SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2003 Commission File Number 1-5397
---------------- --------
Automatic Data Processing, Inc.
- -----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-1467904
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One ADP Boulevard, Roseland, New Jersey 07068
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (973) 974-5000
--------------------
No change
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Former name, former address & former fiscal year, if changed since
last report.
Indicate by check mark whether the Registrant (1) has filed all annual,
quarterly and other reports required to be filed with the commission and (2) has
been subject to the filing requirements for at least the past 90 days.
X Yes No
- ---------------------------------- ----------------------------
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended).
X Yes No
- ---------------------------------- ----------------------------
As of March 31, 2003 there were 598,029,348 common shares outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ----------------------
REVENUES: 2003 2002 2003 2002
---- ---- ---- ----
Revenues, other than interest
on funds held for clients
and PEO revenues $1,704,454 $1,691,261 $4,691,274 $4,633,659
Interest on funds held for
clients 99,108 107,880 276,735 331,140
PEO revenues (A) 102,216 70,895 267,449 194,148
---------- ---------- ---------- ----------
TOTAL REVENUES 1,905,778 1,870,036 5,235,458 5,158,947
---------- ---------- ---------- ----------
EXPENSES:
Operating expenses 796,580 772,492 2,207,764 2,140,814
Selling, general, and
administrative expenses 412,793 369,217 1,262,751 1,219,336
Systems development and
programming costs 123,401 116,387 364,679 349,756
Depreciation and amortization 67,503 73,203 203,886 211,115
Other income, net (27,499) (33,113) (100,472) (84,024)
---------- ---------- ---------- ----------
TOTAL EXPENSES 1,372,778 1,298,186 3,938,608 3,836,997
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 533,000 571,850 1,296,850 1,321,950
Provision for income taxes 203,610 219,590 495,370 508,490
---------- ---------- ---------- ----------
NET EARNINGS $ 329,390 $ 352,260 $ 801,480 $ 813,460
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ 0.55 $ 0.57 $ 1.33 $ 1.31
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ 0.54 $ 0.56 $ 1.32 $ 1.29
========== ========== ========== ==========
Basic average shares
outstanding 600,217 620,118 601,737 619,344
========== ========== ========== ==========
Diluted average shares
outstanding 605,340 632,307 607,911 631,706
========== ========== ========== ==========
Dividends per common share $ 0.1200 $ 0.1150 $ 0.3550 $ 0.3325
========== ========== ========== ==========
(A) Net of pass-through costs of $904,391 and $676,409 for the three months
ended March 31, 2003 and 2002, respectively, and $2,541,258 and $1,922,810
for the nine months ended March 31, 2003 and 2002, respectively.
See notes to the consolidated financial statements.
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
March 31, June 30,
Assets 2003 2002
- ------ ----------- -----------
Current assets:
Cash and cash equivalents $ 1,188,660 $ 798,810
Short-term marketable securities 933,670 677,005
Accounts receivable, net 1,022,367 1,045,170
Other current assets 348,869 296,272
----------- -----------
Total current assets 3,493,566 2,817,257
Long-term marketable securities 601,872 1,273,768
Long-term receivables 176,751 192,769
Property, plant and equipment, net 561,644 596,451
Other assets 523,194 293,808
Goodwill 1,511,423 1,375,654
Intangible assets, net 528,425 501,544
----------- -----------
Total assets before funds held for clients 7,396,875 7,051,251
Funds held for clients 12,932,524 11,225,271
----------- -----------
Total assets $20,329,399 $18,276,522
=========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 148,663 $ 148,694
Accrued expenses and other liabilities 1,165,452 1,035,389
Income taxes payable 195,925 227,019
----------- -----------
Total current liabilities 1,510,040 1,411,102
Long-term debt 81,930 90,648
Other liabilities 237,142 233,671
Deferred income taxes 332,798 237,633
Deferred revenue 334,890 138,893
----------- -----------
Total liabilities before client funds
obligations 2,496,800 2,111,947
Client funds obligations 12,604,743 11,050,370
----------- -----------
Total liabilities 15,101,543 13,162,317
Shareholders' equity:
Common stock, par value $0.10 per share:
authorized 1,000,000 shares; issued 638,702
shares, respectively 63,870 63,870
Capital in excess of par value 220,397 333,371
Retained earnings 6,565,569 5,977,318
Treasury stock, at cost: 40,673 and 22,385
shares, respectively (1,678,217) (1,142,041)
Accumulated other comprehensive income (loss) 56,237 (118,313)
----------- -----------
Total shareholders' equity 5,227,856 5,114,205
----------- -----------
Total liabilities and shareholders' equity $20,329,399 $18,276,522
=========== ===========
See notes to the consolidated financial statements.
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
March 31,
2003 2002
---------- ----------
Cash Flows From Operating Activities
- ------------------------------------
Net earnings $ 801,480 $ 813,460
Adjustments to reconcile net earnings to net
cash flows provided by operating activities:
Expenses not requiring outlay of cash 276,464 247,280
Changes in operating net assets 88,448 124,188
---------- ----------
Net cash flows provided by operating activities 1,166,392 1,184,928
---------- ----------
Cash Flows From Investing Activities
- ------------------------------------
Purchases of marketable securities (2,828,261) (4,410,232)
Proceeds from sale of marketable securities 3,012,380 3,017,654
Net (purchases of) proceeds from client fund
money market securities (1,310,516) 40,128
Net change in client funds obligations 1,554,373 1,038,602
Capital expenditures (85,164) (100,328)
Additions to intangibles (64,916) (78,538)
Acquisitions of businesses, net of cash acquired (99,759) (148,260)
Other 4,394 12,677
---------- ----------
Net cash flows provided by (used in)
investing activities 182,531 (628,297)
---------- ----------
Cash Flows From Financing Activities
- ------------------------------------
Proceeds from short-term borrowings 864 264
Payments of debt (1,254) (3,764)
Proceeds from stock purchase plan and exercises
of stock options 71,649 206,038
Repurchases of common stock (817,104) (624,704)
Dividends paid (213,228) (205,855)
---------- ----------
Net cash flows used in financing activities (959,073) (628,021)
---------- ----------
Net change in cash and cash equivalents 389,850 (71,390)
Cash and cash equivalents, beginning of period 798,810 1,275,356
---------- ----------
Cash and cash equivalents, end of period $1,188,660 $1,203,966
========== ==========
See notes to the consolidated financial statements.
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, amounts in thousands, except per share amounts)
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements reflect all
adjustments, which in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. Adjustments are of a normal
recurring nature. Certain reclassifications have been made to the prior period
amounts to conform to the current period presentation. These unaudited
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and related notes of Automatic Data
Processing, Inc. and Subsidiaries (ADP or the Company) as of and for the year
ended June 30, 2002. The results of operations for the three and nine months
ended March 31, 2003 may not be indicative of the results to be expected for the
year ending June 30, 2003.
Note 2. Significant Accounting Policies (Supplemental to the Notes to the
Consolidated Financial Statements as of and for the year ended June 30, 2002)
A. 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 Services client related
funds. The Company typically enters into agreements for a fixed fee per
transaction (e.g., number of payees). Fees associated with services are
recognized in the period services are rendered and earned under service
arrangements with clients where service fees are fixed or determinable and
collectibility is reasonably assured. Interest income on collected but not yet
remitted funds held for clients is recognized in revenues as earned.
The Company also recognizes revenues associated with the sale of software
systems and associated software licenses. For a majority of the Company's
software sales arrangements, which provide hardware, software licenses,
installation and post customer support, revenues are recognized ratably over the
software license term as objective evidence of the fair values of the individual
elements in the sales arrangement does not exist. For the remainder of sales of
software systems, revenues are recognized when the objective evidence of the
fair values of the individual elements of a sales arrangement containing
hardware, software license, implementation, conversion and post-implementation
services can be objectively determined. The amounts and timing of revenue
recognition are determined for each element in an arrangement. As part of the
sale of software systems, the Company recognizes revenue from the sale of
hardware, which is recorded net of the associated costs.
Postage fees for client mailings are included in revenues and the associated
postage expenses are included in operating expenses. Professional Employer
Organization (PEO) service revenues are included in revenues and are reported
net of direct costs billed and incurred for PEO worksite employees, which
primarily include payroll wages and payroll taxes.
B. Internal Use Software. The Company capitalizes certain costs associated with
computer software developed or obtained for internal use in accordance with the
provisions of Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". The Company's policy
provides for the capitalization of external direct costs of materials and
services associated with developing or obtaining internal use computer software.
In addition, ADP also capitalizes certain payroll and payroll related costs for
employees who are directly associated with internal use computer software
projects. The amount of capitalizable payroll costs with respect to these
employees is limited to the time directly spent on such projects. Costs
associated with preliminary project stage activities, training, maintenance and
all other post implementation stage activities are expensed as incurred. The
Company also expenses internal costs related to minor upgrades and enhancements,
as it is impractical to separate these costs from normal maintenance activities.
Capitalized costs related to computer software developed or obtained for
internal use are amortized over a three-year period on a straight-line basis.
C. Computer Software to be Sold, Leased or Otherwise Marketed. The Company
capitalizes certain costs of computer software to be sold, leased or otherwise
marketed in accordance with the provisions of Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed". The Company's policy provides for the
capitalization of all software production costs upon reaching technological
feasibility for a specific product. Technological feasibility is attained when
software products have a completed working model whose consistency with the
overall product design has been confirmed by testing. Costs incurred prior to
the establishment of technological feasibility are expensed as incurred. The
establishment of technological feasibility requires considerable judgment by
management and in many instances is only attained a short time prior to the
general release of the software. Upon the general release of the software
product to customers, capitalization ceases and such costs are amortized over a
three-year period on a straight-line basis. Maintenance related costs are
expensed as incurred.
D. Fair Value Accounting for Stock Plans. In December 2002, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure"(SFAS No. 148) which amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation and requires disclosures in annual and interim financial
statements of the effects of stock-based compensation as reflected below.
The Company continues to account for its stock option and employee stock
purchase plans under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. No stock-based employee compensation expense related to
the Company's stock option and stock purchase plans is reflected in net
earnings, as all options granted under those plans had an exercise price equal
to the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net earnings and earnings per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation.
Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
-------- -------- -------- --------
Net earnings, as reported $329,390 $352,260 $801,480 $813,460
Deduct: Total stock-based employee
compensation expense determined
using the fair value based method
for all awards, net of related
tax effects (28,851) (27,037) (93,722) (89,473)
-------- -------- -------- --------
Pro forma net earnings $300,539 $325,223 $707,758 $723,987
======== ======== ======== ========
Earnings per share:
Basic - as reported $0.55 $0.57 $1.33 $1.31
===== ===== ===== =====
Basic - pro forma $0.50 $0.52 $1.18 $1.17
===== ===== ===== =====
Diluted - as reported $0.54 $0.56 $1.32 $1.29
===== ===== ===== =====
Diluted - pro forma $0.50 $0.51 $1.17 $1.15
E. Changes in Accounting Policies
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" which elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of this Interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements in this Interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
Company has provided information regarding commitments and contingencies
relating to guarantees in Note 10. There have been no material commitments and
contingencies requiring recognition in the Consolidated Financial Statements
since December 31, 2002.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS
No. 146), which nullifies Emerging Issues Task Force Issue No. 94-3 (EITF 94-3),
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability for an exit cost as defined in EITF 94-3 was recognized at the date of
an entity's commitment to an exit plan. The provisions of SFAS No. 146 are
effective and are being applied to all exit or disposal activities initiated
since December 31, 2002. These provisions affect the timing of the recognition
of the Company's exit and disposal costs.
F. New Accounting Pronouncements
In March 2003, the EITF published Issue No. 00-21 "Accounting for Revenue
Arrangements with Multiple Deliverables" (EITF 00-21). This Issue addresses
certain aspects of the accounting by a vendor for arrangements under which it
performs multiple revenue-generating activities and how to determine whether
such an arrangement involving multiple deliverables contains more than one unit
of accounting for purposes of revenue recognition. The guidance in this Issue is
effective for revenue arrangements entered into in fiscal periods beginning
after June 15, 2003, accordingly, the Company will adopt EITF 00-21 on July 1,
2003. The Company does not expect EITF 00-21 to have a material impact on
the Consolidated Financial Statements.
Note 3. Earnings Per Share (EPS)
For the periods ended March 31, 2003
----------------------------------------------------
Three Months Ended Nine Months Ended
------------------------ ------------------------
Net Average Net Average
Earnings Shares EPS Earnings Shares EPS
-------- ------ --- -------- ------ ---
Basic $329,390 600,217 $0.55 $801,480 601,737 $1.33
Effect of zero coupon
subordinated notes 293 1,639 908 1,718
Effect of stock
options - 3,484 - 4,456
-------- ------- -------- -------
Diluted $329,683 605,340 $0.54 $802,388 607,911 $1.32
======== ======= ===== ======== ======= =====
For the periods ended March 31, 2002
-----------------------------------------------------
Three Months Ended Nine Months Ended
------------------------- -------------------------
Net Average Net Average
Earnings Shares EPS Earnings Shares EPS
-------- ------- --- -------- ------ ---
Basic $352,260 620,118 $0.57 $813,460 619,344 $1.31
Effect of zero coupon
subordinated notes 373 2,204 1,253 2,438
Effect of stock
options - 9,985 - 9,924
-------- ------- -------- -------
Diluted $352,633 632,307 $0.56 $814,713 631,706 $1.29
======== ======= ===== ======== ======= =====
Note 4. Other Income, net
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Interest income on corporate
funds $(21,529) $(26,317) $ (95,581) $(84,142)
Interest expense 2,198 2,683 17,652 16,051
Realized gains on available-
for-sale securities (9,365) (12,220) (25,957) (19,534)
Realized losses on available-
for-sale securities 1,197 2,741 3,414 3,601
-------- -------- -------- --------
Other income, net $(27,499) $(33,113) $(100,472) $(84,024)
======== ======== ========= ========
Proceeds from the sale of available-for-sale securities were $0.9 billion and
$1.9 billion for the three months ended March 31, 2003 and 2002, respectively,
and $3.0 billion for the nine months ended March 31, 2003 and 2002.
Note 5. Comprehensive Income
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
Net earnings $329,390 $352,260 $801,480 $813,460
Other comprehensive income:
Foreign currency translation
adjustments 42,691 (8,903) 82,364 38,515
Unrealized gains(losses) on
available-for-sale securities,
net (4,182) (75,352) 92,186 (40,410)
-------- -------- -------- --------
Total comprehensive income $367,899 $268,005 $976,030 $811,565
======== ======== ======== ========
Note 6. Interim Financial Data by Segment
Employer Services, Brokerage Services and Dealer Services are the Company's
largest business units. ADP evaluates performance of its business units based on
operating results before interest on corporate funds, foreign currency gains and
losses and income taxes. 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. Prior year's business unit revenues
and earnings before income taxes have been adjusted to reflect updated fiscal
year 2003 budgeted foreign exchange rates. "Other" consists primarily of Claims
Services, miscellaneous processing services and corporate. Reconciling items for
revenues and earnings before income taxes include foreign exchange differences
between the actual foreign exchange rates and the fiscal year 2003 budgeted
foreign exchange rates and the adjustment for the difference between actual
interest income earned on invested funds held for clients and interest credited
to Employer Services at a standard rate of 6%. The business unit results also
include a cost of capital charge related to the funding of acquisitions and
other investments. This charge is eliminated in consolidation and as such
represents a reconciling item to earnings before income taxes.
Business Segment Results:
(In millions) Revenues
-------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- ------------------
2003 2002 2003 2002
------ ------ ------ ------
Employer Services $1,245 $1,173 $3,317 $3,169
Brokerage Services 396 460 1,065 1,185
Dealer Services 203 176 587 525
Other 86 94 317 319
Reconciling items:
Foreign exchange 34 (1) 68 3
Client fund interest (58) (32) (119) (42)
------ ------ ------ ------
Total revenues $1,906 $1,870 $5,235 $5,159
====== ====== ====== ======
(In millions) Earnings Before Income Taxes
------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
2003 2002 2003 2002
------ ------ ------ ------
Employer Services $ 444 $ 386 $ 980 $ 875
Brokerage Services 44 87 133 217
Dealer Services 35 30 98 87
Other 36 66 113 94
Reconciling items:
Foreign exchange 6 (1) 8 -
Client fund interest (58) (32) (119) (42)
Cost of capital
charge 26 36 83 91
------ ------ ------ ------
Total earnings before
income taxes $ 533 $ 572 $1,296 $1,322
====== ====== ====== ======
Note 7. Corporate Investments and Funds Held for Clients
March 31, 2003 June 30, 2002
------------------------ ------------------------
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
Money market securities
and other cash
equivalents:
Corporate investments $ 1,188,660 $ 1,188,660 $ 798,810 $ 798,810
Funds held for clients 4,543,821 4,543,821 3,319,646 3,319,646
----------- ---------- ----------- -----------
Total money market
securities and other
cash equivalents 5,732,481 5,732,481 4,118,456 4,118,456
----------- ----------- ----------- -----------
Available-for-sale
securities:
Corporate investments 1,510,460 1,535,542 1,916,896 1,950,773
Funds held for clients 8,061,922 8,388,703 7,730,724 7,905,625
----------- ----------- ----------- -----------
Total available-for-sale
securities 9,572,382 9,924,245 9,647,620 9,856,398
----------- ----------- ----------- -----------
Total corporate investments
and funds held for
clients $15,304,863 $15,656,726 $13,766,076 $13,974,854
=========== =========== =========== ===========
All of the Company's marketable securities are considered to be
"available-for-sale" at March 31, 2003 and June 30, 2002 and accordingly, are
carried on the Consolidated Balance Sheets at fair value.
Note 8. Goodwill and Intangible Assets, net
Changes in goodwill for the nine months ended March 31, 2003 are as follows:
Employer Brokerage Dealer
Services Services Services Other Total
-------- -------- -------- ------ -----
Balance as of
June 30, 2002 $751,451 $348,960 $182,642 $ 92,601 $1,375,654
Additions 57,785 6,054 27,897 5,514 97,250
Cumulative
translation
adjustments 32,250 302 449 5,518 38,519
-------- -------- -------- -------- ----------
Balance as of
March 31, 2003 $841,486 $355,316 $210,988 $103,633 $1,511,423
======== ======== ======== ======== ==========
Components of intangible assets are as follows:
March 31, June 30,
2003 2002
---------- ----------
Intangible assets:
Software licenses $ 513,320 $ 462,474
Customer contracts and lists 439,318 384,785
Other intangibles 392,102 373,978
---------- ----------
1,344,740 1,221,237
Less accumulated amortization (816,315) (719,693)
---------- ----------
Intangible assets, net $ 528,425 $ 501,544
========== ==========
Other intangible assets consist primarily of purchased rights, covenants and
patents (acquired directly or through acquisitions). All of the intangible
assets have finite lives and as such are subject to amortization. The
weighted-average remaining useful life of the intangible assets is 12 years (2
years for software licenses, 17 years for customer contracts and lists and 14
years for other). Amortization of intangibles totaled $28.1 million and $33.3
million for the three months ended March 31, 2003 and 2002, respectively, and
$82.8 million and $87.4 million for the nine months ended March 31, 2003 and
2002, respectively. Estimated amortization expense of the Company's existing
intangible assets over the remaining three months of fiscal 2003 and the
succeeding five fiscal years is as follows:
Amount
------
2003 $ 30,406
2004 97,445
2005 59,335
2006 34,969
2007 27,883
2008 22,040
Note 9. Short-term Financing
In October 2002, the Company entered into a new $4.0 billion unsecured revolving
credit agreement with certain financial institutions, replacing an existing $4.0
billion credit agreement. The interest rate applicable to the borrowings is tied
to LIBOR or prime rate depending on the notification provided to the syndicated
financial institutions prior to borrowing. 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 to
date under the credit agreement, which expires in October 2003.
In April 2002, the Company initiated a short-term commercial paper program
providing for the issuance of up to $4.0 billion in aggregate maturity value of
commercial paper at the Company's discretion. The Company's commercial paper
program is rated A-1+ by Standard and Poor's and Prime 1 by Moody's. These
ratings denote the highest quality investment grade securities. Maturities of
commercial paper can range from overnight to 270 days. The Company uses the
commercial paper issuances as a primary instrument to meet short-term funding
requirements related to client funds obligations. For the three and nine month
periods ended March 31, 2003, the Company had average borrowings of $266.1
million and $941.1 million, respectively, at an effective weighted average
interest rate of 1.3% and 1.6%, respectively. The weighted average maturity of
the Company's commercial paper during the nine months ended March 31, 2003 was
less than two days. There was no commercial paper outstanding at March 31, 2003.
Note 10. Commitments and Contingencies
In the normal course of business, the Company enters into contracts in which it
makes representations and warranties that guarantee the performance of the
Company's products and counter-party risk as well as other indemnifications
entered into in the normal course of business. Historically, there have been no
material losses related to such guarantees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements and accompanying notes have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires management to
make estimates, judgments, and assumptions that affect reported amounts of
assets, liabilities, revenues and expenses. We continually evaluate the
accounting policies and estimates used to prepare the consolidated financial
statements. The estimates are based on historical experience and assumptions
believed to be reasonable under current facts and circumstances. Actual amounts
and results could differ from these estimates made by management. Certain
accounting policies that require significant management estimates and are deemed
critical to our results of operations or financial position are discussed below.
Revenue Recognition. Our revenues are primarily 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 Services client related
funds. We typically enter into agreements for a fixed fee per transaction (e.g.,
number of payees). Fees associated with services are recognized in the period
services are rendered and earned under service arrangements with clients where
service fees are fixed or determinable and collectibility is reasonably assured.
Interest income on collected but not yet remitted funds held for clients is
recognized in revenues as earned.
We also recognize revenues associated with the sale of software systems and
associated software licenses. For a majority of our software sales arrangements,
which provide hardware, software licenses, installation and post customer
support, revenues are recognized ratably over the software license term as
objective evidence of the fair values of the individual elements in the sales
arrangement does not exist. For the remainder of sales of software systems,
revenues are recognized when the objective evidence of the fair values of the
individual elements of a sales arrangement containing hardware, software
license, implementation, conversion and post-implementation services can be
objectively determined. The amounts and timing of revenue recognition are
determined for each element in an arrangement.
The majority of our revenues are generated from a fee for service model (e.g.,
fixed-fee per transaction processed) in which revenue is recognized when the
related services have been rendered under written price quotations or service
agreements having stipulated terms and conditions which do not require
management to make any significant judgments or assumptions regarding any
potential uncertainties.
Goodwill. We review the carrying value of all our goodwill in accordance with
Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other
Intangible Assets," by comparing the carrying value of our reporting units to
their fair values. We are required to perform this comparison at least annually
or more frequently if circumstances indicate possible impairment. When
determining fair value, we utilize various assumptions, including projections of
future cash flows. Any significant adverse changes in key assumptions about our
businesses and their prospects or an adverse change in market conditions may
cause a change in the estimation of fair value and could result in an impairment
charge. Given the significance of our goodwill, an adverse change to the fair
value could result in an impairment charge, which could be material to our
financial statements.
Income taxes. We account for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which establishes financial accounting and
reporting standards for the effect of income taxes. The objectives of accounting
for income taxes are to recognize the amount of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in an entity's financial
statements or tax returns. Judgment is required in assessing the future tax
consequences of events that have been recognized in our financial statements or
tax returns (e.g., realization of deferred tax assets). Fluctuations in the
actual outcome of these future tax consequences could materially impact our
financial statements.
RESULTS OF OPERATIONS
(TABULAR DOLLARS ARE PRESENTED IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ANALYSIS OF CONSOLIDATED OPERATIONS
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- ------------------------
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
Total revenues $1,906 $1,870 2% $5,235 $5,159 1%
----------------------- -----------------------
Total expenses $1,373 $1,298 6% $3,939 $3,837 3%
----------------------- -----------------------
Earnings before income
taxes $ 533 $ 572 (7%) $1,296 $1,322 (2%)
Margin 28.0% 30.6% 24.8% 25.6%
----------------------- -----------------------
Provision for income
taxes $ 204 $ 220 (7%) $ 495 $ 509 (3%)
Effective tax rate 38.2% 38.4% 38.2% 38.5%
----------------------- -----------------------
Net earnings $ 329 $ 352 (6%) $ 801 $ 813 (1%)
Net earnings per
share - diluted $ 0.54 $ 0.56 (4%) $ 1.32 $ 1.29 2%
----------------------- -----------------------
Our consolidated revenues for the quarter increased 2% to $1.9 billion,
primarily due to an increase in Employer Services of 6% to $1.2 billion and a
double-digit increase at Dealer Services of 15% to $203 million. These increases
were offset by a decrease in our Brokerage Services business of 14%, or $64
million, and a decrease in interest income from funds held for clients of
approximately 8%, or $9 million. Interest income decreased due to lower interest
yields, despite higher average client balances during the period. Our revenue
growth continues to be impacted primarily by continued weak economic conditions
impacting our Employer Services business, weakness in the financial services
industry, including low trading volumes and decreased corporate activity, and
lower interest rates.
Year-to-date consolidated revenues increased 1% to $5.2 billion primarily due to
increases in Employer Services of 5% to $3.3 billion and Dealer Services of 12%
to $587 million. Brokerage Services' revenues were down 10% to $1.1 billion for
the year-to-date period and interest income from funds held for clients have
decreased $54 million, or 16%, compared to the prior year.
Earnings before income taxes for the quarter decreased by 7% to $533 million as
total expenses grew at a faster rate than revenues. Selling, general and
administrative expenses increased 12% or $44 million, primarily driven by the
growth in Employer Services and Dealer Services. There were also restructuring
charges of approximately $10 million in the quarter primarily relating to
severance activity. Operating expenses generally increased with revenues for the
quarter, except at Brokerage Services where the decrease in revenues was greater
than the decrease in operating expenses. Other income was lower primarily due to
a decrease in interest income on corporate funds of 18% to $21.5 million. Slight
increases in systems development and programming costs were offset by lower
depreciation and amortization.
Year-to-date earnings before income taxes decreased 2% to $1.3 billion as total
expenses grew 3% while total revenues grew 1%. Increases in operating and
selling, general and administrative expenses of $67 million, or 3%, and $43
million, or 4%, respectively, were generally driven by revenue growth in
Employer Services and Dealer Services. The percentage decrease in operating and
selling, general and administrative expenses at Brokerage Services was lower
than the significant percentage decrease in revenue. Systems development and
programming costs increased approximately $15 million, or 4%, as we continue to
focus on enhancing our products and services and maintaining our existing
technologies. Other income for the year increased $16 million, or 20%, from last
year primarily due to increased income on corporate funds attributable to an
increase in the balances of the corporate fund portfolios, offset by a decline
in interest yield.
For the quarter and year-to-date, the effective income tax rate decreased 0.2%
and 0.3%, respectively, to 38.2%, primarily due to a favorable mix in income
among tax jurisdictions.
Net earnings for the quarter decreased 6% to $329 million from $352 million and
the related diluted earnings per share decreased 4% to $0.54 per share from
$0.56 per share. The decrease in net earnings primarily reflects the decrease in
earnings before income taxes slightly offset by a lower effective tax rate. The
decrease in diluted earnings per share reflects the decrease in net earnings,
partially offset by fewer shares outstanding due to share repurchases during the
year.
Year-to-date net earnings decreased 1% to $801 million from $813 million while
the related diluted earnings per share increased 2% to $1.32 per share from
$1.29 per share. The decrease in net earnings primarily reflects the decrease in
earnings before income taxes slightly offset by a lower effective tax rate. The
increase in diluted earnings per share is a result of fewer shares outstanding
due to share repurchases offset by the decrease in net income.
ANALYSIS OF BUSINESS SEGMENTS
REVENUES
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
Employer Services $1,245 $1,173 6% $3,317 $3,169 5%
Brokerage Services 396 460 (14%) 1,065 1,185 (10%)
Dealer Services 203 176 15% 587 525 12%
Other 86 94 (9%) 317 319 (1%)
Reconciling items:
Foreign exchange 34 (1) 68 3
Client fund interest (58) (32) (119) (42)
------ ------ ------ -----
Total revenues $1,906 $1,870 2% $5,235 $5,159 1%
====== ====== ====== ======
EARNINGS BEFORE INCOME TAXES
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ------------------------
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
Employer Services $444 $386 15% $ 980 $ 875 12%
Brokerage Services 44 87 (49%) 133 217 (39%)
Dealer Services 35 30 17% 98 87 13%
Other 36 66 (46%) 113 94 21%
Reconciling items:
Foreign exchange 6 (1) 8 -
Client fund interest (58) (32) (119) (42)
Cost of capital charge 26 36 83 91
------------ ----------------
Total earnings before
income taxes $533 $572 (7%) $1,296 $1,322 (2%)
============ ================
Revenues in our Employer Services business increased 6% for the quarter and 5%
for the year-to-date period as compared to the prior year. Despite the continued
negative impacts of the weak economy, Employer Services continues to grow
primarily due to increases in our North America payroll and tax businesses,
including strong growth in our beyond payroll products. Client retention
improved by more than 1.5% and 1.0% for the quarter and year-to-date,
respectively. Revenues in our PEO business increased $31 million, or 44%, for
the quarter and $73 million, or 38%, year-to-date. New business sales declined
8% for the quarter and 2% year to date, and pays per control, which represents
the number of employees on our clients' payrolls, decreased 1% for both the
quarter and year-to-date periods. Earnings before income taxes in Employer
Services increased 15% and 12% for the quarter and year-to-date periods as a
result of increased revenues and continued cost containment efforts.
Brokerage Services' revenues declined by 14% for the quarter and 10% for the
year-to-date period due to the continued weakness in the financial services
industry. Our Brokerage Processing Services Division revenues declined 24% for
the quarter and 18% year-to-date, primarily due to a decline in average trades
per day of 26% for the quarter and 11% year-to-date. Retail trade volume
continues to be very weak. Revenues in our Investor Communications Division
declined 10% for the quarter and 6% year-to-date primarily due to lower
corporate transaction and mutual fund activity. Earnings before income taxes in
Brokerage Services declined 49% in the quarter and 39% year-to-date primarily
due to the decline in revenues.
Dealer Services' revenues increased 15% in the quarter and 12% for the
year-to-date period compared to the prior year. Growth for both periods has been
generated by acquisitions, strong client retention, and increased revenues in
the traditional core business as well as from new businesses, primarily
Application Service Provider (ASP) managed services, Networking and Computer
Vehicle Registration. Sales of our Customer Relationship Management Systems
continue to be strong. Earnings before income taxes for the quarter and
year-to-date grew by 17% and 13%, respectively, compared to the prior year due
primarily to the increase in revenues.
The prior year's business unit revenues and earnings before income taxes have
been adjusted to reflect updated fiscal year 2003 budgeted foreign exchange
rates. "Other" consists primarily of Claims Services, miscellaneous processing
services and corporate.
Reconciling items for revenues and earnings before income taxes include foreign
exchange differences between the actual and the fiscal year 2003 budgeted
foreign exchange rates and the adjustment for the difference between actual
interest income earned on invested funds held for clients and interest credited
to Employer Services at a standard rate of 6%.
The business unit results also include a cost of capital charge related to the
funding of acquisitions and other investments. This charge is eliminated in
consolidation and as such represents a reconciling item to earnings before
income taxes.
FINANCIAL CONDITION
Our financial condition and balance sheet remain strong. At March 31, 2003, we
had cash and marketable securities of $2.7 billion. Shareholders' equity was
approximately $5.2 billion and the ratio of long-term debt to equity was
approximately 1.6%.
Capital expenditures for fiscal year 2003 are expected to be between $125 and
$135 million compared to $146 million in fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operations of $1.2 billion for the nine months ended
March 31, 2003 were flat compared to the prior year. The primary drivers of cash
flow from operations in both periods were strong net earnings and increased
working capital.
Cash flows provided by investing activities totaled $182.5 million for the
year-to-date period ended March 31, 2003 and cash flows used in investing
activities totaled $628.3 million for the year-to-date period ended March 31,
2002. The fluctuation between periods is primarily due to the timing of
purchases and proceeds of marketable securities and client fund money market
securities and the net change in client funds obligations. We also had $77.3
million less investment in capital expenditures, intangibles and acquisitions
during 2003 compared to 2002.
Cash flows used in financing activities totaled $959.1 million for the
year-to-date period ended March 31, 2003 compared to $628.0 million in prior
year. The increase in cash used in financing is primarily due to $192.4 million
of higher repurchases of common stock and $134.4 million less proceeds from
stock purchase plans and exercises of stock options. We purchased approximately
23.7 million shares of common stock at an average price per share of
approximately $34 during the period. As of March 31, 2003, we have remaining
Board of Directors authorization to purchase up to 47.2 million additional
shares.
During the nine month period ended March 31, 2003, approximately twenty percent
of our overall investment portfolio was invested in cash and cash equivalents,
which are impacted almost immediately by changes in short-term interest rates.
The other eighty percent of our investment portfolio was invested in
fixed-income securities, with varying maturities of less than ten years, which
are also subject to interest rate risk, including reinvestment risk. We have
historically had the ability to hold these investments until maturity and
therefore, fluctuations in interest rates have not had an adverse impact on
income or cash flows.
Details regarding our combined corporate investments and funds held for clients
portfolios are as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -----------------
2003 2002 2003 2002
---- ---- ---- ----
Average investment balances
at cost:
Corporate investments $ 2,812 $ 2,803 $ 3,395 $ 2,971
Funds held for clients 10,445 9,384 8,692 8,267
------- ------- ------- -------
Total $13,257 $12,187 $12,087 $11,238
======= ======= ======= =======
Average interest rates earned
exclusive of realized gains
(losses) for the total
combined corporate investments
and funds held for clients'
portfolios (pre-tax) 3.7% 4.4% 4.1% 5.0%
Realized gains on available-
for-sale securities $ 9.4 $ 12.2 $ 26.0 $ 19.5
Realized losses on available-
for-sale securities (1.2) (2.7) (3.4) (3.6)
------ ------ ------ ------
Net realized gains $ 8.2 $ 9.5 $ 22.6 $ 15.9
====== ====== ====== ======
March 31, June 30,
2003 2002
--------- --------
Unrealized pre-tax gains on available-for-
sale securities $ 352 $ 209
Total available-for-sale securities $ 9,924 $ 9,856
The earnings impact of future interest rate changes is based on many factors,
which influence the return on our portfolio. These factors include, among
others, the overall portfolio mix between short-term and long-term investments.
This mix varies during the year and is impacted by daily interest rate changes.
A hypothetical change in interest rates of 25 basis points applied to the
average projected investment balances for fiscal 2003 would result in
approximately a $9 million impact to earnings before income taxes over the
twelve-month period.
In October 2002, we entered into a new $4.0 billion unsecured revolving credit
agreement with certain financial institutions, replacing an existing $4.0
billion credit agreement. The interest rate applicable to the borrowings is tied
to LIBOR or prime rate depending on the notification provided to the syndicated
financial institutions prior to borrowing. We are 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. There have been no borrowings to date
under the credit agreement, which expires in October 2003.
In April 2002, we initiated a short-term commercial paper program providing for
the issuance of up to $4.0 billion in aggregate maturity value of commercial
paper at any given time. Our commercial paper program is rated A-1+ by Standard
and Poor's and Prime 1 by Moody's. These ratings denote the highest quality
investment grade securities. Maturities of commercial paper can range from
overnight to 270 days. We use the commercial paper issuances as a primary
instrument to meet short-term funding requirements related to client funds
obligations. For the three and nine month periods ended March 31, 2003, we had
average borrowings of $266.1 million and $941.1 million, respectively, at an
effective weighted average interest rate of 1.3% and 1.6%, respectively. The
weighted average maturity of our commercial paper during the nine months ended
March 31, 2003 was less than two days. There was no commercial paper outstanding
at March 31, 2003.
NEW ACCOUNTING PRONOUNCEMENT
In March 2003, the Emerging Issues Task Force (EITF) published EITF Issue No.
00-21 "Accounting for Revenue Arrangements with Multiple Deliverables"(EITF
00-21). This Issue addresses certain aspects of the accounting by a vendor for
arrangements under which it performs multiple revenue-generating activities and
how to determine whether such an arrangement involving multiple deliverables
contains more than one unit of accounting for purposes of revenue recognition.
The guidance in this Issue is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003, accordingly, we will adopt EITF
00-21 on July 1, 2003. We do not expect EITF 00-21 to have a material impact on
our Consolidated Financial Statements.
PROBUSINESS TRANSACTION
On January 5, 2003, the Company entered into a definitive agreement to acquire
all of the outstanding shares of ProBusiness Services, Inc. (ProBusiness) for
$17.00 per common share. The transaction will be consummated in cash and is
valued at approximately $500 million. The transaction is subject to ProBusiness
shareholder approval and regulatory review.
On February 14, 2003, the Department of Justice, Antitrust Division (DOJ)
requested additional information and documentary material in connection with its
review of the proposed merger. The DOJ request resulted in an extension of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
ProBusiness and ADP are responding to the DOJ request.
OTHER MATTERS
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, but are not limited to: ADP's success in obtaining,
retaining and selling additional services to clients; the pricing of products
and services; changes in laws regulating payroll taxes and employee benefits;
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 and divestitures. ADP disclaims any obligation to
update any forward-looking statements, whether as a result of new information,
future events or otherwise.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Company's disclosure controls and
procedures, as defined in Rules 13a-14 and 15d-14 under the Securities and
Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these disclosure controls,
subsequent to the date of this evaluation.
PART II. OTHER INFORMATION
Except as noted below, all other items are either inapplicable or would result
in negative responses and, therefore, have been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number Exhibit
-------------- -------
99.1 Certification by Arthur F. Weinbach pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification by Karen E. Dykstra pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The Company furnished a report on Form 8-K on March 13, 2003 that included
the Company's press release dated March 13, 2003 announcing revised
revenue and earnings per share guidance for fiscal year 2003.
The Company furnished a report on Form 8-K on April 17, 2003 that included
the Company's press release dated April 17, 2003 reporting third quarter
results of fiscal year 2003.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUTOMATIC DATA PROCESSING, INC.
-------------------------------
(Registrant)
Date: May 2, 2003 /s/ Karen E. Dykstra
--------------------
Karen E. Dykstra
Chief Financial Officer
-----------------------
(Title)
CERTIFICATIONS
--------------
I, Arthur F. Weinbach, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Automatic Data
Processing, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 2, 2003
/s/ Arthur F. Weinbach
- -----------------------
Arthur F. Weinbach
Chief Executive Officer
I, Karen E. Dykstra, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Automatic Data
Processing, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 2, 2003
/s/ Karen E. Dykstra
- -----------------------
Karen E. Dykstra
Chief Financial Officer