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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 _____
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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
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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-
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,
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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
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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-
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-
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.
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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
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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
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))
(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
(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-
(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-
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
-11-
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:
Employed by
Name Age Position ADP Since
- -------------------- --- -------------------------- ----------
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
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
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-
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-
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
Page in Form 10-K
Independent Auditors' Report on Schedule 18
Schedule II - Valuation and Qualifying Accounts 19
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-
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-
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-
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-
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
-----------------------------
(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
(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-
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.
Signature Title Date
- --------- ----- ----
/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-
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-
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-