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 September 30,December 31, 1998 Commission File Number 1-5397
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Automatic Data Processing, IncInc.
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(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) 994-5000
-----------------------------
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|X Yes |_| No
- - ------------------------------------ ------------------------------------
As of OctoberJanuary 31, 19981999 there were 302,102,291609,042,989 common shares outstanding.
Form 10Q
Part I. Financial Information
Statement of Consolidated EarningsSTATEMENTS OF CONSOLIDATED EARNINGS
-----------------------------------
(In thousands, except per share amounts)
Three Months Ended
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September 30, September 30,
1998 1997
---------- ----------
Revenue $1,210,327 $1,038,498
---------- ----------
Operating expenses 529,857 443,383
General, administrative and 322,973 289,446
selling expenses
Depreciation and amortization 68,907 57,430
Systems development and
programming costs 100,740 87,289
Interest expense 5,600 7,510
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1,028,077 885,058
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EARNINGS BEFORE INCOME TAXES 182,250 153,440
Provision for income taxes 59,050 48,030
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NET EARNINGS $ 123,200 $ 105,410
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues $1,274,864 $1,148,026 $2,485,191 $2,186,524
---------- ---------- ---------- ----------
Operating expenses 535,572 490,202 1,065,429 933,585
General, administrative and
selling expenses 284,430 286,427 607,403 575,873
Depreciation and amortization 68,032 58,193 136,939 115,623
Systems development and
programming costs 105,356 91,361 206,096 178,650
Interest expense 5,554 7,303 11,154 14,813
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998,944 933,486 2,027,021 1,818,544
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EARNINGS BEFORE INCOME TAXES 275,920 214,540 458,170 367,980
Provision for income taxes 107,530 67,150 166,580 115,180
---------- ---------- ---------- ----------
NET EARNINGS $ 168,390 $ 147,390 $ 291,590 $ 252,800
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ .28 $ .25 $ .48 $ .43
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ .27 $ .24 $ .47 $ .42
========== ========== ========== ==========
Dividends per share $ .07625 $ .06625 $ .1425 $ .12375
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ 0.41 $ 0.36
========== ==========
DILUTED EARNINGS PER SHARE $ 0.40 $ 0.35
========== ==========
Dividends per share $ .1325 $ .115
========== ==========
See notes to consolidated statements.
Form 10Q
Consolidated Balance Sheets
(In thousands)
September 30, June 30,
1998 1998
------------ ----------
Assets
Cash and cash equivalents $ 893,800 $ 752,240
Short-term marketable securities 173,823 144,936
Accounts receivable 731,595 727,936
Other current assets 183,671 204,192
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Total current assets 1,982,889 1,829,304
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Long-term marketable securities 806,399 765,272
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Long-term receivables 182,049 177,946
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Land and buildings 394,352 386,745
Data processing equipment 723,475 696,424
Furniture, leaseholds and other 444,195 432,654
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1,562,022 1,515,823
Less accumulated depreciation (980,717) (932,150)
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581,305 583,673
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Other assets 154,110 166,112
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Intangibles 1,693,886 1,653,048
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$5,400,638CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS)
December 31, June 30,
Assets 1998 1998
- - ------ ----------- ----------
Cash and cash equivalents $ 699,283 $ 752,240
Short-term marketable securities 196,712 144,936
Accounts receivable 757,585 727,936
Other current assets 199,522 204,192
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Total current assets 1,853,102 1,829,304
----------- ----------
Long-term marketable securities 781,874 765,272
----------- ----------
Long-term receivables 196,243 177,946
----------- ----------
Land and buildings 389,979 386,745
Data processing equipment 571,342 696,424
Furniture, leaseholds and other 438,826 432,654
----------- ----------
1,400,147 1,515,823
Less accumulated depreciation (837,942) (932,150)
----------- ----------
562,205 583,673
Other assets 239,050 166,112
----------- ----------
Intangibles 1,666,729 1,653,048
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$ 5,299,203 $5,175,355
=========== ==========
Liabilities and Shareholders' Equity
Notes payable $ 89,430 $ 239,811
Accounts payable 71,298 119,803
Accrued expenses & other current
liabilities 766,532 806,297
Income taxes 83,998 55,130
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Total current liabilities 1,011,258 1,221,041
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Long-term debt 165,796 192,063
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Other liabilities 126,945 103,056
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Deferred income taxes 165,198 147,397
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Deferred revenue 107,612 105,347
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Shareholders' equity:
Common stock 62,858 62,858
Capital in excess of par value 611,011 586,329
Retained earnings 3,579,591 3,374,729
Treasury stock (485,458) (515,845)
Accumulated other comprehensive income (45,608) (101,620)
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3,722,394 3,406,451
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$ 5,299,203 $5,175,355
=========== ==========
==========
Liabilities and Shareholders' Equity
Notes payable $ 298,084 $ 239,811
Accounts payable 117,102 119,803
Accrued expenses & other current
liabilities 806,467 806,297
Income taxes 80,448 55,130
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Total current liabilities 1,302,101 1,221,041
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Long-term debt 176,885 192,063
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Other liabilities 116,562 103,056
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Deferred income taxes 151,859 147,397
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Deferred revenue 107,865 105,347
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Shareholders' equity:
Common stock 31,429 31,429
Capital in excess of par value 622,991 617,758
Retained earnings 3,457,791 3,374,729
Treasury stock (496,162) (515,845)
Accumulated other comprehensive income (70,683) (101,620)
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3,545,366 3,406,451
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$5,400,638 $5,175,355
========== ==========
See notes to consolidated statements.
Form 10Q
Condensed Statements of Consolidated Cash Flows
(In thousands)
Three Months Ended
September 30,
1998 1997
--------- ---------
Cash Flows From Operating Activities:
Net earnings $ 123,200 $ 105,410
Expenses not requiring outlay of cash 68,115 75,847
Changes in operating net assets 43,177 65,947
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Net cash flows from operating activities 234,492 247,204
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Cash Flows From Investing Activities:
Purchase of marketable securities (133,363) (126,146)
Proceeds from sale of marketable securities 69,067 132,961
Capital expenditures (38,523) (40,442)
Other changes to property, plant and equipment 6,229 2,874
Additions to intangibles (16,481) (11,680)
Acquisitions of businesses (8,020) (154,793)
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Net cash flows from investing activities (121,091) (197,226)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of notes 51,823 90,088
Proceeds from issuance of common stock 23,507 12,830
Repurchases of common stock (7,033) (38,316)
Dividends paid (40,138) (33,706)
Repayments of long-term debt -- (6,802)
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Net cash flows from financing activities 28,159 24,094
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Net change in cash and cash equivalents 141,560 74,072
Cash and cash equivalents, at beginning of
period 752,240 590,578
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Cash and cash equivalents, at end of
period $ 893,800 $ 664,650CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
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(IN THOUSANDS)
Six Months Ended
December 31,
1998 1997
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Cash Flows From Operating Activities:
Net earnings $ 291,590 $ 252,800
Expenses not requiring outlay of cash 134,420 133,842
Changes in operating net assets (30,218) 39,657
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Net cash flows from operating activities 395,792 426,299
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Cash Flows From Investing Activities:
Purchase of marketable securities (209,179) (239,835)
Proceeds from sale of marketable securities 145,462 232,612
Capital expenditures (81,648) (79,853)
Other changes to property, plant and equipment 6,738 4,052
Additions to intangibles (35,243) (48,676)
Net dispositions (acquisitions) of businesses 17,671 (176,606)
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Net cash flows from investing activities (156,199) (308,306)
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Cash Flows From Financing Activities:
Proceeds from issuance of notes payable 98,471 61,043
Proceeds from issuance of common stock 48,939 30,241
Repurchases of common stock (85,364) (40,907)
Dividends paid (86,727) (72,719)
Repayments of debt (267,869) (180)
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Net cash flows from financing activities (292,550) (22,522)
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Net change in cash and cash equivalents (52,957) 95,471
Cash and cash equivalents, at beginning of
period 752,240 590,578
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Cash and cash equivalents, at end of
period $ 699,283 $ 686,049
========= =========
See notes to consolidated statements.
Form 10Q
Notes to Consolidated StatementsNOTES TO CONSOLIDATED STATEMENTS
--------------------------------
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods. All adjustmentsAdjustments are of a normal recurring nature. These statements
should be read in conjunction with the annual financial statements and related
notes of the Company for the year ended June 30, 1998.
Note A - The results of operations for the threesix months ended September 30,December 31, 1998
may not be indicative of the results to be expected for the year ending
June 30, 1999.
Note B - The Board of Directors declared a two-for-one common stock split
effective on January 1, 1999 to shareholders of record on the close of
business on December 11, 1998.
Note C - A reconciliation of the income and weighted average shares used in the
basic and diluted earnings per share calculations for the three months
ended September 30, 1998 and 1997 follows:
(In thousands, except EPS)
Periods ended September 30,
----------------------------------------------------
1998 1997
------------------------- ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $123,200 302,647 $0.41 $105,410 292,628 $0.36
Effect of zero coupon
subordinated notes 1,069 3,564 2,754 9,663
Effect of stock
options -- 7,407 -- 5,699
----------------- -----------------
Diluted $124,269 313,618 $0.40 $108,164 307,990 $0.35
Periods ended December 31, 1998
----------------------------------------------------
Three month period Six month period
------------------------- ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $168,390 604,750 $ 0.28 $291,590 605,025 $ 0.48
Effect of zero coupon
subordinated notes 929 6,147 1,981 6,638
Effect of stock
options - 15,319 - 15,054
------------------------- -------------------------
Diluted EPS $169,319 626,216 $ 0.27 $293,571 626,717 $ 0.47
========================= ========================
Periods ended December 31, 1997
----------------------------------------------------
Three month period Six month period
------------------------- ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $147,390 587,264 $0.25 $252,800 586,256 $0.43
Effect of zero coupon
subordinated notes 2,464 17,326 5,218 14,280
Effect of stock
options - 12,504 - 12,002
------------------------- --------------------------
Diluted EPS $149,854 617,094 $0.24 $258,018 612,538 $0.42
========================= =========================
========================
Form 10Q
Note CD - Effective July 1, 1998, the Company has adopted FASB Statement No. 130
"Reporting Comprehensive Income".Income." Comprehensive income for the three
and six months ended September 30,December 31, 1998 and 1997 follows:
September 30,
-----------------------
1998 1997
---- ----
Net income $123,200 $105,410
Other comprehensive income
Foreign currency translation
adjustment 32,873 (6,390)
Unrealized gain (loss) on
securities (1,936) 1,842
-------- --------
Comprehensive income $154,137 $100,862(In thousands)
Three months ended Six months ended
December 31 December 31
1998 1997 1998 1997
---- ---- ---- ----
Net earnings $168,390 $147,390 $291,590 $252,800
Other comprehensive income:
Foreign currency
translation adjustments 25,182 (8,221) 58,055 (14,611)
Unrealized gains (losses)
on securities (107) (17) (2,043) 1,825
-------- -------- -------- --------
Comprehensive income $193,465 $139,152 $347,602 $240,014
======== ======== ======== ========
Note E - In November 1998 the Company sold its "front-office" market data
business to Bridge Information Systems, Inc. The transaction gave rise
to a pretax gain of $22 million and a $25 million provision for income
taxes, resulting in a net loss of $3 million.
Note F - In December 1998 the Company entered into an agreement to acquire The
Vincam Group for approximately 7.4 million shares of ADP common stock
in a pooling of interests transaction. Vincam, with net revenues of
approximately $125 million, is a leading Professional Employer
Organization providing a suite of human resource functions to small and
medium sized employers on an outsourced basis. The transaction is
subject to Vincam shareholder and various regulatory approvals and is
expected to close during the quarter ending March 31, 1999.
Note G - In February 1999 the Company reached a definitive agreement to sell its
Peachtree Software business to The Sage Group plc, for $145 million.
The agreement is subject to regulatory approvals and is expected to
close during the quarter ending March 31, 1999.
Form 10Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OPERATING RESULTS
RevenueRevenues and earnings again reached record levels during the quarter ended
September 30,December 31, 1998.
RevenueRevenues and revenue growth by ADP's major business units for the three months
ended September 30, 1998 and 1997 are shown below:
Revenue Revenue Growth
September 30, September 30,
------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
($ in millions)
Employer Services $ 695 $ 587 18% 20%
Brokerage Services 252 223 13 19
Dealer Services 181 166 9 9
Other 82 62 32 (23)
------ ------- -- ---
$1,210 $ 1,038 17% 14%
====== ======= == ===
Revenues
----------------------------------
3 Months Ended 6 Months Ended
December 31, December 31,
-------------- --------------
1998 1997 1998 1997
------ ------- ------ -------
($ in millions)
Employer Services $ 770 $ 667 $1,465 $1,254
Brokerage Services 221 232 473 455
Dealer Services 186 173 367 339
Other 98 76 180 139
------ ------ ------ ------
$1,275 $1,148 $2,485 $2,187
====== ====== ====== ======
Revenue Growth
----------------------------------
3 Months Ended 6 Months Ended
December 31, December 31,
-------------- --------------
1998 1997 1998 1997
------ ------- ------ -------
Employer Services 15% 21% 17% 20%
Brokerage Services (5) 16 4 17
Dealer Services 8 7 8 8
Other 29 (8) 29 (14)
----- ----- ----- -----
11% 15% 14% 15%
===== ===== ===== =====
Consolidated revenuerevenues for the quarter of $1,210 million was up 17%grew 11% from last year.year to $1,275
million. Revenue growth in the Company's three largest businesses, Employer
Brokerage and Dealer Services was strong at 18%, 13%,15% and 9%8%,
respectively. Brokerage Services revenue, down 5%, was impacted by the sale
of the "front office" market data business in the quarter. Excluding the sale
of the front office business, Brokerage Services revenue grew 14%.
The primary components of "Other" revenuerevenues are claims services, interest
income, foreign exchange differences and miscellaneous processing services.
In addition, "Other" revenue hasrevenues have been reduced to adjust for the difference
between actual interest income earned on invested tax filing funds and income
credited to Employer Services at a standard rate of 6%.
The sale of the front office business resulted in a $22 million pretax gain,
a $25 million provision for taxes and a $3 million net loss.
Pretax earnings for the quarter increased 19%29% from last year, helped by the
gain on the "front office" sale. Prior to $182 million.the one-time impact of the front
office sale, pretax earnings increased 18%. Systems development and
programming investments increased to accelerate automation, migrate to new
computing technologies, and develop new products.
Form 10Q
Net earnings for the quarter, after a higher effective tax rate, increased
17%14% to $123$168 million. Excluding the impact of the front office sale, net
earnings increased 16%. The effective tax rate of 32.4%39.0% increased from 31.3%
in the comparable quarter last year,year. Excluding the impact of the front office
sale, the effective tax rate increased to 32.6% this quarter, primarily as a
result of the greater weighting of taxable versus non-taxable earnings.
Diluted earnings per share grew 14%13% to $0.40$0.27 from $0.35$0.24 last year. ForExcluding
the full year, we expectfront office sale, diluted earnings per share increased 17%.
The Company expects double digit revenue growth for the full year and diluted
earnings per share growth of 13-16%.
Form 10Q
FINANCIAL CONDITION
The Company's financial condition and balance sheet remain exceptionally
strong, and operations continue to generate a strong cash flow. At September 30,December
31, 1998, the Company had cash and marketable securities of $1.9$1.7 billion.
Shareholders' equity was $3.5$3.7 billion and the ratio of long-term debt to
equity was 5%4%.
Capital expenditures for fiscal 1999 are expected to approximate $200
million, compared to $199 million in fiscal 1998.
During the quarter,first half of fiscal 1999, ADP purchased 108,5002.6 million shares of
common stock for treasury at an average price of about $65. At September 30, 1998, theapproximately $33. The
Company hadhas remaining Board authorization to purchase up to 8.414.5 million
additional shares to fund equity related employee benefit plans.
During the first half of fiscal 1999,the Company's zero coupon convertible
subordinated notes were converted to 1.6 million shares of common stock.
The Company's investment portfolio for corporate and client funds consists
primarily of fixed income securities subject to interest rate risk, including
reinvestment 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.
OTHER MATTERS
The majority of the Company's services involve computer processing and, as
such, the Year 2000 could have a significant impact on the Company's products
and services. As a result, the Company has worked for several years
addressing both internal and third-party Year 2000 compliance issues. To date,The
majority of the Company has
completed its process of identifying and assessing Year 2000 issues related to
itsCompany's mission-critical systems and is currently in the remediation and testing
phases. The Company plans to have the majority of mission-critical systemsare Year 2000 compliant
by December 31, 1998, withand the few remaining systems, primarily from recent acquisitions, are
expected to be compliant by March 31, 1999. In addition, the Company has been
actively working with external agencies and partners, including governmentalgovernment
agencies, to determine and conform to their Year 2000 compliance plans. Third-partyThird
party interface testing and resolution of Year 2000200 issues with external
agencies and partners is dependent upon those third parties completing their
own Year 2000 remediation efforts.
Form 10Q
The Year 2000 remediation is not expected to have a material adverse effect
on the Company's overall results, as these costs are not expected to be
substantially different from normal recurring costs that are incurred for
systems development and implementation.
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
additional services to clients; the pricing of products and services; overall
economic trends, including interest rate and foreign currency trends; impact
of Year 2000; 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.
Form 10Q
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 4. Submission of Matters to a Vote of Security Holders
All share and vote results are prior to the stock split.
The Company's Annual Meeting of the Stockholders was held on November 10,
1998. The following members were elected to the Company's Board of Directors
to hold office for the ensuing year.
Nominee In Favor Withheld
------- -------- --------
Gary C. Butler 248,065,729 1,597,079
Joseph A. Califano, Jr. 247,872,536 1,790,272
Leon G. Cooperman 248,083,612 1,579,196
George H. Heilmeier 248,060,799 1,602,009
Ann Dibble Jordan 247,999,348 1,663,460
Harvey M. Krueger 245,468,769 4,194,039
Frederic V. Malek 247,982,439 1,680,369
Henry Taub 247,927,042 1,735,766
Laurence A. Tisch 247,650,299 2,012,509
Arthur F. Weinbach 248,051,128 1,611,680
Josh S. Weston 247,824,586 1,838,222
The result of the voting on the following additional item was as follows:
(a) Ratify an amendment to the Company's Employees' Savings-Stock Purchase
Plan approved by the Board of Directors increasing by five million shares
the number of shares of Common Stock of the Company that may be acquired by
employees under such plan.
Form 10Q
PART II. OTHER INFORMATION, continued
The votes of the stockholders on this ratification were as follows:
In Favor Opposed Abstained
-------- ------- ---------
237,283,659 10,979,070 1,400,079
(b) Ratify an amendment to the Restated Certificate of Incorporation of the
Company to increase the number of authorized shares of Common Stock of the
Company to one billion shares.
The votes of the stockholders on this ratification were as follows:
In Favor Opposed Abstained
-------- ------- ---------
233,808,508 14,894,015 960,285
(c) Ratify the appointment of Deloitte & Touche LLP to serve as the Company's
independent certified public accountants for the fiscal year begun on
July 1, 1998.
The votes of the stockholders on this ratification were as follows:
In Favor Opposed Abstained
-------- ------- ---------
248,202,359 254,705 1,205,744
Item 6. Exhibits and Reports on Form 8-K.8-K
(a) Exhibits Exhibit
Number Exhibit
------ ------- -------
3.1 Amended and Restated Certificate of Incorporation of
Automatic Data Processing
27.1 Financial Data Schedule
Form 10Q
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: February 10, 1999 /s/ Richard J. Haviland
Date: November 12, 1998
-------------------------------
Richard J. Haviland
Chief Financial Officer
(Principal Financial Officer)
-------------------------------
(Title)