Automatic Data Processing, Inc., also known as ADPยฎ, is a leading global technology company providing human capital management (HCM) solutions. With over 1.1 million clients, ADP is considered a leading provider of HR services such as talent, time management, benefits and payroll.
________________________________________________________________________________ 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, 2005 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 (I.R.S. Employer Identification No.) of 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 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 (Section 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. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No _____ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [x] No The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of the last business day of the Registrant's most recently completed second fiscal quarter was approximately $25,860,350,486. On August 24, 2005 there were 578,425,694 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 2005 Annual Report Parts I, II & IV to Stockholders. Portions of the Registrant's Proxy Statement for Annual Part III Meeting of Stockholders to be held on November 8, 2005. ________________________________________________________________________________
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 16 of the "Notes to Consolidated Financial Statements" contained in ADP's 2005 Annual Report to Stockholders, 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 Stockholders 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 human resource ("HR") information, payroll processing and benefit administration products and services, including traditional and Web-based outsourcing solutions, that assist over 518,000 employers in the United States, Canada, Europe, South America (primarily Brazil), Australia and Asia to staff, manage, pay and retain their employees. Employer Services markets these products and services through its direct marketing sales force and, on a limited basis, through indirect sales channels, such as marketing relationships with banks and accountants. In fiscal 2005, 86% of Employer Services' revenues were from the United States, 9% were from Europe, 4% were from Canada and 1% was from South America (primarily Brazil), Australia and Asia. United States and Canada Employer Services' approach to the market is to match a client's needs with the product that will best meet expectations. To facilitate this approach, in the United States and Canada, Employer Services is comprised of the following groups: Small Business Services ("SBS") (primarily companies with fewer than 50 employees); Major Accounts Services (primarily companies with between 50 and 999 employees); and National Account Services (primarily companies with 1,000 or more employees). SBS processes payroll for 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 Services 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. Through ADP Connection(R) (in the United States), and by using current product import capabilities (in Canada), ADP can enable its largest clients to interface their major enterprise resource planning applications with ADP's outsourced payroll services. For those companies that choose to process these applications in-house, ADP currently delivers stand-alone services such as payroll tax filing, check printing and distribution and year-end tax statements (i.e., form W-2) in the United States. In addition, in order to expand its presence in the small business client market, during fiscal 2005 ADP continued to develop with Microsoft(R) Corporation two new fully integrated ADP payroll solutions-ADP Payroll(SM) and ADP Total Payroll(SM)--that will be included within Microsoft(R) Office Small Business Accounting 2006, available only in the United States. ADP Payroll will offer users access to a 2
"do-it-yourself" solution similar to those that are available in the traditional software market and ADP Total Payroll will offer a full-featured payroll solution for those who prefer to fully outsource payroll processing. ADP expects these new offerings to be available for general distribution through Microsoft Office Small Business Accounting 2006 during fiscal 2006. In order to address the growing business process outsourcing (BPO) market for clients seeking customized human resource information systems and benefit outsourcing solutions, ADP continued to roll out its integrated comprehensive outsourcing services (COS) solution that allows a client to outsource its HR, payroll, payroll administration, employee service center, benefits administration, and time and labor management functions to ADP. In the United States and Canada, ADP provides payroll services that include the preparation of client employee paychecks and electronic direct deposits, along with supporting journals, summaries and management reports. In the United States, 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, and analogous services are provided in the Canadian market. ADP's Tax and Financial Services business in the United States and its money movement business in Canada process and collect federal, state, provincial and local payroll taxes on behalf of, and from, ADP clients and remit these taxes to the appropriate taxing authorities. ADP's Tax and Financial Services business in the United States and its money movement business in Canada are also responsible for the efficient movement of information and funds from clients to third parties through service offerings such as new hire reporting, ADP's TotalPay(R) payroll check (ADPCheck(TM)), full service direct deposit (FSDD) and, in conjunction with major bank partners, stored value payroll card (TotalPay(R) Card) products, and the collection and payment of wage garnishments. In the United States and Canada, these businesses support large, mid-sized and small clients and provide an electronic interface between approximately 401,000 ADP clients and over 2,000 federal, state, provincial and local tax agencies, from the Internal Revenue Service and Canada Revenue Agency, to local town governments. In fiscal 2005, ADP's Tax and Financial Services business in the United States and its money movement business in Canada together processed and delivered over 49 million year-end tax statements to its clients' employees (i.e., form W-2 in the United States and analogous statements in Canada) and approximately 40.5 million remittances and employer payroll tax returns, and moved approximately $885 billion in client funds to taxing authorities and its clients' employees via electronic transfer, direct deposit and ADPCheck. ADP's HR services, by interfacing with a client's payroll database, provide comprehensive HR recordkeeping services, including benefit administration and outsourcing, applicant tracking, employee history and position control. ADP's Benefit Services provides benefit 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 the United States, ADP TotalSource(R), ADP's professional employer organization ("PEO") business, provides clients with comprehensive employment administration outsourcing solutions, including payroll, payroll tax filing, employee background checks, HR guidance, 401(k) plan administration, benefit administration, compliance services, workers' compensation insurance and supplemental benefits for employees. ADP TotalSource(R), the second largest PEO in the U.S. (based on the number of worksite employees), has 36 offices located in sixteen states and serves approximately 4,900 PEO clients and approximately 113,000 work-site employees in all 50 states. 3
ADP complements its payroll, payroll tax and HR services with additional employer services that include products such as time and labor management, pre-employment screening and selection services, substance abuse testing and unemployment compensation management. ADP's Tax Credit Services business provides job tax credit services that assist employers in the identification of, and filing for, special tax credits based on geography, demographics and other criteria. Outside the United States and Canada The continued increase in the number of multi-national companies makes payroll and human resource management services a global opportunity. In Europe, ADP is the leading provider of payroll processing (including full departmental outsourcing) and various human resource administration services. Employer Services is present in eight countries in Europe: France, Germany, Italy, the Netherlands, Poland, Spain, Switzerland and the United Kingdom. It also offers services in Ireland (from the United Kingdom) and in Portugal (from Spain). In South America (primarily Brazil), Australia and Asia, Employer Services provides full departmental outsourcing of payroll services. In fiscal 2005, ADP continued to expand its GlobalView(SM) offering, making it available in 18 countries. GlobalView is built on the mySAP(TM) ERP Human Capital Management and the SAP NetWeaver(TM) platform and offers multinational corporations an end-to-end outsourcing solution enabling standardized payroll processing and human resources administration. Brokerage Services Brokerage Services provides transaction processing services, desktop productivity applications and investor communications solutions to the financial services industry worldwide. Brokerage Services' products and services include: (i) global order entry, trade processing and settlement systems that enable firms to trade virtually any financial instrument, in any market, at any time; (ii) Internet delivery; personalized on-demand and offset financial printing; statements, confirmations, fulfillment, content management, and imaging, archival, and workflow solutions that enhance communications with investors; proxy distribution and vote processing, regulatory mailings, tax reporting and corporate actions/reorganization solutions that help clients meet regulatory and compliance needs; (iii) automated, browser-based desktop productivity tools for financial consultants and back office personnel; and (iv) integrated delivery of multiple products and services through ADP's Global Processing Solution. Brokerage Services serves a large client base in the financial services industry, including: retail and institutional brokerage firms; global banks; mutual funds; annuity companies; institutional investors; specialty trading firms; clearing firms; and publicly owned corporations. Brokerage Services provides securities transaction processing, printing and electronic distribution of shareholder communications and other services to clients that conduct business in more than 90 countries in North America, Europe, Asia and Australia. Brokerage Services also provides computerized proxy vote tabulation and shareholder communication, distribution and fulfillment services, including Web-enabled products and services. In fiscal 2005, ADP served approximately 13,000 United States publicly traded companies and 450 mutual funds and annuity companies with proxy services on behalf of more than 850 brokerage firms and banks. Securities Clearing and Outsourcing Services In fiscal 2005, ADP completed its acquisition of the U.S. Clearing and BrokerDealer Services divisions of Bank of America and created the Securities Clearing and Outsourcing Services segment. This acquisition furthered Brokerage Services' business process outsourcing strategy by positioning ADP to provide any brokerage firm, regardless of size, an appropriate range of outsourcing services to best 4
meet its individual needs on a single technology platform: service bureau, operations outsourcing, or correspondent clearing services. Securities Clearing and Outsourcing Services provides clearing, custody, financing, securities lending, trade execution and outsourcing solutions to broker-dealers. Securities Clearing and Outsourcing Services derives revenues from commissions and service charges related to clearing and execution activities and from interest income on margin financing, client short selling activity, and uninvested balances. Securities Clearing and Outsourcing Services also extends margin loans directly to correspondents to finance their proprietary activity. Securities transactions are effected for customers on either a cash or margin basis. In a margin transaction, Securities Clearing and Outsourcing Services extends credit to a customer for a portion of the purchase price of the security. Such credit is collateralized by securities in the customer's accounts in accordance with regulatory and internal requirements. Securities Clearing and Outsourcing Services receives income from interest charged on such loans. Securities Clearing and Outsourcing Services also borrows securities from banks and other broker-dealers to facilitate customer and proprietary short selling activity, and lends securities to broker-dealers and other trading entities to cover short sales and to complete transactions that require delivery of securities by settlement date. Dealer Services Dealer Services provides integrated dealer management systems (such a system is also known in the industry as a "DMS") and business solutions to automotive, heavy truck, and powersports (i.e., motorcycle, marine and recreational) vehicle retailers and manufacturers throughout North America and Europe. More than 19,500 automotive, heavy truck and powersports dealers use ADP's DMS, other software based solutions, networking solutions, data integration, consulting and/or marketing services. Dealer Services offers its dealership clients a service product that includes computer hardware, hardware maintenance services, licensed software, software support, system design and network consulting services. Dealer Services also offers its clients Web-enabled business solutions, "front-end" dealership sales process and business development training services, consulting services, software products and customer relationship management solutions (CRM). 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 estimation and acquisition of vehicle registration and lien holder information. Dealer Services also offers an Application Service Provider (ASP) managed services solution to its dealership clients in which the clients license ADP's DMS and/or other software, and outsource all information technology management, computing and network infrastructure, technology decisions and system support to Dealer Services. In fiscal 2005, ADP acquired Tesoft Automocion S.A., which provides dealer management systems to approximately 1,500 automotive dealers in Spain, Portugal and France. ADP also acquired AutoFuse, Inc., a web site development solutions company. 5
Claims Services Claims Services offers integrated business solutions for clients in the property insurance, auto collision repair and auto recycling industries. These solutions help clients manage costs, improve efficiency and accelerate the claims review and settlement process. Claims Services' products and services include (i) claims management applications, such as automated collision repair estimating, total loss vehicle valuation, first notice of loss, dispatch and assignment, claims audit, claims payment, managed repair solutions and alternative parts locating, that streamline the end-to-end claims process, (ii) body shop and auto recycler management systems and auto recycler alternative parts locating solutions, (iii) other applications, databases and management information tools and services that enhance and optimize the claims process and (iv) insurance broker risk management and insurance distribution services that help clients create, update and manage insurance policies. In fiscal 2005, Claims Services expanded its auto claims services into India, Russia, Eastern Europe and Central America. It also acquired a majority interest in its Spanish licensee, Audatex Espana, S.A. Markets and Marketing Methods ADP's services are offered broadly across North America and Europe. Some services within the Employer Services and Brokerage Services business units are also offered in Australia and Asia, and Employer Services and Claims Services also provides services in South America (primarily Brazil). None of ADP's major business groups have a single homogenous client base or market. For example, Brokerage Services and Securities Clearing and Outsourcing Services serve a large client base in the financial services industry, including retail and institutional firms, banks and individual non-brokerage corporations. Dealer Services primarily serves automobile dealers, but also serves heavy truck, powersports (i.e., motorcycle, marine and recreational), 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 industry group is material to ADP's overall revenues. ADP's businesses are not 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 2005, Employer Services continued to grow, primarily due to the increase in its United States payroll and payroll tax businesses, including new business started in the fiscal year, an increase in the number of employees on our clients' payrolls, strong growth in its "beyond payroll" products, and improved client retention; Brokerage Services grew as a consequence of the increased volume in its investor communication services resulting from an increase in the amount of holders of equities and an increase in mutual fund special communications; Dealer Services grew due to the revenues generated in fiscal 2005 from fiscal 2004 acquisitions and growth in its traditional businesses; and our investment income on our client funds increased due to the increase in our average client fund balances and higher interest rates. 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. 6
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 approximately 590,000 clients. In fiscal 2005, no single client or group of affiliated clients accounted for revenues in excess of 2% of annual consolidated revenues. 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 receives sales orders in all of our businesses and is continuously in the process of performing implementation services for our clients. Depending on the service agreement and/or the size of the client, the installation or conversion period for new clients could vary from a short period of time (up to two weeks) for an SBS client to a longer period (generally six to twelve months) for a National Account Services or Dealer Services client with multiple deliverables. ADP's average client retention is estimated at 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. Systems Development and Programming During the fiscal years ended June 30, 2005, 2004 and 2003, ADP invested $696 million, $704 million, and $604 million, respectively, in systems development and programming, migration to new computing technologies and the development of new products and maintenance of our existing technologies, including purchases of new software and software licenses. 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. 7
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 44,000 persons as of June 30, 2005. Item 2. Properties ADP leases space for 22 of its principal processing centers. In addition, ADP leases numerous other operational offices and sales offices. All of these leases, which aggregate approximately 7,374,053 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 15 of its processing facilities, other operational offices and its corporate headquarters complex in Roseland, New Jersey, which aggregate approximately 3,574,365 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. 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, the Registrant believes it has valid defenses with respect to the legal matters pending against it and the Registrant believes that the ultimate resolution of these matters will not have a material adverse impact on its 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 tried before an arbitration panel in June 2003. This lawsuit alleges trade secret violations by DSI in the creation by DSI of the CARMan automobile dealership software product and misappropriation of those trade secrets by the Registrant through its acquisition of DSI. UCS sought injunctive relief and damages of $56 million. On November 11, 2003, the arbitration panel appointed by the District Court entered an Award in favor of DSI and its co-defendants. The Award denied all relief to UCS. The Award has been affirmed and adopted by the District Court as a final judgment of the Court. On March 12, 2004, the plaintiffs filed an appeal of the final judgment, which appeal is now pending before the Texas Court of Appeals. The Registrant believes that the judgment of the District Court was correct and that the Registrant should prevail. Item 4. Submission of Matters to a Vote of Security Holders None 8
Part II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities See "Market Price, Dividend Data and Other" contained in the Registrant's 2005 Annual Report to Stockholders, which information is incorporated herein by reference. As of August 17, 2005, the Registrant had 40,337 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 January 24, 2005, the Registrant issued 12,452 shares of its Common Stock, with a market value of approximately $500,000, in respect of an earnout paid to a company related to 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. Issuer Purchases of Equity Securities <TABLE> <CAPTION> <S> <C> <C> <C> <C> (a) (b) (c) (d) Total Number of Shares Purchased as Maximum Number of Part of the Publicly Shares that may yet Announced Common be Purchased under Total Number of Average Price Paid Stock Repurchase the Common Stock Period Shares Purchased per Share (3) Plan (1) Repurchase Plan (1) - -------------------- ----------------- ------------------ -------------------- -------------------- April 1, 2005 to April 30, 2005 444,610 $44.12 444,400 17,204,400 May 1, 2005 to May 31, 2005 1,068,509 $44.11 1,050,000 16,154,400 June 1, 2005 to June 30, 2005 2,573,044 $42.04 2,563,300 13,591,100 Total 4,086,163(2) 4,057,700 </TABLE> (1) In March 2001, the Registrant received the Board of Directors' approval to repurchase up to 50 million shares of the Registrant's common stock. In November 2002, the Registrant received the Board of Directors' approval to repurchase an additional 35 million shares of the Registrant's common stock. There is no expiration date for the common stock repurchase plan. (2) During 2005, pursuant to the terms of the Registrant's restricted stock program, the Registrant (i) made repurchases of 210 shares during April 2005, 3,509 shares during May 2005 and 744 shares during June 2005 at the then market value of the shares in connection with the exercise by employees of their option under such program to satisfy certain tax withholding requirements through the delivery of shares to the Registrant instead of cash and (ii) 9
made purchases of 15,000 shares during May 2005 and 9,000 shares during June 2005 at a price of $.10 per share under the terms of such program to repurchase stock granted to employees who have left the Registrant. (3) The average price per share does not include the repurchases described in clause (ii) of the preceding footnote. Item 6. Selected Financial Data See "Selected Financial Data" contained in the Registrant's 2005 Annual Report to Stockholders, 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 of Financial Condition and Results of Operations" contained in the Registrant's 2005 Annual Report to Stockholders, which information is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Registrant's 2005 Annual Report to Stockholders, which information is incorporated herein by reference. 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 fiscal years ended June 30, 2005 (see Note 17 of the "Notes to Consolidated Financial Statements" contained in ADP's 2005 Annual Report to Stockholders) Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures Attached as Exhibits 31.1 and 31.2 to this Form 10-K are certifications of ADP's Chief Executive Officer and Chief Financial Officer, which are required by Rule 13a-14(a) of the Securities Exchange Act of 1934. This "Controls and Procedures" section should be read in conjunction with such certifications and the Deloitte & Touche LLP attestation report on management's assessment of ADP's internal control over financial reporting that appears on page 47 of ADP's 2005 Annual Report to Stockholders and is hereby incorporated herein by reference. Management's Evaluation of Disclosure Controls and Procedures ADP carried out an evaluation, under the supervision and with the participation of ADP's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of 10
ADP's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that ADP's disclosure controls and procedures as of June 30, 2005 were effective to ensure that information required to be disclosed by ADP in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission's rules and forms. Management's Report on Internal Control over Financial Reporting It is the responsibility of Automatic Data Processing, Inc.'s ("ADP") management to establish and maintain effective internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Internal control over financial reporting is designed to provide reasonable assurance to ADP's management and board of directors regarding the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. ADP's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of ADP; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of ADP are being made only in accordance with authorizations of management and directors of ADP; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of ADP's assets that could have a material effect on the financial statements of ADP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management has performed an assessment of the effectiveness of ADP's internal control over financial reporting as of June 30, 2005 based upon criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that ADP's internal control over financial reporting was effective as of June 30, 2005. Management has excluded from its assessment of internal control over financial reporting at June 30, 2005 its subsidiary, ADP Clearing and Outsourcing Services, Inc., which holds all the assets of the Securities Clearing and Outsourcing Services segment that was formed as a result of an acquisition on November 1, 2004. ADP Clearing and Outsourcing Services, Inc. represents 1% and 5% of ADP's consolidated total revenues and consolidated total assets, respectively, for the year ended June 30, 2005. Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on management's assessment of internal control over financial reporting, which attestation report appears on page 47 of ADP's 2005 Annual Report to Stockholders. Changes in Internal Control over Financial Reporting There were no changes in ADP's internal control over financial reporting that occurred during the quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, ADP's internal control over financial reporting. 11
Item 9B. Other Information None 12
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> <S> <C> <C> <C> Employed by Name Age Position ADP Since - --------------------- --- ------------------------ ------------- Steven J. Anenen 52 President, 1975 Dealer Services James B. Benson 60 Vice President, General 1977 Counsel and Secretary Richard C. Berke 60 Vice President, Human 1989 Resources Gary C. Butler 58 President and Chief 1975 Operating Officer Janice M. Colby 50 President, 2001 Claims Solutions Group Raymond L. Colotti 59 Vice President and 1995 Treasurer Richard J. Daly 52 Group President, 1989 Brokerage Services Karen E. Dykstra 46 Vice President and 1981 Chief Financial Officer John Hogan 57 Group President, 1993 Brokerage Services Campbell B. Langdon 44 President, 2000 Tax, Financial and Time Management Services S. Michael Martone 57 Group President, Employer 1987 Services Dan Sheldon 49 Vice President, 1984 Corporate Controller 13
Jan Siegmund 41 Vice President, 1999 Strategic Development George I. Stoeckert 57 President, Employer 1991 Services - International Arthur F. Weinbach 62 Chairman and 1980 Chief Executive Officer </TABLE> Messrs. Benson, Berke, Butler, Colotti, Daly, Hogan, Martone and Weinbach have each been employed by ADP in senior executive positions for more than the past five years. Steven J. Anenen joined ADP in 1975. Prior to his promotion to President, Dealer Services in 2004, he served as Senior Vice President, Dealer Services from 1998 to 2004. Janice M. Colby joined ADP in 2001. Prior to her promotion to President, Claims Solutions Group in 2005, she served as President, Small Business Services Division, Employer Services from 2001 to 2005. From 1996 to 2001 she served as Vice President, Business Customer Care for AT&T Corporation. Karen E. Dykstra joined ADP in 1981. Prior to her promotion to Chief Financial Officer in 2003, she served as Vice President, Finance from 2001 to 2003 and as Vice President and Controller from 1998 to 2001. Campbell B. Langdon joined ADP in 2000 as Vice President, Strategic Development. In 2003, he was promoted to President, Tax, Financial and Time Management Services. Dan Sheldon joined ADP in 1984. Prior to his promotion to Vice President, Corporate Controller in 2003, he served as Chief Financial Officer of Brokerage Services from 2001 to 2003 and Chief Financial Officer of Dealer Services from 1996 to 2001. Jan Siegmund joined ADP in 1999 as Vice President, Strategy. Prior to his promotion to Vice President, Strategic Development in 2004, he served as Senior Vice President of Strategic Development, Brokerage Services from 2000 to 2004. George I. Stoeckert joined ADP in 1991. Prior to his promotion to President, Employer Services International in 2003, he served as President - Major Accounts Services Division, Employer Services from 1995 to 2003. 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. Directors of the Registrant See "Election of Directors" in the Proxy Statement for Registrant's 2005 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 2005 Annual Meeting of Stockholders, which information is incorporated herein by reference. 14
Code of Ethics ADP has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The code of ethics may be viewed online on ADP's website at www.adp.com under "Ethics" in the "About ADP" section. Audit Committee See "Audit Committee Report" in the Proxy Statement for Registrant's 2005 Annual Meeting of Stockholders, which information is incorporated herein by reference. Item 11. Executive Compensation See "Compensation of Executive Officers" and "Election of Directors" in the Proxy Statement for Registrant's 2005 Annual Meeting of Stockholders, which information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters See "Election of Directors - Security Ownership of Certain Beneficial Owners and Managers" and "Compensation of Executive Officers - Equity Compensation Plan Information" in the Proxy Statement for Registrant's 2005 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 2005 Annual Meeting of Stockholders, which information is incorporated herein by reference. Item 14. Principal Accounting Fees and Services See "Independent Registered Public Accounting Firms' Fees" in the Proxy Statement for Registrant's 2005 Annual Meeting of Stockholders, which information is incorporated herein by reference. 15
Part IV Item 15. Exhibits and Financial Statement Schedules (a)1. Financial Statements The following reports and consolidated financial statements of the Registrant contained in the Registrant's 2005 Annual Report to Stockholders are also included in Part II, Item 8: Statements of Consolidated Earnings - years ended June 30, 2005, 2004 and 2003 Consolidated Balance Sheets - June 30, 2005 and 2004 Statements of Consolidated Stockholders' Equity - years ended June 30, 2005, 2004 and 2003 Statements of Consolidated Cash Flows - years ended June 30, 2005, 2004 and 2003 Notes to Consolidated Financial Statements Management Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm 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 ----------------- Report of Independent Registered Public Accounting Firm 20 Schedule II - Valuation and Qualifying Accounts 21 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 Registration Statement No. 333-72023 on Form S-4 filed with the Commission on February 9, 1999 16
3.2 - Amended and Restated By-laws of the Registrant - incorporated by reference to Exhibit 3.2 to Registrant's Current Report on Form 8-K, dated August 11, 2005 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 April 28, 2005 between Automatic Data Processing, Inc. and Arthur F. Weinbach - incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated April 28, 2005 (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 - incorporated by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2004 (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) 17
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) 10.8 - 2000 Stock Option Plan - incorporated by reference to Exhibit 10.8 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2004 (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) 10.12 - 2003 Director Stock Plan - incorporated by reference to Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2003 (Management Compensatory Plan) 10.13 - Amended and Restated Employees' Savings-Stock Purchase Plan - incorporated by reference to Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2003 10.14 - 364-Day Credit Agreement, dated as of June 29, 2005, among Automatic Data Processing, Inc., the Lenders Party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, BNP Paribas, Citicorp USA, Inc., Deutsche Bank Securities Inc. and Wachovia Bank, National Association, as Documentation Agents - incorporated by reference to Exhibit 10.14 to Registrant's Current Report on Form 8-K, dated June 29, 2005 10.15 - Five-Year Credit Agreement, dated as of June 30, 2004, among Automatic Data Processing, Inc., the Lenders Party thereto, JPMorgan Chase Bank, as Administrative Agent, J.P. Morgan Europe Limited, as London Agent, JPMorgan Chase Bank, Toronto Branch, as Canadian Agent, the Swingline Lenders, and Bank of America, N.A., Barclays Bank PLC, BNP Paribas, Citibank, N.A., Deutsche Bank Securities Inc. and Wachovia National Association, as Co-Syndication Agents - incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2004 18
10.16 - Five-Year Credit Agreement, dated as of June 29, 2005, among Automatic Data Processing, Inc., the Lenders Party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, BNP Paribas, Citicorp USA, Inc., Deutsche Bank Securities Inc. and Wachovia Bank, National Association, as Documentation Agents - incorporated by reference to Exhibit 10.16 to Registrant's Current Report on Form 8-K, dated June 29, 2005 10.17 - 2000 Stock Option Grant Agreement (Form for Employees) - incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 (Management Compensatory Plan) 10.18 - 2000 Stock Option Grant Agreement (Form for French Associates) - incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 (Management Compensatory Plan) 10.19 - 2000 Stock Option Grant Agreement (Form for Non-Employee Directors) - incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 (Management Compensatory Plan) 10.20 - Directors Compensation Summary Sheet - incorporated by reference to Exhibit 10.20 to Registrant's Current Report on Form 8-K, dated August 11, 2005 13 - Pages 16 to 47 of the 2005 Annual Report to Stockholders (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 - Consent of Independent Registered Public Accounting Firm 31.1 - Certification by Arthur F. Weinbach pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 31.2 - Certification by Karen E. Dykstra pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 32.1 - Certification by Arthur F. Weinbach pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 - Certification by Karen E. Dykstra pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Automatic Data Processing, Inc. Roseland, New Jersey We have audited the consolidated financial statements of Automatic Data Processing, Inc. and subsidiaries (the "Company") as of June 30, 2005 and 2004, and for each of the three years in the period ended June 30, 2005, and have issued our report thereon dated August 17, 2005; such consolidated financial statements and report are included in your 2005 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Automatic Data Processing, Inc., listed at Item 15(a)2. 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 17, 2005 20
<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 ---------------------- (1) (2) <S> <C> <C> <C> <C> <C> 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, 2005: Allowance for doubtful accounts: Current $50,980 $17,964 $1,209(B) $(24,475)(A) $45,678 Long-term $8,578 $1,326 $ -- $ (1,732)(A) $8,172 Deferred tax valuation allowance $25,858 $7,821 $ -- $ (1,205)(E) $32,474 Year ended June 30, 2004: Allowance for doubtful accounts: Current $54,654 $15,656 $3,335(B) $(22,665)(A) $50,980 Long-term $11,103 $680 $ -- $ (3,205)(A) $8,578 Deferred tax valuation allowance $32,220 $2,953 $ -- $ (9,315)(D) $25,858 Year ended June 30, 2003: Allowance for doubtful accounts: Current $52,873 $17,588 $ 712(B) $(16,519)(A) $54,654 Long-term $16,019 $1,534 $ -- $ (6,450)(A) $11,103 Deferred tax valuation allowance $40,140 $5,318 $ 899(C) $ (14,137)(E) $32,220 (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 goodwill. (E) A portion of this allowance is related to the net deferred tax assets recorded in purchase accounting, the recognition of which is allocated to reduce goodwill. The remaining portion reduced the current year provision for income taxes. </TABLE> 21
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) August 31, 2005 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> <S> <C> <C> Signature Title Date - --------- ----- ---- /s/ Arthur F. Weinbach Chairman, Chief Executive August 31, 2005 - -------------------------- Officer and Director (Arthur F. Weinbach) (Principal Executive Officer) /s/ Karen E. Dykstra Chief Financial Officer August 31, 2005 - -------------------------- (Principal Financial Officer (Karen E. Dykstra) and Principal Accounting Officer) /s/ Gregory D. Brenneman Director August 31, 2005 - ------------------------- (Gregory D. Brenneman) /s/ Leslie A. Brun Director August 31, 2005 - ------------------------- (Leslie A. Brun) /s/ Gary C. Butler Director August 31, 2005 - ------------------------- (Gary C. Butler) /s/ Leon G. Cooperman Director August 31, 2005 - ------------------------- (Leon G. Cooperman) 22
Signature Title Date - --------- ----- ---- /s/ R. Glenn Hubbard Director August 31, 2005 - ------------------------- (R. Glenn Hubbard) /s/ John P. Jones Director August 31, 2005 - ------------------------- (John P. Jones) /s/ Ann Dibble Jordan Director August 31, 2005 - ------------------------- (Ann Dibble Jordan) /s/ Harvey M. Krueger Director August 31, 2005 - ------------------------- (Harvey M. Krueger) /s/ Frederic V. Malek Director August 31, 2005 - ------------------------- (Frederic V. Malek) /s/ Henry Taub Director August 31, 2005 - ------------------------- (Henry Taub) </TABLE> 23