued, performance incentive payments and the like and restricted stock plans and programs (other than the broad-based restricted stock program in which all "letter grade" associates may participate), and excluding relocation pay, compensation derived from stock options, and stock appreciation rights or any similar plans; provided that, notwithstanding anything to the contrary set forth herein, amounts deferred at a Participant's election under a plan described in section 401(k) of the Code, and the value (at time of grant) of any stock option grant made in lieu of a bonus payment, shall be included in a Participant's compensation. The Company's chief executive officer shall determine the value of any stock option grant made in lieu of a bonus payment, which value shall not, in any event, be: (i) greater than the "target bonus" amount of the stock option grant was made in lieu of (the "Substituted Amount") or (ii) less than the amount such Participant would have received had the foregoing stock option grant not been made and the normal bonus "scoring" methodology been applied to the Substituted Amount, provided that such amount shall not exceed the Substituted Amount. The value of such stock option grant shall be included in a Participant's compensation in the calendar year in which the bonus (which the stock option was granted in lieu of) would have otherwise been paid or accrued. The value (on the date that restrictions lapse) of a Participant's restricted stock with restrictions lapsing during the Company's fiscal year that begins during the applicable calendar year shall be included in the Participant's compensation for such calendar year.
1.9 Future Service. A Participant's period of full calendar years of continuous employment with the Company after his Plan participation has begun. Leaves of absence of less than six months may be taken into account as Future Service, to the extent provided by the Committee. The Committee may, in the applicable Supplement, grant a Participant prior service credit for determining the length of his Future Service period.
1.10 Government Sponsored Plan Benefits. The annual amount of benefits to which a Participant is entitled on his Normal Retirement Date under all government sponsored retirement benefit plans (including, without limitation, Participant's Social Security benefits). A Participant's government sponsored retirement plan benefits shall be expressed as an annual amount in the form of an actuarially equivalent straight life annuity starting on his Normal Retirement Date.
1.11 Maximum Annual Benefit Limitation. The Maximum Annual Benefit Limitation shall be 25% of a Participant's Final Average Annual Pay.
1.12 Normal Retirement Date. The date on which the Participant attains age sixty-five (65).
1.13 Other Retirement Benefits. The sum of the Participant's Private Sector Plan Benefits and his Government Sponsored Plan Benefits.
1.14 Participant. An individual who has been designated as a Participant by the Committee pursuant to Article II.
1.15 Private Sector Plan Benefits. The annual amount of benefits to which
a Participant is entitled on his Normal Retirement Date under all retirement
plans maintained by the Company (other than this Plan), or by any former or
subsequent employer of Participant (other than a governmental body covered
by
Section 1.10 above), whether as a periodic payment, as a lump sum, or otherwise.
A Participant's Private Sector Plan Benefits shall be expressed as an annual
amount in the form of an actuarially equivalent straight life annuity starting
at his Normal Retirement Date.
1.16 Supplement. A supplement attached to and made a part of this Plan, which shall set forth for each Participant any special conditions applicable to him.
1.17 Termination of Employment. References hereunder to a Participant's termination of employment, the date a Participant's employment terminates and the like, shall refer to the ceasing of the Participant's employment with the Company for any reason.
1.18 Vested Percentage. Except to the extent set forth in Sections 3.4 and 5.5, until a Participant completes 5 full calendar years of Future Service, such Participant's Vested Percentage shall be 0% and he shall not be entitled to any Plan benefits hereunder. Upon completing 5, 6, 7, 8, 9, and 10 or more full calendar years of Future Service, a Participant's Vested Percentage shall be 50%, 60%, 70%, 80%, 90%, and 100%, respectively. The Committee may, in the applicable Supplement, grant a Participant prior service credit for determining his Vesting Percentage purposes. Any Participant who has passed the age of 55 and served as a corporate officer for more than 5 years as of the effective date of this Plan, January 1, 1989, shall be 100% vested in all of his plan benefits hereunder.
(b) A person shall automatically cease to be a Participant on the earlier to occur of the date on which: (i) he is no longer a corporate vice president or a more senior corporate officer of the Company; or (ii) he ceases to participate to the maximum extent permissible in the Company's retirement plans (including, without limitation, the Automatic Data Processing, Inc. Retirement and Savings Plan and the Automatic Data Processing, Inc. Pension Retirement Plan).
(a) A Participant's Annual Plan Benefit is the product of (i) his Final Average Annual Pay, (ii) his Future Service period, (iii) the Annual Benefit Multiplier and (iv) his Vested Percentage; provided that, in no event, may the Participant's Annual Plan Benefit exceed the Maximum Annual Benefit Limitation applicable to him.
(b) In addition, the Annual Plan Benefits otherwise payable to a Participant under the Plan's basic benefit formula set forth in Section 3.1(a) above shall be reduced to the extent necessary to cause the total of (i) Participant's Annual Plan Benefits and (ii) Participant's annual Other Retirement Benefits not to exceed 60% of Participant's Final Average Annual Pay.
(c) A Participant's benefits under this Plan shall be expressed as an annual amount in the form of a straight life annuity or, at the Committee's election, another actuarially equivalent payment option, starting as at the date the payments to such Participant under this Article III begin.
3.2 Normal Retirement Benefit. If a Participant wishes to receive Plan benefits on and after his Normal Retirement Date, the Company will pay the Participant a monthly benefit, starting on the first of the month after Normal Retirement Date and ending with the payment for the month in which his death occurs; provided that no benefit shall be paid hereunder unless and until such Participant has ceased to be employed by the Company. Such monthly benefit shall be one-twelfth of such Participant's Annual Plan Benefit determined in accordance with the provisions of Section 3.1 above.
3.3 Early Retirement Benefit. If a Participant wishes to receive Plan benefits commencing on or after his Early Retirement Date and before his Normal Retirement Date, the Company will, at Participant's request, pay the Participant a monthly benefit starting on the first of the month after his Early Retirement Date after which he requested that he begin receiving benefits under the Plan and ending with the payment for the month in which his death occurs; provided that no benefit shall be paid hereunder unless and until such Participant has ceased to be employed by the Company. Such monthly benefit shall be in an amount equal to the product of the monthly benefit the Participant would have received under Section 3.2 if the Participant had elected to commence receiving payments under the Plan on his Normal Retirement Date, actuarially reduced to reflect the commencement of the payment of Plan benefits before his Normal Retirement Date. The Committee may, in its discretion, reduce a Participant's Plan benefits by less than a straight actuarially reduced amount if Participant begins to receive Plan benefits after his Early Retirement Date and before his Normal Retirement Date.
3.4 Disability Retirement Benefit. If a Participant shall incur a Disability while employed by the Company, the Company shall pay such Participant a monthly benefit starting on the first day of the calendar month after the date his Disability begins and ending with the payment for the calendar month in which his death occurs or his disability ends, whichever occurs first. Such monthly benefit (which shall not be reduced by, and shall not reduce, the benefits, if any, payable to a Participant under the Company's Long Term Disability Insurance Program) shall be calculated in the same way as an Early Retirement benefit under Section 3.3, based on his Final Average Annual Pay when his Disability begins (which will, for purposes of this Section 3.4 only, be determined over less than five full consecutive calendar years to the extent that his Future Service period is less than five years), except that (i) the Vested Percentage shall always be 100%, (ii) there shall not be any actuarial reduction to reflect the commencement of the payment of benefits before his Normal Retirement Date, and (iii) there shall not be any Future Service period accrual during his Disability. For purposes of this Section 3.4, "Disability" shall have the same meaning, and shall be determined in the same manner, as it is determined under the Company's Long Term Disability Insurance Program as in effect on the date the Disability begins.
3.5 No Duplication. In no event shall benefits become payable to any Participant under more than one Section of this Article III.
4.1 Forfeiture for Competitive Employment. If a Participant violates the non-competition provisions of any agreement he has entered into with the Company after his employment terminates, or if his employment with the Company is terminated on account of his dishonesty or gross negligence, such Participant shall forever and irrevocably forfeit all benefits otherwise due him under the terms of the Plan.
4.2 Limitation. If any provision of this Article IV shall be unenforceable as a matter of law, it shall be construed to apply to the greatest extent permitted by law so as to give effect to its intended purposes.
5.1 Administration of Plan. The Committee shall administer the Plan and shall have the sole and exclusive authority to interpret, construe and apply its provisions. The Committee shall have the power to establish, adopt and revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan and the operation of the Committee's activities in connection therewith. All decisions of the Committee shall be by vote or written consent of the majority of its members and shall be final and binding. Members of the Committee shall be eligible to participate in the Plan while serving as a member of the Committee, but a member of the Committee shall not vote or act upon any matter which relates solely to such member in his capacity as a Participant.
5.2 Grantor Trust. The Committee may, at its discretion, have the Company create a grantor trust (within the meaning of section 671 of the Code) in connection with the adoption of this Plan to which it may from time to time contribute amounts to accumulate an appropriate reserve against its obligations hereunder. Notwithstanding the creation of such trust, the benefits hereunder shall be a general obligation of the Company. Except to the extent that the benefit amounts payable hereunder have been specifically transferred for an identified Participant into the Automatic Data Processing, Inc. Retirement and Savings Plan (the "Pension Plan") pursuant to the terms and conditions of the Pension Plan and are payable thereunder, a Participant shall have only a contractual right as a general creditor of the Company to the amounts, if any, payable hereunder and such right shall not be secured by any assets of the Company or the trust.
5.3 No Right to Company Assets. Except to the extent that benefit amounts have been specifically transferred for an identified Participant into the Pension Plan pursuant to the terms and conditions of the Pension Plan and are payable thereunder, neither a Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of the Company whatsoever including, without limiting the generality of the foregoing, any specific funds or assets which the Company may set aside in anticipation of a liability hereunder, nor in any policy or policies of insurance on the life of a Participant owned by the Company.
5.4 No Employment Rights. Nothing herein shall constitute a contract of continuing employment or in any manner obligate the Company to continue the service of a Participant, or obligate a Participant to continue in the service of the Company, and nothing herein shall be construed as fixing or regulating the compensation paid to a Participant.
5.5 Company's Right to Terminate and Amend. The Company reserves the right in its sole discretion at any time to amend the Plan in any respect or terminate the Plan. Notwithstanding the foregoing, no such amendment or termination shall reduce the amount of the benefit theretofore vested by any Participant or change the conditions required to be satisfied to receive payment of such past accrued benefit based on the provisions of the Plan as theretofore in effect. For this purpose, the amount of a Participant's accrued benefit as of the date of any plan amendment or termination shall be determined as if the Participant was then retiring in accordance with Section 3.3 with his actual Vested Percentage accrued as at such date; provided that if the Company is terminating the Plan and if a Participant has not completed at least 5 years of Future Service, Participant's Vested Percentage shall be (i) 40% if he has completed 4 years of Future Service, (ii) 30% if he has completed 3 years of Future Service, (iii) 20% if he has completed 2 years of Future Service, (iv) 10% if he has completed 1 year of Future Service, and (v) 0% if he has not completed 1 year of Future Service.
5.6 Protective Provisions. The Participant shall cooperate with the Company by furnishing any and all information requested by the Company in order to facilitate the payment of benefits hereunder.
5.7 Right of Offset. If at the time any payment is to be made hereunder a Participant is indebted to the Company or otherwise subject to a monetary claim by the Company, the payments remaining to be paid to the Participant under the Plan may, at the Company's discretion, be reduced by setoff against the amount of such indebtedness or claim.
5.8 No Third Party Rights. Nothing in this Plan or any trust established
pursuant to Section 5.2 hereof shall be construed to create any rights hereunder
in favor of any person (other than the Company and any Participant) or to
limit the Company's right to amend or terminate the Plan in any manner subject
to
Section 5.5 hereof.
6.1 Nonassignability. No rights or payments to any Participant shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or involuntary, and no attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be valid, nor shall any such benefit or payment be in any way liable for or subject to the debts, contracts, liabilities, engagements or torts of any Participant or subject to levy, garnishment, attachment, execution or other legal or equitable process. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant, nor be transferable by operation of law in the event of a Participant's bankruptcy or insolvency.
6.2 Withholding. To the extent required by law the Company shall be entitled to withhold from any payments due hereunder any federal, state and local taxes required to be withheld in connection with such payment.
6.3 Gender and Number. Wherever appropriate herein, the masculine shall mean the feminine and the singular shall mean the plural or vice versa.
6.4 Notice. Any notice required or permitted to be made under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to (a) in the case of notice to the Company or the Committee, the principal office of the Company, directed to the attention of the Secretary of the Committee, and (b) in the case of a Participant, such Participant's home or business address maintained in the Company's personnel records. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification.
6.5 Validity. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan.
6.6 Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of New Jersey.
In the event of the death of a participant who is at least 35 years of age at the time of his death and who is vested in accordance with the provisions of Paragraph 1.18, the surviving spouse is entitled to receive 50% of the death benefit which the participant would have been entitled to receive at the time of his death. Such benefit shall be payable monthly as a straight life annuity benefit and shall be calculated in accordance with the benefit which the participant would have been entitled to at the normal retirement age of 65 or, at the election of the spouse, in accordance with the early retirement provision actuarily reduced.
AUTOMATIC DATA PROCESSING, INC.
2000 STOCK OPTION PLAN (originally effective as of August 10, 1999, amended and restated as of August 11, 2003, and further amended and restated as of January 27, 2005)
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.
For purposes of the Plan, an "Affiliate" of the Company shall mean any corporation, partnership, or other entity controlled by the Company.
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.
12. 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.
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.
15. FORM OF AGREEMENTS WITH OPTIONEES. Each Option granted pursuant to the Plan shall be in writing and shall have such form, terms and provisions, not inconsistent with the provisions of the Plan, as the Committee shall provide for such Option. Each Optionee shall be notified promptly of such grant, and a written agreement shall be promptly executed and delivered by the Company and the Optionee.
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").
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.
20. SEPARABILITY. If any of the terms or provisions of the Plan conflict with the requirements of Rule 16b-3 under the Exchange Act and/or Section 422 of the Code, then such terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Rule 16b-3 under the Exchange Act and/or Section 422 of the Code. With respect to Incentive Options, if the Plan does not contain any provision required to be included herein under Section 422 of the Code, such provision shall be deemed to be incorporated herein with the same force and effect as if such provision had been set out at length herein; provided, further, that to the extent any Option which is intended to qualify as an Incentive Option cannot so qualify such Option, to the extent, shall be deemed to be a Nonqualified Option for all purposes of the Plan.
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. GOVERNING LAW. The Plan shall be governed by, and construed in accordance with, the laws of the State of New Jersey.
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 I, Arthur F. Weinbach, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Automatic Data Processing, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 8, 2005 /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 8, 2005 /s/ Karen E. Dykstra --------------------- Karen E. Dykstra Chief Financial Officer |
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Automatic Data Processing, Inc.
(the "Company") on Form 10-Q for the fiscal quarter ending December
31, 2004 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Arthur F. Weinbach, Chairman and Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Arthur F. Weinbach
----------------------
Arthur F. Weinbach
Chairman and Chief Executive Officer
February 8, 2005
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, 2004 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Karen E. Dykstra, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant
to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Karen E. Dykstra
--------------------
Karen E. Dykstra
Chief Financial Officer
February 8, 2005