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<SEC-DOCUMENT>0000008670-02-000008.txt : 20020916
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<ACCEPTANCE-DATETIME>20020916151939
ACCESSION NUMBER: 0000008670-02-000008
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20020916
FILED AS OF DATE: 20020916
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AUTOMATIC DATA PROCESSING INC
CENTRAL INDEX KEY: 0000008670
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374]
IRS NUMBER: 221467904
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-05397
FILM NUMBER: 02764822
BUSINESS ADDRESS:
STREET 1: ONE ADP BOULVARD
CITY: ROSELAND
STATE: NJ
ZIP: 07068
BUSINESS PHONE: 9739747849
MAIL ADDRESS:
STREET 1: ONE ADP BOULEVARD
CITY: ROSELAND
STATE: NJ
ZIP: 07068
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- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5397
AUTOMATIC DATA PROCESSING, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-1467904
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One ADP Boulevard, Roseland, New Jersey 07068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 973-974-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.10 Par Value New York Stock Exchange
(voting) Chicago Stock Exchange
Pacific Stock Exchange
Liquid Yield Option Notes due 2012 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 the filing
requirements for the past 90 days. Yes x No _____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of August 31, 2002 was approximately $22,815,638,729. On August
31, 2002, there were 604,067,745 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 2002 Annual Report to Shareholders.Parts I, II & IV
Portions of the Registrant's Proxy Statement for Annual Meeting
of Stockholders to be held on November 12, 2002. Part III
- -------------------------------------------------------------------------------
<PAGE>
Part I
Item 1. Business
Automatic Data Processing, Inc., incorporated in Delaware in 1961
(together with its subsidiaries "ADP" or the "Registrant"), is one of the
largest providers of computerized transaction processing, data communication,
and information services in the world. For financial information by segment and
by geographic area, see Note 13 of the "Notes to Consolidated Financial
Statements" contained in ADP's 2002 Annual Report to Shareholders, which
information is incorporated herein by reference. The Registrant's annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
all amendments to those reports, Proxy Statement for its Annual Meeting of
Stockholders and Annual Report to Shareholders are made available, free of
charge, on its website at www.adp.com as soon as reasonably practicable after
such reports have been filed with or furnished to the Securities and Exchange
Commission. The following summary describes ADP's activities.
Employer Services
Employer Services offers a comprehensive range of payroll processing,
Total Pay(TM) products (ADP's payroll check and full service direct deposit
products), human resource information systems ("HR"), benefits administration,
including 401(k), COBRA and flexible spending account administration, time and
labor management, payroll and business tax filing and reporting, professional
employer organization ("PEO"), pre-employment screening and selection and
regulatory compliance management (i.e., new hire reporting and wage garnishment
processing) to approximately 450,000 employers in North America, Europe, South
America (primarily Brazil), Australia, and Asia. These services are marketed
through Employer Services' direct marketing sales forces and through indirect
sales channels such as marketing relationships with banks, accountants, and
online companies that market Employer Services' services to their customers. In
fiscal 2002, 89% of Employer Services' revenues were from North America, 9% were
from Europe, and 2% were from South America (primarily Brazil), Australia and
Asia.
Employer Services' approach to the market is to match a client's needs
with the product that will best meet expectations. As a result, in North
America, Employer Services is comprised of the following groups: Emerging
Business Services ("EBS") (primarily companies with fewer than 50 employees);
Major Accounts (primarily companies with between 50 and 999 employees); and
National Accounts Services (primarily companies with 1,000 or more employees).
EBS processes payroll for the aforementioned smaller companies and
provides them with leading solutions, including a range of value-added services
that are specifically designed for small business clients. Major Accounts and
National Account Services offer a full suite of best-of-breed employer services
solutions, including full database and other functional integration between
payroll and HR for clients ranging from mid-sized through many of the world's
largest corporations.
In many cases, ADP provides system solutions for its clients' entire
human resource, payroll and benefits needs. Through ADP Connection(TM), ADP can
enable its largest clients to interface their major enterprise resource planning
applications with ADP's outsourced payroll services. For those companies who
choose to process these applications in-house, ADP delivers stand-alone services
such as payroll tax filing, check printing and distribution, and year-end
statements (i.e., W-2's). Other large clients rely on ADP to design and deliver
their own customized human resource information systems and benefits outsourcing
solutions.
-2-
<PAGE>
In North America, ADP provides payroll services that include the
preparation of client employee paychecks and electronic direct deposits, along
with supporting journals, summaries and management reports. ADP also supplies
the quarterly and annual social security, medicare, and federal, state and local
income tax withholding reports required to be filed by employers and employees.
In Europe, South America (primarily Brazil), Australia and Asia, Employer
Services provides full departmental outsourcing of payroll services.
ADP's Tax and Financial Service Center processes and collects federal,
state and local payroll taxes on behalf of, and from, ADP clients and remits
such taxes to the appropriate taxing authorities. Through service offerings such
as new hire reporting, ADP's Total Pay(TM) payroll check and full service direct
deposit products (in conjunction with major bank partners) and the collection
and payment of wage garnishments, the ADP Tax and Financial Services Center is
also responsible for the efficient movement of funds and information from
clients to third parties. The ADP Tax and Financial Services Center supports
large, mid-sized and small clients. It provides an electronic interface between
approximately 354,000 ADP clients in the United States and Canada and about
2,000 federal, state and local tax agencies, from the Internal Revenue Service
to local town governments. In fiscal 2002, the ADP Tax and Financial Services
Center printed and delivered approximately 42 million year-end tax statements in
North America, and moved over $580 billion in client funds to tax authorities
and its clients' employees via electronic transfer, direct deposit and ADP
Check.
ADP's HR services, operating in conjunction with a client's payroll
database, provide comprehensive HR recordkeeping services, including benefits
administration and outsourcing, applicant tracking, employee history and
position control. ADP's Benefits Services provides benefits administration
across all market segments, including management of the open enrollment of
benefits, COBRA and flexible spending account administration, Section 529
College Savings Plan administrative services and 401(k) recordkeeping. In fiscal
2002, ADP grew revenues in its retirement services business 11% and is among the
ten largest providers of 401(k) retirement plans. In fiscal 2002, ADP grew
revenues in its COBRA administration services business by over 19%.
ADP TotalSource, ADP's PEO business, provides clients with
comprehensive employment administration outsourcing solutions, including
payroll, HR, benefits administration and workers' compensation insurance. ADP
TotalSource, the third largest PEO in the U.S., has 21 offices located in twelve
states and serves over 3,000 PEO clients and over 75,000 work-site employees in
all 50 states. ADP TotalSource revenues increased by 14% in fiscal 2002 over the
previous fiscal year.
ADP complements its payroll and HR services with additional employer
services that include products such as time and labor management and
unemployment compensation management. In fiscal 2002, ADP expanded its time and
labor management business by 20%. ADP's unemployment compensation services aid
clients in managing and reducing unemployment insurance costs. In fiscal 2002,
ADP acquired Avert, Inc., a leading provider of pre-employment screening (i.e.,
employee background checking) and selection services. Prior to the acquisition,
Avert had provided these services to ADP clients through a marketing alliance
with ADP. In fiscal 2002, ADP launched its "Pay-by-Pay" Workers' Compensation
Insurance Service that allows employers using ADP's payroll services to pay for
workers' compensation insurance on a payroll by payroll basis.
During fiscal 2002, ADP continued the process of Internet-enabling
existing product offerings, while at the same time creating new products
expressly designed for the Internet. ADP's Internet offerings now include its
EasyPayNet(sm) Internet-based payroll solution for EBS clients, Pay eXpert(R)
Internet-based payroll solution for Major Accounts clients, and its Enterprise
HRMS integrated HR,
-3-
<PAGE>
payroll and benefits solution for National Accounts Services clients, all of
which feature Internet-based employer self-service capabilities. Further, in
fiscal 2002, ADP launched its Total Choice Solutions(sm)Internet-based payroll
solution, a fully-integrated, web-native human resource and payroll management
solution hosted by ADP. For benefits administration, ADP offers Benefits
eXpert(sm), an Internet-based benefits administration and employee self-service
solution that allows mid-market companies in Major Accounts to manage more
efficiently their employees' health and welfare benefits. For large clients,
ADP Benefit Services offers an Internet-based COBRA administrative solution,
as well as employee self-service applications for open-enrollment, flexible
spending account administration and other employee-administered benefit
options.
The continued increase in the number of multi-national companies makes
payroll and human resource management services a global opportunity. In fiscal
2002, ADP increased payroll sales to multi-national employers throughout Europe
by nearly 40% over the previous fiscal year. ADP constantly seeks to further
enhance its presence in the global market through alliances, such as its
partnership with Exult, Inc. in which it offers its services for large companies
to the "Global 500" market using a new technology outsourcing model.
Brokerage Services
Brokerage Services provides transaction processing systems, desktop
productivity applications and investor communication services to financial
services firms and public corporations worldwide. ADP's products and services
include: (i) global order entry, trade processing and settlement systems
including automated inquiry, reporting and record keeping services for trading
virtually any financial instrument (including equities, fixed income, foreign
currency, commodities and derivatives), in any market, at any time; (ii)
full-service investor communications services including convenient electronic
delivery and Internet solutions, financial and sophisticated on-demand printing,
proxy distribution and vote processing, householding, regulatory mailings and
fulfillment services; (iii) real-time order entry and processing services for
Internet-based brokerage firms; (iv) automated, browser-based, desktop
productivity tools for financial consultants, institutional investors and
corporate secretaries; and (v) integrated delivery of multiple products and
services through ADP's Global Processing Solution(sm).
In fiscal 2002, Brokerage Services processed a significant portion of
U.S. and Canadian securities transactions, with an average daily volume of 1.4
million trades processed. In addition, ADP served the North American securities
transaction processing needs of most large global banks. In fiscal 2002,
Brokerage Services received ISO 9001:2000 certification, an international
standard for the highest quality, for its Brokerage Processing Services system.
Brokerage Services also provides computerized proxy vote tabulation and
shareholder communication, distribution and fulfillment services, including
Internet-enabled products and services. ADP served approximately 14,000 publicly
traded companies and 450 mutual funds on behalf of more than 800 brokerage firms
and banks in fiscal 2002. In fiscal 2002, Brokerage Services distributed more
than 870 million investor communications on behalf of its clients worldwide and
processed over 475 billion shares. In fiscal 2002, Brokerage Services delivered
more than 14 million investor communications via the Internet, which is 172%
more than the prior fiscal year. Brokerage Services consolidated or
electronically delivered approximately 24% of all shareholder positions, saving
clients approximately $300 million in printing and postage costs. In addition,
Brokerage Services printed over 6.4 billion document pages for the financial
services industry in fiscal 2002.
Brokerage Services serves a diverse client base, including: full-service,
discount and online brokerage firms; global banks; mutual funds; institutional
investors; specialty trading firms; clearing
-4-
<PAGE>
firms; and publicly traded corporations. Brokerage Services provides securities
transaction processing, printing and electronic distribution of shareholder
communications and other services to clients in more than 25 countries in North
America, Europe, Asia, South America and Australia.
In fiscal 2002, Brokerage Services acquired the output services
business of IBM Global Services, significantly enhancing ADP's distributive
printing capabilities. In fiscal 2002, Brokerage Services also acquired the
Argus Group, an acquisition that supplemented ADP's current investor delivery
and fulfillment service capabilities and provided ADP with a state-of-the-art,
online content management system.
Dealer Services
Dealer Services provides integrated dealer management systems ("DMS")
and business performance solutions for motor vehicle (automobile and heavy
truck) dealers and their manufacturers worldwide. More than 16,000 automobile
and truck dealers throughout North America and Europe and more than 30 vehicle
manufacturers use ADP's DMS, networking solutions, data integration, consulting
and/or marketing services. As a result of its acquisition of Digital Motorworks
Holdings, Inc. ("DMI") in fiscal 2002, Dealer Services now has the ability to
extract, transform and standardize data from varied sources to client
specifications. These DMS-independent solutions from DMI help drive improved
decision-making by automotive manufacturers, dealers and related businesses.
Dealer Services offers its dealership clients a service solution that
includes computer hardware, hardware maintenance services, licensed software,
software support, system design and network consulting services. Dealer Services
also offers such clients "front-end" dealership sales process and business
development training services, consulting services, software products and
customer relationship management solutions. Clients use an ADP DMS to manage
business activities such as accounting, inventory, factory communications,
scheduling, vehicle financing, insurance, sales and service. Dealer Services
also designs, establishes and maintains communications networks for its
dealership clients that allow interactive communications among multiple site
locations (for larger dealers) as well as links between franchised dealers and
their vehicle manufacturer franchisors. These networks are used for activities
such as new vehicle ordering and status inquiry, warranty submission and
validation, parts and vehicle locating, dealership customer credit application
submission and decisioning, vehicle repair estimating and obtaining vehicle
registration and lien holder information. Dealer Services also offers an
Application Service Provider (ASP) Managed Services solution to its dealership
clients pursuant to which such clients outsource all information technology
management, computing and network infrastructure, technology decisions and
system support to Dealer Services.
Claims Services
Claims Services offers a broad line of automated information tools to
property and casualty insurance companies, claims adjusters, repair shops and
auto parts recycling facilities. These tools help insurers to improve their
performance by accelerating the claims review and settlement process and
streamlining workflow. The products and services include the following: (i)
automated vehicle repair estimating applications and total loss vehicle
valuation applications and related databases for the property and casualty and
collision repair industries; (ii) medical cost management applications and
services for the auto casualty and workers' compensation markets; (iii) auto
body shop management systems; (iv) parts locator systems; and (v) workflow
applications to streamline the end-to-end claims process and other applications,
databases and services that enhance and optimize the claims process.
-5-
<PAGE>
Markets and Marketing Methods
All of ADP's services are offered broadly across North America and
Europe. Some employer services and brokerage services are also offered in South
America (primarily Brazil), Australia and Asia.
None of ADP's major business groups have a single homogenous client
base or market. For example, while Brokerage Services primarily serves the
retail brokerage market, it also serves banks, commodity dealers, the
institutional brokerage market and individual non-brokerage corporations. Dealer
Services primarily serves automobile dealers, but also serves truck and
agricultural equipment dealers, auto repair shops, used car lots, state
departments of motor vehicles and manufacturers of automobiles, trucks and
agricultural equipment. Claims Services has many clients who are insurance
companies, but it also provides services to automobile manufacturers, body
repair shops, salvage yards, distributors of new and used automobile parts and
other non-insurance clients. Employer Services has clients from a large variety
of industries and markets. Within this client base are concentrations of clients
in specific industries. Employer Services also sells to auto dealers, brokerage
clients and insurance clients. While concentrations of clients exist, no one
client or business group is material to ADP's overall revenues.
None of ADP's businesses are overly sensitive to price changes.
Economic conditions among selected clients and groups of clients may and do have
a temporary impact on demand for ADP's services. In fiscal 2002, in Employer
Services, the continued weak economic conditions resulted in slower sales, lower
client retention due primarily to bankruptcies, and fewer employees on our
clients' payrolls; in Brokerage Services, weakness in the brokerage and
financial services industry significantly reduced discretionary spending and
investments in new initiatives, and the change in the mix of retail versus
institutional transactions lowered revenue per trade; and interest rates in the
U.S. declined precipitously last year significantly impacting interest earnings
on our client funds.
ADP enjoys a leadership position in each of its major service offerings
and does not believe any major service or business unit in ADP is subject to
unique market risk.
Competition
The computing services industry is highly competitive. ADP knows of no
reliable statistics by which it can determine the number of its competitors, but
it believes that it is one of the largest providers of computerized transaction
processing, data communication and information services in the world.
ADP's competitors include other independent computing services
companies, divisions of diversified enterprises and banks. Another competitive
factor in the computing services industry is the in-house computing function,
whereby a company installs and operates its own computing systems.
Competition in the computing services industry is primarily based on
service responsiveness, product quality and price. ADP believes that it is very
competitive in each of these areas and that there are no material negative
factors impacting ADP's competitive position in the computing services industry.
No one competitor or group of competitors is dominant in the computing services
industry.
Clients and Client Contracts
ADP provides its services to over 500,000 clients. In fiscal 2002, no
single client or group of affiliated clients accounted for revenues in excess of
2% of annual consolidated revenues.
-6-
<PAGE>
ADP has no material "backlog" because the period between the time a
client agrees to use ADP's services and the time the service begins is generally
very short and because no sale is considered firm until it is installed and
begins producing revenue.
ADP's average client retention is more than 8 years in Employer Services
and is 10 or more years in Brokerage Services and Dealer Services, and does not
vary significantly from period to period.
ADP's services are provided under written price quotations or service
agreements having varying terms and conditions. No one price quotation or
service agreement is material to ADP. Discounts, rebates and promotions offered
by ADP to clients are not material.
ADP offers a service warranty to its clients that if any errors or
omissions occur in its service offerings, ADP will correct them as soon as
possible. In addition, ADP provides, either directly or through third parties,
maintenance and support for the ADP provided equipment and software that
facilitates the delivery of its services to clients.
Systems Development and Programming
During the fiscal years ended June 30, 2002, 2001 and 2000, ADP
invested $475 million, $514 million and $460 million, respectively, in systems
development and programming, migration to new computing technologies and the
development of new products.
Product Development
ADP continually upgrades, enhances and expands its existing products
and services. Generally, no new product or service has a significant effect on
ADP's revenues or negatively impacts its existing products and services, and
ADP's products and services have a significant remaining life cycle.
Licenses
ADP is the licensee under a number of agreements for computer programs
and databases. ADP's business is not dependent upon a single license or group of
licenses. Third-party licenses, patents, trademarks and franchises are not
material to ADP's business as a whole.
Number of Employees
ADP employed approximately 40,000 persons as of June 30, 2002.
Item 2. Properties
ADP leases space for 45 of its principal processing centers. In
addition, ADP leases numerous other small processing centers and sales offices.
All of these leases, which aggregate approximately 6,100,000 square feet in
North America, Europe, South America (primarily Brazil), Asia, Australia and
South Africa, expire at various times up to the year 2018. ADP owns 31 of its
processing facilities and its corporate headquarters complex in Roseland, New
Jersey, which aggregate approximately 3,000,000 square feet. None of ADP's owned
facilities is subject to any material encumbrances. ADP believes its facilities
are currently adequate for their intended purposes and are adequately
maintained.
-7-
<PAGE>
Item 3. Legal Proceedings
In the normal course of business, the Registrant is subject to various
claims and litigation. While the outcome of any litigation is inherently
unpredictable, we believe we have valid defenses with respect to the legal
matters pending against us and we believe that the ultimate resolution of these
matters will not have a material adverse impact on our financial condition,
results of operations or cash flows. Among the various claims and litigation
pending against the Registrant is the following:
The Registrant and its indirect wholly-owned subsidiaries Dealer Solutions,
L.L.C. and Dealer Solutions Holdings, Inc. ("DSI") are named as defendants in a
lawsuit filed on March 4, 1999 in the 133rd Judicial District Court of Harris
County, Texas by Universal Computer systems, Inc., Universal Computer
Consulting, Ltd., Universal Computer Services, Inc., and Dealer Computer
Services, Inc. (collectively, "UCS"), which lawsuit has since been referred by
the Court to arbitration. This lawsuit alleges trade secret violations by DSI
in the creation by DSI of the CARMan automobile dealership software product.
UCS is seeking injunctive relief and unspecified damages. We believe we have
valid defenses with respect to the above matter and should prevail.
Item 4. Submission of Matters to a Vote of Security Holders
None
-8-
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
See "Market Price, Dividend Data and Other" contained in the
Registrant's 2002 Annual Report to Shareholders, which information is
incorporated herein by reference. As of August 31, 2002, the Registrant had
34,536 registered holders of its Common Stock, par value $.10 per share. The
Registrant's Common Stock is traded on the New York, Chicago and Pacific Stock
Exchanges.
On May 23, 2002, the Registrant issued 8,774 shares of its Common Stock
in respect of an earnout paid to a company in accordance with an asset purchase
agreement dated November 30, 2000 pursuant to which the Registrant acquired
substantially all of the assets of such company. The Registrant issued the
foregoing shares of Common Stock without registration under the Securities Act
of 1933, as amended, in reliance upon the exemption therefrom set forth in
Section 4(2) of such Act relating to sales by an issuer not involving a public
offering.
Equity Compensation Plan Information
<TABLE>
<CAPTION>
Plan category Number of securities to Weighted average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
plans (excluding
securities reflected in
Column (a))
<S> <C> <C> <C>
(a) (b) (c)
Equity compensation plans 50,656,776 $40.94 17,210,779 (1)
approved by security holders
Equity compensation plans not 186,000 $27.43 2,115,330 (3), (4), (5)
approved by security holders (2)
Total 50,842,776 $40.89 19,326,109
</TABLE>
(1) Includes 3,318,779 shares of Common Stock remaining available for
future issuance under the Registrant's Employees' Stock Purchase Plan,
which such shares and weighted average exercise prices are not
reflected in Columns (a) and (b) of this table.
(2) Represents (i) the Registrant's 1989 Non-Employee Director Stock Option
Plan, as amended, (ii) the Key Employees' Restricted Stock Plan, and
(iii) the French Employees' Saving-Stock Option Plan, as amended, none
of which have been approved by the Registrant's stockholders. The terms
of the 1989 Non-Employee Director Stock Option Plan are described under
"Corporate Governance" in the Proxy Statement for Registrant's 2002
Annual Meeting of Stockholders, the terms of the Key Employees'
Restricted Stock Plan are described in Note 10 to the Registrant's
Consolidated Financial Statements included in the Registrant's 2002
Annual Report to Shareholders and the terms of the French Employees'
Saving-Stock Option Plan are described in footnote (5) below.
-9-
<PAGE>
(3) The number of shares of Common Stock reserved for issuance pursuant to
the terms of the Registrant's 1989 Non-Employee Director Stock Option
Plan adjust to equal the number of shares of Common Stock issuable
under such plan. At June 30, 2002, there were 280,500 shares of Common
Stock reserved for issuance pursuant to the terms of the 1989
Non-Employee Director Stock Option Plan, as amended.
(4) Includes 768,672 shares of Common Stock reserved for issuance pursuant to
the Key Employees' Restricted Stock Plan.
(5) Includes 1,066,158 shares of Common Stock reserved for issuance pursuant to
the French Employees' Saving-Stock Option Plan. In January 1996, the Board
of Directors adopted the French Employees' Saving-Stock Option Plan (the
"French Plan"). Employees of the Registrant based in France are entitled to
purchase shares of Common Stock (such rights referred to as "Stock
Options") under the French Plan under annual offerings that commence on
January 1 of each calendar year and close on December 31 of the following
calendar year (each, an "Offering"). Each eligible employee is granted
Stock Options in each Offering that would generally entitle such employee
to purchase a whole number of shares of Common Stock equivalent in value to
10% of his or her base salary, based upon a price per share (in U.S.
dollars) determined in advance of such Offering by the French Employees'
Saving-Stock Option Plan Committee (appointed by the Board of Directors),
subject to adjustment for currency rate changes over the term of the
Offering. Participating employees pay for the exercise of the Stock Options
through monthly payroll deductions taken during the two-year period of each
Offering, and have the opportunity upon the close of the Offering to
exercise their Stock Options (or any portion thereof) and purchase the
associated number of shares of Common Stock. To the extent a participating
employee elects to purchase fewer shares of Common Stock than would be
available under his or her full allotment of Stock Options, such employee
would receive the cash remaining from the aggregate payroll deductions
after taking into account his or her purchase of shares of Common Stock.
Item 6. Selected Financial Data
See "Selected Financial Data" contained in the Registrant's 2002 Annual
Report to Shareholders, which information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
See "Management's Discussion and Analysis" contained in the Registrant's
2002 Annual Report to Shareholders, which information is incorporated herein by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Approximately 30% of the Registrant's overall investment portfolio is
invested in overnight interest-bearing instruments, which are therefore impacted
immediately by changes in interest rates. The other 70% of the Registrant's
investment portfolio is invested in fixed-income securities, with maturities of
up to ten years, which are also subject to interest rate risk, including
reinvestment risk. The Registrant has historically had the ability to hold these
investments until maturity, and therefore this has not had an adverse impact on
income or cash flows.
The earnings impact of future rate changes is not precisely predictable
because many factors influence the return on the Registrant's portfolio. These
factors include, among others, the overall portfolio mix between short-term and
long-term investments. The mix varies during the year and is impacted by daily
interest rate changes. A hypothetical change in interest rates of 25 basis
points applied to the forecasted average balances in fiscal 2003 would result in
approximately a $9 million pre-tax earnings impact over the twelve-month period.
-10-
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements described in Item 15(a)1. hereof are incorporated
herein.
The following supplementary data is incorporated herein by reference:
Quarterly Financial Results (unaudited) for the two years ended June
30, 2002 (see Note 14 of the "Notes to Consolidated Financial
Statements" contained in ADP's 2002 Annual Report to Shareholders)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
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<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
Executive Officers of the Registrant
The executive officers of the Registrant, their ages, positions and the
period during which they have been employed by ADP are as follows:
<TABLE>
<CAPTION>
Employed by
Name Age Position ADP Since
- -------------------- --- -------------------------- ----------
<S> <C> <C> <C>
John D. Barfitt 49 President, Employer 1979
Services - International
James B. Benson 57 Vice President, General 1977
Counsel and Secretary
Richard C. Berke 57 Vice President, Human 1989
Resources
Gary C. Butler 55 President and Chief 1975
Operating Officer
Raymond L. Colotti 56 Vice President and 1995
Treasurer
Richard J. Daly 49 Group President, 1989
Brokerage Services
Richard A. Douville 47 Vice President, 1999
Finance
G. Harry Durity 55 Vice President, 1994
Worldwide Business
Development
Karen E. Dykstra 43 Vice President, 1981
Finance
(Principal Financial Officer)
Russell P. Fradin 47 Group President, 1996
Employer Services - North America
Eugene A. Hall 46 Senior Vice President, and 1998
President of Financial
and Technology Services,
Employer Services - North America
-12
<PAGE>
John Hogan 54 Group President, 1993
Brokerage Services
Campbell Langdon 41 Vice President, 2000
Strategic Development
S. Michael Martone 54 Group President, Dealer 1987
Services
Peter Op de Beeck 46 Group President, 1998
Claims Solutions Group
Arthur F. Weinbach 59 Chairman and 1980
Chief Executive Officer
</TABLE>
Messrs. Benson, Berke, Butler, Daly, Durity, Fradin, Hogan, Martone and
Weinbach have each been employed by ADP in senior executive positions for more
than the past five years.
John D. Barfitt joined ADP in 1979. Prior to his promotion to President,
Employer Services -International he served as President, Claims Services at ADP
from 1998 to 2000 and Senior Vice President - Automotive Claims Services at ADP
from 1996 to 1998.
Raymond L. Colotti joined ADP in 1995. Prior to his promotion to Vice
President and Treasurer, he served as President of ADP Atlantic, Inc. and its
related companies from 1995 to 1997.
Richard A. Douville joined ADP in 1999 as Vice President, Finance.
Prior to joining ADP, he served as Senior Vice President and Chief Financial
Officer from 1996 to 1999 and as Vice President and Treasurer from 1993 to 1996
at United States Surgical Corporation.
Karen E. Dykstra joined ADP in 1981. Prior to her promotion to Vice
President, Finance (Principal Financial Officer) in 2001, she served as Vice
President and Controller from 1998 to 2001, Assistant Corporate Controller from
1996 to 1998 and as Chief Financial Officer of Dealer Services from 1995 to
1996.
Eugene A. Hall joined ADP in 1998 as Senior Vice President. In 2000, he
also became President of Financial and Technology Services of Employer Services
- - North America. Prior to joining ADP, he was a senior partner of McKinsey &
Company and had been associated with that firm for 16 years.
Campbell Langdon joined ADP in 2000 as Vice President, Strategic
Development. Prior to joining ADP, he was a partner of McKinsey & Company and
had been associated with that firm for 11 years.
Peter Op de Beeck joined ADP in 1998 as Managing Director of Claims
Solutions Group's Audatex. In 2001, he became President of ADP Claims Solutions
Group. Prior to joining ADP, he was Chairman and Chief Executive Officer of
Online Internet from 1996 to 1998.
Each of ADP's executive officers is elected for a term of one year and
until their successors are chosen and qualified or until their death,
resignation or removal.
-13-
<PAGE>
Directors of the Registrant
See "Election of Directors" in the Proxy Statement for Registrant's
2002 Annual Meeting of Stockholders, which information is incorporated herein by
reference.
Section 16(a) Beneficial Ownership Reporting Compliance
See "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement for Registrant's 2002 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
Item 11. Executive Compensation
See "Compensation of Executive Officers" in the Proxy Statement for
Registrant's 2002 Annual Meeting of Stockholders, which information is
incorporated herein by reference. See Item 5 of this Annual Report on Form 10-K
for information concerning the Registrant's equity compensation plans.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See "Election of Directors - Security Ownership of Certain Beneficial
Owners and Managers" in the Proxy Statement for Registrant's 2002 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
See "Compensation of Executive Officers - Certain Transactions" in the
Proxy Statement for Registrant's 2002 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
Item 14. Controls and Procedures
There have been no significant changes in the Registrant's internal
controls or other factors that could significantly affect those controls since
the date of the Registrant's last evaluation of its internal controls, and there
have been no corrective actions with regard to significant deficiencies and
material weaknesses in such controls.
-14-
<PAGE>
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements
The following reports and consolidated financial statements of the
Registrant contained in the Registrant's 2002 Annual Report to Shareholders are
also included in Part II, Item 8:
Statements of Consolidated Earnings - years
ended June 30, 2002, 2001 and 2000
Consolidated Balance Sheets - June 30, 2002 and 2001
Statements of Consolidated Shareholders' Equity - years ended June
30, 2002, 2001 and 2000
Statements of Consolidated Cash Flows - years ended June 30, 2002,
2001 and 2000
Notes to Consolidated Financial Statements
Report of Management
Independent Auditors' Report
Financial information of the Registrant is omitted because the
Registrant is primarily a holding company. The Registrant's subsidiaries, which
are listed on Exhibit 21 attached hereto, are wholly owned.
2. Financial Statement Schedules
<TABLE>
<CAPTION>
Page in Form 10-K
<S> <C> <C>
Independent Auditors' Report on Schedule 18
Schedule II - Valuation and Qualifying Accounts 19
</TABLE>
All other Schedules have been omitted because they are inapplicable or
are not required or the information is included elsewhere in the financial
statements or notes thereto.
3. Exhibits
The following exhibits are filed with this Form 10-K or incorporated
herein by reference to the document set forth next to the exhibit in the list
below:
3.1 - Amended and Restated Certificate of Incorporation dated
November 11, 1998 - incorporated by reference to Exhibit
3.1 to Registrant's
-15-
<PAGE>
registration statement on Form S-4 filed with the
Commission on February 9, 1999
3.2 - Amended and Restated By-laws of the Registrant
4 - Indenture dated as of February 20, 1992 between Automatic
Data Processing, Inc. and Bankers Trust Company, as
trustee, regarding the Liquid Yield Option Notes due 2012
of the Registrant - incorporated by reference to Exhibit
(4)-#1 to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992
10.1 - Letter Agreement dated as of August 13, 2001 between
Automatic Data Processing, Inc. and Arthur F. Weinbach -
incorporated by reference to Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 2001 (Management Contract)
10.2 - Letter Agreement dated September 14, 1998 between Automatic
Data Processing, Inc. and Gary Butler - incorporated by
reference to Exhibit 10.2 to Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998
(Management Contract)
10.3 - Key Employees' Restricted Stock Plan - incorporated by
reference to Registrant's Registration Statement
No. 33-25290 on Form S-8 (Management Compensatory Plan)
10.4 - Supplemental Officers' Retirement Plan, as amended
(Management Compensatory Plan)
10.5 - 1989 Non-Employee Director Stock Option Plan - incorporated
by reference to Exhibit 10(iii)(A)-#7 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1990 (Management Compensatory Plan)
10.5(a) - Amendment to 1989 Non-Employee Director Stock Option Plan -
incorporated by reference to Exhibit 10(6)(a) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 (Management Compensatory Plan)
10.6 - 1990 Key Employees' Stock Option Plan - incorporated by
reference to Exhibit 10(iii)(A)-#8 to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1990
(Management Compensatory Plan)
10.6(a) - Amendment to 1990 Key Employees' Stock Option Plan -
incorporated by reference to Exhibit 10(7)(a) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 (Management Compensatory Plan)
10.7 - 1994 Directors' Pension Arrangement - incorporated by
reference to Exhibit 10(iii)(A)-#10 to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994
(Management Compensatory Plan)
-16-
<PAGE>
10.8 - 2000 Key Employees' Stock Option Plan, as amended
(Management Compensatory Plan)
10.9 - 2001 Executive Incentive Compensation Plan - incorporated
by reference to Exhibit 10.9 to Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 2001
(Management Compensatory Plan)
10.10 - Change in Control Severance Plan for Corporate Officers -
incorporated by reference to Exhibit 10.3 to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2001 (Management Compensatory Plan)
10.11 - Employees' Saving-Stock Option Plan - incorporated by
reference to Registrant's Registration Statement No.
333-10281 on Form S-8 (Management Compensatory Plan)
11 - Schedule of Calculation of Earnings Per Share
13 - Pages 22 to 39 of the 2002 Annual Report to Shareholders
(with the exception of the pages incorporated by reference
herein, the Annual Report is not a part of this filing)
21 - Subsidiaries of the Registrant
23 - Independent Auditors' Consent
99.1 - 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
99.2 - Certification by Karen E. Dykstra pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) None.
-17-
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors
and Shareholders of
Automatic Data Processing, Inc.
Roseland, New Jersey
We have audited the consolidated financial statements of Automatic Data
Processing, Inc. and subsidiaries as of June 30, 2002 and 2001, and for each of
the three years in the period ended June 30, 2002, and have issued our report
thereon dated August 12, 2002; such consolidated financial statements and report
are included in your 2002 Annual Report to Shareholders and are incorporated
herein by reference. Our audits also included the financial statement schedule
of Automatic Data Processing, Inc., listed in Item 15. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
New York, New York
August 12, 2002
-18-
<PAGE>
<TABLE>
<CAPTION>
AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- ---------
Additions
-----------------------------
<S> <C> <C> <C> <C> <C>
(1) (2)
Charged to
Balance at Charged to other Balance at
beginning costs and accounts- Deductions- end of
of period expenses describe describe period
--------- --------- --------- ---------- ----------
Year ended June 30, 2002:
Allowance for doubtful accounts:
Current $41,996 $ 27,703 $ 743 (B) $ (17,569) (A) $ 52,873
Long-term $16,666 $ 1,176 $ -- $ (1,823) (A) $ 16,019
Deferred tax valuation allowance $41,930 $ 3,179 $ 313 (C) $ (5,282) (D) $ 40,140
Year ended June 30, 2001:
Allowance for doubtful accounts:
Current $48,448 $ 16,431 $ 114 (B) $ (22,997) (A) $ 41,996
Long-term $16,946 $ 1,369 $ -- $ (1,649) (A) $ 16,666
Deferred tax valuation allowance $43,700 $ 6,145 $ (165)(C) $ (7,750) (D) $ 41,930
Year ended June 30, 2000:
Allowance for doubtful accounts:
Current $46,357 $ 25,020 $1,663 (B) $ (24,592) (A) $ 48,448
Long-term $16,556 $ 1,942 $ -- $ (1,552) (A) $ 16,946
Deferred tax valuation allowance $38,804 $ 5,229 $ (333) (C) $ -- $ 43,700
</TABLE>
(A) Doubtful accounts written off, less recoveries on accounts previously
written off.
(B) Acquired in purchase transactions.
(C) Related to foreign exchange fluctuation.
(D) Related to the net deferred tax assets recorded in purchase accounting. The
recognition of this allowance is allocated to reduce the excess purchase price
over the net assets acquired.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AUTOMATIC DATA PROCESSING, INC.
(Registrant)
September 16, 2002 By: /s/ Arthur F. Weinbach
--------------------------
Arthur F. Weinbach
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Arthur F. Weinbach Chairman, Chief Executive September 16, 2002
- ----------------------------------
(Arthur F. Weinbach) Officer and Director
(Principal Executive Officer)
/s/ Karen E. Dykstra Vice President, Finance September 16, 2002
- ----------------------------------
(Karen E. Dykstra) (Principal Financial Officer
and Controller)
/s/ Gregory D. Brenneman Director September 16, 2002
- ----------------------------------
(Gregory D. Brenneman)
/s/ Gary C. Butler Director September 16, 2002
- ----------------------------------
(Gary C. Butler)
/s/ Joseph A. Califano, Jr. Director September 16, 2002
- ----------------------------------
(Joseph A. Califano, Jr.)
/s/ Leon G. Cooperman Director September 16, 2002
- ----------------------------------
(Leon G. Cooperman)
/s/ George H. Heilmeier Director September 16, 2002
- ----------------------------------
(George H. Heilmeier)
-20-
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Ann Dibble Jordan Director September 16, 2002
- ----------------------------------
(Ann Dibble Jordan)
/s/ Harvey M. Krueger Director September 16, 2002
- ----------------------------------
(Harvey M. Krueger)
/s/ Frederic V. Malek Director September 16, 2002
- ----------------------------------
(Frederic V. Malek)
/s/ Henry Taub Director September 16, 2002
- ----------------------------------
(Henry Taub)
/s/ Laurence A. Tisch Director September 16, 2002
- ----------------------------------
(Laurence A. Tisch)
/s/ Josh S. Weston Director September 16, 2002
- ----------------------------------
(Josh S. Weston)
-21-
</TABLE>
<PAGE>
CERTIFICATIONS
I, Arthur F. Weinbach, certify that:
1. I have reviewed this annual report on Form 10-K of Automatic Data Processing,
Inc.;
2. Based on my knowledge, this annual 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 annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.
Date: September 16, 2002
_____________/s/ Arthur F. Weinbach__________
----------------------
Arthur F. Weinbach
Chairman and Chief Executive Officer
I, Karen E. Dykstra, certify that:
1. I have reviewed this annual report on Form 10-K of Automatic Data Processing,
Inc.;
2. Based on my knowledge, this annual 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 annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.
Date: September 16, 2002
______________/s/ Karen E. Dykstra _________________
--------------------
Karen E. Dykstra
Vice President, Finance (Principal Financial Officer)
-22-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.(II)
<SEQUENCE>3
<FILENAME>exhibit3-2.txt
<DESCRIPTION>BY-LAWS
<TEXT>
EXHIBIT 3.2
AUTOMATIC DATA PROCESSING, INC.
BY-LAWS
As Amended and Restated on March 24, 1997
(further amended on May 15, 2000, November 14, 2000 and August 12, 2002)
<PAGE>
AUTOMATIC DATA PROCESSING, INC.
BY-LAWS
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I STOCKHOLDERS 1
Section 1.01. Annual Meetings 1
Section 1.02. Special Meetings 1
Section 1.03. Notice of Meetings; Waiver 1
Section 1.04. Quorum 2
Section 1.05. Voting 2
Section 1.06. Voting by Ballot 2
Section 1.07. Adjournment 2
Section 1.08. Proxies 2
Section 1.09. Organization; Procedure 3
Section 1.10. Inspectors of Elections 3
Section 1.11. Opening and Closing of Polls 4
Section 1.12. Consent of Stockholders in Lieu of Meeting 4
ARTICLE II BOARD OF DIRECTORS 4
Section 2.01. General Powers 4
Section 2.02. Number and Term of Office 4
Section 2.03. Election of Directors 5
Section 2.04. Annual and Regular Meetings 5
Section 2.05. Special Meetings; Notice 5
Section 2.06. Quorum; Voting 5
Section 2.07. Adjournment 5
Section 2.08. Action Without a Meeting 6
Section 2.09. Regulations; Manner of Acting 6
Section 2.10. Action by Telephonic Communications 6
Section 2.11. Resignations 6
Section 2.12. Removal of Directors 6
Section 2.13. Vacancies and Newly Created Directorships 6
Section 2.14. Compensation 7
Section 2.15. Reliance on Accounts and Reports, etc. 7
Section 2.16. Honorary Directors 7
<PAGE>
ARTICLE III EXECUTIVE COMMITTEE, AUDIT COMMITTEE,
COMPENSATION COMMITTEE, NOMINATING/CORPORATE
GOVERANCE COMMITTEE AND OTHER COMMITTEES 7
Section 3.01. How Constituted 7
Section 3.02. Powers; Duties and Responsibilities 8
Section 3.03. Proceedings 9
Section 3.04. Quorum and Manner of Acting 9
Section 3.05. Action by Telephonic Communications 10
Section 3.06. Absent or Disqualified Members 10
Section 3.07. Resignations 10
Section 3.08. Removal 10
Section 3.09. Vacancies 10
ARTICLE IV OFFICERS 10
Section 4.01. Number 10
Section 4.02. Election 11
Section 4.03. Salaries 11
Section 4.04. Removal and Resignation; Vacancies 11
Section 4.05. Authority and Duties of Officers 11
Section 4.06. Chairman 11
Section 4.07. President 11
Section 4.08. Vice Presidents 11
Section 4.09. Secretary 12
Section 4.10. Treasurer 12
Section 4.11. Assistant Secretary and Assistant Treasurers 13
Section 4.12. Security 13
ARTICLE V CAPITAL STOCK 13
Section 5.01. Certificates of Stock, Uncertificated Shares 13
Section 5.02. Signatures; Facsimile 13
Section 5.03. Lost, Stolen or Destroyed Certificates 13
Section 5.04. Transfer of Stock 14
Section 5.05. Record Date 14
Section 5.06. Registered Stockholders 14
Section 5.07. Transfer Agent and Registrar 15
ARTICLE VI INDEMNIFICATION 15
Section 6.01. Nature of Indemnity 15
Section 6.02. Successful Defense 16
Section 6.03. Determination that Indemnification is Proper 16
<PAGE>
Section 6.04. Advance Payment of Expenses 16
Section 6.05. Procedure for Indemnification of Directors & Officers16
Section 6.06. Survival; Preservation of Other Rights 17
Section 6.07. Insurance 17
Section 6.08. Severability 17
ARTICLE VII GENERAL PROVISIONS 18
Section 7.01. Dividends 18
Section 7.02. Reserves 18
Section 7.03. Execution of Instruments 18
Section 7.04. Corporate Indebtedness 18
Section 7.05. Fiscal Year 19
Section 7.06. Seal 19
Section 7.07. Books and Records; Inspection 19
ARTICLE VIII AMENDMENT OF BY-LAWS 19
Section 8.01. Amendment 19
ARTICLE IX CONSTRUCTION 20
Section 9.01. Construction 20
<PAGE>
AUTOMATIC DATA PROCESSING, INC.
BY-LAWS
As Amended and Restated on March 24, 1997
(further amended on May 15, 2000, November 14, 2000 and August 12, 2002)
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. The annual meeting of the stockholders
_______________
of the Corporation for the election of directors and for the transaction of
such other business as properly may come before such meeting shall be held at
such place, either within or without the State of Delaware, and at such date
and hour, as may be fixed from time to time by resolution of the Board of
Directors and set forth in the notice or waiver of notice of the meeting.
[Sections 211(a), (b).]1
Section 1.02. Special Meetings. Special meetings of the stockholders
________________
may be called at any time by the Chief Executive Officer or the Secretary or by
the Board of Directors. A special meeting shall be called by the Chief Executive
Officer or by the Secretary immediately upon receipt of a written request
therefor by stockholders holding in the aggregate not less than one-third in
number of the outstanding shares of the Corporation at the time entitled to vote
at any meeting of the stockholders. Such special meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as shall
be specified in the respective notices or waivers of notice thereof. [Section
211(d).]
Section 1.03. Notice of Meetings; Waiver. The Secretary or any Assistant
__________________________
Secretary shall cause written notice of the place, date and hour of each
meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the record of stockholders of the Corporation, or, if
he or she shall have filed with the Secretary of the Corporation a written
request that notices to him or her be mailed to some other address, then
directed to him or her at such other address. Such further notice shall be given
as may be required by law.
No notice of any meeting of stockholders need be given to any stockholder
who submits a signed waiver of notice, whether before or after the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders need be
_________________________
1 Citations are to the General Corporation Law of the State of Delaware as in
effect on January 1, 1996 (the "GCL"). The citations are inserted for reference
only, and do not constitute a part of the By-Laws.
<PAGE>
specified in a written waiver of notice. The attendance of any stockholder at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
[Sections 222, 229.]
Section 1.04. Quorum. Except as otherwise required by law or by the
______
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws, a
_______
record date has been fixed, every holder of record of shares entitled to vote at
a meeting of stockholders shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation at the close of business on the day next preceding
the day on which notice of the meeting is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. Except as otherwise required by law or by the Certificate of Incorporation
or by these By-Laws, the vote of a majority of the shares represented in person
or by proxy at any meeting at which a quorum is present shall be sufficient for
the transaction of any business at such meeting. [Sections 212(a), 213, 216.]
Section 1.06. Voting by Ballot. No vote of the stockholders need be
________________
taken by written ballot unless demanded by the holders of at least fifteen
percent (15%) of the shares represented in person or by proxy at any meeting at
which a quorum is present or as otherwise required by law. Any vote which need
not be taken by ballot may be conducted in any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting of
___________
the stockholders, the holders of a majority of the shares present in person or
by proxy shall have the power to adjourn any such meeting from time to time
until a quorum is present. Notice of any adjourned meeting of the stockholders
of the Corporation need not be given if the place, date and hour thereof are
announced at the meeting at which the adjournment is taken, provided, however,
that if the adjournment is for more than thirty days, or if after the
adjournment a new record date for the adjourned meeting is fixed pursuant to
Section 5.05 of these By-Laws, a notice of the adjourned meeting, conforming to
the requirements of Section 1.03 of these By-Laws, shall be given to each
stockholder of record entitled to vote at such meeting. At any adjourned meeting
at which a quorum is present, any business may be transacted that might have
been transacted on the original date of the meeting. [Section 222(c).]
Section 1.08. Proxies. Any stockholder entitled to vote at any meeting
_______
of the stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person or persons to vote at any
such meeting and express such
2
<PAGE>
consent or dissent for him or her by proxy. Every proxy shall be revocable at
the pleasure of the stockholder executing it, except in those cases where
applicable law provides that a proxy shall be irrevocable. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting
in person or by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the Secretary.
[Section 212.]
Section 1.09. Organization; Procedure. At every meeting of stockholders
_______________________
the presiding officer shall be the Chairman or, in the event of his or her
absence or should the Chairman in his or her discretion determine not to
preside, in the following order of availability, the Chief Executive Officer,
the President, or a Vice President, and in the case more than one Vice President
shall be present, that Vice President designated by the Board of Directors (or
in the absence of any such designation, the most senior Vice President, based on
title). In case none of the foregoing officers designated to be the presiding
officer shall be present, a presiding officer shall be chosen by the vote of a
majority of the shares represented in person or by proxy and entitled to vote at
the meeting. The Secretary, or in the event of his or her absence or disability,
the Assistant Secretary, if any, or if there be no Assistant Secretary, in the
absence of the Secretary, an appointee of the presiding officer, shall act as
secretary of the meeting. The order of business and all other matters of
procedure at every meeting of stockholders may be determined by such presiding
officer.
Section 1.10. Inspectors of Elections. Preceding any meeting of the
_______________________
stockholders, the Board of Directors shall appoint one or more persons to act as
Inspectors of Elections, and may designate one or more alternate inspectors. In
the event no inspector or alternate is able to act, the person presiding at the
meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of the duties of an inspector,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspector shall:
(a) ascertain the number of shares outstanding and the voting power
of each;
(b) determine the shares represented at a meeting and the validity
of proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors;
and
(e) certify his or her determination of the number of shares
represented at the meeting, and his or her count of all votes and ballots.
The inspector may appoint or retain other persons or entities to assist in the
performance of the duties of inspector. [Sections 231(a), (b).]
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Section 1.11. Opening and Closing of Polls. The date and time for the
____________________________
opening and the closing of the polls for each matter to be voted upon at a
stockholder meeting shall be announced at the meeting. The inspector of the
election shall be prohibited from accepting any ballots, proxies or votes or any
revocations thereof or changes thereto after the closing of the polls, unless
the Court of Chancery upon application by a stockholder shall determine
otherwise. [Section 231(c).]
Section 1.12. Consent of Stockholders in Lieu of Meeting. To the fullest
__________________________________________
extent permitted by law, whenever the vote of stockholders at a meeting thereof
is required or permitted to be taken for or in connection with any corporate
action, such action may be taken without a meeting, without prior notice and
without a vote of stockholders, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by law to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing and who, if the action
had been taken at a meeting, would have been entitled to notice of the meeting
if the record date for such meeting had been the date that written consents
signed by a sufficient number of stockholders to take the action were delivered
to the Corporation as provided in this Section 1.12. [Section 228(a), (c), (d).]
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by law,
______________
by the Certificate of Incorporation or by these By-Laws, the property, affairs
and business of the Corporation shall be managed by or under the direction of
the Board of Directors and the Board of Directors may exercise all the powers of
the Corporation. [Section 141(a) .]
Section 2.02. Number and Term of Office. The number of directors
_________________________
constituting the entire Board of Directors shall be between 9 and 13, which
number may be modified from time to time by resolution of the Board of
Directors, but in no event shall the number of directors be
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less than three. No person shall be nominated by the Board of Directors to
serve as a director after he or she has passed his or her 72nd birthday, unless
the Nominating/Corporate Governance Committee of the Board of Directors has
voted, on an annual basis, to waive, or continue to waive, the mandatory
retirement age of such person as a director. Each director (whenever elected)
shall hold office until his or her successor has been duly elected and
qualified, or until his or her earlier death, resignation or removal.
[Section 141(b).]
Section 2.03. Election of Directors. Except as otherwise provided in
_____________________
Sections 2.12 and 2.13 of these By-Laws, the directors shall be elected at each
annual meeting of the stockholders. If the annual meeting for the election of
directors is not held on the date designated therefor, the directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
stockholders for the election of directors, provided a quorum is present, the
directors shall be elected by a plurality of the votes validly cast in such
election. [Sections 211(b), (c), 216.]
Section 2.04. Annual and Regular Meetings. The annual meeting of the
___________________________
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time to
time may by resolution provide for the holding of regular meetings and fix the
place (which may be within or without the State of Delaware) and the date and
hour or such meetings. Notice of regular meetings need not be given. [Section
141(g).]
Section 2.05. Special Meetings; Notice. Special meetings of the Board
________________________
of Directors may be called by the Chairman, the Chief Executive Officer, the
Secretary or an Assistant Secretary, if any, and, on the written request of any
two directors, the Secretary or an Assistant Secretary shall call such meeting.
Special meetings shall be held at such place (within or without the State of
Delaware), date and hour as may be specified in the respective notices or
waivers of notice of such meetings. Special meetings of the Board of Directors
may be called on twenty-four hours' notice, if notice is given to each director
personally or by telephone or telegram, or on five days' notice, if notice is
mailed to each director, addressed to him or her at his or her usual place of
business. Notice of any special meeting need not be given to any director who
attends such meeting without protesting the lack of notice to him or her, prior
to or at the commencement of such meeting, or to any director who submits a
signed waiver of notice, whether before or after such meeting, and any business
may be transacted thereat. [Sections 141(g), 229.]
Section 2.06. Quorum; Voting. At all meetings of the Board of Directors,
______________
the presence of at least one-third of the total authorized number of directors,
but not less than two directors, shall constitute a quorum for the transaction
of business. Except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, the vote of a majority of the directors present
at any meeting at which a quorum is present shall be the act of the Board of
Directors. [Section 141(b).]
Section 2.07. Adjournment. A majority of the directors present, whether
___________
or not a quorum is present, may adjourn any meeting of the Board of Directors
to another time or place. No
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notice need be given of any adjourned meeting unless the time and place of the
adjourned meeting are not announced at the time of adjournment, in which case
notice conforming to the requirements of Section 2.05 of these By-Laws shall be
given to each director.
Section 2.08. Action Without a Meeting. Any action required or permitted
________________________
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all members of the Board of Directors consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors. [Section 141(f).]
Section 2.09. Regulations; Manner of Acting. To the extent consistent
_____________________________
with applicable law, the Certificate of Incorporation and these By-Laws, the
Board of Directors may adopt such rules and regulations for the conduct of
meetings of the Board of Directors and for the management of the property,
affairs and business of the Corporation as the Board of Directors may deem
appropriate. The directors shall act only as a Board, and the individual
directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Except as otherwise
___________________________________
determined by the Board of Directors, members of the Board of Directors may
participate in a meeting of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this provision shall constitute presence in person at such meeting.
[Section 141(i).]
Section 2.11. Resignations. Any director may resign at any time by
____________
delivering a written notice of resignation, signed by such director, to the
Chairman or the Chief Executive Officer. Unless otherwise specified therein,
such resignation shall take effect upon delivery. [Section 141(b).]
Section 2.12. Removal of Directors. Any director may be removed at any
____________________
time, either for or without cause, upon the affirmative vote of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote
for the election of such director. Any vacancy in the Board of Directors caused
by any such removal may be filled at such meeting by the stockholders entitled
to vote for the election of the director so removed. If such stockholders do not
fill such vacancy at such meeting (or in the written instrument effecting such
removal, if such removal was effected by consent without a meeting), such
vacancy may be filled in the manner provided in Section 2.13 of these By-Laws.
[Section 141(k).]
Section 2.13. Vacancies and Newly Created Directorships. If any vacancies
_________________________________________
shall occur in the Board of Directors, by reason of death, resignation, removal
or otherwise, or if the authorized number of directors shall be increased, the
directors then in office shall continue to act, and such vacancies and newly
created directorships may be filled by a majority of the directors then in
office, although less than a quorum. A director elected to fill a vacancy or a
newly created directorship shall hold office until his or her successor has been
elected and qualified or until his or her earlier death, resignation or removal.
Any such vacancy or newly created directorship may also be filled at any time by
vote of the stockholders. [Section 223.]
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Section 2.14. Compensation. Each director, in consideration of his or
____________
her service as such, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at directors' meetings, or both, as
the Board of Directors may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred by
such director in connection with the performance of his or her duties. Each
director who shall serve as a member of any Committee designated by the Board of
Directors in consideration of serving as such shall be entitled to such
additional amount per annum or such fees for attendance at committee meetings,
or both, as the Board of Directors may from time to time determine, together
with reimbursement for the reasonable out-of-pocket expenses, if any, incurred
by such director in the performance of his or her duties. Nothing contained in
this Section 2.14 shall preclude any director from serving the Corporation or
its subsidiaries in any other capacity and receiving proper compensation.
[Section 141(h).]
Section 2.15. Reliance on Accounts and Reports, etc. A director, or a
______________________________________
member of any Committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or Committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation. [Section 141(e).]
Section 2.16. Honorary Directors. The Board of Directors may, by vote
__________________
at a regularly held meeting, appoint at its discretion individuals as Honorary
Directors to serve for such period of time and with such compensation as shall
be fixed by the Board of Directors. Individuals appointed as Honorary Directors
shall have the right to attend regularly scheduled Board of Directors meetings
but shall not have the right to cast a vote.
ARTICLE III
EXECUTIVE COMMITTEE, AUDIT COMMITTEE, COMPENSATION
COMMITTEE, NOMINATING/CORPORATE GOVERNANCE COMMITTEE AND OTHER
COMMITTEES
Section 3.01. How Constituted. The Board of Directors shall have an
_______________
Executive Committee, an Audit Committee, a Compensation Committee and a
Nominating/Corporate Governance Committee, each such Committee to consist of
such number of directors as from time to time may be fixed by the Board of
Directors in accordance with this Section 3.01. The Executive Committee shall
consist of three or more directors. The Audit Committee, Compensation Committee,
and Nominating/Corporate Governance Committee shall each consist of three or
more outside directors, each of whom shall satisfy the independence (and, in the
case of the Audit Committee, the financial literacy and experience) requirements
of Section 10A of the Securities Exchange Act of 1934, the New York Stock
Exchange and any other regulatory
7
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requirements. The Board of Directors may designate one or more other Committees,
each of which shall consist of such number of directors as from time to time
may be fixed by the Board of Directors. The Board of Directors may designate
one or more directors as alternate members of any Committee, who may replace
any absent or disqualified member or members at any meeting of such Committee.
Thereafter, members (and alternate members, if any) of each Committee may be
designated at the annual meeting of the Board of Directors. Any Committee,
other than the Executive Committee, Audit Committee, Compensation Committee
and Nominating/Corporate Governance Committee, may be abolished or
re-designated from time to time by the Board of Directors. Each member (and
each alternate member) of any Committee (whether designated at an annual
meeting of the Board of Directors or to fill a vacancy or otherwise) shall hold
office until his or her successor shall have been designated or until he or she
shall cease to be a director, or until his or her earlier death, resignation or
removal. [Section 141(c).]
Section 3.02. Powers; Duties and Responsibilities. During the intervals
___________________________________
between the meetings of the Board of Directors, the Executive Committee, except
as otherwise provided in this Section 3.02, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
property, affairs and business of the Corporation, including the power to
declare dividends and to authorize the issuance of stock.
The Audit Committee shall have the power and authority of the Board of
Directors to fulfill the Board of Directors' oversight responsibilities with
respect to: (a) the Corporation's systems of internal controls regarding
finance, accounting, legal compliance and ethical behavior; (b) the
Corporation's auditing, accounting and financial reporting processes generally;
(c) the Corporation's financial statements and other financial information
provided by the Corporation to its stockholders, the public and others; (d) the
Corporation's compliance with legal and regulatory requirements; and (e) the
performance of the Corporation's internal auditors and independent auditors. The
specific powers and responsibilities of the Audit Committee are set forth in its
Charter (which is available on the Corporation's website at "adp.com").
The Compensation Committee shall have the power and authority of the
Board of Directors to fulfill the Board of Directors' responsibilities in
respect to compensation of the Corporation's executives. The specific powers and
responsibilities of the Compensation Committee are set forth in its Charter
(which is available on the Corporation's website at "adp.com").
The Nominating/Corporate Governance Committee shall have the power and
authority of the Board of Directors to ensure: (a) that the Board of Directors
shall have the benefit of qualified and experienced Directors; (b) that the
Audit, Compensation and Nominating/ Corporate Governance Committees of the
Board of Directors shall have the benefit of qualified Directors, each of whom
shall satisfy the independence (and, in the case of the Audit Committee, the
financial literacy and experience) requirements of Section 10A of the
Securities Exchange Act, the New York Stock Exchange and any other regulatory
requirements, and (c) that the Corporation shall have in place effective
corporate governance policies and procedures. The
8
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specific powers of the Nominating/Corporate Governance Committee are set forth
in its Charter (which is available on the Corporation's website at "adp.com").
Each Committee shall have and may exercise such powers of the
Board of Directors as may be provided by resolution or resolutions of the Board
of Directors. Notwithstanding the foregoing, no Committee shall have the power
or authority:
(a) to amend the Certificate of Incorporation (except that a
Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution,
any distribution of assets of the Corporation or the conversion into,
or the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or classes
of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any
series);
(b) to adopt an agreement of merger or consolidation;
(c) to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of dissolution; or
(e) to amend the By-Laws of the Corporation. [Section 141(c).]
Section 3.03. Proceedings. The Chairman of each Committee shall be
___________
designated by the Board of Directors. Each Committee may fix its own rules of
procedure and may meet at such place (within or without the State of Delaware),
at such time and upon such notice, if any, as it shall determine from time to
time or as may be required by the Board of Directors. Each Committee shall keep
minutes of its proceedings and shall report such proceedings to the Board of
Directors at the meeting of the Board of Directors next following any such
proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
___________________________
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such Committee shall constitute a quorum
for the transaction of business. Notwithstanding the foregoing, the presence of
two members (or alternate members) of a Committee that has four authorized
members shall constitute a quorum for the transaction of business. The act of
the majority of the members present at any meeting at which a quorum is present
shall be the act of such Committee. Any action required or permitted to be taken
at any meeting of any such Committee may be taken without a meeting, if all
members of such Committee shall consent to such action in writing and such
writing or writings are filed with the minutes of the proceedings
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of the Committee. The members of any such Committee shall act only as a
Committee, and the individual members of such Committee shall have no power as
such. [Section 141(c), (f).]
Section 3.05. Action by Telephonic Communications. Except as otherwise
___________________________________
provided by the applicable Committee or by the Board of Directors, members of
any Committee may participate in a meeting of such Committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting. [Section 141(i).]
Section 3.06. Absent or Disqualified Members. In the absence or
______________________________
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another qualified member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. [Section 141(c).]
Section 3.07. Resignations. Any member (and any alternate member) of
____________
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman or the Chief Executive
Officer. Unless otherwise specified therein, such resignation shall take effect
upon delivery.
Section 3.08. Removal. Any member (and any alternate member) of any
_______
Committee may be removed from his or her position as a member (or alternate
member, as the case may be) of such Committee at any time, either for or without
cause, by the Board of Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any Committee,
_________
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be a
______
Chairman of the Board, a President, a Secretary, a Treasurer and such other
officers as the Board of Directors may appoint, including one or more Vice
Presidents and one or more Assistant Secretaries and Assistant Treasurers, who
shall exercise such powers and perform such duties and have such titles as shall
be determined from time to time by the Board of Directors or as otherwise
provided in the By-Laws. The Board of Directors shall designate an officer to be
the Chief Executive Officer of the Corporation and may designate any officer to
be the Chief Operating Officer or Chief Financial Officer of the Corporation.
Any number of offices may be held by the same person unless the Certificate of
Incorporation or these By-Laws provide otherwise. [Section 142 (a) , (b).]
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Section 4.02. Election. Unless otherwise determined by the Board of
________
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his or her successor has been
elected and qualified, or until his or her earlier death, resignation or
removal. [Section 142(b).]
Section 4.03. Salaries. The salaries of all officers and agents of the
________
Corporation shall be fixed by the Board of Directors, the Chief Executive
Officer or such other persons to whom the authority to fix such salaries shall
be delegated by the Board of Directors or the Chief Executive Officer. No
officer shall be prevented from receiving a salary or other compensation by
reason of the fact that the officer is also a director of the Corporation.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
__________________________________
removed for or without cause at any time by the Board of Directors or by the
Chief Executive Officer. Any officer may resign at any time by delivering a
written notice of resignation, signed by such officer, to the Board of Directors
or the Chief Executive Officer. Unless otherwise specified therein, such
resignation shall take effect upon delivery. Any vacancy occurring in any office
of the Corporation by death, resignation, removal or otherwise, shall be filled
by the Board of Directors or by the Chief Executive Officer. [Section 142(b),
(e).]
Section 4.05. Authority and Duties of Officers. The officers of the
________________________________
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law. [Section 142(a).]
Section 4.06. Chairman. The Chairman shall preside at all meetings of
________
the stockholders and the Board of Directors and shall exercise such powers and
perform such other duties as shall be determined from time to time by the Board
of Directors.
Section 4.07. President. The President shall have general supervision
over the business of the Corporation, subject, however, to the control of the
Board of Directors, any duly authorized Committee designated by the Board of
Directors and the Chief Executive Officer (if not the President). The President
may sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts and other instruments except in cases in which the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the Corporation or shall be
required by statute otherwise to be signed or executed and, in general, the
President shall perform all duties incident to the office of President of a
corporation and such other duties as may from time to time be assigned to the
President by the Board of Directors and the Chief Executive Officer (if not the
President).
Section 4.08. Vice Presidents. At the request of the Chief Executive
_______________
Officer, or, in the Chief Executive Officer's absence, at the request of the
Board of Directors, the Vice Presidents
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shall (in such order as may be designated by the Chief Executive Officer or the
Board of Directors or, in the absence of any such designation, the most senior
Vice President based on title) perform all of the duties of the President and,
in so performing, shall have all the powers of, and be subject to all
restrictions upon, the President. Any Vice President may sign and execute in
the name of the Corporation deeds, mortgages, bonds, contracts or other
instruments, except in cases in which the signing and execution thereof shall
be expressly delegated by the Board of Directors or by these By-Laws to some
other officer or agent of the Corporation, or shall be required by statute
otherwise to be signed or executed, and each Vice President shall perform such
other duties as from time to time may be assigned to such Vice President by
the Board of Directors or by the Chief Executive Officer.
Section 4.09. Secretary. The Secretary shall attend all meetings of the
_________
stockholders and the Board of Directors and shall record all the proceedings of
such meetings in a book or books to be kept for that purpose, and shall perform
like duties for the Committees of the Board of Directors, when required. The
Secretary shall give, or cause to be given, all notices to be given in
accordance with these By-Laws or as required by law and shall perform such other
duties as may be prescribed by the Board of Directors or by the Chief Executive
Officer. The Secretary or an Assistant Secretary, if any, may attest all
instruments signed by the Chairman, the Chief Executive Officer, the President,
any Vice President or any other authorized officers of the Corporation. The
Secretary shall have charge of the stock books and ledgers of the Corporation
and all the books, records and papers of the Corporation relating to its
organization and management, shall see that the reports, statements and other
documents required by statute are properly kept and filed and, in general, shall
perform all duties incident to the office of Secretary of a corporation and such
other duties as may from time to time be assigned to the Secretary by the Board
of Directors or by the Chief Executive Officer.
Section 4.10. Treasurer. The Treasurer shall have charge and custody of,
_________
and be responsible for, all funds, securities and notes of the Corporation;
receive and give receipts for moneys due and payable to the Corporation from
any sources whatsoever; deposit all such moneys and valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors, the Chief Executive Officer, the Treasurer
or by any person to whom such power to designate is delegated by the Board of
Directors, the Chief Executive Officer or the Treasurer; against proper
vouchers, cause such funds to be disbursed by checks or drafts on the
authorized depositories of the Corporation signed in such manner as shall be
determined by the Board of Directors or the Chief Executive Officer and be
responsible for the accuracy of the amounts of all moneys so disbursed;
regularly enter or cause to be entered in books or other records maintained
for the purpose full and adequate account of all moneys received or paid for
the account of the Corporation; have the right to require from time to time
reports or statements giving such information as the Treasurer may desire with
respect to any and all financial transactions of the Corporation from the
officers or agents transacting the same; render to the Chief Executive Officer
or the Board of Directors, whenever the Chief Executive Officer or the Board
of Directors shall require the Treasurer so to do, an account of the financial
condition of the Corporation and of all financial transactions of the
Corporation; exhibit at all reasonable times the records and books of account
to any of the directors upon application at the office of the Corporation where
such records and books are kept; disburse the funds of the Corporation as
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ordered by the Board of Directors and the Chief Executive Officer; and, in
general, perform all duties incident to the office of Treasurer of a
corporation and such other duties as may from time to time be assigned to the
Treasurer by the Board of Directors or the Chief Executive Officer.
Section 4.11. Assistant Secretaries and Assistant Treasurers. Assistant
______________________________________________
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board of Directors or by the Chief Executive Officer.
Section 4.12. Security. The Board of Directors may require any officer,
________
agent or employee of the Corporation to provide security for the faithful
performance of his or her duties, in such amount and of such character as may be
determined from time to time by the Board of Directors. [Section 142(c).]
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock; Uncertificated Shares. The shares
____________________________________________
of the Corporation shall be represented by certificates, provided that the Board
of Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the Chairman, the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form. Such certificate shall be in such form as the
Board of Directors may determine, to the extent consistent with applicable law,
the Certificate of Incorporation and these By-Laws. [Section 158.]
Section 5.02. Signatures; Facsimile. All of such signatures on the
_____________________
certificate referred to in Section 5.01 of these By-Laws may be a facsimile,
engraved or printed, to the extent permitted by law. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue. [Section 158.]
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
______________________________________
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of proof
satisfactory to the Board of Directors of such loss, theft or destruction. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to
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advertise such loss, theft or destruction in such manner as the Board of
Directors may require and to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate. [Section 167.]
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or
_________________
the transfer agent of the Corporation of a certificate for shares, duly endorsed
or accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Subject to the provisions of the Certificate of Incorporation and these By-Laws,
the Board of Directors may prescribe such additional rules and regulations as it
may deem appropriate relating to the issue, transfer and registration of shares
of the Corporation. [Section 151(f).]
Section 5.05. Record Date. In order to determine the stockholders
___________
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date on which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. [Section 213.]
Section 5.06. Registered Stockholders. Prior to due surrender of a
_______________________
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so. [Section 159.]
14
<PAGE>
Section 5.07. Transfer Agent and Registrar. The Board of Directors may
____________________________
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
___________________
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
or she (x) acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Corporation and, in the case
of any such employee or agent, in a manner he or she reasonably believed to be
not in violation of any policies or directives of the Corporation, and (y) with
respect to any criminal action or proceeding had no reasonable cause to believe
his or her conduct was unlawful; except that in the case of an action or suit by
or in the right of the Corporation to procure a judgment in its favor (i) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (ii) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. The indemnification under this Section 6.01
shall apply to all directors and officers of the Corporation who sit on the
boards of directors of non-profit corporations in keeping with the Corporation's
philosophy.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
15
<PAGE>
Section 6.02. Successful Defense. To the extent that a director,
__________________
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
6.01 of these By-Laws or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 6.03. Determination That Indemnification Is Proper. Any
____________________________________________
indemnification of a director or officer of the Corporation under Section 6.01
of these By-Laws (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 6.01 of these By-Laws. Any
indemnification of an employee or agent of the Corporation under Section 6.01 of
these By-Laws (unless ordered by a court) may be made by the Corporation upon a
determination that indemnification of the employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 6.01 of these By-Laws. Any such determination shall be made (i)
by a majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
___________________________
attorneys' fees) incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article. Such expenses (including attorneys' fees) incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate. The Board of Directors may authorize the
Corporation's counsel to represent such director, officer, employee or agent in
any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
Section 6.05. Procedure for Indemnification of Directors and Officers.
_______________________________________________________
Any indemnification of a director or officer of the Corporation under Sections
6.01 and 6.02 of these By-Laws, or advance of costs, charges and expenses to a
director or officer under Section 6.04 of these By-Laws, shall be made promptly,
and in any event within thirty days, upon the written request of the director or
officer. If a determination by the Corporation that the director or officer is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If the
Corporation denies a written request for indemnity or advancement of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within thirty days, the right to indemnification or advances as granted by this
Article shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such action shall also be indemnified by the Corporation. It shall
be a defense to any such action (other than an action brought to enforce a
16
<PAGE>
claim for the advance of costs, charges and expenses under Section 6.04 of these
By-Laws where the required undertaking, if any, has been received by or tendered
to the Corporation) that the claimant has not met the standard of conduct set
forth in Section 6.01 of these By-Laws, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors, its independent legal counsel, and its stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in Section 6.01 of these
By-Laws, nor the fact that there has been an actual determination by the
Corporation (including its Board of Directors, its independent legal counsel,
and its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
______________________________________
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the General Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation may purchase and maintain
_________
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her or on his or her behalf in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article, provided that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof shall
____________
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees) judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative
17
<PAGE>
or investigative, including an action by or in the right of the Corporation, to
the fullest extent permitted by any applicable portion of this Article that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
ARTICLE VII
GENERAL PROVISIONS
Section 7.01. Dividends. Subject to any applicable provisions of law
_________
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's capital stock.
A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or Committees of the Board of Directors, or by any other person as to
matters the director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid. [Sections 172, 173.]
Section 7.02. Reserves. There may be set aside out of any funds of the
________
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies or for repairing or maintaining any property of
the Corporation or for such other purpose as the Board of Directors shall think
conducive to the interest of the Corporation, and the Board of Directors may
similarly modify or abolish any such reserve. [Section 171.]
Section 7.03. Execution of Instruments. The Board of Directors, except
________________________
as otherwise provided in these By-Laws, may prospectively or retroactively
authorize any officer or officers, employee or employees or agent or agents, in
the name and on behalf of the Corporation, to enter into any contract or
agreement or execute and deliver any instrument, including checks, drafts and
other orders for the payment of moneys out of the funds of the Corporation,
promissory notes, bonds or other evidences of indebtedness of the Corporation,
endorsements, assignments, transfers, stock powers or other instruments of
transfer of stock or other securities belonging to and/or standing in the name
of the Corporation, and any other documents requiring the execution by or in the
name of the Corporation, and any such authority may be general or confined to
specific instances, or otherwise limited.
Section 7.04. Corporate Indebtedness. The Board of Directors may
______________________
prospectively or retroactively authorize the Chief Executive Officer or any
other officer, employee or agent of the Corporation to effect loans and advances
at any time for the Corporation from any banks, trust
18
<PAGE>
company or other institution, or from any firm, corporation or individual, and,
when authorized by the Board of Directors so to do, may pledge and hypothecate
or transfer any securities or other property of the Corporation as security for
any such loans or advances. Such authority conferred by the Board of Directors
may be general or confined to specific instances, or otherwise limited.
Section 7.05. Fiscal Year. The Board of Directors may determine the
___________
fiscal year of the Corporation and may from time to time change the same.
Section 7.06. Seal. The seal of the Corporation shall be circular in
____
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 7.07. Books and Records; Inspection. Except to the extent
_____________________________
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors. Subject to the General
Corporation Law, the Board of Directors from time to time may determine whether,
to what extent, at what times and places, and under what conditions and
regulations, the accounts, books and papers of the Corporation, or any of them,
shall be open to the inspection of stockholders; and no stockholder shall have
any right to inspect any account, book or paper of the Corporation except as
expressly conferred by the General Corporation Law or authorized by the Board of
Directors.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Section 8.01. Amendment. Subject to the provisions of the Certificate of
________
Incorporation, these By-Laws may be amended, altered or repealed:
(a) by resolution adopted by a majority of the Board of Directors
at any special or regular meeting of the Board of Directors if, in the
case of such special meeting only, notice of such amendment, alteration
or repeal is contained in the notice or waiver of notice of such meeting;
or
(b) at any regular or special meeting of the stockholders if,
in the case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice of
such meeting. [Section 109(a).]
19
<PAGE>
ARTICLE IX
CONSTRUCTION
Section 9.01. Construction. Whenever in these By-Laws references are
____________
made to the Certificate of Incorporation, such references shall be deemed to be
references to the Certificate of Incorporation, as the same, at the time of the
adoption of these By-Laws, may have been amended and as the same, subsequent to
such time, may be amended; and wherever in these By-Laws references are made to
the By-Laws of the Corporation, such references shall be deemed to be references
to these By-Laws, and to the same as they from time to time may be amended.
Wherever in these By-Laws references are made to the General Corporation Law,
such references shall be deemed to be references to the General Corporation Law
of the State of Delaware.
20
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>exhibit10-4.txt
<DESCRIPTION>SUPPLEMENTAL OFFICES RETIREMENT PLAN EXHIBIT 10.4
<TEXT>
EXHIBIT 10.4
AUTOMATIC DATA PROCESSING, INC.
SUPPLEMENTAL OFFICERS RETIREMENT PLAN
(as amended on May 14, 2002)
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:
ARTICLE I
DEFINITIONS
-----------
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).
<PAGE>
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
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 deemed
value (at time of grant) of any stock option grant made in lieu of a bonus
payment, shall be included in Participant's compensation. The Company's chief
executive officer shall determine the deemed 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 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 deemed
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. 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
-2-
<PAGE>
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.
-3-
<PAGE>
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.
ARTICLE II
ELIGIBILITY
------------
(a) The Committee may at any time and from time to time (but
prospectively only) designate any corporate vice president or any more senior
corporate officer of the Company as a Participant in the Plan; provided that
such person participates to the maximum extent permissible in the Company's
other retirement plans (including, without limitation, the Automatic Data
Processing, Inc. Retirement and Savings Plan and the Automatic Data Processing,
Inc. Pension Retirement Plan) during the entire period he is a Participant in
the Plan.
(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
-4-
<PAGE>
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).
ARTICLE III
RETIREMENT BENEFITS
-------------------
3.1 In General.
(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
-5-
<PAGE>
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
-6-
<PAGE>
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.
ARTICLE IV
FORFEITURES
-----------
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.
ARTICLE V
CONDITIONS RELATED TO BENEFITS
-------------------------------
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
-7-
<PAGE>
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. Payment of benefits from such
trust shall, to the extent, discharge the Company's obligations under this Plan.
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. 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 or to 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.
-8-
<PAGE>
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.
-9-
<PAGE>
ARTICLE VI
MISCELLANEOUS
--------------
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.
-10-
<PAGE>
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.
ARTICLE VII
SPOUSAL BENEFITS
----------------
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.
-11-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>exhibit10-8.txt
<DESCRIPTION>EX 10.8 2000 KEY EMPLOYEES' STOCK OPTION PLAN
<TEXT>
EXHIBIT 10.8
AUTOMATIC DATA PROCESSING, INC.
2000 KEY EMPLOYEES' STOCK OPTION PLAN
(as amended effective as of August 31, 2001
and as further amended on May 14, 2002)
Automatic Data Processing, Inc., a Delaware corporation (the "Company"),
hereby formulates and adopts the following 2000 Key Employees' Stock Option Plan
(the "Plan") for employees of the Company and its Subsidiaries (as defined in
Paragraph 5):
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 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 employees.
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 a Stock Option Committee (the "Committee") to be
appointed by the Board of Directors, which Committee may include employees who
are and who are not members of the Board of Directors. 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 36,750,000 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.
<PAGE>
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
to whom Options are to be granted, whether the Options granted 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 or key employees 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 employee'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. EMPLOYEES 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. Options may be granted to employees 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 Person 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
<PAGE>
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.
An employee 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 15 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 with the Company or any of its Subsidiaries; provided,
however, that if the Optionee shall die during such 15-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 the Company or any of its Subsidiaries
or during the 15-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; and
<PAGE>
(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. The Options granted under the Plan
shall not be affected by any change of employment so long as the Optionee
continues to be an employee of the Company or any of its Subsidiaries.
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. Nothing in the Plan or in any Option
shall confer upon any Optionee the right to continue in the employment of the
Company or any of its Subsidiaries or affect the right of the Company or any of
its Subsidiaries to terminate the 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
<PAGE>
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.
<PAGE>
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 the Optionee and subject to the
terms and conditions of the Plan, the Committee may amend outstanding award
agreements with any Optionee.
17. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon its
adoption by the Board of Directors (the "Effective Date"), subject, however, to
its approval by the Company's stockholders within 12 months after the date of
such adoption.
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,
<PAGE>
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. DEFERRAL. The Committee may, in its sole discretion, establish
procedures whereby one or more Optionees may elect to defer the receipt of
shares upon the exercise of Options for a specified period of time or until the
occurrence of a specified event.
24. GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with, the laws of the State of New Jersey.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>6
<FILENAME>exhibit11.txt
<DESCRIPTION>EXHBITI 11 CALCULATION OF EPS
<TEXT>
<TABLE>
<CAPTION>
EXHIBIT 11
AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Years ended June 30,
-----------------------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net earnings applicable to common shares $1,100,770 $924,720 $840,800 $696,840 $608,262
========== ======== ======== ======== ========
Average number of common shares outstanding 618,857 629,035 626,766 615,630 600,803
======== ======= ======= ======= =======
Basic earnings per share $ 1.78 $ 1.47 $ 1.34 $ 1.13 $ 1.01
========== ======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
Net earnings used in basic earnings per share $1,100,770 $924,720 $840,800 $696,840 $608,262
Adjustment for interest (net of tax) - zero coupon
convertible subordinated notes (5 1/4% yield) 1,611 2,340 2,912 3,607 7,833
-------- -------- ------- -------- --------
Net earnings used for diluted earnings per share $1,102,381 $927,060 $843,712 $700,447 $616,095
========== ======== ======== ======== ========
Average number of shares outstanding on a diluted
basis:
Shares used in calculating basic earnings per share 618,857 629,035 626,766 615,630 600,803
Diluted effect of all stock options outstanding
after application of treasury stock method 9,370 13,482 14,823 15,306 13,363
Shares assumed to be issued upon conversion of
Debentures - zero coupon convertible
subordinated notes (5 1/4% yield) 2,352 3,472 4,509 5,956 14,030
---------- ------- ------- ------- -------
Average number of shares outstanding on a diluted
basis: 630,579 645,989 646,098 636,892 628,196
========== ======= ======= ======= =======
Diluted earnings per share $ 1.75 $ 1.44 $ 1.31 $ 1.10 $ 0.98
========== ======== ======= ======== ========
PRO FORMA BASIC EARNINGS PER SHARE:(a)
Net earnings applicable to common shares $924,720 $840,800 $696,840 $608,262
Goodwill (net of tax impact) 46,960 41,090 42,420 39,768
------ ------ ------ ------
Pro forma net earnings applicable to common shares $971,680 $881,890 $739,260 $648,030
Average number of common shares outstanding 629,035 626,766 615,630 600,803
======= ======= ======= =======
Pro forma basic earnings per share $ 1.54 $ 1.41 $ 1.20 $ 1.08
======== ======= ======== ========
PRO FORMA DILUTED EARNINGS PER SHARE:(a)
Pro forma net earnings used in basic earnings per share $971,680 $881,890 $739,260 $648,030
Adjustment for interest (net of tax) - zero coupon
Convertible subordinated notes (5 1/4% yield) 2,340 2,912 3,607 7,833
----- ----- ----- -----
Pro forma net earnings used for diluted earnings per share $974,020 $884,802 $742,867 $655,863
======== ======== ======== ========
Average number of shares outstanding on a diluted basis:
Shares used in calculating basic earnings per share 629,035 626,766 615,630 600,803
Diluted effect of all stock options outstanding after
application of treasury stock method 13,482 14,823 15,306 13,363
Shares assumed to be issued upon conversion of
Debentures - zero coupon convertible
subordinated notes (5 1/4% yield) 3,472 4,509 5,956 14,030
----- ----- ----- ------
Average number of shares outstanding on a diluted basis 645,989 646,098 636,892 628,196
======= ======= ======= =======
Pro forma diluted earnings per share $1.51 $1.37 $1.17 $1.04
===== ===== ===== =====
</TABLE>
(a) Pro forma results reflect the impact relating to the July 1, 2001 adoption
of Statement of Financial Accounting Standard No. 142, which eliminates goodwill
amortization.
-23-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>7
<FILENAME>exhibit13.txt
<DESCRIPTION>EXHIBIT 13 ANNUAL REPORT
<TEXT>
Selected Financial Data
<TABLE>
<CAPTION>
In thousands, except per share amounts)
Years ended June 30, 2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 7,004,263 $ 6,853,652 $ 6,168,432 $ 5,455,707 $ 4,843,496
Earnings before income taxes $ 1,786,970 $ 1,525,010 $ 1,289,600 $ 1,084,500 $ 890,717
Net earnings $ 1,100,770 $ 924,720 $ 840,800 $ 696,840 $ 608,262
Pro forma net earnings* $ 971,680 $ 881,890 $ 739,260 $ 648,030
- ----------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.78 $ 1.47 $ 1.34 $ 1.13 $ 1.01
Diluted earnings per share $ 1.75 $ 1.44 $ 1.31 $ 1.10 $ .98
Pro forma basic earnings per
share* $ 1.54 $ 1.41 $ 1.20 $ 1.08
Pro forma diluted earnings
per share* $ 1.51 $ 1.37 $ 1.17 $ 1.04
Basic shares outstanding 618,857 629,035 626,766 615,630 600,803
Diluted shares outstanding 630,579 645,989 646,098 636,892 628,196
Cash dividends per share $ .4475 $ .3950 $ .3388 $ .2950 $ .2563
Return on equity 22.4% 19.9% 19.7% 18.7% 20.0%
- ----------------------------------------------------------------------------------------------------
At year end:
Cash, cash equivalents and
marketable securities $ 2,749,583 $ 2,596,964 $ 2,452,549 $ 2,169,040 $ 1,673,271
Working capital $ 1,406,155 $ 1,747,187 $ 1,767,784 $ 907,864 $ 626,063
Total assets before funds
held for clients $ 7,051,251 $ 6,549,980 $ 6,429,927 $ 5,824,820 $ 5,242,867
Total assets $18,276,522 $17,889,090 $16,850,816 $12,839,553 $11,787,685
Long-term debt $ 90,648 $ 110,227 $ 132,017 $ 145,765 $ 192,063
Shareholders' equity $ 5,114,205 $ 4,700,997 $ 4,582,818 $ 4,007,941 $ 3,439,447
- ----------------------------------------------------------------------------------------------------
</TABLE>
2001 data includes a $90 million ($54 million after-tax) non-cash, non-recurring
write-off of the Company's investment in Bridge Information Systems, Inc.
1999 data includes non-recurring charges totaling approximately $17 million
(after-tax), associated with certain acquisitions and dispositions.
*Pro forma net earnings and earnings per share reflect the impact relating
to the July 1, 2001 adoption of Statement of Financial Accounting Standard No.
142, which eliminated goodwill amortization.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CRITICAL ACCOUNTING POLICIES
The Company's 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
the Company's management to make estimates, judgments, and assumptions that
affect reported amounts of assets, liabilities, revenues, and expenses. The
Company continually evaluates the accounting policies and estimates it uses to
prepare the consolidated financial statements. The Company bases its estimates
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 the Company's
results of operations or financial position are discussed below.
Intangible assets and goodwill. We have reviewed the carrying value of all our
goodwill and other intangible assets in connection with the implementation of
Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other
Intangible Assets," by comparing such amounts to their fair values. We
determined that the carrying amounts of all our goodwill and other intangible
assets did not exceed their respective fair values. Accordingly, the initial
implementation of this standard did not impact earnings during fiscal 2002. We
are required to perform this comparison at least annually or more frequently if
circumstances indicate possible impairment. When determining fair value, we
utilize various assumptions, including projections of future cash flows. Any
significant adverse changes in key assumptions about our businesses and their
prospects or an adverse change in market conditions will cause a change in the
estimation of fair value and could result in an impairment charge. Given the
significance of our goodwill and other intangibles, an adverse change to the
fair value could result in an impairment charge, which could be material to our
financial statements.
Income taxes. The Company accounts 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 assessing the future tax
consequences of events that have been recognized in our financial statements or
tax returns (e.g., realization of deferred tax assets). Fluctuations in the
actual outcome of these future tax consequences could materially impact our
financial statements.
Operating Results
ADP continued to achieve record revenues, earnings and cash generation in
fiscal`02 signifying the benefits of its longstanding proven business model,
product leadership and commitment to world-class service. Despite the difficult
economic environment, ADP grew fiscal '02 revenues by 2% to $7.0 billion.
Adjusted for the pro forma impact of adopting SFAS No. 142 and excluding
non-recurring charges in '01, the pre-tax earnings increased 7% and diluted
earnings per share increased 10% to $1.75. In fiscal '01, revenues increased 11%
to almost $6.9 billion. Adjusted for the pro forma impact of SFAS No. 142 and
excluding the non-cash, non-recurring charge in '01, pre-tax earnings
increased 25% and diluted earnings per share increased 16% to $1.59.
<PAGE>
Revenues and revenue growth by ADP's major business units are shown below:
<TABLE>
<CAPTION>
Revenues Revenue Growth
- ------------------------------------------------- ----------------------
Years Ended June 30, Years Ended June 30,
--------------------------- ----------------------
(In millions) 2002 2001 2000 2002 2001 2000
--------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Employer Services $ 4,184 $3,968 $3,539 5% 12% 11%
Brokerage Services 1,758 1,742 1,469 1 19 29
Dealer Services 706 683 715 3 (4) --
Other 356 461 445 (23) 3 9
---------------------------- ---------------------
Consolidated $ 7,004 $6,854 $6,168 2% 11% 13%
============================ =====================
- ------------------------------------------------------------------------
</TABLE>
Consolidated revenue growth in fiscal '02 slowed to 2% as compared to the
prior corresponding periods, primarily due to the following major factors: In
Employer Services, continued weak economic conditions resulted in slower
sales, lower client retention due primarily to bankruptcies, and fewer employees
on our clients' payrolls; in Brokerage Services, weakness in the brokerage
and financial services industry significantly reduced discretionary spending and
investments in new initiatives, and the change in the mix of retail versus
institutional transactions lowered revenue per trade; and interest rates in the
U.S. declined precipitously last year significantly impacting interest earnings
on our client funds. Prior to acquisitions and dispositions of businesses,
consolidated revenues increased approximately 1%.
As a result of the continued weak economic conditions and the precipitous
decreases in interest rates during fiscal `02, we instituted a series of
initiatives during the year to bring our expense structure in line with lower
revenue expectations. These actions have resulted in approximately $100 million
of lower annual expense run rate as of June 30, 2002 (after a $150 million
reduction in run rate exiting 2001) while we continued to increase overall
productivity. At the same time we have continued to pursue several promising
opportunities, primarily in new and improved products and services.
The consolidated pre-tax margin was 25.5% in '02 compared to 24.4% in
'01(prior to non-recurring charges), and 21.6% in '00 adjusted for the pro forma
impact of SFAS No. 142. Pre-tax margin increased over the previous year as the
Company continued to focus on margin improvements by increasing automation,
operating efficiencies and general expense controls. Systems development and
programming costs decreased due to cost containment initiatives primarily
related to the maintenance of existing applications, while funding of
investments in new products continued. The impact of transitioning the
investment portfolio from tax-exempt to taxable investments also contributed to
the margin improvements.
During fiscal '01, the Company recorded a $90 million ($54 million net of
tax) write-off of its investment in Bridge Information Systems, Inc. (Bridge),
which is reflected in "other (income) expense". This non-cash, non-recurring
write-off represented the Company's total recorded investment in Bridge.
During fiscal '00, the Company transitioned a portion of its corporate
and client fund investments from tax-exempt to taxable instruments in order to
increase liquidity of the overall portfolio. Approximately $2.6 billion of
tax-exempt investments were sold prior to maturity at a pre-tax loss of
approximately $32 million ($10 million corporate funds, $22 million funds held
for clients), and the proceeds were reinvested at higher prevailing interest
rates.
In July 2001, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which requires that goodwill no longer be amortized, but
instead be tested for impairment at least annually. The decrease in amortization
expense is due to the adoption of SFAS No. 142. The Company completed its annual
assessment of impairment as of June 2002, which indicated no impairment of
goodwill.
<PAGE>
In '02 the Company's effective tax rate was 38.4% of pre-tax earnings as
compared to 39.4% in '01 and 34.8% in `00. The decrease in the effective tax
rate in fiscal '02 was primarily due to the impact of adopting SFAS No. 142 and
the resulting elimination of goodwill amortization expense in the current year.
Adjusting the prior years for the pro forma impact of SFAS No. 142 the effective
income tax rate was 38.5% in '01 and 33.9% in '00. The increased rate in '01 is
primarily a result of the transition, referred to above, of a portion of the
Company's investment portfolio to taxable investments.
For '03 ADP is forecasting another record year of revenue and earnings per
share growth in the mid-single digits.
MAJOR BUSINESS UNITS
Certain revenues and expenses are charged to business units at a standard
rate for management and motivational reasons. Other costs are recorded based on
management responsibility. As a result, various income and expense items,
including certain non-recurring gains and losses, are recorded at the corporate
level and certain shared costs are not allocated. The prior years' business unit
revenues and pre-tax earnings have been restated to reflect fiscal year `02
budgeted foreign exchange rates.
EMPLOYER SERVICES
Employer Services' revenues grew 5% in fiscal '02, and in the absence of
acquisitions and dispositions, revenue growth would have been 5% in '02, 11% in
'01 and 12% in '00. Employer Services revenue growth continued to be impacted by
weak economic conditions, which resulted in slower sales, lower client
retention due primarily to bankruptcies, and fewer employees on our
clients' payrolls.
Employer Services' operating margin was 27% in '02, 24% in '01 and 22% in
00. Employer Services' operating margin improved due to operating efficiencies,
cost containment initiatives, and continued improvements in Europe, offset by
investments in new products.
Employer Services' revenues shown above include interest earned on
collected but not yet remitted funds held for clients at a standard rate of 6%,
or $505 million in '02, $489 million in '01 and $411 million in `00.
BROKERAGE SERVICES
Brokerage Services' revenue growth was 1%. Excluding acquisitions, fiscal '02
revenues would have decreased 4%, compared to increases of 7% in '01 and 31% in
'00. The mix of back office client transactions, brokerage industry
consolidations and pricing pressure resulted in lower revenue per trade. The
continued reduction in discretionary spending in the financial services
industry, particularly in research print and implementation services, also
contributed to the decline in fiscal '02 revenue growth. Ongoing efforts to
transition the proxy mailing and voting process towards electronic delivery and
the "householding," or consolidation of customer accounts resulted in an
increase in mailing suppressions. Suppressed mailings increase service fees, but
lower postage revenues and expenses in the Investor Communications business.
Brokerage Services' operating margin was 20% in '02 compared to 19% in '01
and 23% in '00. The higher margin in fiscal '02 resulted primarily from
operating efficiencies, the impact of cost containment initiatives, and the
transition of the proxy mailings and voting process to electronic delivery.
These increases in operating margin were offset by a higher mix of lower-margin
institutional trades, the impact of pricing pressure in the industry, and
investments in new products and acquisitions.
DEALER SERVICES
Dealer Services' revenues increased 3% in '02. In the absence of acquisitions
and dispositions, '02 revenues would have increased 2%, compared to a 3% decline
in revenue growth in '01 and flat revenues in '00. Dealer Services' operating
margin was 16% in fiscal '02 compared to 14% in '01 and 16% in '00. Dealer
Services' operating margin increased due to operating efficiencies and cost
containment initiatives, offset by investments in new products and acquisitions.
<PAGE>
OTHER
The primary components of "Other" revenues are Claims Services, foreign
exchange differences, and miscellaneous processing services. In addition,
"Other" revenues have been adjusted for the difference between actual interest
earned on invested funds held for clients and interest credited to Employer
Services at a standard rate of 6%.
FINANCIAL CONDITION
ADP's financial condition and balance sheet remain exceptionally strong. At
June 30, 2002, cash and marketable securities approximated $2.7 billion.
Shareholders' equity was approximately $5.1 billion, and return on average
equity for the year was approximately 22%. The ratio of long-term debt to equity
at June 30, 2002 was 2%.
In '02 zero coupon convertible subordinated notes were converted to 0.7
million shares of common stock.
During '02 the Company purchased several businesses for approximately $232
million (including $12 million in stock). The cost of acquisitions in '01 and
'00 aggregated $75 million and $200 million (including $25 million in common
stock), respectively.
Capital expenditures during '02 were $146 million following investments of
$185 million in '01 and $166 million in '00. Capital spending in fiscal '03
should approximate $150 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operations were $1.5 billion for the twelve months
ended June 30, 2002, adding to our strong cash position.
Cash flows used in investing activities totaled $1.1 billion, primarily as a
result of additions to our investment portfolio, acquisitions and capital
expenditures.
Cash flows used in financing activities totaled $0.9 billion. In fiscal 2002,
the Company purchased approximately 17.4 million shares of common stock at an
average price per share of approximately $50. As of June 30, 2002, the Company
has remaining Board of Directors' authorization to purchase up to 35.9 million
additional shares.
Approximately thirty percent of the Company's overall investment portfolio is
invested in overnight interest-bearing instruments, which are therefore impacted
immediately by changes in interest rates. The other seventy percent of the
Company's investment portfolio is invested in fixed-income securities, with
maturities up to ten years, which are also subject to interest rate risk
including reinvestment risk. The Company has historically had the ability to
hold these investments until maturity, and therefore this has not had an adverse
impact on income or cash flows.
<PAGE>
Details regarding the Company's combined corporate investments and funds held
for clients portfolios are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ended June 30: 2002 2001 2000
--------- --------- ---------
Average investment balances (In millions):
<S> <C> <C> <C>
Corporate investments $ 2,548.4 $2,598.9 $2,168.5
Funds held for clients 8,376.6 8,188.6 6,854.0
--------- --------- ---------
Total $10,925.0 $10,787.5 $9,022.5
========= ========= =========
Average interest rates earned
exclusive of realized gains/(losses)
for the total combined corporate
investments and funds held for
clients' portfolios 4.9% 6.2% 5.1%
Realized gains/(losses)
(in millions) $ 16.5 $ (77.6)* $ (32.4)
As of June 30:
Unrealized pre-tax gains on
available-for-sale portfolios
(in millions) $ 208.8 $ 140.2 $ 11.3
Total available-for-sale securities
(in millions) $9,856.4 $ 7,729.4 $4,588.0
</TABLE>
*Includes a $90 million ($54 million after-tax) non-cash, non-recurring
write-off of the Company's investment in Bridge Information Systems, Inc.
- --------------------------------------------------------------------------------
The earnings impact of future interest rate changes is based on many factors,
which influence the return on the Company's portfolio. These factors 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 interest rates
of 25 basis points applied to the forecasted average balances in fiscal 2003
would result in approximately a $9.0 million pre-tax earnings impact over the
twelve-month period.
In April 2002, the Company authorized a short-term commercial paper program
providing for the issuance of up to $ 4.0 billion in aggregate maturity value of
commercial paper at any given time. The Company's commercial paper program is
rated A-l+ by Standard and Poor's and Prime 1 by Moody's. These ratings denote
high quality investment grade securities. Maturities of commercial paper can
range from overnight to 270 days. At June 30, 2002, there was no commercial
paper outstanding. From the inception of the commercial paper program in April
through the fiscal year ended June 30, 2002, the Company had average borrowings
of $667 million at an effective weighted average interest rate of 1.8%. The
Company will use the commercial paper issuances as a primary instrument to meet
short-term funding needs.
In October 2001, the Company entered into a new $4.0 billion, unsecured
revolving credit agreement with certain financial institutions, replacing an
existing $2.5 billion credit agreement. The interest rate applicable to the
borrowings is tied to LIBOR or prime rate depending on the notification provided
to the syndicated financial institutions prior to borrowing. The Company is also
required to pay a facility fee on the credit agreement. The agreement, which
expires in October 2002, has no borrowings to date.
The Company's short-term financing is sometimes obtained on a secured basis
through the use of repurchase agreements, which are collateralized principally
by U.S. government securities. These agreements generally have terms ranging
from overnight to up to ten days. At June 30, 2002 and 2001, there were no
outstanding repurchase agreements. For the fiscal years ended June 30, 2002 and
2001, the Company had an average outstanding balance of $361 million and $41
million, respectively, at an average interest rate of 2.6% and 4.3%,
respectively.
<PAGE>
MARKET PRICE, DIVIDEND DATA AND OTHER
The market price of the Company's common stock (symbol: ADP) based on New York
Stock Exchange composite transactions and cash dividends per share declared
during the past two years have been:
- ------------------------------------------------------------------
Price Per Share
----------------------
Dividends
Fiscal 2002 quarter ended High Low Per Share
---------------------- ---------
June 30 $58.00 $42.35 $.1150
March 31 59.53 51.00 .1150
December 31 60.37 46.70 .1150
September 30 53.97 41.00 .1025
- ------------------------------------------------------------------
Fiscal 2001 quarter ended
June 30 $57.15 $49.57 $.1025
March 31 63.56 48.47 .1025
December 31 69.94 58.50 .1025
September 30 67.88 49.50 .0875
- ------------------------------------------------------------------
As of June 30, 2002 there were approximately 32,679 holders of record of
the Company's common stock. Approximately 400,323 additional holders have their
stock in "street name".
New Accounting Pronouncements
- -----------------------------
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 144 (SFAS No. 144), "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
For Long-Lived Assets to be Disposed Of." SFAS No. 144 provides updated guidance
concerning the recognition and measurement of an impairment loss for certain
types of long-lived assets and expands the scope of a discontinued operation.
The provisions of SFAS No. 144 are effective for fiscal years beginning after
December 15, 2001 and generally are to be applied prospectively. The Company
adopted this statement on July 1, 2002. The Company does not expect the adoption
of SFAS No. 144 to have a material impact on the Company's 2003 financial
statements.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets,"
which revise the standards for accounting for business combinations and goodwill
and other intangible assets acquired in a business combination. The Company
adopted SFAS No.141 and SFAS No.142 in fiscal 2002.
This report contains "forward-looking statements" based on management's
expectations and assumptions and are subject to risks and uncertainties that may
cause actual results to differ from those expressed. Factors that could cause
differences include but are not limited to: ADP's success in obtaining,
retaining and selling additional services to clients; the pricing of products
and services; changes in laws regulating payroll taxes and employee benefits;
overall economic trends, including interest rate and foreign currency trends;
stock market activity; auto sales and related industry changes; employment
levels; changes in technology; availability of skilled technical associates; and
the impact of new acquisitions. ADP disclaims any obligations to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
<PAGE>
Statements of Consolidated Earnings
<TABLE>
<CAPTION>
Automatic Data Processing, Inc. and Subsidiaries
- -----------------------------------------------------------------------------------
(In thousands, except per share amounts)
Years Ended June 30, 2002 2001 2000
---------- ----------- -----------
<S> <C> <C> <C>
Revenues other than interest on funds
held for clients and PEO revenues $ 6,305,206 $ 6,100,112 $ 5,609,962
Interest on funds held for clients
431,236 518,956 348,596
PEO revenues(A)
267,821 234,584 209,874
----------- ----------- -----------
Total revenues 7,004,263 6,853,652 6,168,432
----------- ----------- -----------
Operating expenses 2,970,645 2,900,124 2,564,496
General, administrative and selling
expenses 1,606,690 1,665,447 1,643,360
Systems development and programming costs 474,843 514,279 460,275
Depreciation and amortization 279,077 320,856 284,282
Other (income) expense (113,962) (72,064) (73,581)
----------- ----------- -----------
5,217,293 5,328,642 4,878,832
----------- ----------- -----------
Earnings before income taxes 1,786,970 1,525,010 1,289,600
Provision for income taxes 686,200 600,290 448,800
----------- ----------- -----------
Net earnings $ 1,100,770 $ 924,720 $ 840,800
============ =========== ===========
Basic earnings per share $ 1.78 $ 1.47 $ 1.34
------------ ----------- -----------
Diluted earnings per share $ 1.75 $ 1.44 $ 1.31
------------ ----------- -----------
Basic shares outstanding 618,857 629,035 626,766
------------ ----------- -----------
Diluted shares outstanding 630,579 645,989 646,098
============ =========== ===========
- -----------------------------------------------------------------------------------
</TABLE>
(A) Net of pass-through costs of $2,648,321, $2,446,768, and $2,197,323,
respectively.
See notes to consolidated financial statements.
<PAGE>
Consolidated Balance Sheets
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
June 30, 2002 2001
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 798,810 $ 1,275,356
Short-term marketable securities 677,005 515,245
Accounts receivable 1,045,170 976,638
Other current assets 296,272 316,221
------------ ------------
Total current assets 2,817,257 3,083,460
Long-term marketable securities 1,273,768 806,363
Long-term receivables 192,769 224,964
Property, plant and equipment:
Land and buildings 458,478 457,110
Data processing equipment 696,829 653,641
Furniture, leaseholds and other 540,217 533,883
------------ ------------
1,695,524 1,644,634
Less accumulated depreciation (1,099,073) (1,029,984)
------------ ------------
596,451 614,650
Other assets 293,808 219,133
Intangibles 1,877,198 1,601,410
------------ ------------
Total assets before funds held for clients 7,051,251 6,549,980
Funds held for clients 11,225,271 11,339,110
------------ ------------
Total assets $ 18,276,522 $ 17,889,090
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 148,694 $ 156,324
Accrued expenses and other current liabilities 1,035,389 1,032,273
Income taxes 227,019 147,676
------------ ------------
Total current liabilities 1,411,102 1,336,273
Long-term debt 90,648 110,227
Other liabilities 233,671 208,880
Deferred income taxes 237,633 207,928
Deferred revenue 138,893 85,931
------------ ------------
Total liabilities before client funds obligations 2,111,947 1,949,239
Client funds obligations 11,050,370 11,238,854
------------ ------------
Total liabilities 13,162,317 13,188,093
------------ ------------
Shareholders' equity:
Preferred stock, $1.00 par value:
Authorized, 300 shares; issued, none -- --
Common stock, $.10 par value:
Authorized, 1,000,000 shares; issued,
638,702 shares at June 30, 2002 and 2001 63,870 63,870
Capital in excess of par value 333,371 553,927
Retained earnings 5,977,318 5,153,408
Treasury stock - at cost 22,385 and 14,766 shares,
respectively (1,142,041) (837,244)
Accumulated other comprehensive income (loss) (118,313) (232,964)
------------ ------------
Total shareholders' equity 5,114,205 4,700,997
------------ ------------
Total liabilities and shareholders' equity $ 18,276,522 $ 17,889,090
============ ============
- ------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Statements of Consolidated Shareholders' Equity
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<CAPTION>
Accumulated
Common Stock Capital in Other
------------------- Excess of Retained Treasury Comprehensive Comprehensive
Shares Amount Par Value Earnings Stock Income Income
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 628,576 62,858 421,333 3,848,421 (189,204) (135,467)
Net earnings -- -- -- 840,800 -- $ 840,800 --
Currency translation (86,277) (86,277)
Unrealized net loss on
securities (7,690) (7,690)
-----------
Comprehensive income $ 746,833
===========
Employee stock plans and
related tax benefits 2,867 286 (7,841) 498 207,322
Treasury stock acquired
(4,648 shares) -- -- -- -- (201,007)
Acquisitions (478 shares) -- -- 4,359 -- 20,122
Debt conversion (808 shares) -- -- (15,084) -- 31,967
Dividends ($.3388 per share) -- -- -- (212,578)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 631,443 63,144 402,767 4,477,141 (130,800) (229,434)
Net earnings -- -- -- 924,720 -- $ 924,720 --
Currency translation (80,816) (80,816)
Unrealized net gain on
securities 77,286 77,286
-----------
Comprehensive income $ 921,190
===========
Employee stock plans
and related tax benefits 6,878 688 163,464 -- 187,058
Treasury stock acquired
(16,558 shares) -- -- -- -- (935,064)
Acquisitions (22 shares) -- -- 234 -- 839
Debt conversion (1,303
shares) 381 38 (12,538) -- 40,723
Dividends ($.395 per share) -- -- -- (248,453) --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001 638,702 63,870 553,927 5,153,408 (837,244) (232,964)
Net earnings -- -- -- 1,100,770 -- $ 1,100,770 --
Currency translation 73,504 73,504
Unrealized net gain on
securities 41,147 41,147
-----------
Comprehensive income $ 1,215,421
===========
Employee stock plans
and related tax benefits -- -- (197,083) -- 515,729
Treasury stock acquired
(17,412 shares) -- -- -- -- (875,449)
Acquisitions (226 shares) -- -- (423) -- 12,848
Debt conversion (705 shares) -- -- (23,050) -- 42,075
Dividends ($.4475 per share) -- -- -- (276,860) --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 638,702 $63,870 $333,371 $5,977,318 $(1,142,041) $(118,313)
======== ======= ======== ========== ============ ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Statements of Consolidated Cash Flows
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(In thousands)
Years ended June 30, 2002 2001 2000
--------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $1,100,770 $ 924,720 $ 840,800
Adjustments to reconcile net earnings
to net cash flows provided by
operating activities:
Depreciation and amortization 279,077 320,856 284,282
Write-off of investment in Bridge -- 90,000 --
Deferred income taxes 8,680 29,450 8,885
Increase in receivables and other
assets (73,511) (70,699) (149,913)
Increase in accounts payable and accrued
expenses 138,141 182,634 39,339
Other 78,547 14,063 46,708
---------- ----------- ----------
Net cash flows provided by operating
activities 1,531,704 1,491,024 1,070,101
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities (4,597,320) (3,973,434) (7,372,892)
Proceeds from sale of marketable securities 4,167,028 3,087,406 4,001,848
Net change in client fund obligations (188,484) 818,082 3,406,039
Capital expenditures (145,621) (185,406) (166,012)
Additions to intangibles (109,799) (97,448) (67,303)
Acquisitions of businesses, net of cash
acquired (219,783) (73,667) (175,248)
Disposals of businesses 7,200 900 14,634
Other 6,286 (32,267) (11,664)
---------- ----------- -----------
Net cash flows used in investing
activities (1,080,493) (455,834) (370,598)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of debt (3,919) (48,567) (106,090)
Proceeds from issuance of notes 358 26,435 13,940
Repurchases of common stock (875,449) (935,064) (201,007)
Proceeds from issuance of common stock 228,113 218,178 172,589
Dividends paid (276,860) (248,453) (212,578)
---------- ----------- -----------
Net cash flows used in financing
activities (927,757) (987,471) (333,146)
---------- ----------- -----------
Net change in cash and cash equivalents (476,546) 47,719 366,357
Cash and cash equivalents, at beginning
of period 1,275,356 1,227,637 861,280
---------- ----------- -----------
Cash and cash equivalents, at end of
period $ 798,810 $ 1,275,356 $ 1,227,637
========== =========== ===========
- ------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Automatic Data Processing, Inc. and Subsidiaries
Years ended June 30, 2002, 2001, and 2000
Note 1. Summary of Significant Accounting Policies
A. Consolidation and Basis of Preparation. The consolidated financial
statements include the financial results of Automatic Data Processing, Inc. and
its majority-owned subsidiaries. Intercompany balances and transactions have
been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these estimates.
B. Revenue Recognition. A majority of the Company's revenues are attributable to
fees for providing services (e.g., Employer Services' payroll processing fees,
Brokerage Services' trade processing fees) as well as investment income on
payroll and tax filing funds. 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. Investment income on collected but not yet remitted funds
held for clients are recognized in revenues as earned (Refer to Note 9 "Funds
Held for Clients and Client Fund Obligations").
The Company also recognizes revenues associated with the sale of software
systems and associated software licenses. Revenues are recognized when the fair
value of each element of a sales arrangement containing a software product,
implementation, conversion and post-implementation services can be objectively
determined. The amounts and timing of revenue recognition are determined for
each element in an arrangement. When the fair values in an arrangement are not
determinable, all revenues are recognized equally over the life of the
respective agreement. As part of the sale of software systems, the Company
recognizes revenue from the sale of hardware, which is recorded net of the
associated costs.
Postage fees for client mailings are included in revenues and the associated
postage expenses are included in operating expenses. Professional Employer
Organization (PEO) service revenues are included in revenues and are reported
net of direct costs billed and incurred for PEO worksite employees, which
include wages and taxes.
C. Cash and Cash Equivalents. Highly-liquid investments with a maturity of
ninety days or less at the time of purchase are considered cash equivalents.
D. Investments. Corporate investments and funds held for clients at June
30, 2002 and 2001.
<TABLE>
<CAPTION>
(In thousands)
2002 2001
Cost Fair Value Cost Fair Value
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Money market securities
and other cash
equivalents:
Corporate investments $ 798,810 $ 798,810 $ 1,275,356 $ 1,275,356
Funds held for clients 3,319,646 3,319,646 4,931,350 4,931,350
----------- ----------- ----------- -----------
Total money market
securities and other
cash equivalents 4,118,456 4,118,456 6,206,706 6,206,706
----------- ----------- ----------- -----------
Available-for-sale
securities:
Corporate investments 1,916,896 1,950,773 1,281,664 1,321,608
Funds held for clients 7,730,724 7,905,625 6,307,504 6,407,760
----------- ----------- ----------- -----------
Total available-for-sale
securities 9,647,620 9,856,398 7,589,168 7,729,368
----------- ----------- ----------- -----------
Total corporate
investments and funds
held for clients 13,766,076 13,974,854 13,795,874 13,936,074
Classification of
investments on the
Consolidated Balance
Sheet:
Corporate investments 2,715,706 2,749,583 2,557,020 2,596,964
Funds held for clients 11,050,370 11,225,271 11,238,854 11,339,110
----------- ----------- ----------- -----------
Total corporate
investments and
funds held for
clients $13,766,076 $13,974,854 $13,795,874 $13,936,074
============ =========== =========== ===========
</TABLE>
All of the Company's marketable securities are considered to be
"available-for-sale" at June 30, 2002 and accordingly are carried on the
Consolidated Balance Sheet at fair value. Expected maturities of
available-for-sale securities for both corporate investments and funds held for
clients at June 30, 2002 are as follows:
(In thousands)
Maturity Dates:
Due in one year or less $2,598,701
Due after one year through two years 2,503,897
Due after two years through three years 2,141,256
Due after three years through four years 1,187,277
Due after four years through ten years 1,425,267
----------
Total available-for-sale securities $9,856,398
==========
E. Property, Plant and Equipment. Property, plant and equipment is stated
at cost and depreciated over the estimated useful lives of the assets by the
straight-line method. Leasehold improvements are amortized over the shorter of
the term of the lease or the estimated useful lives of the improvements.
The estimated useful lives of assets are primarily as follows:
- --------------------------------------------------------------------------------
Data processing equipment 2 to 3 years
- --------------------------------------------------------------------------------
Buildings 20 to 40 years
- --------------------------------------------------------------------------------
Furniture and fixtures 3 to 7 years
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F. Intangibles. Intangible assets are recorded at cost and are amortized
primarily on the straight-line basis over their estimated useful lives. In July
2001, the company adopted SFAS 142 "Goodwill and Other Intangible Assets," which
requires that goodwill no longer be amortized, but instead tested for impairment
at least annually at the reporting unit level. If impairment is indicated, a
write-down to fair value (normally measured by discounting estimated future cash
flows) is recorded. Intangible assets with finite lives will continue to be
amortized primarily on the straight-line basis over their estimated useful
lives.
<PAGE>
G. Foreign Currency Translation. The net assets of the Company's foreign
subsidiaries are translated into U.S. dollars based on exchange rates in effect
at the end of each period, and revenues and expenses are translated at average
exchange rates during the periods. Currency transaction gains or losses, which
are included in the results of operations, are immaterial for all periods
presented. Gains or losses from balance sheet translation are included in
accumulated other comprehensive income on the balance sheet.
H. Earnings Per Share (EPS). The calculation of basic and diluted EPS is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands, except EPS)
Effect of
Zero Coupon Effect of
Subordinated Stock
Basic Notes Options Diluted
-------- -------- -------- --------
<S> <C> <C> <C> <C>
2002
Net earnings $1,100,770 $ 1,611 $ -- $1,102,381
Average shares 618,857 2,352 9,370 630,579
EPS $ 1.78 $ 1.75
---------- -------- -------- ----------
2001
Net earnings $ 924,720 $ 2,340 $ -- $ 927,060
Average shares 629,035 3,472 13,482 645,989
EPS $ 1.47 $ 1.44
---------- -------- -------- -----------
2000
Net earnings $ 840,800 $ 2,912 $ -- $ 843,712
Average shares 626,766 4,509 14,823 646,098
EPS $ 1.34 $ 1.31
---------- -------- -------- -----------
</TABLE>
- --------------------------------------------------------------------------------
I. Reclassification of Prior Financial Statements. Certain
reclassifications have been made to previous years' financial statements to
conform to the 2002 presentation.
J. Income taxes. The provision for income taxes, income taxes payable and
deferred income taxes are determined using the liability method. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by applying
enacted tax rates and laws to taxable years in which such differences are
expected to reverse. A valuation allowance is provided when the Company
determines that it is more likely than not that a portion of the deferred tax
asset balance will not be realized.
K. Adoption of New Accounting Pronouncements. On July 1, 2001, the Company
adopted Financial Accounting Standards Board Statement of Financial Accounting
Standard No. 141, "Business Combinations" (SFAS 141) and Statement of Financial
Accounting Standard No. 142 "Goodwill and Other Intangible Assets" (SFAS 142).
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. The adoption of SFAS 141
did not have a material effect on the Company results of operations or financial
position.
SFAS 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested for impairment at least
annually at the reporting unit level. SFAS 142 also requires intangible assets
with finite useful lives to be amortized over their respective estimated useful
lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
The Company completed its assessment of impairment as of July 1, 2001, which
indicated no impairment of goodwill.
<PAGE>
Prior to fiscal year 2002, the Company amortized goodwill over periods from 10
to 40 years. Pro forma net income and earnings per share for the years ended
June 30, 2001 and 2000 adjusted to eliminate historical amortization of goodwill
and related tax effects, are as follows:
<TABLE>
<CAPTION>
(In thousands, except EPS)
Years ended June 30,
2001 2000
- -------------------------------------------------------------------------------
<S> <C> <C>
Previously reported net earnings $ 924,720 $ 840,800
Goodwill amortization 53,936 44,663
Tax provision (6,976) (3,573)
---------- ----------
Pro forma net earnings $ 971,680 881,890
========== ==========
Previously reported basic EPS $ 1.47 $ 1.34
Previously reported diluted EPS $ 1.44 $ 1.31
Pro forma basic EPS $ 1.54 $ 1.41
Pro forma diluted EPS $ 1.51 $ 1.37
</TABLE>
L. New Accounting Pronouncements. In August 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 144 (SFAS
No. 144), "Accounting for the Impairment or Disposal of Long-Lived Assets." This
statement addresses financial accounting and reporting for the impairment or
disposal of long-lived-assets and supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of."
SFAS No. 144 provides updated guidance concerning the recognition and
measurement of an impairment loss for certain types of long-lived assets and
expands the scope of a discontinued operation. The provisions of SFAS No. 144
are effective for fiscal years beginning after December 15, 2001 and generally
are to be applied prospectively. The Company adopted this statement on July 1,
2002. The Company does not expect the adoption of SFAS No. 144 to have a
material impact on the Company's 2003 financial statements.
Note 2. Other (income) expense consists of the following:
<TABLE>
<CAPTION>
(In thousands)
Years ended June 30, 2002 2001 2000
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income on corporate funds $(118,672) $(163,918) $(119,080)
Realized (gains)losses on investments (16,454) 77,594 32,359
Interest expense 21,164 14,260 13,140
--------- --------- ---------
Total other (income) expense $(113,962) $ (72,064) $( 73,581)
========= ========= =========
</TABLE>
Note 3. Acquisitions and Dispositions
The Company purchased several businesses for approximately $232 million in
fiscal 2002 (including $12 million in common stock), $75 million in fiscal 2001,
and $200 million (including $25 million in common stock) in fiscal 2000, net of
cash acquired. The results of these acquired businesses are included in
operations from the dates of acquisition.
Goodwill recognized in these transactions amounted to $167 million, of
which $48 million is expected to be fully deductible for tax purposes. Other
intangible assets acquired in these transactions amounted to $51 million.
Additionally, ADP made contingent payments totaling $21 million, relating to
previously consummated acquisitions. Goodwill and other intangible assets
related to these transactions were allocated to the Company's reportable
segments as follows for the twelve months ended June 30, 2002:
<PAGE>
<TABLE>
<CAPTION>
Customer Other
(In thousands) Goodwill Software Lists Intangibles
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employer Services $ 88,475 $10,353 $ 7,305 $ -
Brokerage Services 47,681 - 9,585 -
Dealer Services 45,473 7,745 9,000 200
Other 6,569 7,023 - -
-------- ------- ------- -----
Total $188,198 $25,121 $25,890 $ 200
======== ======= ======= =====
Weighted average
amortization period N/A 3.8 years 8.3years 6.0 years
- ------------------------------------------------------------------------------------
</TABLE>
Note 4. Non-recurring Item
In fiscal 1999 the Company divested its Brokerage front-office business to
Bridge Information Systems, Inc. (Bridge), and received $90 million of Bridge
convertible preferred stock as part of the proceeds. In fiscal 2001 Bridge filed
for bankruptcy and the Company recorded a $90 million ($54 million net of tax)
write-off of its investment, reflected in the "other (income) expense" line
item.
Note 5. Receivables
Accounts receivable is net of an allowance for doubtful accounts of $53
million and $42 million at June 30, 2002 and 2001, respectively.
The Company finances the sale of computer systems to certain of its
clients. These finance receivables, most of which are due from automobile and
truck dealerships, are reflected in the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
June 30, 2002 2001
----------------------- -----------------------
Current Long-term Current Long-term
----------------------- -----------------------
<S> <C> <C> <C> <C>
Receivables $181,609 $227,422 $189,079 $267,394
Less:
Allowance for
doubtful accounts (9,216) (16,020) (9,717) (16,666)
Unearned income (23,100) (18,633) (28,603) (25,764)
----------------------- -----------------------
$149,293 $192,769 $150,759 $224,964
======================= =======================
- --------------------------------------------------------------------------------
</TABLE>
Unearned income from finance receivables represents the excess of gross
receivables over the sales price of the computer systems financed. Unearned
income is amortized using the interest method to maintain a constant rate of
return on the net investment over the term of each contract.
<TABLE>
<CAPTION>
Long-term receivables at June 30, 2002 mature as follows:
- --------------------------------------------------------------------------------
(In thousands)
<S> <C>
2004 $122,570
2005 64,567
2006 30,457
2007 9,430
2008 364
Thereafter 34
--------
$227,422
========
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Note 6. Intangible Assets
<TABLE>
<CAPTION>
Components of intangible assets are as follows:
- --------------------------------------------------------------------------------
(In thousands)
June 30, 2002 2001
----------- -----------
<S> <C> <C>
Goodwill $1,375,654 $ 1,151,873
----------- -----------
Intangibles
Software licenses 462,474 343,228
Customer lists 360,268 317,087
Other 398,495 426,172
----------- -----------
Total intangibles 1,221,237 1,086,487
----------- -----------
Total goodwill and intangibles 2,596,891 2,238,360
Less accumulated amortization (719,693) (636,950)
----------- -----------
$ 1,877,198 $ 1,601,410
=========== ===========
- --------------------------------------------------------------------------------
</TABLE>
Other intangibles consist primarily of purchased rights, covenants, and
patents (acquired directly or through acquisitions) amortized over periods from
3 to 25 years. Amortization of intangibles totaled $115 million for fiscal 2002,
$103 million for 2001 and $89 million for 2000.
<TABLE>
<CAPTION>
Changes in goodwill for the year ended June 30, 2002 are as follows:
(In thousands)
- ----------------------------------------------------------------------------------------
Employer Brokerage Dealer
Services Services Services Other Total
-------- --------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance as of June 30, 2001 $ 631,541 $ 299,864 $138,701 $ 81,767 $ 1,151,873
Additions 88,475 47,681 45,473 6,569 188,198
Sale of business (2,669) -- -- -- (2,669)
Cumulative translation
adjustments 34,104 1,415 (1,532) 4,265 38,252
--------------------------------------------------------
Balance as of June 30, 2002 $ 751,451 $ 348,960 $182,642 $ 92,601 $ 1,375,654
========================================================
- ----------------------------------------------------------------------------------------
</TABLE>
No impairment losses were recognized during the year.
Note 7. Short-term Financing
In April 2002, the Company authorized a short-term commercial paper program
providing for the issuance of up to $ 4.0 billion in aggregate maturity value of
commercial paper at any given time. The Company's commercial paper program is
rated A-l+ by Standard and Poor's and Prime 1 by Moody's. These ratings denote
high quality investment grade securities. Maturities of commercial paper can
range from overnight to 270 days. At June 30, 2002, there was no commercial
paper outstanding. From the inception of the commercial paper program in April
through the fiscal year ended June 30, 2002, the Company had average borrowings
of $667 million at an effective weighted average interest rate of 1.8%. The
Company will use the commercial paper issuances as a primary instrument to meet
short-term funding needs.
In October 2001, the Company entered into a new $4.0 billion, unsecured
revolving credit agreement with certain financial institutions, replacing an
existing $2.5 billion credit agreement. The interest rate applicable to the
borrowings is tied to LIBOR or prime rate depending on the notification provided
to the syndicated financial institutions prior to borrowing. The Company is also
required to pay a facility fee on the credit agreement. The agreement, which
expires in October 2002, has no borrowings to date.
The Company's short-term financing is sometimes obtained on a secured basis
through the use of repurchase agreements, which are collateralized principally
by U.S. government securities. These agreements generally have terms ranging
from overnight to up to ten days. At June 30, 2002 and 2001, there were no
outstanding repurchase agreements. For the fiscal years ended June 30, 2002 and
2001, the Company had an average outstanding balance of $361 million and $41
million, respectively, at an average interest rate of 2.6% and 4.3%,
respectively.
Note 8. Debt
Components of long-term debt are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
June 30, 2002 2001
--------- ---------
<S> <C> <C>
Zero coupon convertible subordinated
notes (5.25% yield) $ 45,614 $ 62,312
Industrial revenue bonds
(with fixed and variable interest
rates from 1.50% to 2.05%) 36,474 36,449
Other 8,685 12,681
---------- ---------
90,773 111,442
Less current portion (125) (1,215)
---------- ---------
$ 90,648 $ 110,227
========== =========
- --------------------------------------------------------------------------------
</TABLE>
The zero coupon convertible subordinated notes have a face value of
approximately $80 million at June 30, 2002 and mature February 20, 2012, unless
converted or redeemed earlier. At June 30, 2002, the notes were convertible into
approximately 2.1 million shares of the Company's common stock. The notes are
callable at the option of the Company, and the holders of the notes can convert
into common stock at any time or require redemption in fiscal 2007. During
fiscal 2002 and 2001, approximately $27 million and $50 million face value of
notes were converted, respectively. As of June 30, 2002 and 2001, the quoted
market prices for the zero coupon notes were approximately $90 million and $139
million, respectively. The fair value of the other debt, included above,
approximates its carrying value.
<TABLE>
<CAPTION>
Long-term debt repayments at June 30, 2002 are due as follows:
(In thousands)
- --------------------------------------------------------------------------------
<S> <C>
2004 $ 99
2005 161
2006 167
2007 173
2008 1,070
Thereafter 88,978
--------
$ 90,648
========
- --------------------------------------------------------------------------------
</TABLE>
Interest payments were approximately $18 million in fiscal 2002, $10
million in fiscal 2001, and $10 million in fiscal 2000.
Note 9. Funds Held for Clients and Client Funds Obligations
As part of its integrated payroll and payroll tax filing services, the Company
impounds funds for federal, state and local employment taxes from approximately
354,000 clients; handles all regulatory payroll tax filings, correspondence,
amendments, and penalty and interest disputes; remits the funds to the
appropriate tax agencies; and handles other employer-related services. In
addition to fees paid by clients for these services, the Company receives
interest during the interval between the receipt and disbursement of these funds
by investing the funds primarily in fixed-income instruments. The amount of
collected but not yet remitted funds for the Company's payroll and tax filing
and certain other services varies significantly during the year and averaged
approximately $8.4 billion in fiscal 2002, $8.2 billion in fiscal 2001, and $6.9
billion in fiscal 2000.
Note 10. Employee Benefit Plans
A. Stock Plans. The Company has stock option plans which provide for the
issuance to eligible employees of incentive and non-qualified stock options,
which may expire as much as 10 years from the date of grant, at prices not less
than the fair market value on the date of grant. At June 30, 2002 there were
10,624 participants in the plans. The aggregate purchase price for options
outstanding at June 30, 2002 was approximately $2.1 billion. The options expire
at various points between 2002 and 2012.
A summary of changes in the stock option plans for the three years ended
June 30, 2002 is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Number of Options Weighted Average Price
---------------------------------- ----------------------
Years ended June 30, 2002 2001 2000 2002 2001 2000
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 47,496 46,694 47,467 $37 $29 $24
Options granted 12,325 10,740 9,646 $49 $57 $46
Options exercised (6,481) (7,956) (6,736) $22 $18 $16
Options canceled (2,497) (1,982) (3,683) $47 $38 $32
----------------------------------
Options outstanding,
end of year 50,843 47,496 46,694 $41 $37 $29
----------------------------------
Options exercisable,
end of year 21,626 19,929 18,719 $31 $25 $19
----------------------------------
Shares available
for future grants,
end of year 13,892 1,720 10,478
----------------------------------
Shares reserved for
issuance under
stock option plans 64,735 49,216 57,172
==================================
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Summarized information about stock options outstanding as of June 30, 2002 is
as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Outstanding Exercisable
- ---------------------------------------------------------------------------------------------
Exercise Number Remaining Average Number Average
Price of Options Life Exercise of Options Exercise
Range (In thousands) (In years) Price (In thousands) Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $15 3,173 1.7 $13 3,131 $13
$15 to $25 6,222 3.9 $20 5,920 $20
$25 to $35 5,740 5.5 $29 4,219 $29
$35 to $45 12,761 7.0 $42 5,264 $41
$45 to $55 16,535 9.1 $50 1,789 $51
Over $55 6,412 8.2 $60 1,303 $60
- ---------------------------------------------------------------------------------------------
</TABLE>
The Company has stock purchase plans under which eligible employees have
the ability to purchase shares of common stock at 85% of the lower of market
value as of the date of purchase election or as of the end of the plans.
Approximately 2.8 million and 1.8 million shares are scheduled for issuance on
December 31, 2003 and 2002, respectively. Approximately 2.3 million and 2.5
million shares were issued during the years ended June 30, 2002 and 2001,
respectively. At June 30, 2002 and 2001, there were approximately 3.3 million
and 5.7 million shares, respectively, reserved for purchase under the plans.
Included in liabilities as of June 30, 2002 and 2001 are employee stock purchase
plan withholdings of approximately $93 million and $94 million, respectively.
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" to account for its stock option and
employee stock purchase plans. An alternative method of accounting for stock
options is SFAS 123, "Accounting for Stock-Based Compensation." Under SFAS No.
123 employee stock options are valued at grant date using the Black-Scholes
valuation model, and this compensation cost is recognized ratably over the
vesting period. Had compensation cost of the Company's stock option and employee
stock purchase plans been determined as prescribed by SFAS No. 123, the pro
forma net earnings impact of options and stock purchase plan rights granted
subsequent to July 1, 1995 is shown below. The fair value for these instruments
was estimated at the date of grant using a Black-Scholes valuation model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ended June 30, 2002 2001 2000
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate 4.3-5.2% 5.3-6.0% 6.0-6.7%
Dividend yield .7-.8% .7-.8% .8-.9%
Volatility factor 25.9-27.9% 27.9-28.2% 22.0-26.7%
Expected life:
Options 6.3 6.3 6.4
Purchase rights 2.0 2.0 2.0
Weighted average fair value:
Options $16.54 $21.31 $16.89
Purchase rights $21.55 $20.58 $19.73
========= ========= =========
- --------------------------------------------------------------------------------
</TABLE>
The Company's pro forma earnings recognize compensation expense based upon
the fair value of the stock options and stock purchase plan rights issued
subsequent to July 1, 1995 over their vesting period, as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In millions, except per share amounts)
Years ended June 30, 2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Pro forma net earnings $ 981 $ 818 $ 762
Pro forma basic earnings per share $ 1.58 $ 1.30 $ 1.22
Pro forma diluted earnings per share $ 1.56 $ 1.27 $ 1.18
======== ======== ========
- --------------------------------------------------------------------------------
</TABLE>
The Company has a restricted stock plan under which shares of common stock
have been sold for nominal consideration to certain key employees. These shares
are restricted as to transfer and in certain circumstances must be resold to the
Company at the original purchase price. The restrictions lapse over periods of
up to six years. During the years ended June 30, 2002, 2001 and 2000 the Company
issued 143,500, 172,500, and 171,900 restricted shares, respectively.
B. Pension Plans. The Company has a defined benefit cash balance pension plan
covering substantially all U.S. employees, under which employees are credited
with a percentage of base pay plus interest. Effective January 1, 2001, the plan
interest credit rate was changed from a fixed rate of 7% to a rate that will
vary from year-to-year with the 10-year treasury constant. This change is the
primary reason for the decrease in service cost in 2002. Employees are fully
vested on completion of five years' service. The Company's policy is to make
contributions within the range determined by generally accepted actuarial
principles. In addition, the Company has various retirement plans for its
non-U.S. employees and maintains a Supplemental Officer Retirement Plan
("SORP"). The SORP is a defined benefit plan pursuant to which the Company will
pay supplemental pension benefits to certain key officers upon retirement based
upon officer's years of service and compensation.
The plans' funded status as of June 30, 2002 and 2001 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
June 30, 2002 2001
--------- ---------
<S> <C> <C>
Change in plan assets:
Funded plan assets at market value at
beginning of year $ 469,300 $ 485,700
Actual return on plan assets (54,800) (44,700)
Employer contributions 33,400 36,200
Benefits paid (11,800) (7,900)
--------- ---------
Funded plan assets at market value at
end of year $ 436,100 $ 469,300
========= =========
Change in benefit obligation:
Benefit obligation at beginning of year $ 399,300 $ 328,500
Service cost 16,900 32,800
Interest cost 28,400 24,600
Actuarial and other gains 41,200 21,300
Benefits paid (11,800) (7,900)
--------- ---------
Projected benefit obligation at end of year $ 474,000 $ 399,300
========= =========
Plan assets in excess of projected benefits $ (37,900) $ 70,000
Transition obligation - 300
Unrecognized net actuarial gain due to
different experience than assumed 181,500 44,600
--------- ---------
Prepaid pension cost $ 143,600 $ 114,900
========= =========
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
The components of net pension expense were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
Years ended June 30, 2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 16,900 $32,800 $ 30,800
Interest cost on projected benefits 28,400 24,600 20,900
Expected return on plan assets (45,600) (40,200) (32,900)
Net amortization and deferral (600) 400 (300)
-------- -------- --------
$ (900) $17,600 $ 18,500
======== ======= ========
- --------------------------------------------------------------------------------
</TABLE>
Assumptions used to develop the actuarial present value of benefit
obligations generally were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ended June 30, 2002 2001
---- ----
<S> <C> <C>
Discount rate 6.75% 7.25%
Expected long-term rate on assets 8.50% 8.75%
Increase in compensation levels 6.0% 6.0%
- --------------------------------------------------------------------------------
</TABLE>
C. Retirement and Savings Plan. The Company has a 401(k) retirement and savings
plan, which allows eligible employees to contribute up to 20% of their
compensation annually. The Company matches a portion of employee contributions,
which amounted to approximately $35 million, $31 million and $27 million for
calendar years 2001, 2000 and 1999, respectively.
Note 11. Income Taxes
Earnings before income taxes shown below are based on the geographic location to
which such earnings are attributable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
Years ended June 30, 2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Earnings before income taxes:
US $1,618,885 $1,375,220 $1,197,030
Non-US 168,085 149,790 92,570
---------- ---------- ----------
$1,786,970 $1,525,010 $1,289,600
- --------------------------------------------------------------------------------
</TABLE>
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
Years ended June 30, 2002 2001 2000
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 542,980 $ 439,745 $ 326,875
Non-U.S. 67,380 77,435 56,505
State 67,160 53,660 56,535
--------- --------- ---------
Total current 677,520 570,840 439,915
Deferred:
Federal 6,525 24,895 5,750
Non-U.S. (20) (3,743) 1,220
State 2,175 8,298 1,915
--------- --------- ---------
Total deferred 8,680 29,450 8,885
--------- --------- ---------
Total provision $ 686,200 $ 600,290 $ 448,800
========= ========= =========
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
A reconciliation between the Company's effective tax rate and the U.S.
federal statutory rate is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(In thousands, except percentages)
Years ended June 30, 2002 % 2001 % 2000 %
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for taxes
at U.S. statutory rate $ 625,415 35.0 $ 533,800 35.0 $ 451,400 35.0
Increase (decrease)
in provision from:
Investments in
municipals (3,255) (0.2) (5,700) (0.4) (68,180) (5.3)
State taxes, net
of federal tax
benefit 45,070 2.5 40,270 2.6 37,990 2.9
Other 18,970 1.1 31,920 2.2 27,590 2.2
------------------ ------------------ ------------------
$ 686,200 38.4 $ 600,290 39.4 $ 448,800 34.8
================== ================== ==================
- --------------------------------------------------------------------------------------------------------
</TABLE>
2001 data includes impact of non-recurring adjustments.
The significant components of deferred income tax assets and liabilities and
their balance sheet classifications are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(In millions)
June 30,
2002 2001
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Accrued expenses not currently deductible $135,604 $128,566
Foreign net operating losses 30,861 27,682
Other 18,320 20,469
-------- --------
184,785 176,717
Less: Valuation allowances (40,140) (41,930)
-------- --------
Deferred tax assets - net $144,645 $134,787
- ------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Unrealized investment gains $ 83,512 $ 56,080
Accrued retirement benefits 81,883 75,217
Depreciation and amortization 164,160 137,371
Other 50,660 47,485
--------- ---------
Deferred tax liabilities $ 380,215 $ 316,153
--------- ---------
NET DEFERRED TAX LIABILITIES $ 235,570 $ 181,366
--------- ---------
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
There are $2.1 million and $26.6 million net current deferred tax assets
included in other current assets in the balance sheet at June 30, 2002 and June
30, 2001, respectively.
Income taxes have not been provided on undistributed earnings of foreign
subsidiaries as the Company considers such earnings to be permanently reinvested
as of June 30, 2002 and June 30, 2001.
The Company has estimated foreign net operating loss carry forwards of
approximately $85.2 million and $70.5 million at June 30, 2002 and June 30,
2001, respectively.
The Company has recorded valuation allowances of $40.1 million and $41.9
million (all of which relate to foreign entities) at June 30, 2002 and June 30,
2001, respectively, to reflect the estimated amount of deferred tax assets that
may not be realized. A portion of the valuation allowances in the amounts of
approximately $17.7 million and $23.2 million at June 30, 2002 and June 30,
2001, respectively, relate to net deferred tax assets which were recorded in
purchase accounting. The recognition of such amounts in future years will be
allocated to reduce the excess purchase price over the net assets acquired.
Income tax payments were approximately $518 million in 2002, $437 million in
2001 and $375 million in 2000.
Note 12. Commitments and Contingencies
The Company has obligations under various facilities and equipment leases, and
software license agreements. Total expense under these agreements was
approximately $272 million in 2002, $269 million in 2001 and $243 million in
2000, with minimum commitments at June 30, 2002 as follows:
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------------------------
Years ending June 30,
<S> <C>
2003 245
2004 175
2005 109
2006 68
2007 43
Thereafter 75
----
$715
====
- --------------------------------------------------------------------------------
</TABLE>
In addition to fixed rentals, certain leases require payment of
maintenance and real estate taxes and contain escalation provisions based on
future adjustments in price indices.
In the normal course of business, the Company is subject to various claims
and litigation. The Company does not believe that the resolution of these
matters will have a material impact on the consolidated financial statements.
Note 13. Financial Data By Segment
Employer Services, Brokerage Services and Dealer Services are the Company's
largest business units. ADP evaluates performance of its business units based on
recurring operating results before interest on corporate funds, income taxes and
foreign currency gains and losses. Certain revenues and expenses are charged to
business units at a standard rate for management and motivation reasons. Other
costs are recorded based on management responsibility. As a result, various
income and expense items, including certain non-recurring gains and losses, are
recorded at the corporate level and certain shared costs are not allocated.
Goodwill amortization is charged to business units as a surrogate for the cost
of capital for acquisitions, which is subsequently eliminated in consolidation.
Interest on invested funds held for clients is recorded in Employer Services'
revenues at a standard rate of 6%, with the adjustment to actual revenues
included in "Other". Prior years' business unit revenues and pre-tax earnings
have been restated to reflect fiscal year 2002 budgeted foreign exchange rates.
Business unit assets include funds held for clients but exclude corporate cash,
marketable securities and goodwill. "Other" consists primarily of Claims
Services, corporate expenses, non-recurring items and the reconciling items
referred to above.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(In millions) Employer Brokerage Dealer
Year ended June 30, 2002 Services Services Services Other Total
-------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues $ 4,184 $ 1,758 $ 706 $ 356 $ 7,004
Pre-tax earnings $ 1,110 $ 354 $ 116 $ 207 $ 1,787
Assets $12,244 $ 566 $ 181 $ 5,286 $18,277
Capital expenditures $ 71 $ 33 $ 21 $ 21 $ 146
Depreciation and amortization $ 208 $ 180 $ 40 $ (77) $ 279
------- ------- ------- ------- -------
Year ended June 30, 2001
------- ------- ------- ------- -------
Revenues $ 3,968 $ 1,742 $ 683 $ 461 $ 6,854
Pre-tax earnings $ 936 $ 332 $ 99 $ 158 $ 1,525
Assets $12,320 $ 523 $ 183 $ 4,863 $17,889
Capital expenditures $ 106 $ 33 $ 23 $ 23 $ 185
Depreciation and amortization $ 196 $ 109 $ 38 $ (22) $ 321
------- ------- ------- ------- -------
Year ended June 30, 2000
------- ------- ------- ------- -------
Revenues $ 3,539 $ 1,469 $ 715 $ 445 $ 6,168
Pre-tax earnings $ 775 $ 333 $ 112 $ 70 $ 1,290
Assets $11,264 $ 522 $ 202 $ 4,863 $16,851
Capital expenditures $ 94 $ 27 $ 24 $ 21 $ 166
Depreciation and amortization $ 177 $ 81 $ 38 $ (12) $ 284
------- ------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues and assets by geographic area are as follows:
- --------------------------------------------------------------------------------
(In millions) United
Year ended June 30, 2002 States Europe Canada Other Total
------- ------ ------ ------ -------
Revenues $ 5,978 $ 673 $ 270 $ 83 $ 7,004
Assets $16,055 $1,214 $ 843 $ 165 $18,277
Year ended June 30, 2001
Revenues $ 5,827 $ 641 $ 279 $ 107 $ 6,854
Assets $15,799 $1,055 $ 910 $ 125 $17,889
Year ended June 30, 2000
Revenues $ 5,210 $ 645 $ 259 $ 54 $ 6,168
Assets $14,640 $1,126 $ 1,014 $ 71 $16,851
- --------------------------------------------------------------------------------
Note 14. Quarterly Financial Results (Unaudited)
Summarized quarterly results of operations for the two years ended June 30, 2002
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
First Second Third Fourth
Year ended June 30, 2002 Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,607,883 $1,681,028 $1,870,036 $1,845,316
Net earnings $ 196,600 $ 264,600 $ 352,260 $ 287,310
Basic earnings per share $ .32 $ .43 $ .57 $ .47
Diluted earnings per share $ .31 $ .42 $ .56 $ .46
---------- ---------- ---------- ----------
Year ended June 30, 2001*
Revenues $1,544,129 $1,639,822 $1,853,765 $1,815,936
Net earnings $ 173,400 $ 207,440 $ 288,880 $ 255,000
Basic earnings per share $ .28 $ .33 $ .46 $ .41
Diluted earnings per share $ .27 $ .32 $ .45 $ .40
---------- ---------- ---------- ----------
- ------------------------------------------------------------------------------------------
</TABLE>
*After impact of non-cash, non-recurring item. See note 4 to the consolidated
financial statements.
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying financial
statements. The financial statements, which include amounts based on the
application of business judgments, have been prepared in conformity with
generally accepted accounting principles. Deloitte & Touche LLP, independent
certified public accountants, have audited our consolidated financial statements
as described in their report.
The Company maintains financial control systems designed to provide
reasonable assurance that assets are safeguarded and that transactions are
executed and recorded in accordance with management authorization. The control
systems are supported by written policies and the control environment is
regularly evaluated by both the Company's internal auditors and Deloitte &
Touche LLP.
The Board of Directors has an Audit Committee comprised of three outside
directors. The Audit Committee meets with both Deloitte & Touche LLP and the
internal auditors with and without management's presence. It monitors and
reviews the Company's financial statements and internal controls, and the scope
of the internal auditors' and Deloitte & Touche LLP's audits. Deloitte & Touche
LLP and the internal auditors have free access to the Audit Committee.
/s/ Arthur F. Weinbach
Arthur F. Weinbach
Chairman and Chief Executive Officer
/s/ Karen E. Dykstra
Karen E. Dykstra
Vice President Finance
(Principal Financial Officer)
Roseland, New Jersey
August 12, 2002
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and
Shareholders
Automatic Data Processing, Inc.
Roseland, New Jersey
We have audited the accompanying consolidated balance sheets of Automatic
Data Processing, Inc. and subsidiaries as of June 30, 2002 and 2001, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended June 30, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Automatic Data Processing, Inc.
and subsidiaries as of June 30, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2002, in conformity with accounting principles generally accepted in
the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
August 12, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>8
<FILENAME>exhibit21.txt
<DESCRIPTION>EXHIBIT 21 LIST OF SUBSIDIARIES
<TEXT>
EXHIBIT 21
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ ---------------
ADP Atlantic, Inc. Delaware
ADP Belgium CVA Belgium
ADP Brasil Ltda. Brazil
ADP Broker-Dealer, Inc. New Jersey
ADP Brokerage International Limited United Kingdom
ADP Central, Inc. Delaware
ADP Claims Solutions Group, Inc. Delaware
ADP Credit Corp. Delaware
ADP Dealer Services Ltd. Canada
ADP Dealer Services Deutschland GmbH Germany
ADP Dealer Services Italia s.r.l. Italy
ADP East, Inc. Delaware
ADP Employer Services GmbH Germany
ADP Europe S.A. France
ADP Financial Information Services, Inc. Delaware
ADP GSI S.A. France
ADP Hollander, Inc. Delaware
ADP, Inc. Delaware
ADP Integrated Medical Solutions, Inc. Delaware
ADP Investor Communication Services, Inc. Delaware
ADP Nederland B.V. The Netherlands
ADP Network Services International, Inc. Delaware
ADP Network Services Limited United Kingdom
ADP of North America, Inc. Delaware
ADP Output Services, Inc. Delaware
ADP of Roseland, Inc. Delaware
ADP Pacific, Inc. Delaware
ADP Payroll Services, Inc. Delaware
ADP Savings Association Pennsylvania
ADP South, Inc. Delaware
ADP Tax Services, Inc. Delaware
ADP TotalSource Group, Inc. Florida
Audatex GmbH Switzerland
Audatex Holding GmbH Switzerland
Audatex Deutschland Datenverarbeitungs GmbH Germany
Automatic Data Processing Limited Australia
Automatic Data Processing Limited United Kingdom
Automatic Data Processing SPRL Belgium
Avert, Inc. Colorado
Business Management Software Limited United Kingdom
Canadian-Automatic Data Processing Services Ltd. Canada
Cunningham Graphics, Inc. New Jersey
Cunningham Graphics International, Inc. New Jersey
Cunningham Graphics International, S.A. British Virgin Islands
Digital Motorworks Holdings, Inc. Texas
GSI Transport Tourisme S.A. France
-24-
<PAGE>
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ ---------------
Health Benefits America Utah
Informex S.A. Belgium
OMR Systems Corporation New Jersey
Wilco International Limited United Kingdom
In accordance with Item 601(b)(21) of Regulation S-K, the Registrant has
omitted the names of particular subsidiaries because the unnamed
subsidiaries, considered in the aggregate as a single subsidiary, would not
have constituted a significant subsidiary as of June 30, 2002.
-25-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>9
<FILENAME>exhibit23.txt
<DESCRIPTION>EXHIBIT 23 AUDITOR'S CONSENT
<TEXT>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Automatic Data Processing,
Inc.'s Registration Statement Nos. 33-45150, 33-52876, 33-55909, 33-57207,
33-58165, 33-61629, 333-01839, 333-02331, 333-12767, 333-15103, 333-29713,
333-48493, 333-57075, 333-80237, 333-79749, 333-72497, 333-31058, 333-42294
and 333-68030 on Form S-3, Registration Statement No. 333-72023 on Form S-4,
and Registration Statement Nos. 33-24987, 33-25290, 33-38338, 2-75287,
33-38366, 33-38365, 33-46168, 33-51979, 33-51977, 33-52629, 33-56419,
33-56463, 333-10281, 333-10279, 333-10277, 333-13945, 333-50123, 333-84647,
333-81725, 333-74265, 333-33258, 333-69020, 333-75468 and 333-9054 on Form
S-8 of our reports dated August 12, 2002, included in and incorporated by
reference in this Annual Report on Form 10-K of Automatic Data Processing,
Inc. for the year ended June 30, 2002.
/s/ Deloitte & Touche LLP
-------------------------
New York, New York
September 16, 2002
-26-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>10
<FILENAME>exhibit99-1.txt
<DESCRIPTION>EX-99.1 CERTIFICATE OF CFO
<TEXT>
EXHIBIT 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Automatic Data Processing, Inc.
(the "Company") on Form 10-K for the fiscal year ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Arthur F. Weinbach, 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
Chief Executive Officer
September 16, 2002
-27-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>11
<FILENAME>exhibit99-2.txt
<DESCRIPTION>EX-99.2 CERTIFICATE OF PFO
<TEXT>
EXHIBIT 99.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Automatic Data Processing, Inc.
(the "Company") on Form 10-K for the fiscal year ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Karen E. Dykstra, Vice President, Finance (Principal 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
Vice President, Finance
(Principal Financial Officer)
September 16, 2002
-28-
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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