<PAGE>
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-5397
AUTOMATIC DATA PROCESSING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-1467904
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE ADP BOULEVARD, ROSELAND, NEW JERSEY 07068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 201-994-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE
(VOTING) CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
LIQUID YIELD OPTION NOTES DUE 2012 NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes X No
-------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of August 18, 1994 was $7,581,475,653. On August 18, 1994, there
were 140,723,446 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1994 Annual Report
to Shareholders Parts I, II & IV
Portions of the Registrant's Proxy Statement for Annual
Meeting of Stockholders to be held on November 15, 1994. Part III
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PART I
ITEM 1. BUSINESS
Automatic Data Processing, Inc., incorporated in Delaware in 1961, and its
subsidiaries (collectively, "ADP") are engaged only in the computing services
business. The following summary describes ADP's activities.
INDUSTRY SEGMENT
All of ADP's computing services enable clients to process and/or distribute
data (their own, ADP's or that of third parties) utilizing ADP's computer
programs (which are made available on an interactive/batch or on-site mode of
computing) and/or by the interactive manipulation of ADP and third party
databases and information.
EMPLOYER SERVICES
ADP's Employer Services offers a comprehensive range of payroll and
payroll-related services which include payroll processing, payroll tax filing,
human resource recordkeeping and reporting, 401(k) recordkeeping and reporting,
timekeeping systems, and unemployment compensation management. These employer
services are provided to clients engaged in a wide variety of businesses. In
addition to marketing its services directly, ADP has marketing relationships
with many banks and accountants whereby ADP offers its services to business
clients of such banks and accountants. Employer services are offered from 53
regional centers located throughout the United States. Employer Services also
has two processing centers in Western Europe and one in Canada. In addition,
for clients who do not require traditional outsourced payroll processing,
Employer Services offers client site payroll processing software.
ADP's payroll processing and payroll tax filing services comprise over 90%
of the revenue of Employer Services. Such services consist primarily of the
preparation and furnishing of employee pay checks and direct deposit advices,
along with the necessary supporting journals, summaries and management
information reports. As part of its regular services, ADP supplies each client
with the quarterly and annual social security, medicare, and federal, state and
local income tax withholding reports required to be filed by employers, W-2
withholding statements for employees, a complete record of payments for each pay
period and a quarterly historical earnings record for each employee. ADP's
payroll services also include the preparation of statistical and audit reports
for use by its clients' management, such as payroll and job cost distribution
reports, welfare and pension fund reports and a payroll audit report.
ADP's automated payroll tax filing service processes federal, state and
local payroll withholding taxes on behalf of ADP clients and remits such taxes
to the appropriate taxing authorities when due.
Approximately 50% of Employer Services' payroll and payroll tax filing
services revenues for the past three fiscal years have been attributable to its
heartland accounts (companies with between 1 and 99 employees), approximately
35% to major accounts (between 100 and 1,000 employees) and approximately 15% to
national accounts (over 1,000 employees).
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ADP's human resource recordkeeping and reporting systems, operating in
conjunction with a client's payroll database, provide comprehensive human
resource services, including salary and benefit administration, applicant
tracking, employee history and other information reporting which is vital to
human resource administration and management.
ADP offers full-service recordkeeping, communication, enrollment and
reporting systems, operating in conjunction with its clients' databases, for an
IRS-approved prototype 401(k) plan (which is a defined contribution retirement
plan for participating employees). Trust and investment management services for
such 401(k) plans are provided by one of the largest trustee banks in the United
States.
ADP's time keeping system provides a fully integrated time keeping
equipment and software system integrated into ADP's payroll systems.
ADP's unemployment compensation management system aids clients in managing
and reducing their unemployment insurance costs.
BROKERAGE SERVICES
ADP provides front-office database and quotation services for the
investment and brokerage community by supplying quotations, financial news
services, and other information to terminals located on brokers' desks. ADP now
provides such services to its clients predominately by interactive
microcomputer-based work stations, while continuing to support the previous
generation of traditional fixed function or "dumb" terminals which have limited
capabilities. ADP also provides predominantly terminal-accessed services or
on-line, real-time (i.e., most recent or current) services for all active equity
securities, commodities, currencies, and interest rate futures trading to
clients in the United States and in certain foreign countries.
ADP provides back-office stock brokerage and related financial computing
services such as trade processing, cage management, stock loan accounting,
on-line inquiry and data collection, portfolio reporting, order matching and
on-line trading. All of these services are offered in the United States and
Canada.
ADP also provides shareholder communication services in the United States
and Canada, handling all shareholder mailings from an issuer to its shareholders
who elect to leave their stock in "street name" in the custody of their
stockbrokers. In fiscal 1994, ADP processed over 165 million shareholder
mailings for over 9,000 publicly held corporations and mutual funds.
DEALER SERVICES
ADP provides industry-specific computing services throughout the United
States, Canada, the United Kingdom and Germany principally to automotive and
truck dealers and manufacturers by providing such clients with a bundled service
solution (which, in addition to the computing services provided, involves ADP
selling computer hardware, licensing computer software and providing software
support and hardware maintenance services to such clients). Computer systems
furnished by ADP manage the day-to-day computing needs of its dealer clients by
providing applications such as inventory control, general accounting control,
lease management, automated parts cataloging, parts invoicing, service
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merchandising, finance and insurance, repair order billing, accounts payable,
check-writing, payroll processing, data archiving and document storage and laser
form printing services.
In addition, ADP establishes and maintains data communications networks for
its automotive and truck manufacturer clients which allow interactive electronic
communications between the manufacturers and their respective dealers. These
data communication networks may be used for new vehicle orders, warranty claims,
delivery reporting, status inquiries of new vehicle orders, vehicle and parts
locating and other similar applications.
ADP also provides data communication networks to link dealers to state
departments of motor vehicles databases for lienholder and drivers license
information and vehicle registration services.
CLAIMS SERVICES
ADP's Claims Services, using the name Claims Solutions Group, provides
automated service solutions to auto insurers and repairers involved in auto
collision repair and valuation in the United States and Canada. These service
solutions produced more than five million automobile accident estimates in
fiscal 1994. The services include automated collision damage repair estimating
for cars and trucks, vehicle valuation services for total losses, and parts
locating and pricing services to auto insurers and repairers to facilitate the
claims settlement and parts locating processes. Claims Services also provides
management reports and vehicle damageability and repair cost statistics to
insurance companies, government agencies and automobile manufacturers, services
that evaluate the appropriateness of medical treatment and invoicing for auto
accident victims, and a property loss repair and replacement system to assist in
settling homeowners' claims.
ADP CREDIT CORP.
ADP Credit Corp. provides computer leasing and financing services primarily
to clients of Dealer Services who lease on-site computers from ADP to obtain
ADP's services.
NATURE OF SERVICES PROVIDED
In each of Employer Services, Dealer Services, Claims Services and most of
the Brokerage Services business (as well as all other smaller businesses), ADP's
services involve the processing of data supplied by clients and delivering the
resulting processed information and related management reports to such clients.
In the front-office component of the Brokerage Services business, the primary
service takes the form of providing stock quotation data (which data is provided
by various securities exchanges) to clients. This front-office component
represents less than 10% of consolidated revenue.
Services to all industries are frequently provided by the electronic
transmission (through communications lines) of computer-generated data and
information from and to clients. Services are offered through a variety of
third-party computer platforms which run on various third-party operating
systems. Virtually none of ADP's services require ADP-proprietary computer
platforms and/or operating systems.
All of ADP's services utilize somewhat similar facilities, computers,
communications networks, salesforces, and client service support personnel.
ADP's businesses share numerous facilities, selected
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computer rooms and communications networks, and ADP occasionally transfers some
of its labor force among business units. The input and output of all of ADP's
businesses is data and information. On occasion ADP has transferred services
and products between business units.
While the labor intensiveness of a service may vary somewhat based on the
degree of automation and complexity in providing the service, all services use
the same basic functions as described above. None of ADP's service offerings
are particularly capital intensive.
MARKETS AND MARKETING METHODS
All of ADP's services are sold broadly across the United States and Canada.
Non-North American services amounted to less than 5% of fiscal 1994 revenue.
All services use common marketing techniques, including direct sales
methodologies with emphasis on referral sources.
None of ADP's major business groups have a single homogenous client base or
market. For example, while Brokerage Services primarily serves the retail
brokerage market, it also services banks, commodity dealers, the institutional
brokerage market and individual non-brokerage corporations. Dealer Services
primarily serves automobile dealers, but also serves truck and agricultural
equipment dealers, auto repair shops, used car lots, state departments of motor
vehicles, and manufacturers of automobiles, trucks and agricultural equipment.
Claims Services has many clients who are insurance companies, but also provides
services to automobile manufacturers, body repair shops, salvage yards,
distributors of new and used automobile parts and other non-insurance clients.
Employer Services has over 275,000 clients from a large variety of industries
and markets. Within this client base are concentrations of clients in specific
industries. While concentrations of clients exist, no one business group is
material to ADP's overall revenue. Employer Services also sells to auto
dealers, brokerage clients, and insurance clients.
None of ADP's businesses are overly sensitive to price changes. Economic
conditions among selected clients and groups of clients may and do have a
temporary impact on demand for ADP's services.
ADP enjoys a leadership position in each of its major service offerings and
does not believe any major service or business unit in ADP is subject to unique
market risk.
COMPETITION
The computing services industry is highly competitive. ADP knows of no
reliable statistics by which it can determine the number of its competitors, but
it believes that it is one of the largest independent computing services
companies in the United States.
ADP's competitors include banks, other independent computing services
companies, and divisions of diversified enterprises. Another competitive factor
in the computing services industry is the in-house computing function, whereby a
company installs and operates its own computing equipment.
Competition in the computing services industry is primarily based on
service responsiveness, product quality and price. ADP believes that it is
very competitive in each of these areas and that there are no material negative
factors impacting on ADP's competitive position in the computing services
industry. No one competitor or group of competitors is dominant in the
computing services industry.
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CLIENTS AND CLIENT CONTRACTS
ADP provides computing services to approximately 300,000 clients. Annual
revenues attributable to large client accounts range from $1 million to
approximately $55 million per client, while thousands of small client accounts
produce annual revenues of less than $1,000 each. ADP's largest single client
accounts for approximately 2% of its annual revenue.
ADP has virtually no "backlog" because the period between the time a client
agrees to use ADP's services and the time the service begins is generally very
short and no sales order is considered firm until installed and producing
revenue.
ADP's average client retention is between six and seven years in Employer
Services and is ten or more years in Brokerage, Dealer and Claims Services and
does not vary significantly from period to period.
ADP does not offer to its clients rebates or promotions on its products and
services. Discounts offered to clients on its products and services are not
material.
ADP's services are provided under written Price Quotations or Services
Agreements having varying terms and conditions. No one Price Quotation or
Service Agreement is material to ADP.
SYSTEMS DEVELOPMENT AND PROGRAMMING
During the fiscal years ended June 30, 1994, 1993 and 1992, ADP spent
$160,803,000, $132,386,000 and $111,483,000, respectively, on systems
development and programming activities for the development of new, and the
improvement and maintenance of existing, computing services.
PRODUCT DEVELOPMENT
ADP continually upgrades, enhances and expands its existing products and
services. Generally, no new product or service has a significant effect on
ADP's revenue or negatively impacts its existing products and services, and each
existing product and service has a significant remaining life cycle.
LICENSES
ADP is the licensee under a number of agreements for computer programs and
databases. ADP's business is not dependent upon a single license or group of
licenses. Licenses, patents, trademarks and franchises are not material to ADP's
business as a whole.
COMPENSATION OF MARKETING AND SALES PERSONNEL
The compensation arrangements of ADP's marketing and sales personnel vary
significantly based on the tenure of the particular salesperson, with the
commission-based portion of total compensation averaging 30%-40%. ADP sets
minimum sales quotas on an individual basis.
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COMPUTER SYSTEMS
ADP does not manufacture computer systems or act as a distributor of
computer systems. ADP may, however, be deemed to be a value-added reseller of
computer systems insofar as its services often include computer equipment as
part of the bundled service solution.
ADP's services are offered on a variety of computer platforms which run
various operating systems. These computer platforms include those offered by
IBM, IBM-compatibles, Digital Equipment Corporation, Apple, Motorola, Hewlett
Packard and McDonnell Douglas. The operating systems supporting such computer
platforms include DOS, Windows, OS2, VSE, MVS, VMS, System 7 OS, Unix, Reality
and Pick.
ADP's service warranty to its clients is that if any errors or omissions
occur in its service offerings, ADP will correct them as soon as possible. In
addition, ADP provides, either directly or through third parties, maintenance
and support for the ADP-provided equipment and software which facilitates the
delivery of its services to clients.
NUMBER OF EMPLOYEES
ADP employed approximately 22,000 persons as of June 30, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
See Item 10 in Part III hereof.
RECENT DEVELOPMENTS
See "Note 2. Acquisitions" on page 25 of the Registrant's 1994 Annual
Report to Shareholders, which information is incorporated herein by reference.
ITEM 2. PROPERTIES
ADP leases space for more than 50 of its processing centers. In addition,
ADP leases numerous small processing centers and sales offices. All of these
leases, which aggregate approximately 3,500,000 square feet in the United
States, Canada, Europe and Asia, expire at various times up to the year 2016.
ADP owns 23 of its processing facilities and its corporate headquarters in
Roseland, New Jersey, which aggregate approximately 2,200,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
See "Market Price and Dividend Data" on page 20 of the Registrant's 1994
Annual Report to Shareholders, which information is incorporated herein by
reference. As of August 18, 1994, the Registrant had 22,935 registered holders
of its Common Stock, par value $.10 per share. The Registrant's Common Stock is
traded on the New York, Chicago and Pacific Stock Exchanges.
ITEM 6. SELECTED FINANCIAL DATA
See "Selected Financial Data" on page 17 of the Registrant's 1994 Annual
Report to Shareholders, which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See "Management's Discussion and Analysis" on pages 18-20 of the
Registrant's 1994 Annual Report to Shareholders, the Letter to Shareholders on
pages 2-4 of such report and the business descriptions on pages 6-13 of such
report, which information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a) hereof are incorporated
herein.
The following supplementary data is incorporated herein by reference:
Page in 1994 Annual
Report to Shareholders
----------------------
Quarterly Financial Results (unaudited)
for the three years ended
June 30, 1994 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, their ages, positions and the
period during which they have been employed by ADP are as follows:
Employed by
Name Age Position ADP Since
- -------------------- --- --------------------- ----------
Josh S. Weston 65 Chairman of the Board 1970
and Chief Executive
Officer
Arthur F. Weinbach 51 President and 1980
Chief Operating Officer
Fred D. Anderson, Jr. 50 Vice President and 1992
Chief Financial Officer
James B. Benson 49 Vice President and 1977
General Counsel
Richard C. Berke 49 Vice President, 1989
Human Resources
Gary C. Butler 47 Group President of 1975
Dealer Services
Robert J. Casale 55 Group President of 1988
Brokerage Services
John R. Gaulding 49 President of Claims 1990
Services
Richard J. Haviland 48 Vice President 1982
and Controller
Fred S. Lafer 65 Senior Vice President, 1967
Secretary and Counsel
to the Board
Glenn W. Marschel 48 Group President of 1971
Employer Services
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Employed by
Name Age Position ADP Since
- -------------------- --- --------------------- ----------
Joseph B. Pirret 53 Vice President and 1974
Treasurer
Michael W. Reece 49 Vice President, 1987
Corporate Development
Messrs. Weston, Weinbach, Benson, Berke, Butler, Casale, Haviland, Lafer,
Marschel, Pirret and Reece have each been employed by ADP in senior executive
positions for more than the past five years.
Fred D. Anderson, Jr. joined ADP in August 1992 as a Corporate Vice
President and ADP's Chief Financial Officer. Prior to joining ADP he was
employed for thirteen years by MAI Systems Corporation (formerly MAI Basic Four,
Inc.) and its predecessor company, Management Assistance Inc., in various senior
executive positions, including as Senior Vice President and Chief Financial
Officer from 1985 until 1989 and President and Chief Operating Officer from 1990
until 1991.
John R. Gaulding joined ADP in April 1990 as the President of Claims
Services and a Corporate Vice President. Prior to joining ADP he was employed
for seven years by Pacific Telesis Group in various senior executive positions,
including as President and Chief Executive Officer of the Pacific Bell
Directory, a subsidiary of Pacific Telesis Group, from 1986 until 1990.
Each of ADP's executive officers is elected for a term of one year and
until their successors are chosen and qualified or until their death,
resignation or removal.
DIRECTORS OF THE REGISTRANT
See "Election of Directors" in the Proxy Statement for Registrant's 1994
Annual Meeting of Stockholders, which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
See "Compensation of Executive Officers" in the Proxy Statement for
Registrant's 1994 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "Election of Directors--Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement for Registrant's 1994 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Compensation of Executive Officers--Certain Transactions" in the
Proxy Statement for Registrant's 1994 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following consolidated financial statements of Automatic Data
Processing, Inc. and its subsidiaries are included in Part II, Item 8:
Page in 1994 Annual
Report to Shareholders
----------------------
Independent Auditors' Report 31
Consolidated Balance Sheets - June 30, 1994 and 1993 22
Statements of Consolidated Earnings - years
ended June 30, 1994, 1993 and 1992 21
Statements of Shareholders' Equity - years
ended June 30, 1994, 1993 and 1992 23
Statements of Consolidated Cash Flows - years
ended June 30, 1994, 1993 and 1992 24
Notes to Consolidated Statements 25-30
Financial information of the Registrant is omitted because the Registrant
is primarily an operating company. The Registrant's subsidiaries which are
listed on Exhibit 21 attached hereto are wholly-owned.
2. FINANCIAL STATEMENT SCHEDULES
Page in Form l0-K
-----------------
Schedule I - Marketable Securities 13
Schedule VIII - Valuation and Qualifying Accounts 14
Schedule X - Supplementary Income Statement
Information 15
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All other Schedules have been omitted because they are inapplicable or are
not required or the information is included elsewhere in the financial
statements or notes thereto.
3. The following exhibits are filed with this Form 10-K or incorporated
herein by reference to the document set forth next to the exhibit in the list
below:
(3)-#1 - Amended Restated Certificate of Incorporation -
incorporated by reference to Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1987
(3)-#2 - By Laws as currently in effect - incorporated by
reference to Exhibit (3)-#2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1991
(4)-#1 - Indenture dated as of February 20, 1992 between
Automatic Data Processing, Inc. and Bankers Trust
Company, as trustee, regarding the Liquid Yield
Option Notes due 2012 of the Registrant -
incorporated by reference to Exhibit (4)-#1 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992
(10)(i)-#1 - Asset Purchase Agreement dated as of April 17, 1992
among Registrant and Bank of America National Trust
and Savings Association and Managistics Incorporated
- incorporated by reference to Exhibit A to
Registrant's current report on Form 8-K dated June
4, 1992
(10)(ii)(A)-#1 - Employment Agreement with Josh S. Weston -
incorporated by reference to Exhibit 10(ii) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1986 (Management
Contract)
(10)(ii)(A)-#2 - Amendment to Employment Agreement with Josh S.
Weston - incorporated by reference to Exhibit
10(ii)(A)-#2 to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1990
(Management Contract)
(10)(ii)(A)-#3 - Amendment to Employment Agreement with Josh S.
Weston (Management Contract)
(10)(iii)(A)-#1 - Agreements with Richard C. Berke, Robert J. Casale,
Glenn W. Marschel and Arthur F. Weinbach -
incorporated by reference to Exhibit 10(iii)(A)-#1
to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1990 (Management
Contracts)
(10)(iii)(A)-#2 - Agreement with Gary C. Butler - incorporated by
reference to Exhibit 10(iii)(A)-#2 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1991 (Management Contract)
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(10)(iii)(A)-#3 - Agreement with Fred D. Anderson, Jr. (Management
Contract)
(10)(iii)(A)-#4 - l98l Key Employees' Stock Option Plan - incorporated
by reference to Registrant's Registration Statement
No. 2-75287 on Form S-8 (Management Compensatory
Plan)
(10)(iii)(A)-#5 - Key Employees' Restricted Stock Plan - incorporated
by reference to Registrant's Registration Statement
No. 33-25290 on Form S-8 (Management Compensatory
Plan)
(10)(iii)(A)-#6 - Supplemental Officers' Retirement Plan, as amended
and restated - incorporated by reference to Exhibit
10(iii)(A)-#5 to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1993
(Management Compensatory Plan)
(10)(iii)(A)-#7 - Amendment to 1981 Key Employees' Stock Option Plan -
incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended June
30, 1989 (Management Compensatory Plan)
(10)(iii)(A)-#8 - 1989 Non-Employee Director Stock Option Plan -
incorporated by reference to Exhibit 10(iii)(A)-#7
to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1990 (Management
Compensatory Plan)
(10)(iii)(A)-#9 - 1990 Key Employees' Stock Option Plan - incorporated
by reference to Exhibit 10(iii)(A)-#8 to
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1990 (Management
Compensatory Plan)
(10)(iii)(A)-#10 - 1994 Directors' Pension Arrangement (Management
Compensatory Plan)
(11) - Schedule of Computation of Earnings Per Share
(13) - Pages 2-4, 6-13 and 17-31 of the 1994 Annual Report
to Shareholders (with the exception of the pages
incorporated by reference herein, the Annual Report
is not a part of this filing)
(21) - Subsidiaries of the Registrant
(23) - Independent Auditors' Report and Consent
(27) - Financial Data Schedule
(b) None.
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AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
SCHEDULE I - MARKETABLE SECURITIES
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------- --------------- ---------- ------------- ----------------
Amount at which
each portfolio
of equity
Number of Market security issues
shares or value of each and each other
units-principal issue at security issue is
Name of issuer and amount of Cost of balance sheet carried in the
title of each issue bonds and notes each issue date balance sheet
- ------------------- --------------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
Year ended June 30, 1994:
MARKETABLE SECURITIES (A)
Municipal Securities $763,962 $744,497 $745,379 (B)
Common Stock (Primarily Utilities) 82,955 78,185 78,185
-------- -------- --------
Total Marketable Securities $846,917 $822,682 $823,564
======== ======== ========
<FN>
(A) No single issue exceeds 2% of total assets.
(B) Marketable debt securities are carried at amortized costs on the balance sheet.
</TABLE>
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<TABLE>
<CAPTION>
AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D Column E
- -------- ---------- --------------------------- ---------- ----------
Additions
---------------------------
(1) (2)
Charged to
Balance at Charged to other Balance at
beginning costs and accounts- Deductions- end of
of period expenses describe describe period
---------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1994:
Allowance for doubtful accounts:
Current $ 18,112 $ 6,838 $ 492 (B) $ 4,929 (A) $ 20,513
Long-term $ 21,684 $ 4,366 $ - $ 1,524 (A) $ 24,526
Year ended June 30, 1993:
Allowance for doubtful accounts:
Current $ 14,743 $ 9,445 $ 239 (B) $ 6,315 (A) $ 18,112
Long-term $ 19,591 $ 5,850 $ - $ 3,757 (A) $ 21,684
Year ended June 30, 1992:
Allowance for doubtful accounts:
Current $ 10,571 $ 10,322 $ 1,175 (B) $ 7,325 (A) $ 14,743
Long-term $ 9,979 $ 12,900 $ 984 (B) $ 4,272 (A) $ 19,591
<FN>
(A) Doubtful accounts written off, less recoveries on accounts previously written off.
(B) Acquired in purchase transactions.
</TABLE>
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<TABLE>
<CAPTION>
AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
Column A
--------
Year ended June 30,
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Maintenance and repairs (A) $ 111,341 $ 111,546 $ 97,466
<FN>
(A) Includes both internal maintenance and repair expenses, and also
maintenance for client site data processing equipments, such as client
site terminals for Brokerage Services and Dealer Services.
</TABLE>
All other required information has been omitted as the totals are included
elsewhere or are less than one percent of revenues.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AUTOMATIC DATA PROCESSING, INC.
(Registrant)
September 1, 1994 By /s/ Josh S. Weston
---------------------------------------
Josh S. Weston, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of l934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Josh S. Weston Chairman of the Board September 1, 1994
- ------------------------------- and Director (Principal
(Josh S. Weston) Executive Officer)
/s/ Fred D. Anderson, Jr. Chief Financial Officer and September 1, 1994
- ------------------------------ Corporate Vice President
(Fred D. Anderson, Jr.) (Principal Financial Officer)
/s/ Richard J. Haviland Controller and Corporate September 1, 1994
- ------------------------------ Vice President
(Richard J. Haviland)
/s/ Joseph A. Califano, Jr. Director September 1, 1994
- ------------------------------
(Joseph A. Califano, Jr.)
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Leon G. Cooperman Director September 1, 1994
- ------------------------------
(Leon G. Cooperman)
/s/ Edwin D. Etherington Director September 1, 1994
- ------------------------------
(Edwin D. Etherington)
/s/ Ann Dibble Jordan Director September 1, 1994
- ------------------------------
(Ann Dibble Jordan)
/s/ Harvey M. Krueger Director September 1, 1994
- ------------------------------
(Harvey M. Krueger)
/s/ Charles P. Lazarus Director September 1, 1994
- ------------------------------
(Charles P. Lazarus)
/s/ Frederic V. Malek Director September 1, 1994
- ------------------------------
(Frederic V. Malek)
/s/ Henry Taub Director September 1, 1994
- ------------------------------
(Henry Taub)
/s/ Laurence A. Tisch Director September 1, 1994
- ------------------------------
(Laurence A. Tisch)
/s/ Arthur F. Weinbach Director September 1, 1994
- ------------------------------
(Arthur F. Weinbach)
</TABLE>
-17-
<PAGE>
EXHIBIT (10)(ii)(A)-#3
JOSH WESTON CONTRACT EXTENSION
1. TERM. Extended from 1/31/94 to 7/31/96, per original terms except as
defined herein.
2. RESPONSIBILITIES. As is, except the Board or Josh may request that his
title of CEO be dropped and/or that his title of Chairman be changed on 6
months notice given anytime on or after 5/31/95, at which time salary will
cease and $550K/year in paragraph 5 begins.
3. SALARY. Continue at the current level of $1085K/yr., without bonus, until
7/1/94, then reduce it to $1000K/yr.
4. BONUS. Effective for FY'95 and '96, and subject to shareholder approval at
the 11/94 shareholder meeting, an annual bonus of up to $200K will be paid
per "the plan" approved by the Compensation Committee based on growth in
EPS.
In Weston's last fiscal year of employment, such bonus per "the plan" may
be paid at his retirement date based on ADP's performance, and pro-rated
for his number of employed months in that fiscal year.
5. SUPPLEMENTAL RETIREMENT AMOUNT. In lieu of the prior formulas, it shall be
$550K/YR (or its actuarial equivalent), as a supplement to the regular
plans.
6. RESTRICTED STOCK. A new grant of 22K shares shall be made. Subject to
shareholder approval at the 11/94 meeting, up to 11K shares shall vest on
7/1/95 and 7/1/96 respectively, per the formula approved by the
Compensation Committee and based on growth in EPS. If JW's employment is
terminated prior to 7/1/96, he shall vest in the number of shares pro-rated
for the number of employed months in that fiscal year, based upon the
results of that year.
7. STOCK OPTIONS. In the event of earlier termination, stock options that
vest prior to 7/31/96 shall nonetheless vest.
/s/ Josh Weston /s/ Fred Malek
----------------------------------- -----------------------------
Josh Weston Fred Malek, Chairman
6/7/94 Compensation Committee
6/9/94
<PAGE>
EXHIBIT (10)(iii)(A)-#3
CORPORATE OFFICER SPECIAL PROVISIONS
IN THE EVENT OF A CHANGE OF CONTROL OF ADP
To: Fred D. Anderson, Jr.
Although no change in control of ADP is being contemplated by, or known to, the
Board, ADP recognizes that the thought of such an event may, nonetheless, be
unnecessarily worrisome to some senior executives. Were such an event to loom,
the Board could and would readily take whatever timely actions it then deemed
appropriate to neutralize any economic loss or career damage. Meanwhile, as a
first precautionary fail-safe action, ADP assures you of the following:
1. If more than 40% of ADP's shares are acquired by a new control group, each
corporate officer's unvested stock options and restricted stock shall have
all of the remaining vesting dates advanced by 12 months.
2. If, within one year of the above occurrence, an ADP corporate vice
president is terminated without clear cause (i.e., malfeasance, gross
misconduct, criminal conviction, etc.), or his responsibilities are
materially reduced without clear cause, or he is reassigned to a new non-
commutable location...that causes him to resign (called "prompted
resignation"), then:
a. Said corporate VP shall be entitled to continue to receive his salary,
stock vesting, and fringe benefits for 9 months from such termination
or resignation, or until such earlier date on which he gets a new
full-time position,
and
b. Any unvested stock options and restricted stock at date of termination
or prompted resignation (as described above) shall have the remaining
vesting dates advanced by another 12 months.
3. It is expected that as part of the above accelerated vesting, each affected
officer will, in return, reconfirm his 18-month non-compete and no-hire
agreement.
4. Any successor company or new control group shall assume the above
obligations.
Signatures:
/s/ Josh S. Weston /s/ Fred D. Anderson, Jr.
- ---------------------------------------- ----------------------------------
Chief Executive Officer Corporate Officer
/s/ Fred S. Lafer October 19, 1993
- ---------------------------------------- ----------------------------------
Corporate Secretary Date
<PAGE>
EXHIBIT (10)(iii)(A)-#10
1994 DIRECTORS' PENSION ARRANGEMENT
On August 15, 1994, the Board of Directors of the Registrant adopted a
pension arrangement for Directors, as follows:
A Board member who chooses to retire after 20 years of service and
having attained the age of 70, will receive a pension of $25,000 per
year for the rest of his or her life. If a Board member chooses to
retire after having attained the age of 65 with 15 years of service,
he or she could do so and receive a pension of $12,500 per year.
<PAGE>
EXHIBIT 11
AUTOMATIC DATA PROCESSING, INC
AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Earnings before cumulative effect
of accounting changes $334,120 $294,200 $256,180 $227,690 $211,710
Cumulative effect of accounting changes (4,800) -- -- -- --
Net earnings applicable to --------- --------- --------- --------- ---------
common shares $329,320 $294,200 $256,180 $227,690 $211,710
========= ========= ========= ========= =========
Average number of common
shares outstanding (3) 140,890 141,327 139,045 139,936 147,168
========= ========= ========= ========= =========
Primary earnings per share
before cumulative effect of accounting changes $2.37 $2.08 $1.84 $1.63 $1.44
Cumulative effect of accounting changes (0.03) -- -- -- --
--------- --------- --------- --------- ---------
Primary earnings per share (3) $2.34 $2.08 $1.84 $1.63 $1.44
========= ========= ========= ========= =========
FULLY DILUTED EARNINGS PER SHARE:
Net earnings used in primary
earnings per share $334,120 $294,200 $256,180 $227,690 $211,710
Adjustment for interest
(net of tax)-
Zero coupon convertible subordinated
notes (5 1/4% yield) (1) 10,075 9,409 3,314 -- --
6 1/2% Debentures (1)(2) -- -- -- -- 2,191
--------- --------- --------- --------- ---------
Net earnings used for fully
diluted earnings per share
before cumulative effect of accounting changes $344,195 $303,609 $259,494 $227,690 $213,901
Cumulative effect of accounting changes (4,800) -- -- -- --
--------- --------- --------- --------- ---------
Net earnings used for fully $339,395 $303,609 $259,494 $227,690 $213,901
diluted earnings per share ========= ========= ========= ========= =========
Average number of shares out-
standing on a fully diluted basis:
Shares used in calculating
primary earnings per share 140,890 141,327 139,045 139,936 147,168
Diluted effect of all stock
options outstanding after
application of treasury
stock method 2,691 2,981 3,180 2,822 2,564
Shares assumed to be issued
upon conversion of Debentures-
Zero coupon convertible subordinated
notes (5 1/4% yield) (1) 5,201 5,201 1,861 -- --
6 1/2% Debentures (1)(2) -- -- -- -- 2,586
--------- --------- --------- --------- ---------
Average number of shares out-
standing on a fully diluted
basis: 148,782 149,509 144,086 142,758 152,318
--------- --------- --------- --------- ---------
Fully diluted earnings per share
before cumulative effect of accounting changes $2.31 $2.03 $1.80 $1.59 $1.40
Cumulative effect of accounting changes (0.03) -- -- -- --
--------- --------- --------- --------- ---------
Fully diluted earnings per share $2.28 $2.03 $1.80 $1.59 $1.40
========= ========= ========= ========= =========
- -----------------------------------------------------------------------------------------------------------------
<FN>
(1) Assumed converted at the beginning of periods reported.
(2) The 6 1/2% Debentures were converted to common stock in November 1989.
(3) All share and per share information has been adjusted to reflect a
two-for-one stock split on May 1, 1991.
</TABLE>
<PAGE>
EXHIBIT 13
1994 ADP ANNUAL REPORT
TO OUR SHAREHOLDERS
We are pleased to report that in fiscal '94 ADP achieved another record year in
revenue and earnings. It was the forty-fifth consecutive growth year since our
founding in 1949.
Our continued success in '94 was primarily the result of:
- - size and growth of our major markets;
- - market leadership positions in our four largest businesses;
- - especially strong internal growth in Brokerage and Dealer Services, fueled by
buoyant Wall Street trading volumes and robust auto sales; and
- - margin improvements in each of our three largest businesses, driven by
aggressive automation and productivity improvements.
FINANCIAL PERFORMANCE
Revenue for the year ended June 30, 1994 was $2,469 million, up 11% from '93.
Net earnings grew 14% to $334 million before two minor, non-recurring accounting
changes, on improved pretax margins. Earnings per share increased 14% to $2.37
as we completed our 132nd consecutive quarter of "double-digit" growth in
earnings per share.
In recognition of these positive operating results, our Board increased the
annual dividend by 15%, from $.52 to $.60 per share, effective July 1, 1994.
This was the twentieth consecutive annual increase since dividend payments
started in 1974.
During '94, we repurchased approximately 2.6 million ADP shares on the open
market at an average price of $50. We view the purchase of ADP shares as an
excellent method of funding our equity related employee benefit plans. The Board
of Directors has authorized the repurchase of up to 2.3 million additional
shares.
ADP continues to operate from a position of significant financial strength
and liquidity. At year-end, cash and marketable securities exceeded $1 billion,
after spending $685 million during the past five years to purchase 23 million
treasury shares and $515 million to acquire businesses during the same period.
Our debt-to-equity ratio was a comfortable .22 to 1, and shareholders' equity
approximated $1.7 billion at year-end. Our '94 return on average shareholders'
equity was a very healthy 21%.
EARNINGS PER SHARE
1994 2.37
1993 2.08
1992 1.84
1992 1.63
1990 1.44
2
<PAGE>
Cash flow from operations in '94 exceeded $500 million, a 30% increase over
'93. Capital expenditures for the year were $111 million compared to $87 million
last year, reflecting increased investments for automation and facilities.
NEW PRODUCTS AND SERVICES
In '94, we continued to expand product offerings that offer superior value to
our clients. We also substantially increased investment in emerging technologies
that help us respond to clients' changing needs. Systems and programming
expenditures increased by 21% in '94.
Employer Services began the rollout of several new client-site processing
capabilities to supplement our traditional service bureau processing. These new
products offer enhanced control, flexibility and lower costs for those clients
who prefer to do their own payroll production. Brokerage Services added new
versions of our FS Partner market data system to address the unique requirements
of institutional and international marketplaces. Dealer Services introduced a
document storage and data archiving system which uses optical disk and scanning
technologies to eliminate all paper, computer tape, microfiche and traditional
filing cabinets from the auto dealer's back office. Claims Services introduced
the first pen-based workstation for mobile auto claims management.
GROWTH STRATEGIES
ADP's growth strategies are primarily focused on expanding the leadership
positions of our core businesses. Key growth strategies are:
- - deliver superior service to enhance value and improve client retention;
- - provide ancillary products that create incremental value for existing clients;
- - increase market share by broadening product lines, expanding distribution
channels and acquiring new clients;
- - expand existing businesses in Europe, where feasible;
- - improve reliability, responsiveness, efficiency, and profitability through
process reengineering, and automation; and
- - enter new markets which are attractive extensions or complements to our core
businesses and competencies.
REVENUE
$ IN MILLIONS
1994 $2,469
1993 $2,223
1992 $1,941
1991 $1,772
1990 $1,714
3
<PAGE>
ACQUISITIONS
ADP continues to supplement its internal growth through selective acquisitions
that expand existing market share or present new market opportunities. In '94,
we consummated, or agreed to make, several acquisitions that support new
strategic directions.
Two of the strategic acquisitions, Peachtree Software and The Application
Group, will support Employer Services' strategy of offering client-site payroll
and human resource information systems. Peachtree Software, which was acquired
in April, provides accounting and payroll software (for small companies) through
computer stores and other retail outlets. The Application Group, which we have
agreed to acquire, is a leading client server applications implementer and will
strengthen our installation capabilities for large client-site payroll and human
resource services.
Claims Services entered the bodily injury segment of auto claims processing
by acquiring National BioSystems. National Bio uses expert systems and
healthcare data bases to help insurance companies minimize waste and fraud in
claims arising from auto and worker's compensation accidents.
EXECUTIVE APPOINTMENTS
There were important executive changes this year. Arthur Weinbach, previously
executive vice president, was appointed president and chief operating officer.
Renato Crocetti was promoted to corporate vice president. Two vice presidents,
Dave Perlman and Arthur Kranseler, retired after 27 years each of valuable
service.
CONCLUSIONS
ADP is committed to superior quality and client value. We fully expect to
achieve double-digit revenue and earnings per share growth in '95. We hope you
are pleased with ADP's continued growth and strategies for enhancing shareholder
value. We thank our 22,000 associates whose daily perseverance and dedication
make it all happen.
/s/ Josh S. Weston
Josh S. Weston
Chairman and Chief Executive Officer
/s/ Arthur F. Weinbach
Arthur F. Weinbach
President and Chief Operating Officer
August 15, 1994
4
<PAGE>
EMPLOYER SERVICES
Employer Services (ES) is ADP's oldest and largest business, representing 58% of
revenue. ES provides payroll and employment related services to about 275,000
employers, ranging in size from five employees to over 50,000. Services include:
payroll processing, payroll software, timekeeping systems, payroll direct
deposit, payroll tax filing, unemployment compensation management, human
resource information systems and benefits administration support.
ADP pays more than 17 million U.S. workers and is five times the size of
its largest competitor. Despite this leading position, ADP still has enormous
growth opportunity with a U.S. labor market of 110 million employees.
In '94, Employer Services launched a new strategy to provide payroll
services any way that the market demands. We introduced client-site payroll
processing software to complement our traditional regional processing centers.
Client site products include Peachtree Software, SoftPay Services, and Client
Server Series. All of these on-site products serve clients who prefer enhanced
control and lower cost solutions and who don't mind payroll preparation burdens.
In addition to new client-site solutions, our 40 regional payroll centers
offer traditional outsourced payroll processing. We continue to enhance our
full-service processing solutions, including a redesign of all check and report
formats, and improved PC-based input and reporting capability.
ES also expanded its product set to exploit new opportunities and gain
competitive advantage, as follows:
- - Our new time and attendance product automates collection of employee hours and
seamlessly integrates with our payroll products, to provide end-to-end
convenience from employee punch-in to paycheck.
- - Our new 401(k) service makes it easier for employers with 10 to 500 employees
to form and administer plans that comply with IRS and ERISA regulations. ES
provides a "one-stop" solution including plan design, enrollment, regulatory
reporting and employee communications, and trust services and investment
management through State Street Bank.
- - Our four human resource (HR) products share a common payroll and HR database
for personnel functions, compensation planning and benefits administration.
ES has concluded several alliances to speed entry into employment related
fields, including a timekeeping software license with Kronos and a software
license with PeopleSoft for Client Server products.
In April, we acquired Peachtree Software, the leader in PC packaged
accounting and payroll for small business. In
Employer Services Photo Caption:
THE TOTAL TIME SYSTEM IS DESIGNED TO SIMPLIFY ALL OF THE REPETITIVE TASKS
ASSOCIATED WITH TIME AND ATTENDANCE. MARIBEL RUBIAN (RIGHT), RESIDENT'S ACCOUNT
MANAGER AT THE MARY MANNING WALSH NURSING HOME IN NEW YORK CITY STARTS HER WORK
DAY WITH CO-WORKERS ROGELIO WATSON (LEFT) AND EVELYN PALMER (IN BACKGROUND).
6
<PAGE>
August, we reached an agreement to acquire The Application Group, a leading
implementer of Client Server applications. We will continue to selectively ally
and/or acquire capabilities to expand ES.
Last year, ES implemented several productivity and automation programs
aimed at improving client service and reducing costs. Every sales representative
now has a portable laptop providing detailed territory information, prospect
demonstrations, and sales activity reporting. In client service, every service
representative has on-line access to client history, eliminating much paper
processing and oral communication. We've rewritten much of our payroll code to
make it easier to maintain and enhance. We expect all of these initiatives to
improve the effectiveness of our development, service, and selling efforts.
Employer Services Photo Caption:
ABOVE: PEACHTREE SOFTWARE OFFERS A WIDE RANGE OF PC BASED ACCOUNTING AND PAYROLL
APPLICATIONS, AND CURRENTLY HAS OVER 500,000 USERS. THE NATIONAL ASSOCIATION OF
FEMALE EXECUTIVES IN NEW YORK CITY IS A USER OF GENERAL LEDGER, ACCOUNTS
RECEIVABLE AND ACCOUNTS PAYABLE. LIBBY LEAL (RIGHT), ACCOUNTING ASSISTANT, AND
SHELLY MACK (LEFT), ADMINISTRATIVE ASSISTANT, REVIEW SYSTEM DOCUMENTATION.
ABOVE RIGHT: ADP OFFERS A ONE STOP SHOPPING 401(K) SOLUTION WHICH INCLUDES PLAN
DESIGN, ENROLLMENT, COMMUNICATION, ADMINISTRATION, AND ACCESS TO TRUSTEE AND
INVESTMENT MANAGEMENT SERVICES. JEAN THORBURN (STANDING), IMPLEMENTAION
SPECIALIST IN BOSTON, IS PICTURED HERE CONDUCTING TRAINING FOR ADP CLIENTS WHO
HAVE RECENTLY INSTALLED ADP'S 401(K) PRODUCT.
7
<PAGE>
BROKERAGE SERVICES
Brokerage Services represents 25% of ADP revenue. It provides recordkeeping,
market data services, order entry, proxy processing and high quality, high speed
related services to the financial community. In '94, expanded investor interest
in equities accelerated growth in all segments of Brokerage Services.
Back-office processing volume and margins were the best in five years. ADP
processes approximately 20% of New York Stock Exchange transactions and is the
leading third-party provider of recordkeeping services in the U.S. and Canada.
Wood Gundy, a very large Canadian brokerage firm, began processing with ADP in
July, 1994. During '94, ADP acquired a minority position in Wilco International,
Ltd., which provides real-time, multi-currency, international clearance and
settlement systems that support non-U.S. dollar denominated transactions.
Brokerage Services Photo Caption:
ABOVE: LIBERTY SECURITIES BEGAN USING ADP'S MUTUAL FUND ORDER ENTRY AND ROUTING
APPLICATION TO AUTOMATE WHAT HAD BEEN A LENGTHY, MANUAL PROCESS FOR PLACING
MUTUAL FUND ORDERS. ADP ALSO PROVIDED AN INTERFACE TO THE LIBERTY SECURITIES'
ACCOUNTING SYSTEM. RONALD S. ROBBINS (LEFT), CHAIRMAN AND CEO OF LIBERTY
SECURITIES, CREDITS A SMOOTH, SPEEDY CONVERSION TO THE EXPERTISE AND
PROFESSIONALISM OF THE ADP STAFF AND A GREAT TEAM EFFORT BETWEEN BOTH COMPANIES
AND AFFECTED FUND FAMILIES. BRUCE PEYSER (RIGHT) IS DIRECTOR, ACCOUNT MANAGEMENT
FOR ADP. ABOVE RIGHT: RAYMOND JAMES FINANCIAL INC. IS ONE OF OUR FRONT OFFICE
SERVICES NEWEST FS PARTNER CLIENTS. J. STEPHEN PUTNAM (LEFT), EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF RAYMOND JAMES SAYS, "WE CHOSE ADP AS OUR INFORMATION
SERVICES PARTNER IN OUR PULSE 2000-TM- SYSTEM BECAUSE WE KNEW THEY HAD THE
TECHNICAL EXPERTISE, ENTHUSIASM AND SOLID ADMINISTRATIVE CAPABILITY NEEDED TO
HELP US ROLL OUT THIS IMPROVED CLIENT SUPPORT SYSTEM, WHICH IS ALREADY RESULTING
IN BETTER CLIENT SERVICE AND SALES SUPPORT FOR OUR OVER 2,600 ASSOCIATES
WORLD-WIDE." JOINING MR. PUTNAM ARE RAYMOND JAMES ASSOCIATES TIM EITEL (RIGHT),
VICE PRESIDENT MANAGEMENT INFORMATION SYSTEMS AND PETER HARRINGTON (CENTER),
SENIOR SECURITIES TRADER.
8
<PAGE>
ADP is the leading U.S. provider of retail equity information with 87,000
front office terminals worldwide in nearly 600 firms. In '94, we installed more
than 18,000 new FS Partner intelligent workstations.
We aim to become a major multi-national provider of market data services.
In '94, we upgraded our new U.K. center to deliver more reliable and
cost-effective support to our international client base and to support future
growth. ADP now has about 2000 terminals outside North America.
Recently, we added focus on the institutional investment sector by
introducing an advanced function FS Partner for institutional users. In addition
we acquired MarketMax, a real-time information and trading system that uses
Apple Macintosh platforms.
ADP's Investor Communication Services (ICS), the largest independent
provider of shareholder mailing services in the U.S. and Canada, completed
another record year. ICS handles shareholder mailings to investors whose
securities are left in "street name" with their brokerage firm or bank. About
65% of all U.S. equities are now left in "street name". In '94, ICS processed
over 165 million shareholder mailings for 9000 publicly held corporations and
mutual funds.
During '94, ICS introduced Streetlink, a unique, cost efficient alternative
to traditional glossy, expensive quarterly reports that may take as much as five
weeks to produce and deliver. Streetlink is printed and mailed within 3 days by
utilizing ICS' access to ADP's extensive laser print and electronic
communications capabilities.
Brokerage Services Photo Caption:
JOHN GRIFFIN (RIGHT), ASSISTANT VICE PRESIDENT OF GLOBAL CORPORATION ACTION WITH
STATE STREET BANK, CO-CHAIRS THE ICS USER STEERING COMMITTEE FOR ADP'S INVESTOR
COMMUNICATIONS SERVICES (ICS). HE STATES, "DURING 1994, ICS RE-ENGINEERED ITS
PROXY PROCESSING SERVICES TO MEET THE VARIOUS NEEDS OF THE INVESTMENT
COMMUNITY." CHRISTINE SHAW (LEFT), IS PROXY ADMINISTRATOR FOR STATE STREET BANK.
9
<PAGE>
DEALER SERVICES
Dealer Services accounts for 14% of ADP revenue. It provides turnkey systems,
including more than 20 software applications, to over 9500 auto and truck
dealers in North America and Europe.
In '94, Dealer Services had very strong growth. Sales of new applications
and systems, fueled by robust auto industry growth and new product
introductions, were up by more than 15%.
Auto dealers use ADP's on-site systems to manage their accounting,
inventory, factory communications, scheduling, leasing, sales and service
activities. In addition, ADP offers more than 80 manufacturer subsystems for
warranty processing, price updates and factory ordering. ADP also provides
dealers with a communications network for parts and vehicle locating, credit
checks, electronic vehicle registration and vehicle repair estimating.
Dealer Services' newer products include ADP LaserStation for the business
office, Automated Collision Repair Estimating, and a "paperless back office"
called Document Storage & Data Archiving.
ADP LaserStation replaces costly pre-printed, multi-part, carbonized forms
with all output resembling professional looking originals. It allows dealers to
print from a single laser printer all types of customer communications,
including customer satisfaction surveys, service reminders, invoices and
statements. Dealers save handling time and eliminate unnecessary copies and the
cost of preprinted forms. ADP clients utilize over 8000 LaserStations.
Automated Collision Estimating (ACE) integrates ADP's repair estimating
application for auto body shops with its parts and service applications. ACE
provides complete estimate information, and then automatically updates customer
and vehicle information, service history and accounting. The benefits include
streamlined administration and faster answers to customer inquiries.
Document Storage & Data Archiving uses optical disk and scanning
technologies to electronically scan, store and
Dealer Services Photo Caption:
RHETT (RIGHT) AND FRED (CENTER) RICART, CO-OWNERS, RICART AUTOMOTIVE IN
COLUMBUS, OHIO; AND CHRIS DULLA (LEFT), ADP MAJOR ACCOUNT SALES EXECUTIVE,
REVIEW VEHICLE INVENTORY REPORTS GENERATED BY A BARCODE INVENTORY SYSTEM CALLED
ADP LASERSCAN. LASERSCAN AUTOMATES THE DEALERSHIP'S VEHICLE INVENTORY PROCESS.
THE RICART BROTHERS OWN ONE OF THE LARGEST MEGA DEALERSHIPS IN THE UNITED
STATES.
10
<PAGE>
retrieve purchase orders, invoices, checks, other documents and even customer
signatures. Digitized records replace stored documents and can be retrieved from
any ADP workstation for viewing, faxing or printing. Dealers can eliminate all
paper, computer tape, microfiche and traditional filing cabinets.
In '94, Dealer Services continued to increase market penetration in North
America through acquisition of three small companies that provide systems to
Chrysler, Ford, General Motors, Audi and Volkswagen dealers.
ADP is committed to dealer services expansion in Europe. In '94, ADP
launched Ford's Dealership Computer Application System (DCAS), which provides
dealer to factory communications in Germany and the United Kingdom. ADP
currently has 1500 dealer clients in Europe.
Dealer Services Photo Caption:
ABOVE: BRENDA WHITSON (LEFT), CHIEF FINANCIAL OFFICER, RICART AUTOMOTIVE; AND
BARBARA AVERETT (RIGHT), ADP FORMS MANAGEMENT SPECIALIST, PRINT CHECKS AND STUBS
WITH THE ADP LASERSTATION. QUALITY BUSINESS FORMS AND ACCURATE CHECKS CAN NOW BE
PRINTED FROM A SINGLE LASER PRINTER. LASERSTATION HELPS ELIMINATE CHANGING FORMS
OR PRINTERS TO PRODUCE DIFFERENT TYPES OF BUSINESS OFFICE DOCUMENTS. ABOVE
RIGHT: THE LATEST IN ELECTRONIC INFORMATION MANAGEMENT AND RECORD STORAGE, ADP
DOCUMENT STORAGE & DATA ARCHIVING (DSDA), IS DEMONSTRATED TO CHRIS PUSTELAK
(RIGHT), CONTROLLER, RICART AUTOMOTIVE, BY TERRY PETTIT (SEATED, LEFT), DIRECTOR
OF ADP CLIENT SERVICES AND DEBBIE KELLER (CENTER), ADP SENIOR ACCOUNT EXECUTIVE.
ALL ARCHIVED RECORDS AND STORED DOCUMENTS (UNLESS RESTRICTED BY THE DEALERSHIP
FOR SECURITY) CAN BE RETRIEVED BY THE DSDA SYSTEM FROM ANY ADP WORKSTATION
THROUGHOUT THE DEALERSHIP FOR ON-SCREEN VIEWING, FAXING BY MODEM OR PRINTING BY
THE ADP LASERSTATION.
11
<PAGE>
CLAIMS SERVICES
Claims Services, using the name Claims Solutions Group (CSG), provides
computer-based collision repair estimating (Audatex) and total loss valuation
(Autosource) to auto insurance companies. A new estimating and shop management
system, called ShopLink, has been developed for collision repair shops. ShopLink
includes digital imaging of damaged vehicles for transmission to insurance
companies. A property loss (repair and replacement) estimating system was also
created to assist in settling homeowners claims.
CSG supplies inventory management systems to over 1300 salvage yards
through its Hollander parts services business. Its rapidly growing
communications network, called EDEN, allows electronic parts location between
yards. During '94, EDEN users tripled to over 1000.
Our newly acquired National BioSystems evaluates the appropriateness of
medical treatment and invoicing for auto accident victims. The core product,
Provider Bill Audit (PBA), evaluates soft tissue injury claims. This acquisition
and its market synergy with other ADP services represents high growth potential.
National Bio's clinical databases and outcomes measurement can also be
strategically important for broader health care services.
In late 1992, CSG introduced Audapoint, a portable laptop estimating system
designed for mobile claims adjusters. In just 15 months, 70% of our estimate
volume has moved from ADP mainframes to the Audapoint platform.
We recently launched PenPro, the first pen-based mobile claims workstation.
PenPro's powerful estimating tools are delivered on a touch screen laptop that
weighs less than 6 lbs., and the estimating system is the most powerful
application developed in any industry for pen-based mobile computing. A complete
retooling of application architecture has migrated virtually all mainframe
functionality to this portable workstation that includes a gigabyte digital
graphics database with parts data and repair times for all vehicles manufactured
since 1975.
CSG is currently assisting many of its clients to reengineer their claims
management business processes. PenPro promises to capitalize on the
reengineering revolution currently underway in the property and casualty
insurance industry. CSG and its clients have become true business partners,
jointly investing to deliver higher levels of service to policyholders in the
most cost effective way.
Claims Services Photo Caption:
METROPOLITAN PROPERTY AND CASUALTY INSURANCE IS USING ADP'S PROVIDER BILL AUDIT
SYSTEM TO EMPOWER THEIR MEDICAL PAYMENT DECISION MAKERS. IT PROVIDES THESE
ADJUSTERS WITH THE DATA NECESSARY TO MAKE INFORMED, CONSISTENT PAYMENT DECISIONS
AND HELPS METROPOLITAN ADDRESS INDUSTRY TRENDS, STRATEGIC PLANNING AND FINANCIAL
ANALYSIS. DOUG TAYLOR (LEFT) IS A CASUALTY UNIT MANAGER. CHERYL SMITH (CENTER)
AND PRABHA RANGANATH (RIGHT) ARE PBA OPERATORS.
12
<PAGE>
ADP EUROPE
In various European countries, ADP offers Employer, Brokerage and Dealer
services. ADP Netherlands is a leading provider of payroll and human resource
services, with over 20,000 clients. We recently expanded to the government
sector. A new PC based human resource system provides advanced functionality to
handle growing complexity in tax and social security legislation.
In the United Kingdom, ADP provides a full range of employer services for
some 3000 clients. ADP Surepay assists organizations in managing their
employees, including payroll, personnel recruitment, training and absence
reporting. ADP's service interfaces with a wide range of accounting and
information packages to ensure ease of use. During '94, ADP maintained excellent
levels of client service and retention. We obtained International Standards
Organization quality certification (ISO 9000) in recognition of high service
standards in the U.K.
Since acquiring Quotron's international equities quotation services, ADP's
front office business has been laying the foundation for becoming a major
multi-national provider of market data services. Our new U.K. center has been
upgraded to deliver more reliable and cost-effective support to the entire ADP
international client base while supporting substantial future growth. ADP has
direct information feeds from more than 140 exchanges, with more to come. We now
have about 2000 terminals in 14 countries outside North America.
Dealer Services currently provides systems to 1500 clients in Germany and
the United Kingdom. ADP-Autonom is the leading supplier to General Motors Opel
dealers. In the U.K., ADP-Modems delivers systems to General Motors Vauxhall. In
'94, ADP Europe launched Ford's Dealer Computer Application System. ADP is a
strategic partner of Ford across Europe.
ADP is committed to continued expansion in Europe in recognition of the
increasing global nature of our businesses.
ADP Europe Photo Caption:
SMITH NEW COURT (SNC), A USER OF ADP'S FRONT OFFICE TRADING SYSTEMS, IS A MAJOR
LONDON BROKERAGE FIRM SPECIALIZING IN EQUITY AND EQUITY DERIVATIVE MARKETS.
ANTHONY MOULANGE (CENTER), INFORMATION SYSTEMS MANAGER FOR SMITH NEW COURT,
VIEWS TRADE INFORMATION WITH MICHAEL J. CUNNINGHAM (RIGHT), ADP VICE PRESIDENT
AND U.K. GENERAL MANAGER, AND JOHN A. NORRIS (LEFT), ADP SENIOR MANAGER MAJOR
ACCOUNTS.
13
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------------------
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . $2,468,966 $2,223,374 $1,940,571 $1,771,751 $1,714,041
----------------------------------------------------------------------
Cost of operations . . . . . . . . . . 2,001,796 1,816,995 1,586,725 1,463,952 1,416,653
Interest expense . . . . . . . . . . . 20,840 19,819 12,266 8,169 12,128
----------------------------------------------------------------------
2,022,636 1,836,814 1,598,991 1,472,121 1,428,781
----------------------------------------------------------------------
Earnings before income taxes
and cumulative effect of
accounting changes . . . . . . . . . 446,330 386,560 341,580 299,630 285,260
Provision for income taxes . . . . . . 112,210 92,360 85,400 71,940 73,550
----------------------------------------------------------------------
Earnings before cumulative
effect of accounting changes . . . . 334,120 294,200 256,180 227,690 211,710
Cumulative effect of
accounting changes . . . . . . . . . (4,800) -- -- -- --
----------------------------------------------------------------------
Net earnings . . . . . . . . . . . . . $329,320 $294,200 $256,180 $227,690 $211,710
----------------------------------------------------------------------
Earnings per share:
Before cumulative effect of
accounting changes . . . . . . . . $2.37 $2.08 $1.84 $1.63 $1.44
Cumulative effect of
accounting changes . . . . . . . . (.03) -- -- -- --
----------------------------------------------------------------------
Net earnings . . . . . . . . . . . . $2.34 $2.08 $1.84 $1.63 $1.44
----------------------------------------------------------------------
Average number of common
shares outstanding . . . . . . . . . 140,890 141,327 139,045 139,936 147,168
----------------------------------------------------------------------
Cash dividends per share . . . . . . . $.54 $.475 $.415 $.3625 $.3125
----------------------------------------------------------------------
Return on equity (a) . . . . . . . . . 21.0% 20.9% 22.1% 21.9% 20.3%
----------------------------------------------------------------------
At year end:
Cash, cash equivalents and
marketable securities. . . . . . . . $1,062,190 $ 886,452 $ 741,357 $ 432,141 $ 536,578
Working capital. . . . . . . . . . . . $ 507,243 $ 355,047 $ 366,752 $ 299,488 $ 375,882
Total assets . . . . . . . . . . . . . $2,705,565 $2,439,400 $2,169,300 $1,564,930 $1,692,263
Long-term debt . . . . . . . . . . . . $ 372,959 $ 347,583 $ 333,192 $ 49,052 $ 56,225
Shareholders' equity . . . . . . . . . $1,691,251 $1,494,456 $1,296,728 $1,052,620 $1,127,025
----------------------------------------------------------------------
<FN>
(a) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES IN 1994.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING RESULTS
- -------------------------------------------------------------------------------
Revenue and earnings reached record levels during each of the past three fiscal
years. During fiscal '94, revenue exceeded $2.4 billion and net earnings
exceeded $334 million, before two minor, non-recurring accounting changes.
Earnings per share increased 14% to $2.37. Fiscal '94 was ADP's 33rd consecutive
year of double-digit earnings per share growth since becoming a public company
in 1961.
Revenue and revenue growth by ADP's major service groups are shown below:
<TABLE>
<CAPTION>
REVENUE REVENUE GROWTH
------------------------ ------------------------
YEARS ENDED JUNE 30, YEARS ENDED JUNE 30,
------------------------ ------------------------
1994 1993 1992 1994 1993 1992
- ------------------------------------------------------------ ------------------------
($ IN MILLIONS)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employer Services. . . . . . . $1,424 $1,311 $1,125 9% 17% 10%
Brokerage Services . . . . . . 606 505 412 20 23 20
Dealer Services. . . . . . . . 334 274 231 22 19 12
Other. . . . . . . . . . . . . 105 133 173 (21) (23) (13)
-------------------------- -------------------------
Consolidated. . . . . . . . $2,469 $2,223 $1,941 11% 15% 10%
-------------------------- -------------------------
</TABLE>
Consolidated revenue grew 11% in fiscal '94, primarily from expansion of our
client base, new product offerings, and from acquisitions, with relatively minor
contributions from price increases.
The consolidated pretax margin was 18.1% in '94, up from 17.4% and 17.6% in '93
and '92, respectively. Continued automation and operating efficiencies enabled
the Company to offset the start up costs associated with new products and
acquisitions and the effect of lower rates on interest income.
The Company does not prepare its financial statements in a manner that generates
the true standalone profitability for each unit and profitability measurements
are not maintained in a consistent manner between the Company's major service
groups. 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. As a result, various income and expense
items are recorded at the Corporate level and certain shared costs are not
allocated. Consequently, comparisons of specific margins between groups are not
meaningful, although trend information within a service group is a useful
directional indicator.
EMPLOYER SERVICES
Employer Services' revenue grew 9% in fiscal '94, down from the 17% growth rate
of fiscal 1993. Last year's revenue growth was aided by the May 1992 acquisition
of Bank of America's payroll business. In the absence of this transaction, '93
revenue growth would have been approximately 8%. Field operating margins have
increased in each of the past three years as a result of continued productivity
and operating efficiencies. These increased field margins have enabled Employer
Services to significantly increase investments in product development, sales and
marketing, while increasing the overall pretax margin to approximately 27% (26%
in '93 and '92).
Employer Services' revenue shown above includes the pretax equivalent of
interest earned on funds collected from clients as part of the Company's
integrated payroll and payroll tax filing services. The pretax equivalent has
been calculated at a consistent standard rate of 7.8% since 1986.
18
<PAGE>
BROKERAGE SERVICES
Brokerage Services' revenue grew 20% in fiscal '94 and 23% in fiscal '93, aided
by the February 1993 acquisition of certain back-office processing and
international equities quotation services and the February 1992 acquisition of
IECA, which provides proxy distribution services. In the absence of these
transactions revenue growth would have been approximately half as much in each
year.
Brokerage began to benefit in fiscal '92 from improved Wall Street trading
volumes, which had previously been adversely affected in the years subsequent to
the October 1987 market crash. The improved conditions continued into '93 and
'94.
Brokerage Services' pretax margin was about 16% in fiscal '94, after absorbing
losses from the recently acquired international quote services business referred
to above. Brokerage margins were 14% in fiscal '93 and 13% in '92.
DEALER SERVICES
Dealer Services' revenue grew 22% in fiscal '94 and 19% in fiscal '93 as a
result of improved industry conditions and several small acquisitions. Operating
margins were approximately 20% in fiscal '94 up from approximately 15% in '93
and '92.
OTHER
The primary components of "Other revenue" are services for auto claims,
wholesalers, and European payroll users. In addition, Other revenue has 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 7.8%.
In each of the past three years, investments in systems development and
programming have increased at a substantially greater rate than the Company's
overall growth rate. Investments have increased, especially in Employer
Services, to accelerate automation, migration to new computing technologies, and
development of new products.
In fiscal '94, the Company's effective tax rate was approximately 25%, up from
approximately 24% in '93, primarily as a result of the increased statutory tax
rate enacted in August 1993. Consolidated after-tax margins were 13.5% in '94,
and 13.2% in both '93 and '92.
For fiscal '95 ADP is planning another record year with double-digit growth in
revenue and earnings per share.
Additional comments and operating results are included in the Letter to
Shareholders on pages 2 through 4 and in the business descriptions presented on
pages 6 through 13.
19
<PAGE>
FINANCIAL CONDITION
- -------------------------------------------------------------------------------
ADP's financial condition and balance sheet remain exceptionally strong. At June
30, 1994, cash and marketable securities exceeded $1 billion. Shareholders'
equity approximated $1.7 billion, and return on average equity for the year was
21%. The ratio of long-term debt to equity at June 30, 1994 was 22%.
Cash flow from operating activities exceeded $500 million in '94. We expect
another excellent year of cash flow in fiscal 1995.
In fiscal '94 we repurchased approximately 2.6 million shares of common stock at
an average price of about $50 to fund our equity related employee benefit plans.
The Board of Directors has authorized the purchase of up to 2.3 million
additional shares.
During fiscal '92, the Company raised approximately $279 million through the
issuance of zero coupon convertible subordinated notes, and acquired several
businesses in purchase transactions for approximately $295 million in cash and
notes. During fiscal '94 and '93 the Company purchased several businesses for
approximately $81 million and $57 million, respectively.
Capital expenditures during fiscal '94 were approximately $111 million,
following investments of $87 million in '93 and $56 million in '92. Capital
spending in fiscal '95 should approximate $125 million.
In fiscal 1994 the Company adopted Financial Accounting Standards Board
Statements No. 109, "Accounting for Income Taxes", and No. 112, "Employer's
Accounting for Postemployment Benefits", effective July 1, 1993. The cumulative
effect of adopting Statement No. 109 was to increase net earnings by $2.7
million ($.02 per share). The cumulative effect of adopting Statement No. 112
was to decrease net earnings by $7.5 million ($.05 per share). The Company will
adopt Statement No. 115, pertaining to investments in debt and equity
securities, in fiscal 1995. It's implementation will not have a material impact
on the Company's financial statements.
MARKET PRICE AND DIVIDEND DATA
- -------------------------------------------------------------------------------
The market price of Automatic Data Processing, Inc. (AUD) common shares based on
New York Stock Exchange composite transactions and cash dividends per share
declared during the past two years have been:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRICE PER SHARE
--------------- DIVIDENDS
FISCAL 1994 QUARTER ENDED HIGH LOW PER SHARE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
June 30. . . . . . . . . . . . . . $55 1/4 $47 5/8 $.15
March 31 . . . . . . . . . . . . . 55 1/2 50 1/4 .13
December 31. . . . . . . . . . . . 56 7/8 49 5/8 .13
September 30 . . . . . . . . . . . 52 5/8 47 .13
-----------------------------------------
FISCAL 1993 QUARTER ENDED
- -------------------------------------------------------------------------------
June 30. . . . . . . . . . . . . . $52 7/8 $46 7/8 $.13
March 31 . . . . . . . . . . . . . 56 1/8 50 1/8 .115
December 31. . . . . . . . . . . . 55 5/8 44 5/8 .115
September 30 . . . . . . . . . . . 47 3/4 38 3/4 .115
- -------------------------------------------------------------------------------
</TABLE>
As of June 30, 1994 there were approximately 22,600 holders of record of
Automatic Data Processing, Inc. common stock.
20
<PAGE>
STATEMENTS OF CONSOLIDATED EARNINGS
- -------------------------------------------------------------------------------
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . . . . . . $2,468,966 $2,223,374 $1,940,571
----------------------------------------
Operating expenses . . . . . . . . . . . . . . . . . . 1,026,354 927,181 816,225
General, administrative and selling expenses . . . . . 666,344 617,194 542,904
Depreciation and amortization. . . . . . . . . . . . . 148,295 140,234 116,113
Systems development and programming costs. . . . . . . 160,803 132,386 111,483
Interest expense . . . . . . . . . . . . . . . . . . . 20,840 19,819 12,266
----------------------------------------
2,022,636 1,836,814 1,598,991
----------------------------------------
Earnings before income taxes and cumulative effect
of accounting changes. . . . . . . . . . . . . . . . 446,330 386,560 341,580
Provision for income taxes . . . . . . . . . . . . . . 112,210 92,360 85,400
----------------------------------------
Net earnings before cumulative effect of accounting
changes. . . . . . . . . . . . . . . . . . . . . . . 334,120 294,200 256,180
Cumulative effect of accounting changes. . . . . . . . (4,800) -- --
----------------------------------------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 329,320 $ 294,200 $ 256,180
----------------------------------------
Earnings per share:
Before cumulative effect of accounting changes . . . $2.37 $2.08 $1.84
Cumulative effect of accounting changes. . . . . . . (.03) -- --
----------------------------------------
Net earnings . . . . . . . . . . . . . . . . . . . . $2.34 $2.08 $1.84
----------------------------------------
Average number of common shares outstanding. . . . . . 140,890 141,327 139,045
----------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------------
JUNE 30, 1994 1993
- ----------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 238,626 $ 180,802
Short-term marketable securities . . . . . . . . . . . . . . . . . . 351,969 187,358
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . 298,096 294,282
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 96,726 108,861
-------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 985,417 771,303
-------------------------
Long-term marketable securities. . . . . . . . . . . . . . . . . . . . 471,595 518,292
-------------------------
Long-term receivables. . . . . . . . . . . . . . . . . . . . . . . . . 162,272 134,631
-------------------------
Property, plant and equipment -- at cost:
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . 275,088 257,837
Data processing equipment. . . . . . . . . . . . . . . . . . . . . . 433,161 382,049
Furniture, leaseholds and other. . . . . . . . . . . . . . . . . . . 293,044 272,036
-------------------------
1,001,293 911,922
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . 605,445 550,747
-------------------------
395,848 361,175
-------------------------
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,408 78,820
-------------------------
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609,025 575,179
-------------------------
$2,705,565 $2,439,400
-------------------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,151 $ 65,537
Accrued expenses and other current liabilities . . . . . . . . . . . 346,960 309,097
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,867 40,176
Current portion of long-term debt. . . . . . . . . . . . . . . . . . 2,196 1,446
-------------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . 478,174 416,256
-------------------------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372,959 347,583
-------------------------
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 69,504 49,519
-------------------------
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 33,553 74,931
-------------------------
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,124 56,655
-------------------------
Shareholders' equity:
Preferred stock, $1.00 par value:
Authorized, 300 shares; issued, none
Common stock, $.10 par value:
Authorized, 200,000 shares; issued, 157,117 shares . . . . . . . . 15,712 15,712
Capital in excess of par value . . . . . . . . . . . . . . . . . . . 325,029 300,010
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 1,883,423 1,630,135
Treasury stock -- at cost, 16,418 and 15,998 shares, respectively. . (532,913) (451,401)
-------------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 1,691,251 1,494,456
-------------------------
$2,705,565 $2,439,400
-------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCK CAPITAL IN
------------------------- EXCESS OF RETAINED TREASURY
SHARES AMOUNT PAR VALUE EARNINGS STOCK
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1991 . . . . . . . . . . 157,117 $ 15,712 $297,056 $1,206,870 $467,018
Employee stock plans . . . . . . . . . . . -- -- (12,967) -- (50,621)
Treasury stock acquired (386 shares) . . . -- -- -- -- 12,301
Net earnings . . . . . . . . . . . . . . . -- -- -- 256,180 --
Dividends ($.415 per share) . . . . . . . -- -- -- (57,717) --
Other transactions . . . . . . . . . . . . -- -- 20,292 -- --
-----------------------------------------------------------------------
BALANCE, JUNE 30, 1992 . . . . . . . . . . 157,117 15,712 304,381 1,405,333 428,698
Employee stock plans . . . . . . . . . . . -- -- (10,183) -- (50,757)
Treasury stock acquired (1,714 shares) . . -- -- -- -- 82,510
Pooling transaction . . . . . . . . . . . -- -- (9,050) (2,218) (9,050)
Net earnings . . . . . . . . . . . . . . . -- -- -- 294,200 --
Dividends ($.475 per share) . . . . . . . -- -- -- (67,184) --
Other transactions . . . . . . . . . . . . -- -- 14,862 4 --
-----------------------------------------------------------------------
BALANCE, JUNE 30, 1993 . . . . . . . . . . 157,117 15,712 300,010 1,630,135 451,401
Employee stock plans . . . . . . . . . . . -- -- 2,774 -- (47,986)
Treasury stock acquired (2,579 shares) . . -- -- -- -- 129,389
Net earnings . . . . . . . . . . . . . . . -- -- -- 329,320 --
Dividends ($.54 per share) . . . . . . . . -- -- -- (76,031) --
Other transactions . . . . . . . . . . . . -- -- 22,245 (1) 109
-----------------------------------------------------------------------
BALANCE, JUNE 30, 1994 . . . . . . . . . . 157,117 $ 15,712 $325,029 $1,883,423 $532,913
-----------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
- -------------------------------------------------------------------------------
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------------------------------------------------------------------
Net earnings . . . . . . . . . . . . . . . . . . . . $329,320 $294,200 $256,180
Depreciation and amortization. . . . . . . . . . . . 148,295 140,234 116,113
Deferred income taxes. . . . . . . . . . . . . . . . 4,900 12,000 (4,000)
Changes in operating assets and liabilities:
Receivables and other assets . . . . . . . . . . . (28,922) (58,702) (25)
Accounts payable and accrued expenses. . . . . . . 17,105 53,782 48,479
Other. . . . . . . . . . . . . . . . . . . . . . . 38,430 (50,132) 20,721
--------------------------------------
Net cash flows from operating activities . . . . 509,128 391,382 437,468
--------------------------------------
<CAPTION>
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------------------------------------------------------------------
Marketable securities. . . . . . . . . . . . . . . . (117,914) (268,314) (141,284)
Capital expenditures . . . . . . . . . . . . . . . . (110,733) (87,411) (56,443)
Other changes to property, plant and equipment . . . 12,822 6,122 9,221
Additions to intangibles . . . . . . . . . . . . . . (24,460) (24,889) (54,653)
Acquisitions of businesses . . . . . . . . . . . . . (81,082) (56,918) (294,049)
--------------------------------------
Net cash flows from investing activities . . . . (321,367) (431,410) (537,208)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------------------------------------------------------------------
Proceeds from long-term debt . . . . . . . . . . . . -- -- 284,983
Repayments of long-term debt . . . . . . . . . . . . (1,702) (8,979) (15,400)
Proceeds from issuance of common stock . . . . . . . 77,981 72,838 60,600
Repurchases of common stock. . . . . . . . . . . . . (129,389) (82,510) (12,301)
Dividends paid . . . . . . . . . . . . . . . . . . . (76,031) (67,184) (57,717)
Other. . . . . . . . . . . . . . . . . . . . . . . . (796) 2,644 4,453
--------------------------------------
Net cash flows from financing activities . . . . (129,937) (83,191) 264,618
--------------------------------------
Net change in cash and cash equivalents. . . . . . . 57,824 (123,219) 164,878
Cash and cash equivalents, at beginning of period. . 180,802 304,021 139,143
--------------------------------------
Cash and cash equivalents, at end of period. . . . . $238,626 $180,802 $304,021
--------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
NOTES TO CONSOLIDATED STATEMENTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
A. Principles of Consolidation. The consolidated financial statements include
the accounts of Automatic Data Processing, Inc. and its majority-owned
subsidiaries. Intercompany accounts and transactions have been eliminated in
consolidation.
B. Accounting Changes. In fiscal 1994 the Company adopted Financial Accounting
Standards Board Statements No. 109, "Accounting for Income Taxes", and No. 112,
"Employers' Accounting for Postemployment Benefits" effective July 1, 1993. The
cumulative effect of adopting Statement No. 109 was to increase net earnings by
$2.7 million ($.02 per share). The cumulative effect of adopting Statement No.
112, which requires that certain postemployment benefits be accrued as service
is provided, was to decrease net earnings by $7.5 million ($.05 per share), net
of $5.0 million of income tax benefits.
C. Cash, Cash Equivalents and Marketable Securities. Highly liquid investments
with a maturity of three months or less at the time of purchase are considered
cash equivalents. Marketable securities, which consist primarily of high grade
municipal and other tax-advantaged securities, are carried at amortized cost,
which approximates market value.
D. Property, Plant and Equipment. Property, plant and equipment is depreciated
over the estimated useful lives of the assets by the straight-line method.
Leasehold improvements are amortized over the shorter of the term of the lease
or the estimated useful lives of the improvements.
<TABLE>
<CAPTION>
The estimated useful lives of assets are primarily as follows:
- -------------------------------------------------------------------------------
<S> <C>
Data processing equipment. . . . . . . . . . . . . . . . . 3 years
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . 20 to 40 years
Furniture and fixtures . . . . . . . . . . . . . . . . . . 3 to 7 years
- -------------------------------------------------------------------------------
</TABLE>
E. Intangibles. Intangible assets are recorded at cost and are amortized
primarily on a straight-line basis over appropriate periods ranging from 3 to 40
years. Goodwill is periodically reviewed to determine recoverability by
comparing its carrying value to expected future cash flows.
F. Revenue Recognition. Service revenue, including software license fees,
maintenance fees and other ancillary fees, is recognized as services are
provided. In those instances where hardware is sold to clients as part of a
bundled service offering, the gross profit on the sale of hardware and prepaid
software license fees, less costs of selling and installation, is deferred and
recognized on a straight-line basis over the initial contract period, which
generally is from 5 to 7 years.
G. Earnings Per Share. Earnings per share are based upon the weighted average
number of shares outstanding during the respective periods.
H. Line of Business. The Company is engaged in the computing services business.
NOTE 2. ACQUISITIONS
- -------------------------------------------------------------------------------
During fiscal 1992, the Company acquired several businesses in purchase
transactions for approximately $295 million in cash and notes, including the May
1992 acquisition of Bank of America's payroll services business and a new joint
marketing relationship with the Bank, as well as the February 1992 acquisition
of the Independent Election Corporation of America, which provides proxy
distribution services. These transactions resulted in approximately $75 million
of goodwill, which is being amortized over 40 years, and approximately $240
million of other intangibles, which is being amortized over periods ranging from
3 to 25 years.
During fiscal 1994 and 1993, the Company purchased several businesses for
approximately $81 million and $57 million, respectively, whose results in the
aggregate were not material to the Company's financial statements.
The results of purchased businesses are included in the consolidated
financial statements from the date of acquisition. In some cases additional
payments are contingent on future performance of the acquired companies. The
amount of additional payments, which are not material, will be added to
intangibles when determinable.
The Company also acquired a business in fiscal 1993 in exchange for 348,000
shares of common stock in a pooling of interests transaction. The Company's
historical financial statements were not restated because the transaction was
not material.
25
<PAGE>
NOTE 3. RECEIVABLES
- -------------------------------------------------------------------------------
Trade accounts receivable is net of an allowance for doubtful accounts of $21
million and $18 million at June 30, 1994 and 1993, respectively.
The Company finances the sale of computer systems to certain of its
clients. These finance receivables, substantially all of which are due from
automobile and truck dealerships, are reflected in the consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
(IN THOUSANDS) CURRENT LONG-TERM CURRENT LONG-TERM
- -----------------------------------------------------------------------------------------------------
JUNE 30,
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Receivables. . . . . . . . . . . . . . . $ 91,884 $214,815 $ 79,699 $183,955
Less:
Allowance for doubtful accounts. . . . (10,204) (24,526) (9,506) (21,684)
Unearned income. . . . . . . . . . . . (20,603) (28,017) $(19,092) (27,640)
------------------------------------------------------
$ 61,077 $162,272 $ 51,101 $134,631
------------------------------------------------------
</TABLE>
Unearned income from finance receivables represents the excess of gross
receivables over the cost of the computer systems financed. Unearned income is
amortized using the interest method to maintain a constant rate of return on the
net investment over the term of each contract.
Long-term receivables at June 30, 1994 mature as follows:
<TABLE>
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,335
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,355
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,821
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,631
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,673
--------
$214,815
--------
</TABLE>
NOTE 4. INTANGIBLE ASSETS
- -------------------------------------------------------------------------------
Components of intangible assets are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------
JUNE 30, 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $348,740 $276,253
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513,055 477,578
-----------------------
861,795 753,831
Less accumulated amortization. . . . . . . . . . . . . . . . . . . . . . . (252,770) (178,652)
-----------------------
$609,025 $575,179
-----------------------
</TABLE>
Other intangibles consist primarily of purchased rights to provide data
processing services to various groups of clients. Amortization of intangibles
totalled $61 million for fiscal 1994, $57 million for 1993 and $37 million for
1992.
NOTE 5. LONG-TERM DEBT
- -------------------------------------------------------------------------------
Components of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30, 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Zero coupon convertible subordinated notes (5 1/4% yield). . . . . . . . . . . . . . . . . $319,057 $299,795
Industrial revenue bonds (with fixed and variable interest rates from 2.7% to 8.3%). . . . 39,995 40,430
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,103 8,804
-----------------------
375,155 349,029
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,196) (1,446)
-----------------------
$372,959 $347,583
-----------------------
</TABLE>
26
<PAGE>
In February 1992, the Company issued $805 million face value of zero coupon
convertible subordinated notes and received net proceeds of approximately $279
million. The notes mature February 20, 2012, unless converted or redeemed
earlier. The notes are convertible into approximately 5.2 million shares of the
Company's common stock. The notes are callable at the option of the Company
after February 1996, and the holders of the notes can require redemption in
1997, 2002, and 2007. As of June 30, 1994, the quoted market price for the zero
coupon notes was approximately $322 million. The fair value of the other debt
included above, based on available market information, approximates its carrying
value.
Long-term debt repayments are due as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,332
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 762
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . 365,763
--------
$372,959
--------
</TABLE>
Interest payments were approximately $4 million during the years ended June
30, 1994 and 1993, and $6 million in 1992.
NOTE 6. PAYROLL AND PAYROLL TAX FILING SERVICES
- -------------------------------------------------------------------------------
As part of its integrated payroll and payroll tax filing services, the Company
collects funds for federal, state and local employment taxes from approximately
210,000 clients, files over 9.5 million applicable returns, handles all
regulatory correspondence and amendments, absorbs regulatory charges for certain
penalties and interest, and remits the funds to the appropriate tax agencies. In
addition to fees paid by clients for these services, the Company receives
interest during the interval between the receipt and disbursement of funds by
investing the funds primarily in AA or better rated municipal instruments, with
no more than $40 million in any single instrument. The amount of collected but
unremitted funds varies significantly during the year and averaged approximately
$2.8 billion in fiscal 1994, $2.4 billion in fiscal 1993 and $1.8 billion in
fiscal 1992. The amount of such funds as of June 30, 1994 and 1993 was $3.7
billion and $2.6 billion, respectively.
NOTE 7. EMPLOYEE BENEFIT PLANS
- -------------------------------------------------------------------------------
A. Stock Option Plans. The Company has stock option plans which provide for the
issuance to eligible employees of incentive and non-qualified stock options,
which may expire as much as 10 and 12 years, respectively, from the date of
grant, at prices not less than the fair market value on the date of grant. At
June 30, 1994, there were 4,055 participants in the plans. The aggregate
purchase price for options outstanding at June 30, 1994 was approximately $341
million. The options expire between 1994 and 2004.
A summary of changes in the stock option plans for the three years ended
June 30, 1994 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NUMBER OF OPTIONS
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, beginning of year . . . . . . . . . . . 8,237 8,021 8,131
Options granted ($47 to $51 per share in 1994,
$43 to $48 in 1993 and $32 to $44 in 1992) . . . . . . . . 3,091 1,566 1,225
Options exercised ($8 to $47 per share in 1994,
$6 to $43 in 1993 and $6 to $31 in 1992) . . . . . . . . . (859) (886) (958)
Options cancelled. . . . . . . . . . . . . . . . . . . . . . (804) (467) (385)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3 8
------------------------------------
Options outstanding, end of year ($9 to $51 per share
in 1994, $8 to $48 in 1993 and $6 to $44 in 1992). . . . . 9,670 8,237 8,021
------------------------------------
Options exercisable, end of year . . . . . . . . . . . . . . 2,590 2,332 2,113
------------------------------------
Shares available for future grants, end of year. . . . . . . 4,054 2,347 3,449
------------------------------------
Shares reserved for issuance under stock option plans. . . . 13,724 10,584 11,470
------------------------------------
</TABLE>
27
<PAGE>
B. Restricted Stock Plan. The Company has a restricted stock plan under which
shares of common stock have been sold for nominal consideration to certain key
employees. These shares are restricted as to transfer and in certain
circumstances must be resold to the Company at the original purchase price. The
restrictions lapse over periods of up to six years. During the years ended June
30, 1994, 1993 and 1992, the Company issued 94,050, 126,200, and 13,600
restricted shares and repurchased 23,100, 6,700, and 19,100 shares,
respectively.
C. Employee Stock Purchase Plans. The Company has stock purchase plans under
which eligible employees have the ability to purchase shares of common stock at
85% of market value as of the date of purchase election. Approximately 1.1
million shares are scheduled for issuance on both December 31, 1994 and 1995 and
approximately 1.2 million and 1.4 million shares were issued during the years
ended June 30, 1994 and 1993, respectively. At June 30, 1994 and 1993, there
were approximately 6.3 million and 3.5 million shares reserved for purchase
under the plan. Included in liabilities as of June 30, 1994 and 1993 is
approximately $42 million and $38 million, respectively, for employee stock
purchase plan withholdings.
D. Pension Plan. The Company has a defined benefit pension plan covering
substantially all domestic employees. Effective January 1, 1990, the Company
amended the plan to a defined benefit cash balance plan under which employees
are credited with a percentage of base pay each year plus 7% interest. Employees
are fully vested on completion of five years service. The Company's policy is to
make contributions within the range determined by generally accepted actuarial
principles.
The plan's funded status is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------
JUNE 30, 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Funded plan assets at market value, primarily stocks and bonds . . . . . . . . . . . $105,300 $105,800
-----------------------
Actuarial present value of benefit obligations:
Vested benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,700 74,700
Non-vested benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,400 6,700
-----------------------
Accumulated/projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . 105,100 81,400
-----------------------
Plan assets in excess of projected benefits. . . . . . . . . . . . . . . . . . . . . 200 24,400
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,200) (6,000)
Transition obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 2,200
Unrecognized net actuarial loss due to different experience than that assumed. . . . 32,600 17,800
-----------------------
Prepaid pension liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,600 $ 38,400
-----------------------
</TABLE>
The components of net pension expense were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period . . . . . . . . . . . $10,700 $ 8,700 $ 7,900
Interest cost on projected benefits. . . . . . . . . . . . . . . . . . 6,800 5,400 4,300
Return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . (1,500) (5,900) (6,500)
Net amortization and deferral. . . . . . . . . . . . . . . . . . . . . (7,300) (800) 1,600
-------------------------------------
$ 8,700 $ 7,400 $ 7,300
-------------------------------------
</TABLE>
Assumptions used to develop the actuarial present value of benefit
obligations for the three years ended June 30, 1994 were:
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0% 8.5% 8.5%
Expected long-term rate of return on assets. . . . . . . . . . . . . . 8.5% 8.5% 8.5%
Rate of increase in compensation levels. . . . . . . . . . . . . . . . 6.0% 6.0% 6.0%
----------------------------------
</TABLE>
28
<PAGE>
E. Retirement and Savings Plan. The Company has a 401(k) retirement and savings
plan which allows eligible employees to contribute up to 7% of their
compensation annually. The Company matches a portion of this contribution which
amounted to approximately $9.0 million, $7.0 million and $5.8 million for
calendar years 1993, 1992 and 1991, respectively.
NOTE 8. INCOME TAXES
- -------------------------------------------------------------------------------
The Company adopted Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes", effective July 1, 1993, which changed the
Company's method of accounting for income taxes to the asset and liability
approach from the deferred method under Accounting Principles Board Opinion No.
11. The Statement requires that deferred taxes reflect the tax consequences on
future years of differences between the financial reporting and tax bases of
assets and liabilities. The cumulative effect of adopting this statement on the
Company's financial statements was to increase fiscal 1994 net earnings by $2.7
million ($.02 per share).
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,290 $60,550 $68,300
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,750 9,260 10,200
State and other taxes. . . . . . . . . . . . . . . . . . . . . . . . 15,270 10,550 10,900
--------------------------------------
Total current. . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,310 80,360 89,400
--------------------------------------
Deferred:
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . 4,000 400 (5,500)
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 4,800 3,200 (3,400)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,900) 8,400 4,900
--------------------------------------
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,900 12,000 (4,000)
--------------------------------------
$112,210 $92,360 $85,400
--------------------------------------
</TABLE>
At June 30, 1994, the Company had gross deferred tax liabilities of
approximately $85 million, consisting primarily of depreciation and amortization
timing differences. Gross deferred tax assets were approximately $58 million,
consisting primarily of operating expenses not currently deductible for tax
return purposes. Valuation allowances were not significant.
Income tax payments were approximately $90 million in 1994, $78 million in
1993 and $92 million in 1992. Pretax domestic earnings approximated $425 million
in 1994, $365 million in 1993 and $320 million in 1992.
A reconciliation between the Company's effective tax rate and the U.S.
federal statutory rate is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PERCENTAGES)
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994 PERCENT 1993 PERCENT 1992 PERCENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for taxes at statutory rate. . . . . . . . $156,200 35.0 $131,400 34.0 $116,100 34.0
Increase (decrease) in provision from:
Investments in municipals and preferred stocks . . (50,860) (11.4) (44,100) (11.4) (39,100) (11.5)
State and other taxes, net of federal tax benefit. . 12,540 2.8 9,100 2.4 10,100 3.0
Other. . . . . . . . . . . . . . . . . . . . . . . . (5,670) (1.3) (4,040) (1.1) (1,700) (.5)
--------------------------------------------------------------------------
$112,210 25.1 $ 92,360 23.9 $ 85,400 25.0
--------------------------------------------------------------------------
</TABLE>
29
<PAGE>
NOTE 9. LEASE OBLIGATIONS
- -------------------------------------------------------------------------------
The Company and its subsidiaries have various facilities and equipment lease
obligations. Total rental expense was approximately $135 million in 1994, $123
million in 1993 and $115 million in 1992 with minimum lease commitments under
operating leases as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -------------------------------------------------------------------------------
YEAR ENDING JUNE 30,
- -------------------------------------------------------------------------------
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128,000
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,000
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000
--------
$346,000
--------
</TABLE>
In addition to fixed rentals, certain leases require payment of maintenance and
real estate taxes and contain escalation provisions based on future adjustments
in price indices.
NOTE 10. QUARTERLY FINANCIAL RESULTS (Unaudited)
- -------------------------------------------------------------------------------
Summarized quarterly results of operations for the three years ended June 30,
1994 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
YEAR ENDED JUNE 30, 1994 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . $551,983 $577,661 $674,405 $664,917
Earnings before cumulative effect of accounting changes. . . $ 58,510 $ 80,180 $104,990 $ 90,440
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 53,710(a) $ 80,180 $104,990 $ 90,440
-----------------------------------------------------
Earnings per share:
Before cumulative effect of accounting changes . . . . . . $ .42 $ .57 $ .74 $ .64
Cumulative effect of accounting changes. . . . . . . . . . $ (.03)(a) $ -- $ -- $ --
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ .39 (a) $ .57 $ .74 $ .64
-----------------------------------------------------
YEAR ENDED JUNE 30, 1993
- ------------------------------------------------------------------------------------------------------------------------
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . $495,303 $518,471 $612,956 $596,644
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 51,920 $ 70,130 $ 92,480 $ 79,670
Earnings per share . . . . . . . . . . . . . . . . . . . . . $ .37 $ .50 $ .65 $ .56
-----------------------------------------------------
YEAR ENDED JUNE 30, 1992
- ------------------------------------------------------------------------------------------------------------------------
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . $429,083 $449,285 $545,299 $516,904
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 45,810 $ 60,350 $ 79,750 $ 70,270
Earnings per share . . . . . . . . . . . . . . . . . . . . . $ .33 $ .44 $ .57 $ .50
-----------------------------------------------------
<FN>
(a) THE PREVIOUSLY REPORTED AMOUNTS HAVE BEEN RESTATED TO REFLECT THE ADOPTION
IN THE FOURTH QUARTER OF FISCAL 1994, RETROACTIVE TO JULY 1, 1993, OF FINANCIAL
ACCOUNTING STANDARDS BOARD STATEMENT NO. 112, "EMPLOYERS' ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS" (SEE NOTE 1B.).
</TABLE>
Third quarter revenue and earnings have historically been positively impacted by
calendar year-end processings associated with many of the Company's services.
30
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying financial
statements. The financial statements, which include amounts based on the
application of business judgements, have been prepared in conformity with
generally accepted accounting principles. Deloitte & Touche LLP, independent
certified public accountants, have audited our consolidated financial statements
as described in their report.
The Company maintains financial control systems designed to provide
reasonable assurance that assets are safeguarded and that transactions are
executed and recorded in accordance with management authorization. The control
systems are supported by written policies and the control environment is
regularly evaluated by both the Company's internal auditors and Deloitte &
Touche.
The Board of Directors has an Audit Committee comprised of five outside
directors. The Audit Committee meets with both Deloitte & Touche and the
internal auditors with and without management's presence. It monitors and
reviews the Company's financial statements and internal controls, and the scope
of the internal auditors' and Deloitte & Touche's audits. Deloitte & Touche and
the internal auditors have free access to the Audit Committee.
/s/ Josh S. Weston /s/ Fred D. Anderson, Jr. /s/ Richard J. Haviland
Josh S. Weston Fred D. Anderson, Jr. Richard J. Haviland
CHAIRMAN AND CHIEF CHIEF FINANCIAL OFFICER CORPORATE CONTROLLER
EXECUTIVE OFFICER
Roseland, New Jersey, August 15, 1994
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 as of June 30, 1994 and 1993, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Automatic Data Processing, Inc.
and subsidiaries at June 30, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994
the Company changed its methods of accounting for postemployment benefits other
than pensions and for income taxes.
/s/ Deloitte & Touche LLP
New York, New York, August 15, 1994
31
<PAGE>
EXHIBIT 21
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION
- ------------------ -----------------
ADP Atlantic, Inc. Delaware
ADP Claims Solutions Group, Inc. Delaware
ADP Autonom Computer GmbH Germany
ADP Nederland B.V. The Netherlands
ADP Central, Inc. Delaware
ADP Credit Corp. Delaware
ADP Dealer Services Ltd. Canada (Federal)
ADP East, Inc. Delaware
ADP Financial Information Services, Inc. Delaware
ADP Financial Information Services (UK) Limited United Kingdom
ADP, Inc. Delaware
ADP Insurance Company, Ltd. Delaware
ADP Network Services International, Inc. Delaware
ADP Network Services Limited United Kingdom
ADP of New Jersey, Inc. Delaware
ADP of North America, Inc. Delaware
ADP Pacific, Inc. Delaware
ADP Savings Association Pennsylvania
ADP Tax Services, Inc. Delaware
In accordance with Item 601(b)(21) of Regulation S-K, the Registrant has omitted
the names of particular subsidiaries because the unnamed subsidiaries,
considered in the aggregate as a single subsidiary, would not have constituted a
significant subsidiary as of June 30, 1994.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' REPORT ON SCHEDULES AND CONSENT
To The Board of Directors
and Shareholders of
Automatic Data Processing, Inc.
Roseland, New Jersey
We have audited the consolidated financial statements of Automatic Data
Processing, Inc. as of June 30, 1994 and 1993, and for each of the three years
in the period ended June 30, 1994, and have issued our report thereon dated
August 15, 1994, which report includes an explanatory paragraph indicating
changes in accounting principles for postemployment benefits other than pensions
and for income taxes; such consolidated financial statements and report are
included in your 1994 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the financial statement schedules of
Automatic Data Processing, Inc., listed in Item 14. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
In addition, we consent to the incorporation by reference in Automatic Data
Processing, Inc.'s Registration Statement No. 33-45150 on Form S-3 and
Registration Statements Nos. 33-24987, 33-25290, 33-38338, 2-75287, 33-38366,
33-38365 and 33-46168 on Form S-8 of our report dated August 15, 1994, included
in your 1994 Annual Report to Shareholders and incorporated by reference in the
Annual Report on Form 10-K of Automatic Data Processing, Inc. for the year ended
June 30, 1994.
/s/ Deloitte & Touche LLP
August 15, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE 1994 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 238626000
<SECURITIES> 351969000
<RECEIVABLES> 318609000
<ALLOWANCES> (20513000)
<INVENTORY> 22001000
<CURRENT-ASSETS> 985417000
<PP&E> 1001293000
<DEPRECIATION> (605445000)
<TOTAL-ASSETS> 2705565000
<CURRENT-LIABILITIES> 478174000
<BONDS> 372959000
<COMMON> 15712000
0
0
<OTHER-SE> 1675539000
<TOTAL-LIABILITY-AND-EQUITY> 2705565000
<SALES> 0
<TOTAL-REVENUES> 2468966000
<CGS> 0
<TOTAL-COSTS> 1990592000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11204000
<INTEREST-EXPENSE> 20840000
<INCOME-PRETAX> 446330000
<INCOME-TAX> 112210000
<INCOME-CONTINUING> 334120000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (4800000)
<NET-INCOME> 329320000
<EPS-PRIMARY> $2.34
<EPS-DILUTED> $2.28
</TABLE>
<PAGE>
APPENDIX
(AS REQUIRED PURSUANT TO RULE 304(a) OF REGULATION S-T)
The following is a narrative description of the graphic or image material
which appears in Exhibit 13 to the Registrant's Annual Report on Form 10-K (the
"Form 10-K"). Exhibit 13 contains particular pages from the Registrant's 1994
Annual Report to Shareholders (the "1994 Annual Report") which are incorporated
by reference into the Form 10-K.
PAGE IN 1994
ANNUAL REPORT DESCRIPTION
- ------------- -----------
2 The bar graph on page 2 of the 1994 Annual Report indicates that
the Registrant's earnings per share were as follows: 1990--$1.44;
1991--$1.63; 1992--$1.84; 1993--$2.08; 1994--$2.37.
3 The bar graph on page 3 of the 1994 Annual Report indicates that
the Registrant's revenue, in millions, was as follows: 1990--
$1,714; 1991--$1,772; 1992--$1,941; 1993--$2,223; 1994--$2,469.
6 The photograph on page 6 of the 1994 Annual Report is described in
the caption on page 6 of such report.
7 The left and right photographs on page 7 of the 1994 Annual Report
are described in the caption on page 7 of such report.
8 The left and right photographs on page 8 of the 1994 Annual Report
are described in the caption on page 8 of such report.
9 The photograph on page 9 of the 1994 Annual Report is described in
the caption on page 9 of such report.
10 The photograph on page 10 of the 1994 Annual Report is described
in the caption on page 10 of such report.
11 The left and right photographs on page 11 of the 1994 Annual
Report are described in the caption on page 11 of such report.
12 The photograph on page 12 of the 1994 Annual Report is described
in the caption on page 12 of such report.
13 The photograph on page 13 of the 1994 Annual Report is described
in the caption on page 13 of such report.
