ADP 2001 Annual Report Download - page 24

Management’s Discussion and Analysis (continued)
$84 million in ’01, ‘00, and ’99, respectively. In addition,
“Other” revenues have been adjusted for the difference
between actual interest earned on invested funds held for
clients and interest credited to Employer Services at a
standard rate of 6%.
During fiscal ’01 the Company recorded a $90 million
($54 million net of tax) write-off of its investment in
Bridge Information Systems, Inc. (Bridge), which is
reflected in “realized (gains)/losses on investments.”
This non-cash, non-recurring write-off represented the
Company’s total recorded investment in Bridge.
During fiscal ’00 the Company transitioned a portion of
its corporate and client fund investments from tax-exempt
to taxable instruments in order to increase liquidity of the
overall portfolio. Approximately $2.6 billion of tax-exempt
investments were sold prior to maturity at a pre-tax loss
of approximately $32 million ($10 million corporate funds,
$22 million funds held for clients), and the proceeds were
reinvested at higher prevailing interest rates.
During fiscal ’99 the Company sold its Peachtree
Software and Brokerage Services front-office businesses,
and decided to exit several other businesses and con-
tracts. 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.
Additionally, ’99 includes approximately $21 million
($14 million after-tax) of transaction costs and other
adjustments in general, administrative and selling
expenses, recorded by Vincam prior to the March 1999
pooling transaction.
In each of the past three years, investments in systems
development and programming have increased to acceler-
ate automation, migrate to new computing technologies,
and develop new products.
Certain member countries of the European Union have
transitioned to the Euro as a new common legal currency.
The costs of this transition have not had a material effect
on ADP.
In ’01 the Company’s effective tax rate was 39.4%.
Excluding the impact of non-recurring charges associated
with certain acquisitions, dispositions and other activities,
the effective tax rate was 34.8% in ’00 and 33.2% in ’99.
The increased rate in ’01 is primarily a result of the transi-
tion, referred to above, of a portion of the Company’s
investment portfolio to taxable investments.
For ’02 ADP is planning another record year with revenue
growth in the high single digits. In ‘02 the Company will
adopt Statement of Financial Accounting Standard (SFAS)
No. 142 “Goodwill and Intangible Assets,” which will elimi-
nate goodwill amortization and will require pro forma
footnote disclosure of fiscal 2001 results. ADP is also plan-
ning diluted earnings per share growth of 13% to 15%
over the pro forma fiscal ’01 results prior to the non-cash,
non-recurring item.
Financial Condition
ADP’s financial condition and balance sheet remain
exceptionally strong. At June 30, 2001, cash and mar-
ketable securities approximated $2.6 billion. Shareholders’
equity was approximately $4.7 billion, and return on aver-
age equity for the year was approximately 20%. The ratio
of long-term debt to equity at June 30, 2001 was 2%.
Cash flow from operating activities approximated $1.5
billion in ’01 with another excellent year expected in ’02.
In ’01 16.6 million shares of common stock were pur-
chased at an average price of approximately $56. The
Board of Directors has authorized the purchase of up to
53 million additional shares.
In ’01 zero coupon convertible subordinated notes were
converted to 1.3 million shares of common stock.
In ’01 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, has no borrowings to date.
During ’01 the Company purchased several businesses
for approximately $75 million in cash. The cost of
acquisitions in ’00 and ’99 aggregated $200 million and
$107 million, respectively.
During ’99 the Company issued 7.2 million shares of
common stock to acquire Vincam in a pooling of interests
transaction, and the Company’s results were restated
accordingly. The Company also acquired several busi-
nesses in fiscal ’99 (subsequent to the Vincam merger)
in pooling of interests transactions in exchange for
approximately 4 million shares of common stock. The
Company’s consolidated financial statements were not
restated because in the aggregate these transactions
were not material.
22