ADP 1999 Annual Report Download - page 26

Employer Services
Employer Services’ (ES) revenues grew 15% in fiscal ’99, and in the
absence of acquisitions, revenue growth would have been about 15% in
’99, 15% in ’98 and 12% in ’97.
ES operating margin was 20.3% in ’99, 19.8% in ’98 and 21.1% in ’97.
ES operating margin improved due to operating efficiencies slightly offset
by investments in new products and acquisitions as well as the Company’s
integration and repositioning of several products and businesses.
ES’ revenue shown above includes the pretax equivalent of interest
earned on funds collected from clients as part of the Company’s integrated
payroll and payroll tax filing services. The pretax equivalent has been
calculated at a standard rate of 6%.
Brokerage Services
Brokerage Services’ revenue growth of 5% was impacted by the dispositions
of the front-office business and several other small non-strategic businesses.
In the absence of acquisitions and dispositions, revenue growth would
have been about 20% in ’99, compared to 22% in ’98 and 12% in ’97.
The Brokerage Services operating margin was 19% in ‘99 compared
to 15% in ‘98 and 14% in ‘97. The improved margin resulted from the
disposition of several unprofitable businesses and strong trading activity.
In ‘99 the Company divested the $150 million revenue front-office
“market data” business and as part of the agreement took a minority
investment in the acquiring company.
Dealer Services
Dealer Services’ revenues grew 7% in ’99, compared to 7% in ’98 and
17% in ’97. In the absence of acquisitions and dispositions, ’99 revenue
growth would have been 7%, compared to 8% in ’98 and 6% in ’97. Dealer
Services’ operating margin increased to 15% in fiscal ’99 compared to
14% in ’98 and 17% in ’97. Dealer Services’ operating margin improved
primarily in North America resulting from operating efficiencies.
Other
The primary components of “Other” revenues are claims services, interest
income, foreign exchange differences, and miscellaneous processing
services. In addition, “Other” revenues have been reduced to adjust for
the difference between actual interest income earned on invested tax filing
funds and income credited to Employer Services at a standard rate of 6%.
During fiscal ’99 the Company sold its Peachtree Software and
Brokerage Services front-office business, and decided to exit several other
businesses and contracts. The combination of these transactions and
certain other charges resulted in an approximately $37 million reduction
in general, administrative and selling expenses and a $40 million provision
for income taxes.
Operating Results
Revenues and earnings reached record levels during each of the past
three fiscal years. The Company’s results have been restated to reflect a
January 1, 1999 two-for-one common stock split and the third quarter
fiscal ’99 pooling of interests transaction with The Vincam Group (Vincam).
During fiscal ’99, revenues increased 12% to $5.5 billion. Prior to non-
recurring charges, pretax earnings increased 20% and diluted earnings
per share increased 15% to $1.13. During fiscal ’99 the Company sold
several businesses and decided to exit several other businesses and contracts.
The Company also recorded transaction costs and other adjustments
related to Employer Services’ acquisition of Vincam. The combination of
these transactions resulted in non-recurring charges of $0.03 in fiscal ’99.
Fiscal ’99 was ADP’s 38th consecutive year of double-digit earnings per
share growth since becoming a public company in 1961.
Revenues and revenue growth by ADP’s major business units are
shown below:
Revenues Revenue Growth
Years Ended June 30, Years Ended June 30,
(In Millions) 1999 1998 1997 1999 1998 1997
Employer Services $3,310 $2,874 $2,355 15% 22% 20%
Brokerage Services 1,154 1,100 892 5 23 13
Dealer Services 744 698 651 7 7 17
Other 332 254 295 31 (14) (6)
Consolidated $5,540 $4,926 $4,193 12% 17% 16%
Consolidated revenues grew 12% in fiscal ’99 primarily from increased
market penetration, from an expanded array of products and services, and
from acquisitions, with relatively minor contributions from price increases.
Prior to acquisitions and dispositions, revenue increased approximately 14%.
Prior to the non-recurring charges, the consolidated pretax margin was
19.3% in ’99, 18.1% in ’98, and 18.0% in ’97. Pretax margin improved over
the previous year due to the disposal of several non-strategic, lower margin
businesses. In addition, continued automation and operating efficiencies
enabled the Company to offset start-up costs associated with new products
and increased spending on systems development and programming.
The Company does not prepare its financial statements in a manner
that generates the true stand-alone profitability for each unit, and prof-
itability measurements are not maintained in a consistent manner among
the Company’s major business units. Certain revenues and expenses are
charged to business units at a standard rate for management and motiva-
tion reasons. Other costs are recorded based on management responsibility.
As a result, various income and expense items, including non-recurring
gains and losses, are recorded at the corporate level and certain shared costs
are not allocated. Consequently, comparisons of specific margins between
units are not meaningful, although trend information within a business
unit is a useful directional indicator.
Management’s Discussion and Analysis
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