10-QPeriod: Q2 FY2002

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q2 Ended Dec 31, 2001

Filed January 31, 2002For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported solid financial performance for the quarter ended December 31, 2001, with total revenues increasing by 3% to $1.7 billion. Net earnings saw a significant jump of 21% to $264.6 million, reflecting strong operational execution and the benefits of cost containment initiatives. Diluted earnings per share also showed robust growth, increasing by 24% to $0.42, aided by fewer shares outstanding due to ongoing share repurchase programs and the adoption of SFAS 142, which eliminated goodwill amortization. The company maintains a strong financial position, with over $2.6 billion in cash and marketable securities and a low long-term debt-to-equity ratio of 2%. ADP's Employer Services segment, its largest, grew revenue by 6%, although this was moderated by economic headwinds affecting client retention and employee counts. Brokerage Services experienced a revenue decline of 1% due to a shift in transaction mix and reduced discretionary spending in the financial services sector. The company anticipates continued mid-single-digit revenue growth and double-digit earnings per share growth for fiscal year 2001.

Key Highlights

  • 1Total revenues increased 3% to $1.7 billion for the quarter ended December 31, 2001.
  • 2Net earnings rose 21% to $264.6 million, demonstrating strong profitability.
  • 3Diluted earnings per share grew by 24% to $0.42, benefiting from share repurchases and SFAS 142 adoption.
  • 4Employer Services, the largest segment, reported a 6% revenue increase, while Brokerage Services saw a 1% decline.
  • 5Company adopted SFAS 142, eliminating goodwill amortization and positively impacting reported earnings and tax rates.
  • 6Maintained a strong financial position with $2.6 billion in cash and marketable securities and a low debt-to-equity ratio of 2%.
  • 7Company repurchased approximately 9.4 million shares of common stock in the first six months of fiscal 2002.

Frequently Asked Questions

Consolidated revenues grew 3% to $1.7 billion. The Employer Services segment, ADP's largest, was a key contributor with 6% revenue growth. However, this growth was partially offset by a 1% decline in Brokerage Services revenue due to factors like reduced discretionary spending and a shift in transaction mix.

The adoption of SFAS 142 in July 2001, which eliminated the amortization of goodwill, has had a positive impact. It led to a decrease in amortization expense, a reduction in the effective income tax rate, and contributed to higher net earnings and earnings per share. The company's assessment as of July 2001 indicated no impairment of goodwill.

ADP projects consolidated revenue growth in the mid-single digits and anticipates double-digit earnings per share growth for the fiscal year 2001, based on pro forma full-year results.

ADP's financial condition remains strong, with $2.6 billion in cash and marketable securities as of December 31, 2001. Shareholders' equity stands at $4.9 billion, and the company maintains a low long-term debt-to-equity ratio of 2%. Operating activities generated $712.3 million in cash for the six months ended December 31, 2001, supporting investment and financing activities, including significant share repurchases.