Delaware 22-1467904 -------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One ADP Boulevard, Roseland, New Jersey 07068 --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) |
Indicate by check mark whether the Registrant (1) has filed all annual, quarterly and other reports required to be filed with the commission and (2) has been subject to the filing requirements for at least the past 90 days.
X Yes No
As of October 31, 2001 there were 616,600,200 common shares outstanding.
Three Months Ended
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September 30, September 30,
2001 2000
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Revenues, other than interest on funds
held for clients and PEO revenues $1,433,476 $1,372,838
Interest on funds held for clients 113,188 115,639
PEO revenues (A) 61,219 55,652
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Total revenues 1,607,883 1,544,129
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Operating expenses 676,352 659,958
General, administrative and
selling expenses 456,561 435,435
Systems development and
programming costs 115,829 119,074
Depreciation and amortization 69,463 81,544
Other (income)/expense (30,522) (38,492)
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1,287,683 1,257,519
EARNINGS BEFORE INCOME TAXES 320,200 286,610
Provision for income taxes 123,600 113,210
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NET EARNINGS $ 196,600 $ 173,400
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BASIC EARNINGS PER SHARE $ 0.32 $ 0.28
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DILUTED EARNINGS PER SHARE $ 0.31 $ 0.27
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Dividends per share $ .10250 $ .08750
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(A) Net of pass-through costs of $596,462 and $592,247, respectively
See notes to the consolidated financial statements.
(UNAUDITED)
September 30, June 30,
2001 2001
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Assets
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Cash and cash equivalents $ 1,415,107 $ 1,275,356
Short-term marketable securities 333,524 515,245
Accounts receivable 925,950 976,638
Other current assets 271,900 316,221
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Total current assets 2,946,481 3,083,460
Long-term marketable securities 630,844 806,363
Long-term receivables 230,141 224,964
Land and buildings 464,551 457,110
Data processing equipment 671,869 653,641
Furniture, leaseholds and other 546,574 533,883
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1,682,994 1,644,634
Less accumulated depreciation (1,073,563) (1,029,984)
----------- -----------
609,431 614,650
Other assets 238,564 219,133
Goodwill 1,259,757 1,151,874
Other Intangibles 454,846 449,536
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Total assets before funds held for clients 6,370,064 6,549,980
Funds held for clients 10,294,003 11,339,110
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Total assets $16,664,067 $17,889,090
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Liabilities and Shareholders' Equity
------------------------------------
Accounts payable $ 156,260 $ 156,324
Accrued expenses and other current
liabilities 983,280 1,032,273
Income taxes 203,982 147,676
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Total current liabilities 1,343,522 1,336,273
Long-term debt 106,258 110,227
Other liabilities 230,959 208,880
Deferred income taxes 265,991 207,928
Deferred revenue 86,518 85,931
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Total liabilities before client funds
obligations 2,033,248 1,949,239
Client funds obligations 10,060,639 11,238,854
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Total liabilities 12,093,887 13,188,093
Shareholders' equity:
Common stock 63,870 63,870
Capital in excess of par value 518,159 553,927
Retained earnings 5,286,034 5,153,408
Treasury stock (1,179,705) (837,244)
Accumulated other comprehensive income (118,178) (232,964)
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Total shareholders' equity 4,570,180 4,700,997
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Total liabilities and shareholders' equity $16,664,067 $17,889,090
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See notes to the consolidated financial statements.
Three Months Ended
September 30,
2001 2000
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Cash Flows From Operating Activities:
-------------------------------------
Net earnings $ 196,600 $ 173,400
Expenses not requiring outlay of cash 95,634 92,662
Changes in operating net assets 88,609 69,735
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Net cash flows provided by operating activities 380,843 335,797
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Cash Flows From Investing Activities:
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Purchase of marketable securities (655,514) (1,029,661)
Proceeds from sale of marketable securities 2,185,166 1,210,109
Net change in client funds obligations (1,178,214) (306,636)
Capital expenditures (32,957) (54,608)
Additions to intangibles (22,913) (16,108)
Acquisitions of businesses (78,936) (23,627)
Other (2,861) (6,926)
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Net cash flows provided by (used in)
investing activities 213,771 (227,457)
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Cash Flows From Financing Activities:
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Proceeds from issuance of notes 86 12,785
Repayments of debt (563) (14,106)
Proceeds from issuance of common stock 46,773 45,877
Repurchases of common stock (437,188) -
Dividends paid (63,971) (55,160)
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Net cash flows used in financing activities (454,863) (10,604)
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Net change in cash and cash equivalents 139,751 97,736
Cash and cash equivalents, at beginning of
period 1,275,356 1,227,637
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Cash and cash equivalents, at end of
period $1,415,107 $1,325,373
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See notes to the consolidated financial statements.
The information furnished herein reflects all adjustments, which are in the opinion of management, necessary for a fair presentation of the results for the interim periods. Adjustments are of a normal recurring nature. These statements should be read in conjunction with the annual financial statements and related notes of Automatic Data Processing, Inc. (ADP or the Company) for the year ended June 30, 2001.
Note A - The results of operations for the three months ended September 30, 2001 may not be indicative of the results to be expected for the year ending June 30, 2002.
Note B - The calculation of basic and diluted earnings per share (EPS) is as follows:
(In thousands, except EPS)
For the three months ended September 30
2001 2000
------------------------- ---------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $196,600 620,561 $0.32 $173,400 629,991 $0.28
Effect of zero coupon
subordinated notes 476 2,702 679 4,074
Effect of stock
options - 9,313 - 15,031
Diluted $197,076 632,576 $0.31 $174,079 649,096 $0.27
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Note C - On July 1, 2001, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141) and Statement of Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets" (SFAS 142).
SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The adoption of SFAS 141 did not have a material effect on the Company's results of operations or financial position.
SFAS 142 requires that goodwill be tested for impairment under certain circumstances, and written off when impaired, rather than being amortized as previous standards required. Prior to fiscal year 2002, goodwill was amortized over periods from 10 to 40 years. Pro forma net income and earnings per share for the three months ended September 30, 2000, adjusted to eliminate historical amortization of goodwill and related tax effects, are as follows:
(In thousands, except EPS)
For the three
months ended
September 30,
2000
------------
Previously reported net income $173,400
Goodwill amortization 12,475
Tax provision (1,619)
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Pro forma net income $184,256
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Previously reported basic EPS $ 0.28
Previously reported diluted EPS $ 0.27
Pro forma basic EPS $ 0.29
Pro forma diluted EPS $ 0.28
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The Company anticipates completing its initial assessment of impairment by December 31, 2001 and does not believe there is an indication that will result in impairment.
Note D - Other (income)/expense consists of the following:
(In thousands)
Three months ended September 30,
---------------------------------
2001 2000
---- ----
Interest income on corporate funds $(33,545) $ (42,397)
Realized (gains)/losses on investments (3,994) 607
Interest expense 7,017 3,298
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Total other (income)/expense $(30,522) $ (38,492)
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Note E - Comprehensive income for the three months ended September 30, 2001 and 2000 follows:
Three months ended September 30,
---------------------------------
2001 2000
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Net income $196,600 $173,400
Other comprehensive income:
Foreign currency translation
adjustment 38,402 (67,973)
Unrealized gain(loss) on
securities 76,384 15,539
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Comprehensive income $311,386 $120,966
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Note F - Interim financial data by segment:
ADP evaluates performance of its business units based on recurring operating results before interest on corporate funds, foreign currency gains and losses and income taxes. Certain revenues and expenses are charged to business units at a standard rate for management and motivation reasons. Other costs are recorded based on management responsibility. As a result, various income and expense items, including certain non-recurring gains and losses, are recorded at the corporate level and certain shared costs are not allocated. Goodwill amortization is charged to business units to act as a surrogate for the cost of capital for acquisitions. Interest on invested funds held for clients are recorded in Employer Services' revenues at a standard rate of 6%, with the adjustment to actual revenues included in "other". Prior year's business unit revenues and pre-tax earnings have been restated to reflect the current year's budgeted foreign exchange rates.
Results of the Company's three largest business units, Employer Services, Brokerage Services and Dealer Services are shown below.
Three months ended September 30,
(In millions) Employer Brokerage Dealer
Services Services Services
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2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Revenues $ 972 $ 901 $ 360 $ 359 $ 175 $ 165
Pretax earnings $ 215 $ 176 $ 66 $ 63 $ 27 $ 21
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Note G - The Company's short-term financing is sometimes obtained on a secured basis through the use of repurchase agreements, which are collateralized principally by U.S. government securities. These agreements generally have terms ranging from overnight to up to 6 days. There were no outstanding repurchase agreements at September 30, 2001 and 2000. For the quarter ended September 30, 2001, the Company had an average outstanding balance of approximately $500 million at an average interest rate of 3.4%.
Note H - Certain reclassifications have been made to prior period financial statements to conform to the current presentation.
Note I - In October 2001, the Company entered into a new unsecured revolving credit agreement with certain financial institutions, replacing an existing $2.5 billion credit agreement. The new agreement provides the Company with borrowings up to $4.0 billion. Borrowings under the agreement bear interest tied to LIBOR or prime rate depending on the number of days the borrowings are outstanding. The agreement, which expires in October 2002, has no borrowings to date.
OPERATING RESULTS
Revenues and earnings again reached record levels during the quarter ended September 30, 2001.
Revenues and revenue growth by ADP's major business units for the three months ended September 30, 2001 and 2000 are shown below:
Revenues Revenue Growth
September 30, September 30,
----------------- -----------------
2001 2000 2001 2000
----- ----- ----- ------
($ In millions)
Employer Services $ 972 $ 901 8% 14%
Brokerage Services 360 359 - 41
Dealer Services 175 165 6 (9)
Other 101 119 (15) 21
------ ------ ----- -----
$1,608 $1,544 4% 17%
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Consolidated revenues for the quarter of approximately $1.6 billion were up 4% from last year. Revenue growth in Employer Services slowed to 8%, as the impact of a weaker economy resulted in lower pays per control, client retention, and new business sales for the quarter. Brokerage revenue was roughly equivalent to last year resulting from flat trades per day in our back office processing business and lower demand for research and other print services in our Investor Communications business. Both were impacted directly by the September 11th terrorist attacks.
The primary components of "Other" revenues are Claims Services, foreign exchange differences, and miscellaneous processing services. In addition, "Other" revenues have been adjusted for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services at a standard rate of 6%. The prior year's business unit revenues and pre-tax earnings have been restated to reflect the current year's budgeted foreign exchange rates.
In July 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangibles Assets," which requires that goodwill no longer be amortized, but instead be tested for impairment at least annually. The decrease in amortization expense was due to the adoption of SFAS 142. The Company anticipates completing its initial assessment of impairment by December 31, 2001 and does not believe there is an indication that will result in impairment.
Systems development and programming decreased slightly in the quarter due to cost containment initiatives primarily related to the maintenance of existing applications, while funding of investments in new products continued. We believe that sustained investment in systems development and programming is critical to attaining our strategic objectives.
Pre-tax earnings for the quarter increased 7% to $320 million from $299 million in the prior year quarter adjusted for the pro forma impact of SFAS 142. Consolidated pre-tax margins increased over the previous year as continued automation and operating efficiencies enabled the Company to offset accelerated investments in new products.
The effective income tax rate was 38.6% of pre-tax earnings in the current quarter compared to 39.5% in the prior year quarter. The decrease in the effective income tax rate was primarily due to the adoption of SFAS 142 and the elimination of goodwill amortization expense in the current year quarter. Adjusting the prior year for the pro forma impact of SFAS 142, the effective income tax rate was 38.4%. Net earnings for the quarter, increased 7% to $197 million from $184 million in the prior year quarter adjusted for the pro forma impact of SFAS 142.
Diluted earnings per share, on fewer shares outstanding, increased to $0.31 from $0.28 in the prior year quarter also adjusted for the pro forma impact of SFAS 142.
We expect revenue growth in the mid single-digits and we project double-digit earnings per share growth over fiscal 2001 pro forma full year results.
FINANCIAL CONDITION
The Company's financial condition and balance sheet remain exceptionally strong, and operations continue to generate a strong cash flow. At September 30, 2001, the Company had cash and marketable securities of $2.4 billion. Shareholders' equity was $4.6 billion and the ratio of long-term debt to equity was 2%.
Capital expenditures for fiscal 2002 are expected to approximate $180 million, compared to $185 million in fiscal 2001.
During the first quarter, the Company purchased approximately 9.0 million shares of common stock for treasury at an average price per share of approximately $49. As of September 30, 2001 the Company has remaining Board authorization to purchase up to 44.3 million additional.
Approximately thirty percent of the Company's overall investment portfolio is invested in overnight interest-bearing instruments, which are therefore impacted immediately by changes in interest rates. The other seventy percent of the Company's investment portfolio is invested in fixed-income securities, with maturities up to ten years, which are also subject to interest rate risk, including reinvestment risk. The Company has historically had the ability to hold these investments until maturity, and therefore this has not had an adverse impact on income or cash flows.
The earnings impact of future rate changes is not precisely predictable because many factors influence the return on the Company's portfolio. These factors include, among others, the overall portfolio mix between short-term and long-term investments. This mix varies during the year and is impacted by daily interest rate changes. A hypothetical change in interest rates of 25 basis points applied to the September 30, 2001 balances would result in an $11 million pre-tax earnings impact over the following twelve-month period.
OTHER MATTERS
Certain member countries of the European Union have transitioned to the Euro as a new common legal currency. The costs of this transition have not had a material effect on ADP.
This report contains "forward-looking statements" based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ from those expressed.
Factors that could cause differences include: ADP's success in obtaining, retaining and selling additional services to clients; the pricing of products and services; changes in laws regulating payroll taxes and employee benefits; overall economic trends, including interest rate and foreign currency trends; stock market activity; auto sales and related industry changes; employment levels; changes in technology; availability of skilled technical associates and the impact of new acquisitions. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Except as noted below, all other items are either inapplicable or would result in negative responses and, therefore, have been omitted.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 07, 2001 /s/ Karen E. Dykstra
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Karen E. Dykstra
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