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ADP 2003 ANNUAL REPORT
Strong. Confident. Focused on the Future.

Table of contents

  • Page 1
    Strong. Confident. Focused on the Future. A D P 2 0 0 3 A N N U A L R E P O RT

  • Page 2
    ... Data Processing, Inc. (ADP) is one of the world's leading providers of technology-based outsourcing solutions to employers, the brokerage and financial services community, vehicle retailers and their manufacturers and the property and casualty insurance, auto collision repair and auto recycling...

  • Page 3
    ADP 2003 Annual Report 1 financial highlights (In thousands, except per share amounts) Years ended June 30, 2003 2002 Change Total Revenues in millions $7,147 $6,854 $7,004 $6,168 $5,456 Total revenues Net earnings Basic earnings per share Diluted earnings per share Cash dividends Cash ...

  • Page 4
    ... Employer Services, Brokerage Services and interest rates in a significant way. Employer Services has been impacted by the weakened economy with fewer new company formations, fewer decisions to change methods of processing, fewer employees employed by our clients and minimal growth in OUR BUSINESS...

  • Page 5
    ... sell services to new clients and to grow revenues from existing clients. Brokerage Services has felt the repercussions of the malaise in the stock market. There have been (i) reduced retail investor trades, (ii) consolidation of brokerage industry firms (with ADP's more retail-oriented clients more...

  • Page 6
    ... extend our markets or add applications to our product sets. In fiscal 2003, we acquired 11 businesses with about $270 million of revenues for an aggregate of approximately $650 million. The largest transactions were in Employer Services: In June, we acquired ProBusiness Services, Inc., a leading...

  • Page 7
    ADP 2003 Annual Report 5 In January, we acquired SMS, a market leader in the highly fragmented job tax credit market (an added application across our Small Business, Major Accounts and National Accounts Employer Services markets). We also review each business and product line and dispose of those ...

  • Page 8
    ...reliable solutions that are accompanied by responsive support and service. Many of our products and services are Web-driven to deliver the Clients in 26 countries rely on ADP's payroll and other employer-related services. C ore businesses are the heart of any enterprise and are the primary source...

  • Page 9
    ...third of total Employer Services North America revenues. Many of these payroll-related businesses had a successful year: • ADP 2003 Annual Report 7 ADP provides brokerage transaction processing and investor communications services worldwide. ADP Screening and Selection Services, which provides...

  • Page 10
    ... productivity for insurance companies, repair facilities and other businesses in the auto damage claims processing cycle. eLabor®, Inc. - Provides hosted time and labor management solutions that serve small and lower mid-market businesses. Brokerage Services: Vantra Group, Inc. - ADP acquired...

  • Page 11
    ... Web-based or hosted payroll solution), and the eXpert ServicesSM suite of Web-driven outsourcing solutions for mid-market employers, ADP is in a far more favorable position to accelerate growth rates much earlier than originally planned. renewing our commitment to world class service. ADP...

  • Page 12
    ... Direct Deposit, ADPCheck™, TotalPay® Card Regulatory compliance management services (including new hire reporting, wage garnishment processing, COBRA administration) Pre-employment screening and selection services Retirement plan services (primarily 401(k) Plans and SIMPLE IRAs) Section 529...

  • Page 13
    ... business which provides clients with pre-employment background checks. Launched our TotalPay® Card electronic payroll product, an additional way for clients to pay their employees without using traditional paper checks. Increased revenues in our time and labor management business by 18%. Printed...

  • Page 14
    ... Brokerage Services provides securities transaction processing of equities, fixed-income, mutual funds, derivatives, foreign exchange, and money market instruments, as well as the printing and distribution of investor communications, proxy voting and other services to clients in: North America...

  • Page 15
    ... processing and investor communications solution. Entered into an agreement with HSBC Brokerage (USA) Inc. to provide equities processing and broker desktop, statement, trade confirmation and proxy services. Expanded the strategic role of our operations in Hyderabad, India, as an offshore center...

  • Page 16
    ... of LeaseStar, Ltd., which provides dealerships with Web-based automotive lease quoting applications. Introduced the "ADP Network Phone" which integrates voice and data. The IP (Internet Protocol) Telephony product suite will fully integrate with our CRM and other core dealer management system...

  • Page 17
    ADP 2003 Annual Report 15 ADP at-a-glance claims services ADP Claims Services is a leading international provider of integrated business solutions for clients in the property and casualty insurance, auto collision repair and auto recycling industries. Our products help clients manage costs and ...

  • Page 18
    ... ADP 2003 Annual Report Selected Financial Data (In thousands, except per share amounts) Years ended June 30, 2003 2002 2001 2000 1999 Total revenues Earnings before income taxes Net earnings Pro forma net earnings* Basic earnings per share Diluted earnings per share Pro forma basic earnings...

  • Page 19
    ...' payroll processing fees and Brokerage Services' trade processing fees) as well as investment income on payroll funds, tax filing funds and other Employer Services client-related funds. We typically enter into agreements for a fixed fee per transaction (e.g., number of payees). Fees associated with...

  • Page 20
    ... rate earned on both client funds and corporate funds, exclusive of realized gains/(losses) in fiscal 2003 was 3.9% compared to 4.9% in fiscal 2002. Our revenue growth was impacted primarily by continued weak economic conditions impacting our Employer Services and Brokerage Services businesses...

  • Page 21
    ...2001 2003 Change 2002 2001 21% (1) (12) 84 - - - 18% Employer Services $1,193 $1,110 $ 937 Brokerage Services 230 354 332 Dealer Services 132 116 99 Other 143 157 60 Reconciling items: Foreign exchange 12 1 3 Client fund interest (174) (73) 30 Cost of capital charge 109 122 64 Total earnings before...

  • Page 22
    ... client retention and increased revenues in the traditional core business as well as from new services, primarily Application Service Provider (ASP) managed services, Networking and Computer Vehicle Registration. Sales of our Customer Relationship Management Systems continue to be strong. Earnings...

  • Page 23
    ...to the timing of purchases and proceeds of marketable securities and client fund money market securities, the net change in client funds obligations and an increase in acquisitions in fiscal 2003. Cash flows used in financing activities in fiscal 2003 totaled $1.1 billion compared to $928 million in...

  • Page 24
    ... to pay a facility fee on the credit agreement. The primary uses of the credit facility are to provide liquidity to the unsecured commercial paper program and to fund normal business operations, if necessary. There have been no borrowings through June 30, 2003 under the credit agreement, which...

  • Page 25
    ... 2003 Annual Report 23 Market Price, Dividend Data and Other The market price of our common stock (symbol: ADP) based on New York Stock Exchange composite transactions and cash dividends per share declared during the past two years have been: Price Per Share Dividends High Low Per Share Fiscal 2003...

  • Page 26
    24 ADP 2003 Annual Report Statements of Consolidated Earnings (In thousands, except per share amounts) Years Ended June 30, Automatic Data Processing, Inc. and Subsidiaries 2003 2002 2001 Revenues other than interest on funds held for clients and PEO revenues Interest on funds held for clients...

  • Page 27
    ... marketable securities Long-term receivables Property, plant and equipment: Land and buildings Data processing equipment Furniture, leaseholds and other Less accumulated depreciation Other assets Goodwill Intangible assets, net Total assets before funds held for clients Funds held for clients Total...

  • Page 28
    26 ADP 2003 Annual Report Statements of Consolidated Shareholders' Equity Common Stock (In thousands, except per share amounts) Shares Amount Capital in Excess of Par Value Retained Earnings Automatic Data Processing, Inc. and Subsidiaries Treasury Stock Comprehensive Income Accumulated Other ...

  • Page 29
    ...Purchases of marketable securities Proceeds from sale of marketable securities Net proceeds from client fund money market securities Net change in client funds obligations Capital expenditures Additions to intangibles Acquisitions of businesses, net of cash acquired Disposals of businesses Other Net...

  • Page 30
    ... estimates. B. Revenue Recognition. A majority of the Company's revenues are attributable to fees for providing services (e.g., Employer Services' payroll processing fees and Brokerage Services' trade processing fees) as well as investment income on payroll funds, tax filing funds and other Employer...

  • Page 31
    ...that goodwill no longer be amortized, but instead tested for impairment at least annually at the reporting unit level. If impairment is indicated, a write-down to fair value (normally measured by discounting estimated future cash flows) is recorded. Intangible assets with finite lives continue to be...

  • Page 32
    ... related to the Company's stock option and stock purchase plans is reflected in net earnings, as all options granted under the stock option plans had an exercise price equal to the market value of the underlying common stock on the date of grant, and for the stock purchase plan the discount does not...

  • Page 33
    .... In fiscal 1999, the Company divested its Brokerage frontoffice business to Bridge Information Systems, Inc. (Bridge), and received $90 million of Bridge convertible preferred stock as part of the proceeds. In fiscal 2001, Bridge filed for bankruptcy and the Company recorded a $90 million ($54...

  • Page 34
    ...30,708 9,842 298 92 $209,177 NOTE 5 follows: Goodwill and Intangible Assets, net Changes in goodwill for the year ended June 30, 2003 are as Employer Brokerage Services Services Dealer Services Other Total NOTE 4 Receivables Accounts receivable is net of an allowance for doubtful accounts of...

  • Page 35
    .... The Company is also required to pay a facility fee on the credit agreement. The primary uses of the credit facility are to provide liquidity to the unsecured commercial paper program and to fund normal business operations, if necessary. The Company has had no borrowings through June 30, 2003 under...

  • Page 36
    ... in fiscal 2003, $8.4 billion in fiscal 2002 and $8.2 billion in fiscal 2001. As part of its integrated payroll and payroll tax filing services, the Company impounds funds for federal, state and local employment taxes from approximately 364,000 clients; handles all regulatory payroll tax filings...

  • Page 37
    ... to which the Company will pay supplemental pension benefits to certain key officers upon retirement based upon the officer's years of service and compensation. The plans' funded status as of June 30, 2003 and 2002 follows: June 30, Change in plan assets: Fair value of plan assets at beginning...

  • Page 38
    36 ADP 2003 Annual Report Notes to Consolidated Financial Statements C. Retirement and Savings Plan. The Company has a 401(k) retirement and savings plan, which allows eligible employees to contribute up to 20% of their compensation annually and allows highly compensated employees to contribute up...

  • Page 39
    ... year 2003 budgeted foreign exchange rates. Business unit assets include funds held for clients but exclude corporate cash, marketable securities and goodwill. "Other" consists primarily of Claims Services, miscellaneous processing services and corporate. Reconciling items for revenues and earnings...

  • Page 40
    38 ADP 2003 Annual Report Notes to Consolidated Financial Statements (In millions) Year ended June 30, 2003 Revenues Earnings before income taxes Assets Capital expenditures Depreciation and amortization Year ended June 30, 2002 Revenues Earnings before income taxes Assets Capital expenditures ...

  • Page 41
    ... access to the Audit Committee. Independent Auditors' Report Board of Directors and Shareholders Automatic Data Processing, Inc. Roseland, New Jersey We have audited the accompanying consolidated balance sheets of Automatic Data Processing, Inc. and subsidiaries (the "Company") as of June 30, 2003...

  • Page 42
    40 ADP 2003 Annual Report Directors and Corporate Officers Directors Gregory D. Brenneman(1)*,(2) President & CEO, Turnworks, Inc. Chairman, ADP Compensation Committee Leslie A. Brun (4) Chairman, Hamilton Lane Gary C. Butler President and Chief Operating Officer Joseph A. Califano, Jr.(1) ...

  • Page 43
    ... owners. Transfer Agent Mellon Investor Services Overpeck Centre 85 Challenger Road Ridgefield Park, New Jersey 07660 888.414.6896 Corporate Counsel Paul, Weiss, Rifkind, Wharton & Garrison LLP Auditors Deloitte & Touche LLP Annual Report, Form 10-K and Other Reports This 2003 Annual Report is also...

  • Page 44
    Automatic Data Processing, Inc. One ADP Boulevard Roseland, New Jersey 07068-1728 973.974.5000 www.adp.com