ADP 2000 Annual Report Download - page 22

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[management’s discussion and analysis (continued)]
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 of
transaction costs and other adjustments in general, administra-
tive and selling expenses, ($14 million after-tax) 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 accelerate
automation, migrate to new computing technologies, and
develop new products.
Certain member countries of the European Union have agreed to
transition to the Euro as a new common legal currency. The costs of
this transition are not expected to have a material effect on ADP.
In ’00 the Company’s effective tax rate was 34.8%. Excluding
the impact of non-recurring charges associated with certain
acquisitions, dispositions and other activities, the effective tax
rate was 33.2% in ’99, and 31.7% in ’98. The increased rate is pri-
marily a result of non-taxable investment income declining as a
percentage of pre-tax income. The transition, referred to above,
of a portion of the Company’s investment portfolio to taxable
investments will continue to increase the Company’s effective
tax rate in fiscal ’01.
For ’01 ADP is planning another record year with revenue
growth of about 13% to 15% and diluted earnings per share
growth of 16% to 18% over ‘00 results.
Additional comments and operating results are included
in the Letter to Shareholders on pages 2 through 4 and in the
business descriptions presented on pages 5 through 17.
[financial condit ion ]
ADP’s financial condition and balance sheet remain exception-
ally strong. At June 30, 2000, cash and marketable securities
approximated $2.5 billion. Shareholders’ equity was almost
$4.6 billion, and return on average equity for the year was
about 20%. The ratio of long-term debt to equity at June 30,
2000 was 3%.
Cash flow from operating activities approximated $1.1 billion
in ’00 with another excellent year expected in ’01.
In ’00 4.6 million shares of common stock were purchased
at an average price of approximately $43 as part of an ongoing
program to fund equity-related employee benefits. The Board
of Directors has authorized the purchase of up to 19.9 million
additional shares.
In ’00 zero coupon convertible subordinated notes were
converted to about 0.8 million shares of common stock.
During ’00 the Company purchased several businesses for
approximately $200 million in cash and common stock. The
cost of acquisitions in ’99 and ’98 aggregated $107 million and
$351 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 businesses in fiscal ’99 (subsequent to the
Vincam merger) and ’98 in pooling of interests transactions in
exchange for approximately 4 million and 1 million shares of
common stock, respectively. The Company’s consolidated finan-
cial statements were not restated because in the aggregate
these transactions were not material.
Capital expenditures during ’00 were $166 million following
investments of $178 million in ’99 and $202 million in ’98. Capital
spending in fiscal ’01 should approximate $225 million.
Approximately half of the Company’s overall investment port-
folio is invested in overnight interest-bearing instruments, which
are therefore impacted immediately by changes in interest rates.
The other half of the Company’s investment portfolio is invested
in fixed-income securities, with maturities up to five and a half
years, which are also subject to interest rate risk, including rein-
vestment risk. The Company has historically had the ability to
hold these investments until maturity, and therefore this has not
had an adverse impact on income or cash flows.
[market price, dividend dat a and other ]
The market price of the Company’s common stock (symbol:
AUD) based on New York Stock Exchange composite transac-
tions and cash dividends per share declared during the past two
years have been:
Price Per Share Dividends
High Low Per Share
Fiscal 2000 quarter ended
June 30 $5715⁄16 $4411⁄16 $.08750
March 31 557⁄16 40 .08750
December 31 5413⁄16 43 .08750
September 30 447⁄8373⁄8.07625
Fiscal 1999 quarter ended
June 30 $467⁄8$391⁄16 $.07625
March 31 425⁄8361⁄4.07625
December 31 425⁄32 3223⁄32 .07625
September 30 407⁄32 313⁄4.06625
As of June 30, 2000 there were approximately 34,000 holders
of record of the Company’s common stock. Approximately
257,000 additional holders have their stock in “street name.”
This report contains “forward-looking statements” based on
management’s expectations and assumptions and are subject
to risks and uncertainties that may cause actual results to differ
from those expressed. Factors that could cause differences
include: ADP’s success in obtaining, retaining and selling addi-
tional services to clients; the pricing of products and services;
overall economic trends, including interest rate and foreign
currency trends; stock market activity; auto sales and related
industry changes; employment levels; changes in technology;
availability of skilled technical associates; and the impact of
new acquisitions.