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.
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended December 31, 2000 Commission File Number 1-5397 -------------------- -------- Automatic Data Processing, Inc. - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter ) Delaware 22-1467904 - - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One ADP Boulevard, Roseland, New Jersey 07068 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code (973) 974-5000 ----------------------------- No change Former name, former address & former fiscal year, if changed since last report. 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 December 31, 2000 there were 635,355,147 common shares outstanding.
Form 10Q Part I. Financial Information STATEMENTS OF CONSOLIDATED EARNINGS ----------------------------------- (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended December 31, December 31, --------------------- ---------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenues, other than interest on funds held for clients and PEO revenues $1,494,450 $1,373,485 $2,909,682 $2,614,479 Interest on funds held for clients 129,918 71,240 245,557 137,184 PEO revenues (net of pass- through costs of $651,151, $515,507, $1,243,398, $982,618 respectively) 59,271 47,761 114,923 91,918 ---------- ---------- ---------- ---------- Total revenues 1,683,639 1,492,486 3,270,162 2,843,581 ---------- ---------- ---------- ---------- Operating expenses 677,102 613,778 1,337,060 1,164,868 General, administrative and selling expenses 410,627 394,825 846,062 800,212 Systems development and programming costs 127,503 109,225 246,577 212,880 Depreciation and amortization 78,524 67,547 160,068 133,181 Interest 3,349 3,642 6,647 7,177 (Gains)/losses on investments 43,634 269 44,238 (127) ---------- ---------- ---------- ---------- 1,340,739 1,189,286 2,640,652 2,318,191 ---------- ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES 342,900 303,200 629,510 525,390 Provision for income taxes 135,460 103,700 248,670 179,690 ---------- ---------- ---------- ---------- NET EARNINGS $ 207,440 $ 199,500 $ 380,840 $ 345,700 ========== ========== ========== ========== BASIC EARNINGS PER SHARE $ .33 $ 0.32 $ .60 $ 0.55 ========== ========== ========== ========== DILUTED EARNINGS PER SHARE $ .32 $ 0.31 $ .59 $ 0.54 ========== ========== ========== ========== Dividends per share $ 0.1025 $ 0.0875 $ 0.1900 $ 0.16375 ========== ========== ========== ========== See notes to the consolidated financial statements.
Form 10Q CONSOLIDATED BALANCE SHEETS --------------------------- (IN THOUSANDS) (UNAUDITED) December 31, June 30, Assets 2000 2000 - - ------ ----------- ----------- Cash and cash equivalents $ 1,294,214 $ 1,227,637 Short-term marketable securities 595,135 596,792 Accounts receivable 940,611 899,314 Other current assets 361,275 340,709 ----------- ----------- Total current assets 3,191,235 3,064,452 Long-term marketable securities 908,793 628,120 Long-term receivables 233,220 245,249 Land and buildings 447,733 439,022 Data processing equipment 638,537 612,608 Furniture, leaseholds and other 515,622 498,354 ----------- ----------- 1,601,892 1,549,984 Less accumulated depreciation (989,959) (952,715) ----------- ----------- 611,933 597,269 Other assets 254,620 271,136 Intangibles 1,621,888 1,623,701 ----------- ----------- Total assets before funds held for clients 6,821,689 6,429,927 Funds held for clients 14,235,790 10,420,889 ----------- ----------- Total assets $21,057,479 $16,850,816 =========== =========== Liabilities and Shareholders' Equity - - ------------------------------------ Notes payable $ 4,411 $ 21,523 Accounts payable 130,932 129,436 Accrued expenses & other current liabilities 944,059 1,044,002 Income taxes 131,144 101,707 ----------- ----------- Total current liabilities 1,210,546 1,296,668 Long-term debt 124,631 132,017 Other liabilities 222,147 171,843 Deferred income taxes 165,943 151,337 Deferred revenue 95,197 95,361 ----------- ----------- Total liabilities before clients funds obligations 1,818,464 1,847,226 Client funds obligations 14,165,746 10,420,772 ----------- ----------- Total liabilities 15,984,210 12,267,998 Shareholders' equity: Common stock 63,628 63,144 Capital in excess of par value 543,077 402,767 Retained earnings 4,737,978 4,477,141 Treasury stock (52,525) (130,800) Accumulated other comprehensive income (218,889) (229,434) ----------- ----------- Total shareholders' equity 5,073,269 4,582,818 ----------- ----------- Total liabilities and shareholders' equity $21,057,479 $16,850,816 =========== =========== See notes to the consolidated financial statements.
Form 10Q CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS ----------------------------------------------- (IN THOUSANDS) (UNAUDITED) Six Months Ended December 31, 2000 1999 ---------- ---------- Cash Flows From Operating Activities: - - ------------------------------------- Net earnings $ 380,840 $ 345,700 Expenses not requiring outlay of cash 183,417 126,125 Changes in operating net assets (19,150) (8,240) ---------- ---------- Net cash flows provided by operating activities 545,107 463,585 ---------- ---------- Cash Flows From Investing Activities: - - ------------------------------------- Purchase of marketable securities (5,578,302) (6,039,762) Proceeds from sale of marketable securities 1,581,357 724,800 Net change in client funds obligations 3,744,974 5,228,595 Capital expenditures (90,915) (59,490) Additions to intangibles (43,543) (28,771) Acquisitions of businesses (45,314) 3,109 Other (10,261) (11,176) ----------- ---------- Net cash flows used in investing activities (442,004) (182,695) ---------- ---------- Cash Flows From Financing Activities: - - ------------------------------------- Proceeds from issuance of notes 26,253 3,130 Repayments of debt (43,317) (18,899) Proceeds from issuance of common stock 100,541 75,529 Dividends paid (120,003) (102,381) ---------- ---------- Net cash flows used in financing activities (36,526) (42,621) ---------- ---------- Net change in cash and cash equivalents 66,577 238,269 Cash and cash equivalents, at beginning of period 1,227,637 861,280 ---------- ---------- Cash and cash equivalents, at end of period $1,294,214 $1,099,549 ========== ========== See notes to the consolidated financial statements.
Form 10Q 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 for the year ended June 30, 2000. Note A - The results of operations for the six months ended December 31, 2000 may not be indicative of the results to be expected for the year ending June 30, 2001. Note B - The calculation of basic and diluted earnings per share ("EPS") is as follows: (In thousands, except EPS) Periods ended December 31,2000 ---------------------------------------------------- Three month period Six month period ----------------------- --------------------------- Income Shares EPS Income Shares EPS ------ ------ --- ------ ------ --- Basic $207,440 632,082 $0.33 $380,840 631,035 $0.60 Effect of zero coupon subordinated notes 635 3,820 1,314 3,947 Effect of stock options - 15,905 - 15,425 ----------------- ----------------- Diluted $208,075 651,807 $0.32 $382,154 650,407 $0.59 ========================= ========================= Periods ended December 31,1999 ---------------------------------------------------- Three month period Six month period ----------------------- --------------------------- Income Shares EPS Income Shares EPS ------ ------ --- ------ ------ --- Basic $199,500 625,665 $0.32 $345,700 625,031 $0.55 Effect of zero coupon subordinated notes 737 4,585 1,490 4,665 Effect of stock options - 15,408 - 14,557 ----------------- ----------------- Diluted $200,237 645,658 $0.31 $347,190 644,253 $0.54 ========================= ========================
Form 10Q Note C - Comprehensive income for the three and six months ended December 31, 2000 and 1999 is as follows: (In thousands) Three months ended Six months ended December 31 December 31 2000 1999 2000 1999 ---- ---- ---- ---- Net income $207,440 $199,500 $380,840 $345,700 Other comprehensive Income: Foreign currency translation adjustment 23,574 (28,276) (44,399) (56,127) Unrealized gain(loss) on securities 39,405 4,720 54,944 (4,794) -------- -------- -------- -------- Comprehensive income $270,419 $175,944 $391,385 $284,779 ======== ======== ======== ======== Note D - Interim financial data by segment: ADP evaluates performance of its business units based on recurring operating results before interest on corporate funds, income taxes and foreign currency gains and losses. Certain revenues and expenses are charged to business units at a standard rate for management and motivation reasons. Other costs are recorded based on management responsibility. As a result, various income and expense items, including certain non-recurring gains and losses, are recorded at the corporate level and certain shared costs are not allocated. Goodwill amortization is charged to business units at an accelerated rate 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 December 31, --------------------------------------- (In millions) Employer Brokerage Dealer Services Services Services ---------- ----------- ----------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Revenues $ 984 $ 863 $ 370 $ 314 $ 171 $ 188 Pretax earnings $ 225 $ 181 $ 62 $ 63 $ 27 $ 31 Six months ended December 31, --------------------------------------- Employer Brokerage Dealer Services Services Services ------------ ----------- ------------ 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Revenues $1,896 $1,663 $ 732 $ 571 $ 338 $ 372 Pretax earnings $ 401 $ 329 $ 126 $ 117 $ 48 $ 61
Form 10Q Note E - In October 2000, the Company entered into an unsecured revolving credit agreement with certain financial institutions, which provides for borrowings up to $2.5 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 2001, had no borrowings to date. Note F - In fiscal 1999, the Company divested its Brokerage front-office business to Bridge Information Systems, Inc. ("Bridge"). As part of the proceeds the Company received $90 million of convertible preferred stock. As previously reported, Bridge is operating at a loss and is in need of additional financing. To date, Bridge has experienced continued operating difficulties and its overall financial condition has deteriorated. Accordingly, in the second quarter of fiscal 2001 the Company recorded a $45 million ($27 million net of tax) write-down of its investment in Bridge, which is reflected in "(gains)losses on investments". The Company will continue to reassess the possibility of a further write-down, as additional information concerning its investment becomes known. Note G - Certain reclassifications and restatements, including the inclusion of funds held for clients and client funds obligations on the Consolidated Balance Sheets, have been made to prior period's financial statements to conform to current presentation.
Form 10Q MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OPERATING RESULTS Revenues and earnings again reached record levels during the quarter ended December 31, 2000. Revenues and revenue growth by ADP's major business units for the three months and six months ended December 31, 2000 and 1999 are shown below: Revenues ------------------------------------------ Three Months Ended Six Months Ended December 31, December 31 ------------------ ---------------- 2000 1999 2000 1999 ------ ------ ------ ------ ($ in millions) Employer Services $ 984 $ 863 $1,896 $1,663 Brokerage Services 370 314 732 571 Dealer Services 171 188 338 372 Other 159 127 305 237 ------ ------ ------ ------ $1,684 $1,492 3,271 2,843 ====== ====== ====== ====== Revenue Growth ------------------------------------------ Three Months Ended Six Months Ended December 31, December 31, ------------------ ----------------- 2000 1999 2000 1999 ------ ------ ------ ------ Employer Services 14% 10% 14% 11% Brokerage Services 18 43 28 21 Dealer Services (9) 4 (9) 4 Other 25 2 29 3 ----- ----- ----- ----- 13% 14% 15% 11% ===== ===== ===== ===== Consolidated revenues for the quarter of approximately $1.7 billion were up 13% from last year. Revenue growth in Employer Services was 14%, reflecting very good client retention and internal revenue growth. Brokerage revenue growth was 18%, aided by the recent Cunningham Graphics acquisition. In last year's second quarter, our Brokerage Investor Communications business had $35 million of revenue from a single large company mailing. Brokerage revenue growth would have been 33% without this large prior year transaction. Dealer Services revenue decreased 9% as a result of stronger Year 2000 influenced results last year. The primary components of "other" revenues are Claims Services, foreign exchange differences, and miscellaneous processing services. "Other" also includes interest income on corporate investments of $42 million and $27 million for the three months ended December 31, 2000 and December 31, 1999, respectively. 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. Pre-tax earnings for the quarter increased 13% to $343 million. In the quarter ended December 31, 2000, the Company recorded a $45 million write-down ($27 million after-tax) of its $90 million investment in Bridge. This write-down was recorded as a loss on investment in the "other" segment. Prior to this non-cash, non-operating write-down, pre-tax earnings for the quarter increased 28% to $388 million.
Form 10Q Excluding the Bridge write-down, consolidated pre-tax margins increased primarily from the transition of a portion of corporate and client fund investments from tax-exempt to taxable investments in order to increase liquidity of the overall portfolio as well as improved margins in Employer Services. Systems development and programming investments increased to accelerate automation, migrate to new computing technologies, and develop new products. Net earnings for the quarter, after a higher effective tax rate, increased 4% to $207 million. Excluding the Bridge write-down, net earnings increased 18% to $234 million. The effective tax rate of 39.5% increased from 34.2% in the comparable quarter last year, impacted by the previously discussed change in the investment mix from tax-exempt to taxable investments. Diluted earnings per share, on increased shares outstanding, increased 3% to $0.32 from $0.31 last year. Prior to the Bridge write-down, diluted earnings per share increased 16% to $0.36. Prior to considering the non-cash charge to write-down the Bridge investment, we expect revenue growth of about 13% to 15% and diluted earnings per share growth of about 16% to 18% for the full year. FINANCIAL CONDITION The Company's financial condition and balance sheet remain exceptionally strong, and operations continue to generate a strong cash flow. At December 31, 2000, the Company had cash and marketable securities of $2.8 billion. Shareholders' equity was $5.1 billion and the ratio of long-term debt to equity was 2%. Capital expenditures for fiscal 2001 are expected to approximate $225 million, compared to $166 million in fiscal 2000. Approximately sixty 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 forty percent of the Company's investment portfolio is invested in fixed-income securities, with maturities up to five and a half 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. OTHER MATTERS Certain member countries of the European Union have agreed to transition to the Euro as a new common legal currency. The costs of this transition are not expected to have a material effect on ADP. In October 2000, the Company entered into an unsecured revolving credit agreement with certain financial institutions, which provides for borrowings up to $2.5 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 2001, had no borrowings to date.
Form 10Q In fiscal 1999, the Company divested its Brokerage front-office business to Bridge. As part of the proceeds the Company received $90 million of convertible preferred stock. As previously reported, Bridge is operating at a loss and is in need of additional financing. To date, Bridge has experienced continued operating difficulties and its overall financial condition has deteriorated. Accordingly, in the second quarter of fiscal 2001 the Company recorded a $45 million ($27 million net of tax) write-down of its investment in Bridge, which is reflected in "(gains)losses on investments". The Company will continue to reassess the possibility of a further write-down, as additional information concerning its investment becomes known. 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, the impact of new acquisitions, and the ultimate realization of the Company's investment in Bridge Information Systems, Inc. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. PART II. OTHER INFORMATION Except as noted below, all other items are either inapplicable or would result in negative responses and, therefore, have been omitted. Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of the Stockholders was held on November 14, 2000. The following members were elected to the Company's Board of Directors to hold office for the ensuing year. Nominee In Favor Opposed Abstained Not voted - - ------- -------- ------- --------- --------- Gary C. Butler 507,843,720 118,925 3,211,700 119,209,891 Joseph A. Califano, Jr. 507,468,293 494,352 3,587,127 118,834,464 Leon G. Cooperman 507,891,129 71,516 3,164,291 119,257,300 George H. Heilmeier 507,881,799 80,846 3,173,621 119,247,970 Ann Dibble Jordan 507,760,497 202,148 3,294,923 119,126,668 Harvey M. Krueger 507,328,800 633,845 3,726,620 118,694,971 Frederic V. Malek 507,760,845 201,800 3,294,575 119,127,016 Henry Taub 507,490,946 471,699 3,564,474 118,857,117 Laurence A. Tisch 506,796,163 1,166,482 4,259,257 118,162,334 Arthur F. Weinbach 495,517,604 12,445,041 15,537,816 106,883,775 Josh S. Weston 507,306,616 656,029 3,748,804 118,672,787 The result of the voting on the following additional item was as follows:
Form 10Q (a) To ratify the appointment of Deloitte & Touche LLP to serve as the Company's independent certified public accountants for the fiscal year begun on July 1, 2000. The votes of the stockholders on this ratification were as follows: In Favor Opposed Abstained Not voted -------- ------- --------- --------- 508,991,333 435,223 1,628,063 119,329,617 Item 6. Exhibits and Reports on Form 10Q (a) Exhibit Number Exhibit 3.2 By-Laws as currently in effect (amended November 14, 2000) 27.1 Financial Data Schedule
Form 10Q SIGNATURES 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. AUTOMATIC DATA PROCESSING, INC. ------------------------------- (Registrant) Date: January 26, 2001 /s/ Richard J. Haviland ------------------------ Richard J. Haviland Chief Financial Officer (Principal Financial Officer) ----------------------------- (Title)