ADP 2001 Annual Report Download - page 23

Management’s Discussion and Analysis
Operating Results
Revenues and earnings reached record levels during each
of the past three fiscal years. Despite a difficult economic
environment, fiscal ’01 revenues increased 12% to $7.0 bil-
lion. Prior to the non-cash, non-recurring charge in ’01,
pre-tax earnings increased 25% and diluted earnings per
share increased 16% to $1.52. In fiscal ’00, pre-tax
earnings increased 21% and diluted earnings per share
increased 16% to $1.31 (prior to the non-recurring charges
in ’99). Fiscal ’01 was ADP’s 40th 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) 2001 2000 1999 2001 2000 1999
Employer Services $4,018 $3,579 $3,232 12% 11% 16%
Brokerage Services 1,756 1,477 1,147 19 29 5
Dealer Services 691 725 723 (5) — 7
Other 553 507 438 916 23
Consolidated $7,018 $6,288 $5,540 12% 13% 12%
Consolidated revenues grew 12% in fiscal ’01 primarily
from increased market penetration, from an expanded
array of products and services, with relatively minor con-
tributions from price increases. Prior to acquisitions and
dispositions, revenues increased approximately 11%.
As a result of the weaker economic conditions and the
decreases in interest rates during fiscal ’01, we instituted a
series of initiatives in the latter part of the year to bring our
expense structure in line with lower revenue expectations.
These actions have resulted in approximately $150 million
of lower annual expense run rate as of June 30, 2001 than
would otherwise have been the case.
The consolidated pre-tax margin was 23.0% in ’01 (prior to
the non-recurring charge), 20.5% in ’00, and 19.3% in ’99
(prior to non-recurring charges). Pre-tax margin improved
over the previous year as continued automation and operat-
ing efficiencies enabled the Company to offset accelerated
investments in new products, and increased spending
on systems development and programming. The impact
of transitioning the investment portfolio from tax-exempt
to taxable instruments also contributed to the margin
improvement.
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. The prior years’ business unit rev-
enues and pre-tax earnings have been restated to reflect
fiscal year 2001 budgeted foreign exchange rates.
Employer Services
Employer Services’ revenues grew 12% in fiscal ’01, and
in the absence of acquisitions and dispositions revenue
growth would have been about 11% in ’01, 12% in ’00, and
15% in ’99.
Employer Services’ operating margin was 23.3% in
’01, 21.4% in ’00, and 20.6% in ’99. Employer Services’
operating margin improved due to operating efficiencies,
cost containment initiatives and also improvements in
Europe, slightly offset by investments in new products
and acquisitions.
Employer Services’ revenues shown above include inter-
est earned on collected but not yet remitted funds held for
clients at a standard rate of 6%.
Brokerage Services
Brokerage Services’ revenue growth was 19%. In the
absence of acquisitions and dispositions, revenue growth
would have been about 7% in ’01, compared to 31% in
’00 and 21% in ’99.
Brokerage Services’ operating margin was 19% in ’01
compared to 23% in ’00 and 19% in ’99. The lower mar-
gins in fiscal ’01 resulted from the prior year fourth quarter
acquisition of Cunningham Graphics, investments made
in data center capacity to support higher trading volumes
and the extraordinarily high level of trading activity in ’00.
Dealer Services
Dealer Services’ revenues decreased 5% in ’01. In the
absence of acquisitions and dispositions, ’01 revenues
would have decreased 3%, compared to flat revenues
in ’00 and 7% revenue growth in ’99. Dealer Services’
operating margin was 15% in fiscal ’01 compared to
16% in ’00 and 15% in ’99. Dealer Services’ operating
margin declined due to investments in new products
and acquisitions.
Other
The primary components of “Other” revenues are Claims
Services, foreign exchange differences, and miscella-
neous processing services. “Other” also includes interest
on corporate investments of $164 million, $119 million, and
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