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 September 30, 2000 Commission File Number 1-5397
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Automatic Data Processing, Inc
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(Exact name of registrant as specified in its charter)
Delaware 22-1467904
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One ADP Boulevard, Roseland, New Jersey 07068
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(Addresss of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (973) 974-5000
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No change
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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
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As of October 31, 2000 there were 631,156,765 common shares outstanding.
<PAGE>
Form 10Q
Part I. Financial Information
STATEMENT OF CONSOLIDATED EARNINGS
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(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
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September 30, September 30,
2000 1999
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Revenues, other than interest on funds
held for clients and PEO revenues $1,415,232 $1,240,994
Interest on funds held for clients 115,639 65,944
PEO revenues (net of pass-through
costs of $592,247 and $467,111,
respectively) 55,652 44,157
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Total revenues 1,586,523 1,351,095
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Operating expenses 659,958 551,090
General, administrative and
selling expenses 435,435 405,387
Systems development and
programming costs 119,074 103,655
Depreciation and amortization 81,544 65,634
Interest expense 3,298 3,535
Realized (gains)/losses on sale of
investments 604 (396)
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1,299,913 1,128,905
EARNINGS BEFORE INCOME TAXES 286,610 222,190
Provision for income taxes 113,210 75,990
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NET EARNINGS $ 173,400 $ 146,200
========== ==========
BASIC EARNINGS PER SHARE $ 0.28 $ 0.23
========== ==========
DILUTED EARNINGS PER SHARE $ 0.27 $ 0.23
========== ==========
Dividends per share $ .08750 $ .07625
========== ==========
See notes to the consolidated financial statements.
<PAGE>
Form 10Q
CONSOLIDATED BALANCE SHEETS
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(IN THOUSANDS)
(UNAUDITED)
September 30, June 30,
2000 2000
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Assets
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Cash and cash equivalents $ 1,325,373 $ 1,227,637
Short-term marketable securities 540,641 596,792
Accounts receivable 842,094 899,314
Other current assets 288,816 340,709
----------- -----------
Total current assets 2,996,924 3,064,452
Long-term marketable securities 819,581 628,120
Long-term receivables 242,201 245,249
Land and buildings 445,217 439,022
Data processing equipment 634,258 612,608
Furniture, leaseholds and other 514,944 498,354
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1,594,419 1,549,984
Less accumulated depreciation (981,371) (952,715)
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613,048 597,269
Other assets 294,222 271,136
Intangibles 1,580,189 1,623,701
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Total assets before funds held for clients 6,546,165 6,429,927
Funds held for clients 10,135,110 10,420,889
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Total assets $16,681,275 $16,850,816
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Notes payable $ 20,228 $ 21,523
Accounts payable 124,830 129,436
Accrued expenses & other current
liabilities 964,393 1,044,002
Income taxes 171,895 101,707
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Total current liabilities 1,281,346 1,296,668
Long-term debt 133,530 132,017
Other liabilities 193,896 171,843
Deferred income taxes 147,911 151,337
Deferred revenue 90,555 95,361
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Total liabilities before client funds
obligations 1,847,238 1,847,226
Client funds obligations 10,114,136 10,420,772
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Total liabilities 11,961,374 12,267,998
Shareholders' equity:
Common stock 63,219 63,144
Capital in excess of par value 418,655 402,767
Retained earnings 4,595,381 4,477,141
Treasury stock (75,486) (130,800)
Accumulated other comprehensive income (281,868) (229,434)
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Total shareholders' equity 4,719,901 4,582,818
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Total liabilities and shareholders' equity $16,681,275 $16,850,816
=========== ===========
See notes to the consolidated financial statements.
<PAGE>
Form 10Q
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
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(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
September 30,
2000 1999
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Cash Flows From Operating Activities:
-------------------------------------
Net earnings $173,400 $146,200
Expenses not requiring outlay of cash 92,662 66,093
Changes in operating net assets 69,735 27,717
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Net cash flows provided by operating activities 335,797 240,010
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Cash Flows From Investing Activities:
-------------------------------------
Purchase of marketable securities (1,029,661) (1,806,008)
Proceeds from sale of marketable securities 1,210,109 406,701
Net change in client funds obligations (306,636) 1,326,183
Capital expenditures (54,608) (23,919)
Additions to intangibles (16,108) (11,646)
Acquisitions of businesses (23,627) (886)
Other (6,926) (12,030)
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Net cash flows used in investing activities (227,457) (121,605)
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Cash Flows From Financing Activities:
-------------------------------------
Proceeds from issuance of notes 12,785 1,478
Repayments of debt (14,106) (7,398)
Proceeds from issuance of common stock 45,877 27,659
Dividends paid (55,160) (47,624)
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Net cash flows used in financing activities (10,604) (25,885)
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Net change in cash and cash equivalents 97,736 92,520
Cash and cash equivalents, at beginning of
period 1,227,637 861,280
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Cash and cash equivalents, at end of
period $1,325,373 $953,800
========== =========
See notes to the consolidated financial statements.
<PAGE>
Form 10Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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(Unaudited)
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 three months ended September 30, 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)
For the three months ended September 30
----------------------------------------------------
2000 1999
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Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $173,400 629,991 $0.28 $146,200 624,392 $0.23
Effect of zero coupon
subordinated notes 679 4,074 753 4,745
Effect of stock
options - 15,031 - 13,683
----------------- -----------------
Diluted $174,079 649,096 $0.27 $146,953 642,820 $0.23
========================= =========================
Note C - Comprehensive income for the three months ended September 30, 2000 and
1999 follows:
Three months ended September 30,
--------------------------------
2000 1999
---- ----
Net income $173,400 $146,200
Other comprehensive income:
Foreign currency translation
adjustment (67,973) (27,851)
Unrealized gain(loss) on
securities 15,539 (9,514)
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Comprehensive income $120,966 $108,835
======== ========
<PAGE>
Form 10Q
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 September 30,
----------------------------------------
(In millions) Employer Brokerage Dealer
Services Services Services
---------- ----------- ------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
Revenues $ 912 $ 800 $ 362 $ 257 $ 167 $ 184
Pretax earnings $ 176 $ 148 $ 64 $ 54 $ 21 $ 30
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. As part of the proceeds
the Company received $90 million of convertible preferred stock.
Currently Bridge is operating at a loss and has required additional
financing. The preferred stock continues to be carried at cost based on
the facts available at this time, but the ultimate realization of this
investment cannot be determined with certainty. As additional
information concerning this investment becomes known, the Company will
continue to reassess its position with respect to possible impairment.
Note G - Restatements of prior financial statements:
Certain reclassifications and restatements, including the inclusion
of funds held for clients and client funds obligations on the
Consolidated Balance Sheets, have been made to prior period's
financial statements to conform to current presentation.
<PAGE>
Form 10Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OPERATING RESULTS
Revenues and earnings again reached record levels during the quarter ended
September 30, 2000.
Revenues and revenue growth by ADP's major business units for the three months
ended September 30, 2000 and 1999 are shown below:
Revenues Revenue Growth
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ ------
($ in millions)
Employer Services $ 912 $ 800 14% 12%
Brokerage Services 362 257 41 2
Dealer Services 167 184 (9) 5
Other 146 110 33 4
------ ------ ----- ------
$1,587 $1,351 17% 9%
====== ====== ===== =====
Consolidated revenues for the quarter of approximately $1.6 billion were up 17%
from last year. Revenue growth in Employer Services was 14%, reflecting very
good client retention and internal revenue growth. Brokerage revenue growth was
41%, aided by the recent Cunningham Graphics acquisition and strong trade volume
comparisons. Dealer Services revenue decreased 9% as a result of prior year
dispositions and 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 on corporate investments of $42 million and $25 million for the three
months ended September 30, 2000 and September 30, 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 29% to approximately $287 million.
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. 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 19%
to approximately $173 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 17% to
$0.27 from $0.23 last year.
<PAGE>
Form 10Q
For the full year, we expect revenue growth of about 13% to 15% and diluted
earnings per share growth of about 16% to 18%.
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, 2000,
the Company had cash and marketable securities of $2.7 billion. Shareholders'
equity was $4.7 billion and the ratio of long-term debt to equity was 3%.
Capital expenditures for fiscal 2001 are expected to approximate $225 million,
compared to $166 million in fiscal 2000.
Approximately half 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 half 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.
In fiscal 1999, the Company divested its Brokerage front-office business to
Bridge Information Systems, Inc. As part of the proceeds the Company received
$90 million of convertible preferred stock. Currently Bridge is operating at a
loss and has required additional financing. The preferred stock continues to be
carried at cost based on the facts available at this time, but the ultimate
realization of this investment cannot be determined with certainty. As
additional information concerning this investment becomes known, the Company
will continue to reassess its position with respect to possible impairment.
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.
<PAGE>
Form 10Q
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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Exhibit
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27.1 Financial Data Schedule
<PAGE>
Form 10Q
SIGNATURES
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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.
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(Registrant)
Date: November 13, 2000 /s/ Richard J. Haviland
-----------------------
Richard J. Haviland
Chief Financial Officer
(Principal Financial Officer)
-----------------------------
(Title)
