10-KPeriod: FY2010

AUTOMATIC DATA PROCESSING INC Annual Report, Year Ended Jun 30, 2010

Filed August 25, 2010For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) filed its 10-K for the fiscal year ended June 29, 2010, revealing a year of resilience amidst a challenging economic environment. Consolidated revenues saw a modest 1% increase to $8.9 billion, largely influenced by favorable foreign currency fluctuations and growth in its Professional Employer Organization (PEO) services. However, earnings from continuing operations before income taxes and net earnings from continuing operations declined by 2% and 9%, respectively, primarily impacted by lower interest income on client funds due to historically low interest rates and increased expenses in its PEO segment. The company highlighted its strategic focus on strengthening its core business, growing its HR Business Process Outsourcing (BPO) offerings, international expansion, entering adjacent markets, and improving pretax margins. Despite the economic headwinds, ADP demonstrated strong client retention, particularly in its Employer Services segment, and continued to return capital to shareholders through share repurchases and dividends, maintaining its history of consistent dividend increases. Acquisitions in Dealer Services (Cobalt) and benefits solutions (Workscape) were completed in August 2010, signaling a forward-looking strategy for growth. Key risk factors identified include changes in laws and regulations, security and privacy breaches, system disruptions, technological adaptation challenges, and the impact of political and economic factors, including currency fluctuations. Management expressed confidence in the company's solid financial condition, liquidity, and robust business model, characterized by approximately 90% recurring revenues.

Financial Highlights

51 data points
Beta

Revenue

$8.93B

Net Income

$1.21B

13.6% Net Margin

EPS (Diluted)

$2.40

Total Assets

$26.86B

Cash & Equivalents

$1.64B

Free Cash Flow

$1.68B

Financial Statements
Beta
Revenue$8.93B
SG&A Expenses$2.13B
Operating Expenses$7.17B
Interest Expense$8.60M
Net Income$1.21B
EPS (Basic)$2.42
EPS (Diluted)$2.40
Shares Outstanding (Basic)500.50M
Shares Outstanding (Diluted)503.70M

Key Highlights

  • 1Consolidated revenues grew 1% to $8.9 billion, reflecting resilience in a challenging economic climate.
  • 2Net earnings from continuing operations decreased by 9% to $1.2 billion, impacted by lower interest income on client funds and increased expenses.
  • 3Employer Services, ADP's largest segment, reported flat revenues but maintained strong client retention.
  • 4PEO Services showed robust revenue growth of 11%, driven by an increase in worksite employees.
  • 5Dealer Services experienced a 3% revenue decline due to dealership consolidations and cost-cutting measures by clients.
  • 6The company continued to return capital to shareholders via share repurchases and dividend payments.
  • 7Acquisitions in August 2010 for Dealer Services (Cobalt) and benefits solutions (Workscape) indicate a strategic push into adjacent markets.

Frequently Asked Questions

Despite the economic downturn, ADP demonstrated resilience. Consolidated revenues grew 1% to $8.9 billion. However, net earnings from continuing operations saw a decrease of 9% to $1.2 billion, primarily due to lower interest income on client funds resulting from low interest rates and increased operating expenses, particularly in the PEO Services segment. The company's strategic focus on core business strengthening and differentiated offerings helped mitigate some of the economic impacts.

Employer Services, ADP's largest segment, reported flat revenues, with a decline in traditional payroll and tax filing offset by growth in 'beyond payroll' services like benefits and retirement administration. PEO Services showed strong 11% revenue growth, driven by an increase in worksite employees and rising benefits costs. Dealer Services faced headwinds, with revenues declining 3% due to dealership closures and cost-cutting by clients. Profitability was impacted across segments by factors like lower interest on client funds and increased PEO operating costs.

ADP identified several key risks, including the potential impact of changes in laws and regulations on its business, the threat of security and privacy breaches given the sensitive client data it handles, and the risk of system disruptions. The company also noted the need to adapt its technology to evolving client needs and preferences. Furthermore, political and economic factors, such as economic slowdowns, fluctuating interest rates, foreign currency exchange rate volatility, and credit market conditions, were highlighted as potential challenges.

ADP maintained a solid financial condition with substantial cash and marketable securities. Net cash flows from operations were strong, providing liquidity. The company has access to significant credit facilities and a commercial paper program for short-term funding needs. ADP demonstrated a commitment to returning capital to shareholders by repurchasing approximately 18.2 million shares of its common stock in fiscal year 2010 and continued its practice of increasing its dividend per share, extending a streak of 35 consecutive years of dividend increases.