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 March 31, 2002 there were 620,141,262 common shares outstanding.
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ----------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues, other than interest
on funds held for clients
and PEO revenues $1,691,261 $1,650,249 $4,633,659 $4,473,720
Interest on funds held for
clients 107,880 143,326 331,140 388,883
PEO revenues (A) 70,895 60,190 194,148 175,113
---------- ---------- ---------- ----------
Total revenues 1,870,036 1,853,765 5,158,947 5,037,716
---------- ---------- ---------- ----------
Operating expenses 772,492 754,300 2,140,814 2,091,360
General, administrative and
selling expenses 369,217 418,101 1,219,336 1,264,162
Systems development and
programming costs 116,387 126,564 349,756 373,141
Depreciation and amortization 73,203 79,914 211,115 239,982
Other(income)expense (33,113) (514) (84,024) (35,839)
---------- ---------- ---------- ----------
1,298,186 1,378,365 3,836,997 3,932,806
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 571,850 475,400 1,321,950 1,104,910
Provision for income taxes 219,590 186,520 508,490 435,190
---------- ---------- ---------- ----------
NET EARNINGS $ 352,260 $ 288,880 $ 813,460 $ 669,720
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ 0.57 $ 0.46 $ 1.31 $ 1.06
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ 0.56 $ 0.45 $ 1.29 $ 1.04
========== ========== ========== ==========
Dividends per share $ 0.1150 $ 0.1025 $ 0.3325 $ 0.2925
========== ========== ========== ==========
(A) Net of pass-through costs of $676,409 and $596,333, $1,922,810 and $1,839,731, respectively. |
See notes to the consolidated financial statements.
March 31, June 30,
Assets 2002 2001
------ ----------- -----------
Cash and cash equivalents $ 1,203,966 $ 1,275,356
Short-term marketable securities 511,120 515,245
Accounts receivable 1,053,266 976,638
Other current assets 221,109 316,221
----------- -----------
Total current assets 2,989,461 3,083,460
Long-term marketable securities 1,116,347 806,363
Long-term receivables 203,719 224,964
Land and buildings 456,895 457,110
Data processing equipment 682,784 653,641
Furniture, leaseholds and other 537,555 533,883
----------- -----------
1,677,234 1,644,634
Less accumulated depreciation (1,086,896) (1,029,984)
----------- -----------
Total property, plant and equipment 590,338 614,650
Other assets 239,967 219,133
Goodwill 1,284,958 1,151,874
Other intangibles 469,157 449,536
----------- -----------
Total assets before funds held for clients 6,893,947 6,549,980
Funds held for clients 12,334,285 11,339,110
----------- -----------
Total assets $19,228,232 $17,889,090
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Accounts payable $ 155,105 $ 156,324
Accrued expenses & other current
liabilities 1,018,449 1,032,273
Income taxes 194,331 147,676
----------- -----------
Total current liabilities 1,367,885 1,336,273
Long-term debt 91,000 110,227
Other liabilities 212,744 208,880
Deferred income taxes 188,446 207,928
Deferred revenue 93,720 85,931
----------- -----------
Total liabilities before client funds
obligations 1,953,795 1,949,239
Client funds obligations 12,277,456 11,238,854
----------- -----------
Total liabilities 14,231,251 13,188,093
Shareholders' equity:
Common stock 63,870 63,870
Capital in excess of par value 353,685 553,927
Retained earnings 5,761,014 5,153,408
Treasury stock (946,729) (837,244)
Accumulated other comprehensive income (234,859) (232,964)
----------- -----------
Total shareholders' equity 4,996,981 4,700,997
----------- -----------
Total liabilities and shareholders' equity $19,228,232 $17,889,090
=========== ===========
|
See notes to the consolidated financial statements.
Nine Months Ended
March 31,
2002 2001
---------- ----------
Cash Flows From Operating Activities:
-------------------------------------
Net earnings $ 813,460 $ 669,720
Expenses not requiring outlay of cash 247,280 340,804
Changes in operating net assets 124,188 10,796
---------- ----------
Net cash flows provided by operating activities 1,184,928 1,021,320
---------- ----------
Cash Flows From Investing Activities:
-------------------------------------
Purchase of marketable securities (4,410,232) (5,533,512)
Proceeds from sale of marketable securities 3,057,782 2,619,521
Net change in client fund obligations 1,038,602 2,874,425
Capital expenditures (100,328) (129,356)
Additions to intangibles (78,538) (62,753)
Acquisitions of businesses, net of cash acquired (148,260) (51,693)
Other 12,677 (11,858)
---------- ----------
Net cash flows used in investing activities (628,297) (295,226)
---------- ----------
Cash Flows From Financing Activities:
-------------------------------------
Net proceeds from short-term borrowings - 26,348
Payments of debt (3,500) (48,381)
Proceeds from issuance of common stock 206,038 207,240
Repurchases of common stock (624,704) (788,767)
Dividends paid (205,855) (184,427)
---------- ----------
Net cash flows used in financing activities (628,021) (787,987)
---------- ----------
Net change in cash and cash equivalents (71,390) (61,893)
Cash and cash equivalents, beginning of period 1,275,356 1,227,637
---------- ----------
Cash and cash equivalents, end of period $1,203,966 $1,165,744
========== ==========
|
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. The results of operations for the nine months ended March 31, 2002 may not be indicative of the results to be expected for the year ending June 30, 2002. 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. Certain reclassifications have been made to prior period financial statements to conform to the current presentation.
Note A - The calculation of basic and diluted earnings per share (EPS) is as follows:
(In thousands, except EPS)
Periods ended March 31, 2002
-----------------------------------------------------
Three Month Period Nine Month Period
------------------------ -----------------------
Earnings Shares EPS Earnings Shares EPS
-------- ------ --- -------- ------ ---
Basic $352,260 620,118 $0.57 $813,460 619,344 $1.31
Effect of zero coupon
subordinated notes 373 2,204 1,253 2,438
Effect of stock
options - 9,985 - 9,924
-------- ------- -------- -------
Diluted $352,633 632,307 $0.56 $814,713 631,706 $1.29
======== ======= ===== ======== ======= =====
Periods ended March 31, 2001
-----------------------------------------------------
Three Month Period Nine Month Period
------------------------ ------------------------
Earnings Shares EPS Earnings Shares EPS
-------- ------ --- -------- ------ ---
Basic $288,880 629,905 $0.46 $669,720 630,669 $1.06
Effect of zero coupon
subordinated notes 536 3,183 1,850 3,692
Effect of stock
options - 12,586 - 14,426
------- ------- -------- -------
Diluted $289,416 645,674 $0.45 $671,570 648,787 $1.04
======== ======= ===== ======== ======= ======
|
Note B - On July 1, 2001, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standard No. 141, "Business Combinations" (SFAS 141) and Statement of Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets" (SFAS 142).
SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The adoption of SFAS 141 did not have a material effect on the Company's results of operations or financial position.
SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS 142 also requires intangible assets with finite useful lives be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The Company completed its assessment of impairment as of July 1, 2001, which indicated no impairment of goodwill.
Prior to fiscal year 2002, the Company amortized goodwill over periods from 10 to 40 years. Pro forma net income and earnings per share for the three months and nine months ended March 31, 2001, adjusted to eliminate historical amortization of goodwill and related tax effects, are as follows:
(In thousands, except EPS)
Three months ended Nine months ended
March 31, March 31,
2001 2001
---- ----
Previously reported net earnings $288,880 $669,720
Goodwill amortization 13,970 39,895
Tax provision (1,834) (5,117)
-------- --------
Pro forma net earnings $301,016 $704,498
======== ========
Previously reported basic EPS $ 0.46 $ 1.06
Previously reported diluted EPS $ 0.45 $ 1.04
Pro forma basic EPS $ 0.48 $ 1.12
Pro forma diluted EPS $ 0.47 $ 1.09
|
Note C - Other (income) expense consists of the following:
(In thousands)
Three months ended Nine months ended
March 31, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Interest income on corporate
funds $(26,317) $(40,555) $(84,142) $(126,766)
Realized (gains)losses on
investments (9,479) 37,603 (15,933) 81,842
Interest expense 2,683 2,438 16,051 9,085
-------- -------- -------- ---------
Total other (income)expense $(33,113) $ (514) $(84,024) $ (35,839)
======== ======== ======== =========
|
Form 10Q
|
Note D - Comprehensive income for the three months and nine months ended March 31, 2002 and 2001 is as follows:
Three months ended Nine months ended
March 31, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Net earnings $352,260 $288,880 $813,460 $669,720
Other comprehensive income:
Foreign currency translation
adjustment (8,903) (11,609) 38,515 (56,008)
Unrealized gains(losses) on
securities (75,352) 37,620 (40,410) 92,564
-------- -------- -------- --------
Comprehensive income $268,005 $314,891 $811,565 $706,276
======== ======== ======== ========
|
Note E - Interim financial data by segment:
ADP evaluates performance of its business units based on recurring operating results before interest on corporate funds, interest expense, realized gains and losses on investments, foreign currency gains and losses, and income taxes. Certain revenues and expenses are charged to business units at a standard rate for management and motivational reasons. Other costs are recorded based on management responsibility. As a result, various income and expense items, including certain non-recurring gains and losses, are recorded at the corporate level and certain shared costs are not allocated. Goodwill amortization is charged to business units to act as a surrogate for the cost of capital for acquisitions, which is subsequently eliminated in consolidation. 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 March 31,
-----------------------------------------
(In millions) Employer Brokerage Dealer
Services Services Services
----------- ----------- -----------
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Revenues $1,174 $1,127 $460 $443 $176 $175
Pre-tax earnings $ 386 $ 339 $ 87 $ 80 $ 30 $ 27
Nine months ended March 31,
-----------------------------------------
Employer Brokerage Dealer
Services Services Services
---------- ----------- -----------
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Revenues $3,173 $3,000 $1,184 $1,169 $525 $509
Pre-tax earnings $ 875 $ 740 $ 216 $ 204 $ 87 $ 75
|
Note F - 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 10 days. There were no outstanding repurchase agreements at March 31, 2002 or March 31, 2001. For the quarter and nine months ended March 31, 2002, the Company had an average outstanding balance of approximately $165 million and $463 million, respectively, at an average interest rate of 1.7% and 2.6%, respectively.
Note G - In October 2001, the Company entered into a new $4.0 billion unsecured revolving credit agreement with certain financial institutions, replacing an existing $2.5 billion credit agreement. The interest rate applicable to the borrowings is tied to LIBOR or prime rate depending on the notification provided to the syndicated financial institutions prior to borrowing. The Company is also required to pay a facility fee on the credit agreement. The primary uses of the credit facility are to provide liquidity to the unsecured commercial paper program and to fund normal business operations, if necessary. The agreement, which expires in October 2002, has no borrowings to date.
Note H - Effective April 2002, the Company authorized a commercial paper program providing for the issuance of up to $4.0 billion in aggregate maturity value. The Company's commercial paper program is rated A-1+ by Standard and Poor's and Prime 1 by Moody's. These ratings denote high quality investment grade securities. Maturities of commercial paper can range from overnight to 270 days. The Company will use the commercial paper issuances to meet short-term funding needs.
RESULTS OF OPERATIONS
Revenues and earnings again reached record levels during the quarter ended March 31, 2002. Revenues and revenue growth by ADP's major business units for the three months and nine months ended March 31, 2002 and 2001 are as follows:
($'s in millions) Revenues
------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31
------------------- -----------------
2002 2001 2002 2001
------ ------ ------ ------
Employer Services $1,174 $1,127 $3,173 $3,000
Brokerage Services 460 443 1,184 1,169
Dealer Services 176 175 525 509
Other 60 109 277 360
------ ------ ------ ------
Total revenues $1,870 $1,854 $5,159 $5,038
====== ====== ====== ======
|
Revenue Growth
-------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- ------------------
2002 2001 2002 2001
------ ------ ------ ------
Employer Services 4% 11% 6% 11%
Brokerage Services 4 11 1 21
Dealer Services 1 (2) 3 (7)
Other (45) 12 (23) 16
Total revenues 1% 10% 2% 13%
|
Consolidated revenues for the quarter of approximately $1.9 billion increased 1% from last year. Revenue growth in Employer Services was 4%, as new business sales increased 2% over last year. Growth was offset by lower pays per control (the number of employees our client's pay) and lower retention, primarily due to bankruptcies. Brokerage Services revenues increased 4%. Excluding the recent acquisition of IBM's output services print business, Brokerage Services revenues declined 3%. The mix of back office client transactions in the quarter resulted in lower revenue per trade and the continued reduction in discretionary spending in the financial services industry, particularly in research and implementation services, also contributed to the decline. Postage revenues, which are primarily offset by postage expenses, declined as a result of our ongoing effort to transition the proxy mailing and voting process towards electronic delivery and the "householding," or the consolidation of customer accounts. Dealer Services revenue growth was 1% in the quarter.
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%. Claims Services revenues declined 1% in the quarter. The prior year's business unit revenues and pre-tax earnings have been restated to reflect the current year's budgeted foreign exchange rates.
Systems development and programming costs decreased in the quarter due to cost containment initiatives primarily related to the maintenance of existing applications, while funding of investments in new products continued.
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 is due to the adoption of SFAS 142. The Company completed its assessment of impairment as of July 2001, which indicated no impairment of goodwill.
Pre-tax earnings for the quarter increased 17% to $571.9 million from $489.4 million in the prior year quarter adjusted for the pro forma impact of SFAS 142. In the quarter ended March 31, 2001, the Company recorded a $45 million write-off ($27 million after-tax) of its $90 million investment in Bridge Information Systems, Inc. (Bridge). Pre-tax earnings for the quarter increased 7% to $571.9 million from $534.4 million in the prior year quarter as adjusted for the pro forma impact of SFAS 142 and the impact of the prior year non-recurring write-off of the Bridge investment.
Consolidated pre-tax margins increased over the previous year as cost containment initiatives benefited each of our businesses and continued automation and operating efficiencies have enabled the Company to offset accelerated investments in new products.
The effective income tax rate was 38.4% of pre-tax earnings in the current quarter compared to 39.2% 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 38.5%.
Net earnings for the quarter increased 17% to $352.3 million from $301.0 million in the prior year quarter adjusted for the pro forma impact of SFAS 142. Net earnings for the quarter increased 7% to $352.3 million from $328.0 million in the prior year quarter adjusted for the pro forma impact of SFAS 142 and prior to the write-off of the Bridge investment.
Diluted earnings per share on fewer shares outstanding, primarily resulting from the Company share repurchases, increased 19% to $0.56 from $0.47 in the prior year quarter adjusted for the pro forma impact of SFAS 142. Diluted earnings per share increased 10% adjusted for the pro forma impact of SFAS 142 and prior to the Bridge write-off. We expect consolidated revenue growth in the low 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. At March 31, 2002, the Company had cash and marketable securities of $2.8 billion. Shareholders' equity was $5.0 billion and the ratio of long-term debt to equity was 2%.
Capital expenditures for fiscal 2002 are expected to approximate $150 million, compared to $185 million in fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operations were $1.2 billion for the nine months ended March 31, 2002, adding to our strong cash position.
Cash flows used in investing activities totaled $628.3 million primarily as a result of additions to our investment portfolio, acquisitions of businesses and capital expenditures.
Cash flows used in financing activities totaled $628.0 million. In the first nine months of fiscal 2002, the Company purchased approximately 12.5 million shares of common stock at an average price per share of approximately $50. As of March 31, 2002, the Company has remaining Board of Directors authorization to purchase up to 40.8 million additional shares.
Approximately thirty percent of the Company's overall investment portfolio is invested in overnight interest-bearing instruments, which are therefore impacted immediately by changes in interest rates. The other seventy percent of the Company's investment portfolio is invested in fixed-income securities, with maturities up to ten years, which are also subject to interest rate risk, including reinvestment risk. The Company has historically had the ability to hold these investments until maturity, and therefore this has not had an adverse impact on income or cash flows.
The earnings impact of future interest rate changes is based on many factors, which influence the return on the Company's portfolio. These factors include, among others, the 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 average projected investment balances for fiscal 2002 would result in an $11 million pre-tax earnings impact over a twelve month period.
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 10 days. There were no outstanding repurchase agreements at March 31, 2002 and March 31, 2001. For the quarter and nine months ended March 31, 2002, the Company had average outstanding balances of approximately $165 million and $463 million, respectively, at an average interest rate of 1.7% and 2.6%, respectively.
In October 2001, the Company entered into a new $4.0 billion unsecured revolving credit agreement with certain financial institutions, replacing an existing $2. 5 billion credit agreement. The interest rate applicable to the borrowings is tied to LIBOR or prime rate depending on the notification provided to the syndicated financial institutions prior to borrowing. The Company is also required to pay a facility fee on the credit agreement. The primary uses of the credit facility are to provide liquidity to the unsecured commercial paper program and to fund normal business operations, if necessary. The agreement, which expires in October 2002, has no borrowings to date.
Effective April 2002, the Company authorized a commercial paper program providing for the issuance of up to $4.0 billion in aggregate maturity value. The Company's commercial paper program is rated A-1+ by Standard and Poor's and Prime 1 by Moody's. These ratings denote high quality investment grade securities. Maturities of commercial paper can range from overnight to 270 days. The Company will use the commercial paper issuances to meet short-term funding needs.
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 our consolidated financial statements.
This report contains "forward-looking statements" based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ from those expressed. Factors that could cause differences include, but are not limited to: ADP's success in obtaining, retaining and selling additional services to clients; the pricing of products and services; changes in laws regulating payroll taxes and employee benefits; overall economic trends, including interest rate and foreign currency trends; stock market activity; auto sales and related industry changes; employment levels; changes in technology; availability of skilled technical associates and the impact of new acquisitions. ADP disclaims any 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: May 6, 2002 /s/ Karen E. Dykstra
-------------------------
Karen E. Dykstra
|