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 March 31, 2001 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 April 30, 2001, there were 624,237,994 shares outstanding.
Form 10Q Part I. Financial Information STATEMENTS OF CONSOLIDATED EARNINGS ----------------------------------- (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended March 31, March 31, ---------------------- ---------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues, other than interest on funds held for clients and PEO revenues $1,690,804 $1,563,477 $4,600,486 $4,177,956 Interest on funds held for clients 143,326 101,902 388,883 239,086 PEO revenues (net of pass- through costs of $596,333, $567,387, $1,839,731 and $1,550,005, respectively) 60,190 54,351 175,113 146,269 ---------- ---------- ---------- ---------- Total revenues 1,894,320 1,719,730 5,164,482 4,563,311 ---------- ---------- ---------- ---------- Operating expenses 754,300 661,935 2,091,360 1,826,802 General, administrative and selling expenses 418,101 425,078 1,264,162 1,225,291 Systems development and programming costs 126,564 119,747 373,141 332,627 Depreciation and amortization 79,914 72,851 239,982 206,032 Interest Expense 2,438 2,816 9,085 9,993 (Gains)/losses on investments 37,603 21,853 81,842 21,726 ---------- ---------- ---------- ---------- 1,418,920 1,304,280 4,059,572 3,622,471 ---------- ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES 475,400 415,450 1,104,910 940,840 Provision for income taxes 186,520 144,140 435,190 323,830 ---------- ----------- ---------- ---------- NET EARNINGS $ 288,880 $ 271,310 $ 669,720 $ 617,010 ========== ========== ========== ========== BASIC EARNINGS PER SHARE $ .46 $ .43 $ 1.06 $ .99 ========== ========== ========== ========== DILUTED EARNINGS PER SHARE $ .45 $ .42 $ 1.04 $ .96 ========== ========== ========== ========== Dividends per share $ .1025 $ .0875 $ .2925 $ .25125 ========== ========== ========== ========== See notes to the consolidated financial statements.
Form 10Q CONSOLIDATED BALANCE SHEETS -------------------------- (IN THOUSANDS) (UNAUDITED) March 31, June 30, Assets 2001 2000 - - ------ ----------- ----------- Cash and cash equivalents $ 1,165,744 $ 1,227,637 Short-term marketable securities 467,281 596,792 Accounts receivable 962,191 899,314 Other current assets 346,090 340,709 ----------- ----------- Total current assets 2,941,306 3,064,452 Long-term marketable securities 841,702 628,120 Long-term receivables 226,310 245,249 Land and buildings 453,385 439,022 Data processing equipment 642,998 612,608 Furniture, leaseholds and other 517,416 498,354 ----------- ----------- 1,613,799 1,549,984 Less accumulated depreciation (1,008,808) (952,715) ----------- ----------- 604,991 597,269 Other assets 206,203 271,136 Intangibles 1,602,310 1,623,701 ----------- ----------- Total assets before funds held for clients 6,422,822 6,429,927 Funds held for clients 13,418,361 10,420,889 ----------- ----------- Total assets $19,841,183 $16,850,816 =========== =========== Liabilities and Shareholders' Equity - - ------------------------------------ Notes payable $ - $ 21,523 Accounts payable 134,076 129,436 Accrued expenses & other current liabilities 1,039,914 1,044,002 Income taxes 137,457 101,707 ----------- ----------- Total current liabilities 1,311,447 1,296,668 Long-term debt 113,136 132,017 Other liabilities 183,189 171,843 Deferred income taxes 210,666 151,337 Deferred revenue 93,099 95,361 ----------- ----------- Total liabilities before clients funds Obligations 1,911,537 1,847,226 Client funds obligations 13,295,197 10,420,772 ----------- ----------- Total liabilities 15,206,734 12,267,998 Shareholders' equity: Common stock 63,881 63,144 Capital in excess of par value 596,063 402,767 Retained earnings 4,962,435 4,477,141 Treasury stock (795,052) (130,800) Accumulated other comprehensive income (192,878) (229,434) ----------- ----------- Total shareholders' equity 4,634,449 4,582,818 ----------- ----------- Total liabilities and shareholders' equity $19,841,183 $16,850,816 =========== =========== See notes to the consolidated financial statements. Form 10Q CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS ----------------------------------------------- (IN THOUSANDS) (UNAUDITED) Nine Months Ended March 31, 2001 2000 ---------- ---------- Cash Flows From Operating Activities: - - ------------------------------------- Net earnings $ 669,720 $ 617,010 Expenses not requiring outlay of cash 340,804 230,512 Changes in operating net assets 10,796 42,162 ---------- ---------- Net cash flows provided by operating activities 1,021,320 889,684 ---------- ---------- Cash Flows From Investing Activities: - - ------------------------------------- Purchase of marketable securities (5,533,512) (7,421,679) Proceeds from sale of marketable securities 2,619,521 2,618,565 Net change in client funds obligations 2,874,425 4,962,768 Capital expenditures (129,356) (116,306) Additions to intangibles (62,753) (55,553) Acquisitions of businesses (51,693) (41,546) Dispositions of businesses - 10,943 Other (11,858) (12,675) ---------- ---------- Net cash flows used in investing activities (295,226) (55,483) ---------- ---------- Cash Flows From Financing Activities: - - ------------------------------------- Proceeds from issuance of notes 26,348 10,547 Repayments of debt (48,381) (35,979) Proceeds from issuance of common stock 207,240 117,148 Repurchases of common stock (788,767) (201,007) Dividends paid (184,427) (157,572) ---------- ---------- Net cash flows used in financing activities (787,987) (266,863) ---------- ---------- Net change in cash and cash equivalents (61,893) 567,338 Cash and cash equivalents, at beginning of period 1,227,637 861,280 ---------- ---------- Cash and cash equivalents, at end of period $1,165,744 $1,428,618 ========== ========== 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 nine months ended March 31, 2001 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 March 31, 2001 --------------------------------------------------- Three month period Nine month period ------------------------- ----------------------- Income Shares EPS Income 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 ========================= ======================== Periods ended March 31, 2000 ---------------------------------------------------- Three month period Nine month period -------------------------- ----------------------- Income Shares EPS Income Shares EPS ------ ------ --- ------ ------ --- Basic $271,310 629,144 $0.43 $617,010 626,401 $0.99 Effect of zero coupon subordinated notes 718 4,416 2,208 4,582 Effect of stock options - 14,199 - 14,324 ----------------- ------------------------ Diluted $272,028 647,759 $0.42 $619,218 645,307 $0.96 ========================= =========================
Form 10Q Note C - Comprehensive income for the three and nine months ended March 31, 2001 and 2000 is as follows: (In thousands) Three months ended Nine months ended March 31 March 31 2001 2000 2001 2000 ---- ---- ---- ---- Net earnings $288,880 $271,310 $669,720 $617,010 Other comprehensive income: Foreign currency translation adjustments (11,609) (28,614) (56,008) (84,741) Unrealized gains (losses) on securities 37,620 1,061 92,564 (3,733) -------- -------- -------- -------- Comprehensive income $314,891 $243,757 $706,276 $528,536 ======== ======== ======== ======== Note D - 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 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 March 31, ---------------------------------------- (In millions) Employer Brokerage Dealer Services Services Services ---------- ------------ ----------- 2001 2000 2001 2000 2001 2000 ---- ---- ---- ---- ---- ---- Revenues $1,141 $ 1,025 $ 446 $ 401 $ 177 $ 181 Pretax earnings $ 340 $ 295 $ 80 $ 99 $ 27 $ 29 Nine months ended March 31, ----------------------------------------- Employer Brokerage Dealer Services Services Services ------------ ------------ ----------- 2001 2000 2001 2000 2001 2000 ---- ---- ---- ---- ---- ---- Revenues $3,037 $2,688 $1,178 $ 972 $ 515 $ 553 Pretax earnings $ 741 $ 624 $ 206 $ 216 $ 75 $ 90
Form 10Q Note E - 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 has experienced continued operating and financial difficulties and has filed for bankruptcy-law protection. Accordingly, in both the quarter ended December 31, 2000 and the quarter ended March 31, 2001 the Company recorded a $45 million ($27 million net of tax) write-down of its investment in Bridge, which is reflected in "(gains)losses on investments". The Company has no remaining investment in Bridge. Note F - Certain reclassifications and restatements, including the inclusion of funds held for clients and client funds obligations on the Consolidated Balance Sheets, have been made to prior period's financial statements to conform to current presentation.
Form 10Q MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OPERATING RESULTS Revenues and earnings again reached record levels during the quarter ended March 31, 2001. Revenues and revenue growth by ADP's major business units for the three months and nine months ended March 31, 2001 and 2000 are shown below: Revenues ------------------------------------------ Three Months Ended Nine Months Ended March 31, March 31, ------------------ ----------------- 2001 2000 2001 2000 ------ ------ ------ ------ ($ in millions) Employer Services $1,141 $1,025 $3,037 $2,688 Brokerage Services 446 401 1,178 972 Dealer Services 177 181 515 553 Other 130 113 434 350 ------ ------ ------ ------ $1,894 $1,720 $5,164 $4,563 ====== ====== ====== ====== Revenue Growth ------------------------------------------ Three Months Ended Nine Months Ended March 31, March 31, ------------------ ----------------- 2001 2000 2001 2000 ----- ----- ----- ----- Employer Services 11% 9% 13% 10% Brokerage Services 11 40 21 28 Dealer Services (2) 1 (7) 3 Other 15 9 24 4 ----- ----- ----- ------ 10% 14% 13% 12% ===== ===== ===== ===== Consolidated revenues for the quarter of approximately $1.9 billion were up 10% from last year. Revenue growth in Employer Services was 11%. Client retention for the quarter continued at record levels, although new business sales were slower than expected. Brokerage revenue growth was 11%, as a result of the recent Cunningham Graphics acquisition, although trades processed per day were lower than the very high activity of last year's third quarter. 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 $43 million and $31 million for the three months ended March 31, 2001 and March 31, 2000, 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 14% to $475 million. In the quarter ended March 31, 2001, the Company recorded a $45 million write-down ($27 million after-tax) of its remaining 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 25% to $520 million.
Form 10Q Excluding the Bridge write-down, consolidated pre-tax margins increased primarily from improved margins in Employer Services and 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. This transition of investments from tax exempt to taxable instruments gave rise to a $22 million loss on the sale of investments in the quarter ended March 31, 2000. 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 7% to $289 million. Excluding the Bridge write-down, net earnings increased 16% to $316 million. The effective tax rate of 39.2% increased from 34.7% 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, increased 7% to $0.45 from $0.42 last year. Prior to the Bridge write-down, diluted earnings per share increased 17% to $0.49. We expect revenue growth of about 12% and prior to considering the non-cash charge to write-down the Bridge investment we expect diluted earnings per share growth of about 16% to 17% 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 March 31, 2001, the Company had cash and marketable securities of $2.5 billion. Shareholders' equity was $4.6 billion and the ratio of long-term debt to equity was 2%. Capital expenditures for fiscal 2001 are expected to approximate $210 million, compared to $166 million in fiscal 2000. During the third quarter, the Company purchased approximately 13.7 million shares of common stock for treasury at an average price per share of approximately $57. As of March 31, 2001 the Company has remaining Board authorization to purchase up to 56 million additional shares to fund equity related employee benefit plans. Approximately forty 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 sixty 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.
Form 10Q 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 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 has experienced continued operating and financial difficulties and has filed for bankruptcy-law protection. Accordingly, in both the quarter ended December 31, 2000 and the quarter ended March 31, 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 has no remaining investment in Bridge. 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. PART II. OTHER INFORMATION Except as noted below, all other items are inapplicable or would result in negative responses and, therefore, have been omitted. Item 6. Exhibits and Reports on Form 10Q. (a) Exhibits Exhibit Number Exhibit ------ ------- 10.3 Change in Control Severance Plan for Corporate Officers
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: May 4, 2001 /s/ Richard J. Haviland -------------------------------- Richard J. Haviland Chief Financial Officer (Principal Financial Officer) ----------------------------- (Title)