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, 1996
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec.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 September 13, 1996 was $12,171,600,382. On September 13, 1996,
there were 290,038,815 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1996 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 12, 1996. Part III
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Part I
Item 1. Business
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Automatic Data Processing, Inc., incorporated in Delaware in 1961, and its
subsidiaries (collectively, "ADP") are engaged 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) and/or to interactively access
and utilize ADP and third party databases and information, utilizing ADP's
batch, interactive and client site systems.
Employer Services
ADP's Employer Services offers a comprehensive range of payroll, payroll
tax deposit and reporting, human resources (HR), benefits outsourcing,
timekeeping, 401(k) recordkeeping, and unemployment compensation management
services. These services are provided to over 350,000 clients engaged in a wide
variety of businesses. In addition to its direct marketing, ADP has marketing
relationships with many banks and accountants whereby ADP offers its services to
their business clients. Employer services are offered from 40 computer centers
and 73 satellite sales and service centers in the United States, 14 computer
centers in Western Europe and one center in Canada. For clients who desire to
do their own processing, client site payroll and HR software is available.
Payroll and tax filing services comprise over 87% of Employer Services'
revenue. Payroll services include the preparation of pay checks and direct
deposits, along with supporting journals, summaries and management reports. ADP
also supplies the quarterly and annual social security, medicare, and federal,
state and local income tax withholding reports required to be filed by employers
and employees.
ADP's tax filing services process federal, state and local payroll taxes on
behalf of ADP clients and remit such taxes to the appropriate taxing authorities
when due. As new products evolve (such as new hire reporting, ADP check/full
service direct deposit and wage garnishment payment), the ADP Tax Filing center
is also responsible for the efficient movement of funds and information to
third parties. Over 260,000 clients rely on tax filing to assure regulatory
compliance.
Approximately 45% of Employer Services' payroll and payroll tax filing
services revenue for the past three fiscal years have been attributable to its
heartland accounts (companies with between 1 and 99 employees), approximately
40% to major accounts (between 100 and 999 employees) and approximately 15% to
national accounts (with 1,000 or more employees).
Autopay continues to be ADP's most popular, flexible and comprehensive
payroll product with over 225,000 clients. Recently, PC/Payroll for Windows was
introduced. ADP offers EasyPay, a simple, low-cost, outsourcing payroll
solution for approximately 100,000 clients in the heartland
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market. For heartland clients who prefer client site processing for managing
payroll and payroll taxes, ADP has a PC-based product called SoftPay. For
national accounts clients, ADP's Client Server Series provides fully integrated
client site payroll, HR and benefits administration and outsourcing services.
ADP's Application Group installs and implements client server systems for ADP
clients and other users of server technology.
Full Service Direct Deposit in association with major bank partners permits
employers to easily, rapidly and economically make electronic direct deposits
to employee bank accounts. ADP's joint venture with Checkfree Corporation
provides electronic banking and bill payment services to small businesses to
help them manage money and improve their accounts payable process.
ADP's HR services, operating in conjunction with a client's payroll
database, provide comprehensive recordkeeping HR services, including benefits
administration and outsourcing, applicant tracking, employee history and
position control. The various HR systems run on standalone PC's, local or wide
area networks or client/server systems.
ADP Total Time provides a comprehensive time-keeping system fully
integrated into ADP's payroll systems. ADP's unemployment compensation service
aids clients in managing and reducing unemployment insurance costs. ADP's
Peachtree and One Write accounting packages are sold through retail channels.
ADP also offers 401(k) recordkeeping, benefits administration and benefits
consulting. Comprehensive 401(k) administrative services relating to defined
benefit plans, flexible spending, healthcare and other group benefits are
offered.
As more ADP clients become multinational in scope, it becomes increasingly
important to offer services on a global scale. Last January, ADP acquired
Paris-based GSI, Europe's largest provider of payroll and related HR services.
In Europe, ADP's services for payroll and HR management are now provided in
Belgium, France, Germany, Italy, the Netherlands, Spain, Switzerland and the
United Kingdom. This makes ADP the first provider of integrated payroll and HR
services to U.S. corporations and their European subsidiaries.
Brokerage Services
ADP's Brokerage Services provides high quality, high speed securities
transaction processing, investor support tools, market data services, and
investor communications related services to the financial community worldwide.
ADP is the largest provider of such third-party processing and retail equity
information systems in the U.S. and Canada. Brokerage Services now supplies
over 2,600 firms globally with technology-based information solutions.
ADP provides front-office database, news, analytic and quotation services
for the investment and brokerage community through terminals located on brokers'
desks. ADP provides such services through interactive work stations (utilizing
client-server architecture) for all active equity securities, commodities,
currencies, and interest rate futures. ADP also offers its international
clients real-time news processing systems, real-time fixed income, foreign
exchange and money market information, and sophisticated analytics. ADP's
Power Partner service is based on state-of-the-art "object linking and embedding
technology" which allows clients to modularly build, and
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seamlessly integrate, market information, securities processing systems, broker
productivity tools, client applications and third party software into their
workstations. Global Treasury Information Services (GTIS) keeps its clients in
tune with price information, news and commentary on world markets in the areas
of fixed income, foreign exchange, money markets, futures and metals.
Information is contributed directly to GTIS by key institutions (e.g., banks
and brokers) who participate in these markets.
Brokerage Services continued its expansion in the institutional
marketplace with several acquisitions. The DAIS Group provides sophisticated
quantitative models to help portfolio managers assess risk and select stocks.
Merrin Financial provides automated securities trade order management and
routing solutions for investment managers and securities brokers. Information
Catalysts (ICI) markets automated and fixed income trading, operations and
accounting software for domestic and international banks and securities
brokerage firms.
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's GlossTrader client-server system offers global multicurrency
clearance and settlement services for international securities.
ADP provides shareholder communication services in the United States and
Canada, handling all shareholder mailings and proxy processing for shareholders
whose securities are left in "street name" in the custody of ADP's "nominee"
clients (principally brokerage firms and banks). In fiscal 1996, ADP processed
over 235 million shareholder mailings for over 12,000 publicly held
corporations, mutual funds and financial institutions. Shareholder ballots
representing approximately 127 billion shares were electronically processed. As
part of its shareholder communication services, ADP introduced StreetLink, a
quickly deliverable laser printed alternative to expensive quarterly mailings to
shareholders. Proxy Edge is an electronic voting service which dramatically
improves voting efficiency and record keeping. PhoneVOTE Services enables
mutual fund shareholders to vote their proxy over the telephone for same-day
tabulation.
Dealer Services
ADP's Dealer Services provides industry-specific computing, data and
professional services to automobile, truck and farm equipment dealers and
manufacturers in the U.S., Canada, Europe, Asia and Latin America. Over 16,000
dealers use ADP's on-site systems and communications networks to manage every
area of sales and operations. ADP addresses critical dealership areas and
offers software and professional services to improve consumer loyalty, asset
management, innovative technology, employee productivity training, manufacturer
relations, business improvements and real-time information access. It offers
clients a service solution which includes ADP computer hardware, licensed
software, software support and hardware maintenance services. Clients use ADP's
systems to manage their accounting, inventory, factory communications,
scheduling, leasing,sales and service activities. In addition, ADP offers
more than 95 manufacturer subsystems for pricing updates and factory ordering.
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ADP establishes and maintains communications networks for its clients which
allow interactive communications between manufacturers and their respective
dealers. These communication networks are used for new vehicle ordering, status
inquiry and warranty claims, parts and vehicle locating, credit checks, vehicle
repair estimating, vehicle registration and vehicle lienholder information.
ADP continues to automate the business processes for its clients through
value-added products such as paperless parts cataloging, repair shop pricing and
scheduling, laser printing, and data archiving and document storage. ADP's
Laser Station replaces pre-printed, multipart, carbonized forms with customized
laser-printed originals, allowing dealers to print from a single laser printer
all types of customer communications, including customer satisfaction surveys,
service reminders, invoices and statements. ADP's Document Storage & Data
Archiving product is designed to create a paperless office, using optical disk
and scanning technologies to electronically scan, store and retrieve purchase
orders, invoices, checks, other documents and even customer signatures. ADP's
New Vehicle Order System increases vehicle order accuracy, improves vehicle
management and reduces floor plan interest expense. The Used Vehicle Network
helps dealers manage their used vehicles more efficiently.
As industry change accelerated, ADP introduced its Advisor family of
products. Super Service Advisor fully automates the reservation and service
write-up process using hand-held wireless, electronic clipboard technology.
Sales Advisor is a complete retail sales process application designed to improve
sales performance and customer handling. The ADP Sales Kiosk is a
state-of-the-art interactive sales presentation tool, and ADP's Relationship
Marketing System (RMS) automates all phases of customer contact from initial
prospect through the purchase life cycle and on-going service.
Changes in customer expectations and manufacturer's requirements are
modifying how the traditional dealership conducts business. In response to
these changes, ADP is providing consulting services to its dealer clients to
help them reengineer their management processes. It also offers solutions to
help employee productivity and training, and provides the tools and services
necessary to improve dealership productivity and profitability.
Claims Services
ADP provides auto repair estimating and parts availability services to
insurance companies, claims adjusters, repair shops and salvage yards involved
in auto collision repair and valuation in the United States and Canada. 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. ADP provides management information
and vehicle damageability and repair cost statistics to insurance companies,
government agencies and automobile manufacturers. A pen-based, mobile auto
estimating system, using state-of-the-art technology and graphical user
interfaces, was recently introduced. Satellite and voice-based trading networks
for the location and pricing of recycled parts, and ADP's salvage-related
products and services, have been significantly expanded.
ADP provides services that evaluate the appropriateness of medical
treatment and invoicing for auto accident victims. The core product, Provider
Bill Audit, is an expert system that performs fee and utilization audits of
medical provider bills involving soft tissue injury and that provides auto
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insurers with a consistent methodology for assessing the proper diagnoses and
treatment of automobile-related injuries.
ADP also provides a property loss repair and replacement system to assist
in settling homeowners' claims.
Nature of Services Provided
In each of Employer Services, Dealer Services, Claims Services and most of
Brokerage Services, ADP's services primarily involve the processing and
utilization of client and/or third party data. In the front-office component of
the Brokerage Services business, the primary service takes the form of providing
securities, commodities and currencies quotation data (which data is provided by
various exchanges) and news to clients; this front-office component represents
less than 10% of consolidated revenue.
Services to all industries are generally available by the electronic
transmission (through communications lines) of computer-generated data and
information from and to clients. Services are offered through a variety of
systems and networks which run on industry-standard operating systems.
Virtually none of ADP's services require ADP-proprietary hardware 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 computer rooms and
communications networks, and ADP occasionally transfers some of its employees
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 approximately 11% of fiscal 1996
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 serves 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 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
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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 other independent computing services companies,
divisions of diversified enterprises and banks. Another competitive factor in
the computing services industry is the in-house computing function, whereby a
company installs and operates its own computing systems.
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 ADP's competitive position in the computing services industry.
No one competitor or group of competitors is dominant in the computing services
industry.
Clients and Client Contracts
ADP provides computing services to over 375,000 clients. Annual revenues
attributable to large client accounts range from $1 million to approximately $67
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 no material "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 because no sale is considered firm until it is installed and begins
producing revenue.
ADP's average client retention is 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.
Discounts, rebates and promotions offered by ADP to clients 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.
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Systems Development and Programming
During the fiscal years ended June 30, 1996, 1995 and 1994, ADP spent
$249,635,000, $193,173,000 and $160,803,000, 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 approximately 40%. ADP
sets minimum sales quotas on an individual basis.
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 total 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 industry-standard 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 29,000 persons as of June 30, 1996.
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Executive Officers of the Registrant
See Item 10 in Part III hereof.
Item 2. Properties
ADP leases space for more than 55 of its processing centers. In addition,
ADP leases numerous small processing centers and sales offices. All of these
leases, which aggregate approximately 5,020,469 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 2,331,645 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 18 of the Registrant's 1996
Annual Report to Shareholders, which information is incorporated herein by
reference. As of August 25, 1996, the Registrant had 27,186 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 16 of the Registrant's 1996 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 17 and 18 of the
Registrant's 1996 Annual Report to Shareholders, the Letter to Shareholders on
pages 2-4 of such report and the business descriptions on pages 5-15 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 1996 Annual
Report to Shareholders
----------------------
Quarterly Financial Results (unaudited) for
the three years ended June 30, 1996 27
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
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James B. Benson 51 Vice President, General 1977
Counsel and Secretary
Gary C. Butler 49 Group President of 1975
Employer Services
Robert J. Casale 57 Group President of 1988
Brokerage Services
G. Harry Durity 49 Vice President, 1994
Worldwide Business
Development
Richard J. Haviland 50 Vice President, Finance 1982
Michael R. Holmes 38 Vice President, 1991
Human Resources
Peter M. Leger 45 President of 1992
Dealer Services
S. Michael Martone 48 President of Claims 1987
Services
Joseph B. Pirret 55 Vice President 1974
and Treasurer
Arthur F. Weinbach 53 President and 1980
Chief Executive Officer
Messrs. Benson, Butler, Casale, Haviland, Holmes, Pirret and Weinbach have
each been employed by ADP in senior executive positions for more than the past
five years.
G. Harry Durity joined ADP in August 1994 as Corporate Vice President,
Worldwide Business Development. Prior to joining ADP he was Senior Vice
President - Corporate Development of Revlon Consumer Products Company. Between
1990 and February 1993 when he joined Revlon, he was President of The Highlands
Group, Inc.
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Peter M. Leger joined ADP in March 1992 as Executive Vice President, North
America of Dealer Services and was promoted to President of Dealer Services in
January 1995. Prior to joining ADP, he was employed by Reuters North America in
various senior executive positions.
S. Michael Martone joined ADP in 1987. Prior to his promotion to
President of the Claims Solutions Group in December 1995, he held senior vice
president positions in both the Employer Services Group and the Dealer Services
Group.
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 1996
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 1996 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 Managers" in the Proxy Statement for Registrant's 1996 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
See "Compensation of Executive Officers--Certain Transactions" in the
Proxy Statement for Registrant's 1996 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
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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 1996 Annual
Report to Shareholders
----------------------
Independent Auditors' Report 28
Consolidated Balance Sheets - June 30, 1996 and 1995 20
Statements of Consolidated Earnings - years
ended June 30, 1996, 1995 and 1994 19
Statements of Shareholders' Equity - years
ended June 30, 1996, 1995 and 1994 21
Statements of Consolidated Cash Flows - years
ended June 30, 1996, 1995 and 1994 22
Notes to Consolidated Statements 23-27
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 10-K
-----------------
Schedule II - Valuation and Qualifying Accounts 15
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 and Restated Certificate of Incorporation dated
December 15, 1994 - incorporated by reference to Exhibit
(3)-#1 to Registrant's Annual Report on Form 10-K for the
fical year ended June 30, 1995
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3.2 - By-Laws as currently in effect - incorporated by reference
to Exhibit (3)-#2 to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1991
4 - 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 Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992
10.1 - 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)
10.1(a) - 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)
10.1(b) - Amendment to Employment Agreement with Josh S. Weston -
incorporated by reference to Exhibit 10(ii)(A)-3 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994 (Management Contract)
10.1(c) - Amendment to Employment Agreement with Josh S. Weston
(Management Contract) - incorporated by reference to
Exhibit 10(ii)(A)-4 to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1995
10.2 - Letter Agreement dated as of August 1, 1996 between
Automatic Data Processing, Inc. and Arthur F. Weinbach
(Management Contract)
10.3 - Agreement with Robert J. Casale - 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 Contract)
10.4 - 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)
10.5 - 1981 Key Employees' Stock Option Plan - incorporated by
reference to Registrant's Registration Statement No.
2-75287 on Form S-8 (Management Compensatory Plan)
10.5(a) - 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)
10.6 - Key Employees' Restricted Stock Plan - incorporated by
reference to Registrant's Registration Statement No.
33-25290 on Form S-8 (Management Compensatory Plan)
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10.7 - 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)
10.8 - 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)
10.9 - 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)
10.10 - 1994 Directors' Pension Arrangement - incorporated by
reference to Exhibit 10(iii)(A)-#10 to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994
(Management Compensatory Plan)
10.11 - 1994 Executive Compensation Plan - incorporated by
reference to Exhibit A to Registrant's Proxy Statement for
its Annual Meeting of Stockholders held November 15, 1994
(Management Compensatory Plan)
11 - Schedule of Calculation of Earnings Per Share
13 - Pages 2-28 of the 1996 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 on Schedules and Consent
27 - Financial Data Schedule
(b) None.
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<TABLE><CAPTION>
AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
SCHEDULE II - 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, 1996:
Allowance for doubtful accounts:
Current $23,035 $9,115 $4,835(B) $2,358(A) $34,627
Long-term $26,166 $2,986 -- $3,425(A) $25,727
Year ended June 30, 1995:
Allowance for doubtful accounts:
Current $20,513 $8,415 $904(B) $6,797(A) $23,035
Long-term $24,526 $3,916 -- $2,276(A) $26,166
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
</TABLE>
(A) Doubtful accounts written off, less recoveries on accounts previously
written off.
(B) Acquired in purchase/pooling transactions.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AUTOMATIC DATA PROCESSING, INC.
(Registrant)
September 23, 1996 By: /s/ Arthur F. Weinbach
-------------------------------------
Arthur F. Weinbach
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE><CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Arthur F. Weinbach President and Chief September 23, 1996
- ---------------------------
(Arthur F. Weinbach) Executive Officer
(Principal Executive Officer)
/s/ Richard J. Haviland Vice President, Finance September 23, 1996
- ---------------------------
(Richard J. Haviland) (Principal Financial Officer)
/s/ Josh S. Weston Chairman of the Board September 23, 1996
- ---------------------------
(Josh S. Weston)
/s/ Gary C. Butler Director September 23, 1996
- ---------------------------
(Gary C. Butler)
/s/ Joseph A. Califano, Jr. Director September 23, 1996
- ---------------------------
(Joseph A. Califano, Jr.)
/s/ Leon G. Cooperman Director September 23, 1996
- ---------------------------
(Leon G. Cooperman)
___________________________ Director September __, 1996
(George H. Heilmeier)
/s/ Ann Dibble Jordan Director September 23, 1996
- ---------------------------
(Ann Dibble Jordan)
</TABLE>
-16-
<PAGE>
<TABLE><CAPTION>
<S> <C> <C>
/s/ Harvey M. Krueger Director September 23, 1996
- ---------------------------
(Harvey M. Krueger)
___________________________ Director September __, 1996
(Charles P. Lazarus)
___________________________ Director September __, 1996
(Frederic V. Malek)
/s/ Henry Taub Director September 23, 1996
- ---------------------------
(Henry Taub)
___________________________ Director September __, 1996
(Laurence A. Tisch)
</TABLE>
-17-
<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 1996 Annual
Report to Shareholders (the "1996 Annual Report") which are
incorporated by reference into the Form 10-K.
Page in 1996
Annual Report Description
------------- -----------
2 The photograph on page 2 of the 1996 Annual
Report is of Josh S. Weston, Chairman.
3 The photograph on page 3 of the 1996 Annual
Report is of Arthur F. Weinbach, President
and Chief Executive Officer.
5 The photograph on page 5 of the 1996 Annual
Report is described in the following caption
on page 5: "Below: World famous toy retailer,
F.A.O. Schwarz counts on ADP to process its
payroll for 900 employees. In over 40
states, ADP handles the company's payroll tax
filing and reporting. Pictured below are
Jennifer Miller (right), Major Account
District Manager for ADP, and F.A.O. Schwarz
Payroll Manager, Teddi O'Reilly (left)."
6 The photograph on page 6 of the 1996 Annual
Report is described in the following caption
on page 6: "Below: ADP is pleased to be a
supporter of our client Habitat for Humanity
International, a non-profit organization
dedicated to eliminating poverty housing
worldwide. Habitat looks to ADP to handle
its payroll processing, tax filing and new
hire reporting."
7 The photograph on page 7 of the 1996 Annual
Report is described in the following caption
on page 7: "Above: ADP Client Service
Representative, Linda Del Savio (left) with
Dennis Crumpler, Chairman and CEO of Atlanta-
based XcelleNet, a worldwide leader in
software for remote access computing that
relies upon ADP to provide state-of-the-art
payroll processing and information support.
ADP depends upon XcelleNet's Remote Ware to
keep its Client Service work station software
up to date."
8 The two photographs on page 8 of the 1996
Annual Report are described in the following
caption on page 8: "Right: Anthony
<PAGE>
Portelli (left), Director, SBC Warburg Inc.,
thanks Tevin Datz (right), Vice President,
Account Management, for ADP's support and
dedication during the recent merger of SBC
Capital Markets Inc., and SG Warburg, which
created the new entity SBC Warburg Inc.
ADP's proactive planning and solid commitment
ensured an efficient and seamless
consolidation of the two firms' books and
records. Below: Hussein Khoder (right), ADP
Vice President, Account Management, and Bill
Anderson (left), Executive Vice President &
Chief Executive Information Officer,
Prudential Securities, discuss implementing
ADP's strategic products on Prudential's
technology platform. The firms recently
strengthened their thirteen-year partnership
by entering into an agreement to install over
12,000 Power Partner workstations in
Prudential's retail offices, worldwide."
9 The photograph on page 9 of the 1996 Annual
Report is described in the following caption
on page 9: "Above: (from right to left)
Bruce Barnett, ICS, VP of Account Management,
and Steven DeBernardo, Client Services
Director, discuss applications with Bear
Stearns & Co. Inc. executives, Joseph
Kruszka, Managing Director, and Jeffrey C.
Bernstein, Senior Managing Director.
Frequent consultation helps both firms
identify opportunities. Bear Stearns uses
several ADP products and is one of our
largest and longest client relationships."
10 The photograph on page 10 of the 1996 Annual
Report is described in the following caption
on page 10: "Below: Ross Pope, (left) ADP
Regional Director of Sales, and Terry Petit,
(right) Client Relations Director, discuss
the ADP Advisor family of products with Keith
McCluskey (center), President, McCluskey
Chevrolet in Cincinnati, Ohio. McCluskey
Chevrolet is a member of Driver's Mart
Worldwide Inc., a used-car mega retail chain
established by a group of elite auto dealers.
ADP partnered with Driver's Mart in
developing the first truly interactive auto
retailing system. It promises to
revolutionize customer buying experiences."
11 The two photographs on page 11 of the 1996
Annual Report are described in the following
captions on page 11: "Above: Nancy Rozinsky
(left), ADP Fixed Operations Product Leader,
discusses process improvements with Hank
Faulkner (center), CEO, and Walt Huber
(right), Director of Operations, The Faulkner
Organization, Trevose, Pennsylvania. The
Faulkner Organization owns eighteen
dealerships, and uses ADP's on-site systems
and communications networks to manage every
area of their operation. Left: ADP
AutoConnect is the most complete Internet
service
<PAGE>
created for both auto dealers and consumers.
Cole Younger (right), ADP Major Account
Executive, demonstrates how a web site on ADP
AutoConnect will assist in advertising
efforts for their sixteen dealerships with
Glenn Gardner (left), General Manager, and
Joseph Holman (center), Chairman of the
Board, Holman Enterprises, Pennsauken, NJ.
ADP AutoConnect is home to the largest
community of dealer web sites on the
Internet."
12 The photograph on page 12 of the 1996 Annual
Report is described in the following caption
on page 12: "Below: Zurich Canada conducts
electronic commerce with collision repair
facilities and independent appraisal firms,
unifying and controlling the claims
restoration process with information systems
and network communications from ADP. Nick
Briante, Senior Vice President, Claims
(right), and Trevor Hayes, National Appraisal
Manager (left), meet with ADP's Director of
Client Relations, John Kotsopoulos, to
explore the implementation of Electronic
Funds Transfer as the next step in Zurich's
blueprint for overall process improvement and
increased customer satisfaction."
13 The two photographs on page 13 of the 1996
Annual Report are described in the following
caption on page 13: "Above and left: When
American Family Insurance Company invented
their Concept Claims System (CCS), technology
provided a means to implement their dream of
a paperless work environment. One of their
Physical Damage Representatives, Bob
Schubring, uses his mobile ADP system to
capture digital images of the damaged vehicle
and write the computerized estimate while
still in the field. As soon as he transmits
this electronic claims folder to Donna Drews,
the Drive-in Claims Processor at the office,
she starts the check-in process to file the
claim in CCS. Within a matter of minutes,
claims representatives at American Family can
access the information - simply by opening
the folder on their computer screen - as they
provide service for the policyholder."
14 The two photographs on page 14 of the
1996 Annual Report are described in the
following caption on page 14: "Above:
Catherine Marioli, Compagnie Francaise
Philips Payroll/HR Specialist based in Paris,
uses a complete ADP-GSI solution that serves
all of Philips' needs for payroll and human
resources management in France. Philips is a
supplier of lighting and electronics products,
systems and services and has developed a wide
range of multimedia activities. Right:
Michael Kurch (right), ADP Sales Manager
(Germany), Johannes Sczepan (center),
Managing Director, and Peter Nuhs (left), IT
Manager of Georg von Opel
<PAGE>
Group discussing the implementation of ADP's
new sales advisor system. George von Opel
Group is one of ADP's strategic clients in
Germany generating more than 30,000 new and
used car sales through almost 40 locations in
Germany."
15 The photograph on page 15 of the 1996 Annual
Report is described in the following caption
on page 15: "Above: Ian Buchanan, Deputy
Managing Director, Information Systems,
Nomura International (left), with Terry
Williams, Wilco Chairman. Wilco specializes
in meeting the needs of the international
securities industry and global custodians.
Wilco's global trading and settlement system,
Gloss, was selected by Nomura because of its
ability to process high volumes on a
resilient client server platform."
EXHIBIT 10.2
As of August 1, 1996
Arthur F. Weinbach
1 Twin Oak Road
Short Hills, New Jersey 07078
Dear Art:
Congratulations again on becoming Chief Executive Officer of Automatic Data
Processing, Inc. ("ADP"). The Board of Directors is more than pleased with your
appointment and looks to the future with confidence and enthusiasm. The letter
outlines our understandings concerning your new position of President and Chief
Executive Officer of ADP:
1. Employment. You shall be employed by ADP as its President and Chief
----------
Executive Officer, subject to the direction and control of its Board of
Directors. You shall also be a member of ADP's Board of Directors and a member
of the Board's Executive Committee.
2. Compensation.
------------
(a) ADP shall pay you a salary of at least $580,000 per annum.
(b) Your target bonus for each fiscal year (i.e. July 1 to June 30) shall
be at least $290,000. The actual bonus paid for each fiscal year shall be based
upon your accomplishments in relation to pre-established goals (including
business growth, increased profitability and other significant items).
(c) ADP will continue to sell you restricted stock under its Key
Employees' Restricted Stock Plan such that restrictions will lapse during each
fiscal year on the number of shares of restricted stock which had, on the date
you originally purchased them, an aggregate market value of at least $500,000.
You will also, at all times, own sufficient shares of ADP restricted stock on
which restrictions will lapse during each of the following two fiscal years
which satisfy the foregoing fiscal year minimum market value test.
(d) You will be granted a stock option at the next Stock Option Committee
meeting to purchase 110,000 shares of ADP common stock under its 1990 Key
Employees' Stock Option Plan, of which 20,000 will vest in the year 2000, 40,000
shares will vest in 2001 and 50,000 shares will vest in 2002.
(e) The above salary, bonus and stock arrangements will be reviewed
annually by ADP's Board of Directors and may be increased in its sole
discretion.
3. Term. The initial term of this letter agreement shall end July 31,
----
1997. This letter agreement shall automatically continue after its initial term
for successive one-year periods unless and until either of us gives the other
written notice prior to June 1 of the applicable one year term that this letter
agreement shall terminate as at the end of such term.
4. Termination. If your employment with ADP is terminated, you will
-----------
receive the following compensation:
(a) If you are discharged for cause, ADP's obligation to make payments to
you shall cease on the date of such discharge. As used herein, the term "for
cause" shall cover circumstances where ADP elects to terminate your employment
because you have (i) been convicted of a criminal act, (ii) failed or
<PAGE>
refused to perform your obligations as President and Chief Executive Officer,
(iii) committed any act of negligence in the performance of your duties
hereunder and failed to take appropriate corrective action, or (iv) committed
any act of willful misconduct.
(b) If ADP terminates your employment for any reason other than "for
cause", for permanent or serious disability or on account of a "Change in
Control", you will, for 18 months after such termination date, (i) receive the
compensation provided for under Paragraph 2(a) above, (ii) have the restrictions
on your restricted stock continue to lapse, and (iii) have your Company stock
options continue to vest.
(c) If you become permanently and seriously disabled, either physically or
mentally, so that you are absent from your office due to such disability and
otherwise unable substantially to perform your services hereunder, ADP may
terminate your employment. ADP shall continue to pay you your full compensation
up to and including the effective date of your termination for disability. For
36 months after such termination date, you will receive the compensation
provided for under Paragraph 2(a) above and have the restrictions on your
restricted stock continue to lapse. All of your outstanding and unvested ADP
stock options shall automatically vest on the date of your termination for
disability.
(d) If you elect to voluntarily leave ADP in the absence of a Change in
Control, ADP's obligation to make payment to you shall cease on the date your
employment ends.
(e) If a Change in Control occurs and if your employment is terminated
(other than for cause) or you resign for "Good Cause" within two years after
such Change in Control event, you will receive a termination payment equal to
300% of your "Current Total Annual Compensation". This termination payment will
be reduced to either 200% or 100% of your Current Total Annual Compensation if
such termination or resignation occurs during the third year, or more than three
years, after such Change in Control event, whichever is applicable. In
addition, all of your ADP stock options will become fully vested, and all of
your ADP restricted stock having restrictions lapsing within three years after
the date of such termination or resignation shall have such restrictions
automatically removed. ADP will also pay you a tax equalization payment in an
amount which when added to the other amounts payable to you under Paragraph 4(e)
will place you in the same after-tax position as if the excise tax penalty of
Section 4999 of the Internal Revenue Code of 1986 or any successor statute of
similar import did not apply.
(f) The termination of this letter agreement or your employment shall not
affect those provisions of this letter agreement that apply to any period or
periods subsequent to such termination.
5. For purposes of this Agreement, the following definitions shall apply:
(a) "Change in Control" shall mean: (A) the acquisition by any person,
entity or "group", of beneficial ownership of 25% or more of ADP's
outstanding common stock; or (B) approval by ADP's stockholders of a
reorganization, merger or consolidation, with respect to which persons
who were the stockholders of ADP immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the combined voting power of the
reorganized, merged or consolidated company's then outstanding voting
securities.
(b) "Good Reason" shall mean: (A) any action which results in a diminution
in any respect in your current position, authority, duties or
responsibilities as ADP's President and Chief Executive Officer; or
(B) a reduction in the overall level of your compensation or benefits.
(c) "Current Total Annual Compensation" shall be the total of the
following amounts: (A) the greater of your current annual salary for
the calendar year in which your employment
-2-
<PAGE>
terminates or for the calendar year immediately prior to the year of
such termination; and (B) the average of your annual bonus
compensation (prior to any bonus deferral election), for the two most
recent calendar years immediately preceding the year in which your
employment terminates.
6. SORP. As at December 31, 1996, under the Automatic Data Processing,
----
Inc. Supplemental Officers Retirement Plan (the "SORP"), your "Vested
Percentage" shall be 100% and your "Future Service" period shall be 10 years.
If your employment hereunder terminates other than for cause: (i) your Future
Service period shall be deemed to be 17 years as at the date of such
termination; and (ii) your "Final Average Annual Pay" shall, to the extent
applicable, be deemed to include the applicable compensation attributable to the
periods covered by the termination payments made to you hereunder. Your Final
Average Annual Pay will not, in any event, be less than the aggregate of the
minimum annual salary, bonus and restricted stock amounts payable to you under
Paragraph 2 above.
If the foregoing correctly sets forth our understandings, please sign this
letter agreement where indicated, whereupon it will become a binding agreement
between us.
Very truly yours,
AUTOMATIC DATA PROCESSING, INC.
By: /s/ James B. Benson
------------------------------------------
James B. Benson, Corporate Vice President
ACCEPTED AND AGREED:
/s/ Arthur F. Weinbach
- --------------------------
ARTHUR F. WEINBACH
-3-
EXHIBIT 11
<TABLE><CAPTION>
AUTOMATIC DATA PROCESSING, INC
AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Year ended June 30,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Earnings before cumulative effect of accounting changes $454,700 $394,830 $334,120 $294,200 $256,180
Cumulative effect of accounting changes - - (4,800) - -
-------- -------- -------- -------- --------
Net earnings applicable to common shares $454,700 $394,830 $329,320 $294,200 $256,180
======== ======== ======== ======== ========
Average number of common shares outstanding (1) 288,967 285,112 281,780 282,654 278,090
======= ======= ======= ======= =======
Primary earnings per share
before cumulative effect of accounting changes $1.57 $1.38 $1.19 $1.04 $.92
Cumulative effect of accounting changes - - (.02) - -
------ ------ ------- ------ -----
Primary earnings per share (1) $1.57 $1.38 $1.17 $1.04 $.92
===== ===== ===== ===== ====
FULLY DILUTED EARNINGS PER SHARE:
Net earnings used in primary earnings per share $454,700 $394,830 $334,120 $294,200 $256,180
Adjustment for interest (net of tax) -
Zero coupon convertible subordinated notes (5 1/4% yield)(1) 11,703 11,330 10,075 9,409 3,314
-------- -------- -------- -------- --------
Net earnings used for fully diluted earnings per share
before cumulative effect of accounting changes $466,403 $406,160 $344,195 $303,609 $259,494
Cumulative effect of accounting changes - - (4,800) - -
-------- -------- -------- -------- --------
Net earnings used for fully diluted earnings per share $466,403 $406,160 $339,395 $303,609 $259,494
======== ======== ======== ======== ========
Average number of shares outstanding on a fully diluted basis:
Shares used in calculating primary earnings per share 288,967 285,112 281,780 282,654 278,090
Diluted effect of all stock options outstanding after
application of treasury stock method 6,483 5,836 5,382 5,962 6,360
Shares assumed to be issued upon conversion of Debentures-
Zero coupon convertible subordinated notes (5 1/4% yield)(2) 10,360 10,402 10,402 10,402 3,722
-------- -------- -------- -------- --------
Average number of shares outstanding on a fully diluted basis: 305,810 301,350 297,564 299,018 288,172
======= ======== ======== ======== ========
Fully diluted earnings per share before cumulative effect of
accounting changes $1.53 $1.35 $1.16 $1.02 $.90
Cumulative effect of accounting changes - - (.02) - -
----- ----- ------ ----- ----
Fully diluted earnings per share $1.53 $1.35 $1.14 $1.02 $.90
===== ===== ===== ===== ====
</TABLE>
_________________________________
(1) All share and per share information has been adjusted to reflect a
two-for-one stock split on January 1, 1996.
(2) Assumed converted at the beginning of periods reported.
<PAGE>
EXHIBIT 13
LETTER FROM THE CHAIRMAN
In this 35th annual report to our shareholders, I am pleased to formally
congratulate Arthur Weinbach who, on August 1, 1996, assumed my responsibilities
as chief executive officer (CEO). Art will continue to serve as president, and I
will remain chairman of the board. Art has the qualities of leadership,
integrity, intelligence, dedication, candor, and experience to serve ADP well,
as we move toward the 21st century.
ADP's first CEO, Henry Taub, founded ADP in 1949. He was succeeded by my
predecessor Frank Lautenberg in 1975. Frank's election to the U.S. Senate in
1982 occasioned my becoming ADP's third CEO.
Since joining ADP in 1970, I had the good fortune to participate with many
excellent colleagues in the remarkable acceleration of computer technologies as
tools that facilitated our unusual growth in annual revenue from $400,000 in '61
to $40 million in '70, to the current $3.5 billion.
Ever since ADP became publicly owned in '61, every one of the ensuing 35 years
witnessed double-digit growth in earnings per share, a record unmatched by any
of our country's 9,500 publicly owned companies. In fact, only one other company
has done so for even 15 years. It's been an absolutely amazing and gratifying
experience for those of us who were "early birds" with ADP.
As important as technology may have been, our many successful outcomes were
far more caused by ADP associates, who now number 29,000. (Along the way, we
were also aided by lucky events that were totally unplanned and unexpected.)
Currently, over 20,000 associates own ADP stock. I am most pleased by the fact
that over the years our associates have shared in over one billion dollars of
stock appreciation as well it should be, for their having created over ten
billion dollars of market appreciation for our external shareholders. ADP was
begun by people and succeeds only because of people.
I have worked with Art Weinbach for over 16 years, and am confident that he
will be ADP's fourth very successful CEO. Art has many capable colleagues to
help assure continued growth, because no one person can manage our complexities
and progress.
I thank my ADP friends for having helped so much for so many years. I
especially cite Gary Butler, Group President of Employer Services, and recently
elected board member. He brings 20 years of experience and accomplishments to
leading our most important $2 billion business unit.
I thank our shareholders for their support during my fourteen years as CEO,
and look forward to serving in my new part-time and much less demanding ADP
role, as I become ever more engaged in pro bono activities.
As a board member and chairman, I shall maintain my interest in ADP, and will
give counsel, but only when asked. A company can have only one CEO at a time.
Good luck, Art! I know you'll do well.
/s/ Josh S. Weston
JOSH S. WESTON
CHAIRMAN
August 14, 1996
2
<PAGE>
LETTER FROM THE CHIEF EXECUTIVE OFFICER
This is my first letter to you as ADP's newly appointed Chief Executive Officer.
Having participated in ADP's outstanding results for over 16 years, I am very
appreciative of my new opportunity. I am both optimistic and enthusiastic about
ADP's future.
We would not be positioned so well if it weren't for the extraordinary
contribution of Josh Weston, ADP's CEO since 1982. We owe Josh a tremendous debt
for leading ADP to our position as one of the country's most respected and most
valuable companies.
FISCAL 1996
In fiscal '96 ADP continued its unequaled growth record by reporting its 140th
consecutive quarter of record revenues and earnings per share (EPS) and its 35th
consecutive year of double-digit increases in EPS.
We are especially pleased with our acquisition of GSI, a leading European
information services company and provider of payroll and human resource
information services. This was ADP's largest acquisition ever.
It gave us an important European presence and positions us well for further
growth.
Aided by the GSI acquisition, revenue grew 23% to over $3.5 billion. Net
earnings grew 15% and EPS increased 14% to $1.57.
In recognition of these strong operating results, our Board declared a
two-for-one stock split and our 22nd consecutive annual dividend increase, to
$.40 per share, effective January 1, 1996.
ADP continues to operate from a position of significant financial strength and
liquidity. Cash flow from operations exceeded $644 million and year-end cash
and marketable securities approximated $1.1 billion, after spending $718 million
in '96 to acquire businesses and ADP shares. We purchased 6.6 million ADP shares
on the open market to fund employee equity plans.
Shareholders' equity exceeds $2.3 billion. The ratio of long-term debt to
equity is a comfortable .17 to 1, and return on average shareholders' equity is
a very healthy 20%.
Capital expenditures for the year were $164 million, about 5% of revenue. This
compared to $118 million last year.
VALUES
At the root of our business success is a set of core values that guide our
day-to-day activities. I'd like to share some of those values with you.
INTEGRITY & ETHICS
Integrity and ethics are important...to each ADP associate and to ADP. We have a
strong Code of Corporate Responsibility. We conduct our affairs with
uncompromising honesty and integrity. It is a leadership requirement for every
ADP supervisor to set a high standard of integrity and ethics in his or her own
personal performance. This is more than words. This is an attitude that conveys
our priorities and values. It leads us to treat everyone...associates, clients,
prospects, and competitors...with respect. We will continue to spread this
message throughout ADP in '97.
RESULTS ORIENTATION
ADP's excellent operating results over the past 47 years did not happen by
accident. Those results are a direct outcome of our commitment to increasing
shareholder value through consistent revenue and earnings growth, with a high
return on equity...all measured by conservative accounting methods.
3
<PAGE>
Good leaders in a good environment will win over time. Yes, there may be
short-term events that create anomalies. However, over the longer term it is
results that matter. We measure performance by overall return to shareholders.
We believe that our values, excellent people and markets, solid strategies and
excellent service will lead to superior results.
CLIENT SERVICE
Above all, ADP is a service company...striving to provide world-class service.
We define service broadly, from initial contact with a prospect, to product
quality, to client responsiveness. Our ability to consistently bring added-value
to clients differentiates us from our competition. We are committed to continual
improvement in product and service.
IMPORTANCE OF PEOPLE
The most critical element in our success is our team of 29,000 associates who
make ADP's service superior. Fortunately, we attract and retain exceptionally
motivated, talented people with can-do attitudes. They share our vision and
help us win in the marketplace. Each person counts, each client counts, and
each contact between a client and associate counts.
During '96 Gary Butler, Group President of Employer Services, our largest
business unit, was appointed to our Board. Richard Haviland was promoted to
Corporate Vice President, Finance. Philippe Gluntz, Ray Marlinga, Mike Rooney
and Tom Tremba were named Corporate Vice Presidents, all in recognition of their
important contributions and responsibilities.
After 29 years of service as Legal Counsel and Corporate Secretary, Fred Lafer
retired in '96. Special thanks to Fred for his valuable contributions.
GROWTH STRATEGIES
ADP's growth strategies continue to focus primarily on expanding leadership
positions in our core businesses, where we already have #1 market positions and
lots of remaining opportunities. Our major priorities are:
- - Deliver world-class client service to enhance value and increase client
retention.
- - Increase market penetration by broadening product lines and distribution
channels.
- - Provide ancillary products which create incremental value.
- - Expand existing businesses internationally.
- - Enter new markets which complement and leverage our core competencies
and businesses.
FORECAST
I am confident about ADP's long-term prospects for internal growth and selective
acquisitions. We have the businesses, core competencies, and people to continue
our remarkable record. In '97 we expect double-digit revenue growth and earnings
per share growth of about 15%.
I am enthusiastic about our future success and want to particularly thank the
29,000 ADP associates, whose daily efforts make it all possible.
/s/ Arthur F. Weinbach
ARTHUR F. WEINBACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
August 14, 1996
Graph:
Earnings Per Share 92 .92
93 1.04
94 1.19
95 1.38
96 1.57
Revenues ($ in millions) 92 1,941
93 2,223
94 2,469
95 2,894
96 3,567
4
<PAGE>
Employer Services
Employer Services (ES), our oldest and largest business, contributes 56% of
ADP's revenue. ES serves over 350,000 employers with payroll, human resources,
tax deposit and reporting services. ES now has 40 computer centers and 73
satellite sales and service centers in the U.S., as well as many others abroad.
The ES picture for '96 was one of steady growth. ES revenue grew by 18% to
almost $2 billion. ADP now processes payroll for 20 million employees in North
America and several million in Europe.
Employer Services is focused on three market segments: National Accounts
(companies with 1,000 or more employees), Major Accounts (100 to 999 employees)
and the Heartland market. In National Accounts, average client tenure is 10
years. In Major Accounts, ADP has a 60% share of outsourced payroll. Perhaps the
greatest growth potential exists in Heartland, where we now have 250,000
clients. As we look at all three market segments, we feel very confident that
there is still lots of room for additional penetration and add-on services.
AutoPay continues to be ADP's most popular, flexible and comprehensive payroll
product, serving 225,000 clients and 17 million employees. Approximately 55% of
ES's worldwide revenue is derived from this core product. We recently introduced
5
<PAGE>
PC/Payroll for Windows, a new client/server front-end for AutoPay.
EasyPay is ADP's newest outsourcing solution for clients in the Heartland
market (fewer than 100 employees). Its client base more than doubled this fiscal
year, to 100,000 clients with steadily improving client retention and margins.
SoftPay is ADP's lowest-cost method for managing payroll and payroll taxes,
designed for clients who prefer to process and print paychecks using their own
PCs. In '96, ES launched a Windows version and a CPA version of SoftPay. We have
also added electronic tracking of time and attendance.
Total Time continues to grow rapidly as more of our clients replace manual
systems with our automated time and attendance solutions. Our installed base
nearly doubled last year. In addition, we recently launched
a simple user-installable version designed specifically for smaller clients.
Employees may also enter attendance information directly into their own PCs.
As new electronic funds movement-type products evolve, such as New Hire
Reporting, ADP Check/Full Service Direct Deposit and Wage Garnishment Payment,
our ADP Tax Filing center is also responsible for the efficient movement of
funds and information to third-party destinations. Over 260,000 clients rely on
Tax Filing to assure regulatory compliance and to have timely product
enhancements available, such as the IRS' Electronic Federal Tax Payment System
(EFTPS).
New value-added products and functionality, supported by three decades of
business experience, are key to ES meeting its marketplace goals.
Human Resource Information Systems (HRIS) are excellent means to expand
service offerings. The HRIS data bases and processes are similar to those
already used for payroll.
For this reason, HRIS received special emphasis last year. Almost 80% of new
National Accounts' sales included an HRIS component. We recently released CSS
HRizon, a client/server HR solution, with fully integrated employee self-service
modules for employee inquiry from a kiosk or desktop PC. This is a major help
for short-staffed HR managers.
6
<PAGE>
CSS/HRizon interfaces seamlessly with ADP payroll and other services. Future
developments will include manager self-service modules for employee performance
reviews, as well as, department compensation modeling and salary budgeting.
Because it is payroll-integrated, the ADP 401(k) product offers unique
advantages to clients looking for a simple and affordable retirement savings
plan. ADP has become a significant 401(k) service provider, we've grown from
the 28th largest to the 11th largest 401(k) provider in the past two years.
Client retention has remained consistent at close to 90%.
In '96, ADP added two well-respected industry leaders to its list of 401(k)
investment choices -- Fidelity and Putnam Investments. A voice response system
gives participants direct access to their accounts and eliminates most
transaction-related paperwork.
Peachtree Complete for Windows is the most comprehensive Windows accounting
and payroll product available in the low-end retail market. In December,
Peachtree shipped First Accounting 2.0, geared to first-time users of accounting
software. In March, Peachtree acquired One-Write Plus, the leading entry-level
accounting system. This brings the total users of Peachtree software products to
485,000.
Peachtree expects significant new activity in '97 as it links with ADP Total
Time, SoftPay and ADP's electronic banking joint venture, called EC-Partners.
Through EC-Partners, ADP clients can view bank account information, transfer
funds between accounts, pay bills and reconcile their accounts -- all from the
same personal computer on which they process payroll. Peachtree Software was
first to integrate this service with accounting software in its "Peachtree
Accounting with e-CHECK."
As more ADP clients become multinational in scope, it becomes increasingly
important to offer services on a global scale. ADP is firmly committed to
further expanding outside the United States. Last November, ADP acquired
Paris-based GSI, Europe's largest provider of payroll and related human resource
services with operations in eight countries. This makes ADP the first provider
of integrated human resources and payroll services to U.S. corporations and
their European subsidiaries.
7
<PAGE>
Brokerage Services
Brokerage Services, ADP's second-largest business, with over 22% of ADP revenue,
provides high quality, high speed securities transaction processing, investor
support tools, market data services, and investor communications related
services to the financial community worldwide. ADP is the largest provider of
such third-party processing and retail equity information systems in the U.S.
and Canada. Brokerage Services now supplies over 2,600 firms globally with
technology-based information solutions.
ADP's new Power Partner system has been chosen by over 30 brokerage firms.
It provides 5,500 of their brokers with this advanced market information
system, and seamlessly interfaces various desktop software applications.
In the Institutional marketplace, Brokerage Services made several
acquisitions. The DAIS Group provides sophisticated quantitative models to help
portfolio managers assess risk and select stocks. DAIS models combine analytics
with real-time quotes and news. Merrin Financial provides securities trade order
management and routing solutions for investment managers and securities brokers.
ADP and Merrin will bring investors and brokers together using seamless,
transparent, end-to-end transaction execution over a secure, reliable network.
Information Catalysts (ICI) markets fixed income trading, operations and
accounting software for domestic and international banks and securities
brokerage firms.
Global Treasury Information Services (GTIS) keeps its clients in tune with
global price information, news and commentary on fixed income, foreign
exchange, money markets, futures and metals. Information is contributed
directly to GTIS by key institutions (e.g., banks and brokers). GTIS's
flexible delivery platform is usable at home via Internet or in the trading
room of the world's largest banks.
8
<PAGE>
ADP Investor Communication Services (ICS) is the largest independent provider
of shareholder communication services in the U.S. and Canada servicing 12,000
publicly traded corporations, mutual funds, and financial institutions on behalf
of more than 800 brokerage firms and banks. ICS processed over 235 million
mailings during '96, up 15% from '95. In addition, ICS processed shareholder
ballots, representing 127 billion shares, through its optical, electronic and
telephone voting systems.
ICS also uses the Internet to display quarterly reports, earnings and other
corporate information. Proxy Edge, is a unique electronic voting service which
dramatically improves voting efficiency. PhoneVOTE Services, enables mutual fund
shareholders to vote their proxy over the telephone for same-day tabulation.
ICS also processes statements, confirmations, customized messages and
prospectus fulfillment. In addition, ICS continually combines technology and
marketplace knowledge to engineer valuable new communications services.
9
<PAGE>
Dealer Services
ADP Dealer Services is the world's largest provider of computing, data and
professional services to auto and truck dealers in the U.S., Canada, Europe,
Asia and Latin America. Over 16,000 dealers use our on-site systems and
communications networks to manage every area of sales and operations. Dealer
Services' linking of systems, business processes, and strategies has rapidly
grown our worldwide market share of dealer based systems.
In fiscal '96, Dealer Services' revenue grew 26%. Currently, customer
retention rates are 95% in the United States and Canada, 97% in Europe, and 100%
in Taiwan and Mexico. This year, we announced an expanding client focus --
"Securing Your Future." ADP addresses critical dealership areas and offers
software and professional services to improve consumer loyalty, asset
management, innovative technology, employee productivity, manufacturer
relations, and real-time information access.
Dealer Services has been a recognized industry leader since introducing
on-site, integrated systems 20 years ago. We recently introduced Pre-Owned
Vehicle Locator (PVL) and New Vehicle Ordering System (NVOS) to help dealers
manage inventories and enhance profitability.
As industry change accelerated we unveiled a next wave of technology in the
Advisor family. Super Service Advisor fully automates reservation and service
write-up, using hand-held wireless, electronic clipboards. Sales Advisor is a
complete retail sales process designed to improve sales performance and customer
handling. Also introduced in '96 was the ADP Sales Kiosk, a state-of-the-art
interactive sales presentation tool, and ADP AutoConnect, a complete Internet
service for both dealers and consumers. Currently over 3,300 web sites have been
created, making ADP AutoConnect home to the largest community of dealership
sites around the world on the Internet. With ADP AutoConnect, consumer access to
dealer products and services is easier than ever.
We understand and value the importance of repeat business and positive client
experiences for our dealer network. Other new products help dealers tailor their
marketing programs to ensure customer loyalty. ADP's Relationship Marketing
System (RMS) is the leading automated system for customer
10
<PAGE>
contact, from initial prospect through the purchase life cycle and ongoing
service.
Dramatic changes in customer expectations and manufacturers' requirements are
revolutionizing the traditional dealership. Our commitment to assisting dealers
in business process improvements is evidenced by strategic acquisitions
including Sandy Corp., Automatic Service Consultants (ASC), Hayes-Ligon and
Novak Corp. -- some of the most respected solution-oriented companies in
the industry.
Dealer Services also offers solutions to help employee productivity and
training. Synergies from our acquisition of Sandy Corp., Mike Nicholes Inc.,
ASC, and Novak provide new tools and services to improve dealer productivity and
profitability.
ADP Computer Care and Suivitel/Pertel, are the leading outsourced providers of
customer loyalty programs endorsed by most manufacturers in the U.S. and Canada.
Advancements in computer technology, based on consumer demands, are
accelerating throughout the world. Dealer Services continually participates in
strategic direction meetings with major auto manufacturers to ensure that our
clients' investments will remain compatible with future manufacturer management
tools and systems.
Most recently, Dealer Services partnered with Driver's Mart Worldwide, Inc. --
a used car mega retail chain, to develop the full range of systems for every
retail center. As Driver's Mart's partner, Dealer Services is developing the
first truly interactive auto retailing system. It promises to revolutionize
customer buying.
11
<PAGE>
Claims Services
Claims Services provides products for the property and casualty industry and
their business partners in the auto, medical and property claims sectors.
This year we realized significant expansion with a 27% revenue increase, and
added eighteen new property and casualty clients in Canada.
In Estimating Services, products evolved away from single-purpose systems for
auto physical damage claims. For the first time, mobile claims professionals
could carry any combination of information systems needed for collision
estimating, digital imaging, vehicle valuation, and homeowner's property damage
appraisal -- on one pen-based computer tablet: PenPro.
Insurance clients electronically transferred claims information to restoration
business partners using Autonet, ADP's communications network. The sharing of
electronic claims folders between insurers and collision repair facilities
became so popular that we created a "Connectivity Services" program to
exclusively support this relationship.
Market penetration of other key Estimating Services products also grew.
Autosource vehicle loss valuations nearly doubled market share in the U.S. The
installed base of Shoplink estimating systems for collision repairers grew to
over 5,000 across North America, increasing revenue by 90%. The Photolink
digital imaging system became the de facto industry standard.
ADP Parts Services helps the flow of salvage parts information among insurers,
body shops and automotive recyclers. Over
12
<PAGE>
3,000 parts recyclers now manage their salvage inventories with our yard
management systems. Computerized storage of parts records translates into
increased on-line availability for insurers and collision repairers using ADP's
PXS locating system. Recyclers also bought and sold over 7.5 million parts among
themselves, using ADP's satellite and land line networks.
In medical claims, Integrated Medical Solutions (IMS) had strong revenue
growth, fueled by its added value for existing relationships between insurers
and medical providers.
Provider Bill Audit (PBA), is a computerized system that reviews medical bills
to help insurers contain costs. Twelve of the top fifteen U.S. insurers are
either licensing or piloting PBA software.
IMS also has medical specialists to manage claims for key clients, aided by an
electronic data interchange. In addition, IMS is beginning to audit Workers'
Compensation claims, and has introduced a Negotiated Fee Network of preferred
medical providers to further ensure quality medical services at reasonable
costs.
Claims Services will continue to build upon the momentum created in '96, while
pursuing acquisitions that add value to the property and casualty industry and
its trading partners.
13
<PAGE>
ADP International
In Europe, ADP's services for payroll and human resource management are provided
in Belgium, France, Germany, Italy, the Netherlands, Spain, Switzerland and the
United Kingdom.
GSI
ADP-GSI now handles the outsourced processing of payroll for 1.2 million
employees, including 120,000 who were added during the last year. Another 7
million employees are paid using ADP-GSI software. The retention rate of ADP-GSI
clients who outsource their payroll has risen to 97% in the last fiscal year.
ADP-GSI recently introduced a new offering, Hypervision, which integrates
payroll and human resource management on a Windows workstation, using
client-server architecture and relational databases.
In France, ADP-GSI is now moving into the small companies market, serviced
entirely by phone.
THE NETHERLANDS
ADP now has a 14% share of the private sector market. Client retention for the
year exceeded 90%.
We offer Payroll and Human Resource Management (HRM) to all employers. PERMAN
II for Windows is an advanced HRM product for larger companies.
UNITED KINGDOM
ADP currently pays over 2% of the UK workforce. Our goal is to become the
leading supplier of payroll services, and we are steadily building our market
share. Client retention for fiscal '96 was 93%.
14
<PAGE>
PC Surepay service, with a fully integrated Personnel system, offers speed and
flexibility. The Client Partnership Series helps larger clients to process when
and where they like, while being fully supported by ADP's specialist teams.
ADP's Managed Payroll services allows companies to outsource both the processing
and administration of the payroll. ADP takes responsibility for all elements of
the process and deals with the various statutory authorities on the client's
behalf.
BROKERAGE SERVICES
ADP Wilco continues to grow in international and domestic markets. Wilco
acquired GlossTRADER, an easy-to-use Windows-based front office trading and
sales system for fixed income. We now offer a total front and back office
solution to the international marketplace, as well as the ability to offer each
solution separately.
DEALER SERVICES
Dealer Services continued its strategy of global expansion in '96, acquiring ADP
Dealer Systems de Mexico, Pacsys in Canada, and DataTec in Taiwan.
Pacsys provides market-driven F&I products to Canadian dealers. ADP DataTec
International can provide future distribution in Asia and the Pacific Rim.
Dealer Services' Pan-European efforts include systems being provided to the
dealers of Opel PSA and Mercedes Benz throughout Europe.
15
<PAGE>
Selected Financial Data
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------
Year ended June 30, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . $3,566,597 $2,893,742 $2,468,966 $2,223,374 $1,940,571
-----------------------------------------------------------------
Cost of operations . . . . . . . 2,901,476 2,335,122 2,001,796 1,816,995 1,586,725
Interest expense . . . . . . . . 29,731 24,340 20,840 19,819 12,266
-----------------------------------------------------------------
2,931,207 2,359,462 2,022,636 1,836,814 1,598,991
-----------------------------------------------------------------
Earnings before income taxes
and cumulative effect of
accounting changes . . . . . . . 635,390 534,280 446,330 386,560 341,580
Provision for income taxes . . . 180,690 139,450 112,210 92,360 85,400
-----------------------------------------------------------------
Net earnings before cumulative
effect of accounting changes . . 454,700 394,830 334,120 294,200 256,180
Cumulative effect of
accounting changes . . . . . . . ---- ---- (4,800) ---- ----
-----------------------------------------------------------------
Net earnings . . . . . . . . . . $ 454,700 $ 394,830 $ 329,320 $ 294,200 $ 256,180
-----------------------------------------------------------------
Earnings per share:
Before cumulative effect of
accounting changes . . . . . . . $1.57 $1.38 $1.19 $1.04 $ .92
Cumulative effect of
accounting changes . . . . . . . ---- ---- (.02) ---- ----
-----------------------------------------------------------------
Net earnings . . . . . . . . . . $1.57 $1.38 $1.17 $1.04 $ .92
-----------------------------------------------------------------
Average number of common
shares outstanding . . . . . . . 288,967 285,112 281,780 282,654 278,090
-----------------------------------------------------------------
Cash dividends per share . . . . $.3875 $.3125 $ .27 $.2375 $.2075
-----------------------------------------------------------------
Return on equity (a) . . . . . . 20.3% 20.9% 21.0% 20.9% 22.1%
-----------------------------------------------------------------
At year end:
Cash, cash equivalents and
marketable securities . . . . . . $1,098,620 $1,291,889 $1,062,190 $ 886,452 $ 741,357
Working capital . . . . . . . . . $ 618,670 $ 667,920 $ 507,243 $ 355,047 $ 366,752
Total assets . . . . . . . . . . $3,839,885 $3,201,096 $2,711,751 $2,439,400 $2,169,300
Long-term debt . . . . . . . . . $ 403,743 $ 390,177 $ 372,959 $ 347,583 $ 333,192
Shareholders' equity . . . . . . $2,315,346 $2,096,615 $1,691,251 $1,494,456 $1,296,728
-----------------------------------------------------------------
</TABLE>
(a) Before cumulative effect of accounting changes in 1994 (see Note 1B.).
All per share information has been adjusted to reflect a two-for-one stock split
on January 1, 1996.
See notes to consolidated financial statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING RESULTS
Revenue and earnings reached record levels during each of the past three fiscal
years. During fiscal '96, revenue was over $3.5 billion and net earnings were
$455 million. Earnings per share increased 14% to $1.57. All per share amounts
are adjusted for a two-for-one common stock split, effective January 1, 1996.
Fiscal '96 was ADP's 35th consecutive year of double-digit earnings per share
growth since becoming a public company in 1961.
Effective November 1, 1995, ADP acquired control of GSI, the leading European
provider of payroll and human resource information services. GSI also provides
facilities management, banking, clearing and other information services in
Europe.
The financial results of GSI are included in ADP's consolidated results on a
one-month lag. Accordingly, the consolidated results for the year ended June 30,
1996 include GSI operations for the 7 months ended May 31, 1996. During the
fourth quarter a decision was reached to sell GSI's facilities management
business. As a result, the net of revenues and pre-tax expenses of that business
for the quarter, which are not material, have been included in general,
administrative and selling expenses.
Revenue and revenue growth by ADP's major service groups are shown below:
Revenue Revenue Growth
- --------------------------------------------------------------------------------
Years Ended June 30, Years Ended June 30,
-------------------------------------------------------
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------
($ in millions)
- --------------------------------------------------------------------------------
Employer Services (a) $1,984 $1,677 $1,482 18% 13% 9%
Brokerage Services . 787 657 606 20 8 20
Dealer Services. . . 555 440 334 26 32 22
Other (a). . . . . . 241 120 47 101 155 (40)
-------------------------------------------------------
Consolidated . . . . $3,567 $2,894 $2,469 23% 17% 11%
-------------------------------------------------------
(a) Reclassified
Consolidated revenue grew 23% in fiscal '96, primarily from increased market
penetration, an expanded array of products and services, and from acquisitions,
with relatively minor contributions from price increases. Revenue growth,
excluding the GSI acquisition, approximated 15%.
The margins of several of the current year acquisitions are lower than ADP's
overall margins, and, as expected, consolidated margins decreased slightly. The
consolidated pretax margin was 17.8% in '96, 18.5% in '95, and 18.1% in '94.
The Company does not prepare its financial statements in a manner that
generates the true stand-alone profitability for each unit and profitability
measurements are not maintained in a consistent manner among 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 (ES)
Employer Services' revenue grew 18% in fiscal '96 (12% excluding GSI). In the
absence of all acquisitions revenue growth would have been about 10%, the same
as in '95 and up from the 9% internal growth rate in '94.
As expected, the GSI acquisition had a slight negative impact on the overall
ES operating margin, which was 25% for the year. Without GSI the ES margin would
have been 26%. (Margins were 26% in '95 and 27% in '94.) Field operating margin
increased in each of the past three years as a result of continued productivity
and operating efficiencies. This increased field margin has enabled ES to
significantly increase its investments in product development, sales, and
marketing.
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.
BROKERAGE SERVICES
Aided by acquisitions and very high trading volumes, Brokerage Services' revenue
grew 20% in '96. Without acquisitions, Brokerage revenue growth would have
approximated 12%. Growth rates in '95 and '94 were 8% and 20%, respectively.
Brokerage Services' operating margin was about 13% in fiscal '96, depressed
slightly by the impact of acquisitions. The operating margin was 13% in '95 and
15% in '94. These prior year margins are slightly lower than previously reported
as prior years' results have been restated for the inclusion of certain expenses
previously recorded at the Corporate level.
DEALER SERVICES
Dealer Services' revenue grew 26% in '96, compared to increases of 32% in '95
and 22% in '94. Revenue growth in each year was aided by several small
acquisitions. In the absence of acquisitions, '96 revenue growth would have been
about 10%. The current year's acquisitions have lower margins than the existing
Dealer margins, and accordingly, operating margin decreased slightly to
approximately 18% in fiscal '96 from 20% in '95 and '94.
OTHER
The primary components of "Other revenue" are claims services, services for
wholesalers, the non-Employer Services businesses of GSI and interest income. In
addition, "Other revenue" has been reduced to adjust for the difference between
actual interest income earned on invested tax filing
17
<PAGE>
funds and income credited to Employer Services at a standard rate of 7.8%. The
revenue from two businesses providing payroll services in Europe have been
reclassified from "Other revenue" and are now included in Employer Services.
"Other revenue" has increased primarily as a result of the GSI acquisition and
growth in the Claims Services business.
In each of the past three years, investments in systems development and
programming have increased at a greater rate than the Company's overall growth
rate. Investments have increased to accelerate automation, migrate to new
computing technologies and develop new products.
The impact of fluctuations in foreign currency rates on the Company's
financial statements was not material during the three-year period ended June
30, 1996.
In '96, the Company's effective tax rate was approximately 28%, up from
approximately 26% in '95, primarily as a result of greater weighting of taxable
versus non-taxable earnings, the impact of non-deductible goodwill arising from
the GSI acquisition, and the elimination of the research and development tax
credit in '96. The '95 effective rate increased from approximately 25% in '94,
primarily as a result of greater weighting of taxable versus non-taxable
earnings. Consolidated after-tax margins were 12.7% in '96, 13.6% in '95, and
13.5% in '94.
In '94 the Company adopted FASB 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 $2.7 million ($.01 per share). The cumulative effect
of adopting Statement No. 112 was to decrease net earnings by $7.5 million ($.03
per share), net of $5.0 million of income tax benefits.
For '97 ADP is planning another record year with double-digit growth in
revenue and about 15% growth in earnings per share.
Additional comments and operating results are included in the Letters to
Shareholders on pages 2 through 4 and in the business descriptions presented on
pages 5 through 15.
FINANCIAL CONDITION
ADP's financial condition and balance sheet remain exceptionally strong. At June
30, 1996, cash and marketable securities approximated $1.1 billion.
Shareholders' equity exceeded $2.3 billion, and return on average equity for the
year was 20%. The ratio of long-term debt to equity at June 30, 1996 was 17%.
A portion of the GSI purchase price was funded by borrowing approximately 466
million French francs (equivalent to $91 million at June 30, 1996) with the
remainder coming from the Company's cash and marketable securities.
Cash flow from operating activities exceeded $644 million in '96. We expect
another excellent cash flow year in fiscal 1997.
In '96, 6.6 million shares of common stock were purchased at an average price
of approximately $37, as part of an ongoing program to fund equity related
employee benefits. The Board of Directors has authorized the purchase of up to
6.8 million additional shares.
During '96, the Company purchased several businesses for approximately $473
million in cash and $20 million in common stock. The cost of acquisitions in '95
and '94 aggregated $123 million and $81 million, respectively. The Company also
acquired several businesses in '96 and '95 in pooling of interest transactions
in exchange for 969,000 and 2,362,000 shares of common stock, respectively. The
Company's historical financial statements were not restated because in the
aggregate these pooling transactions were not material.
Capital expenditures during '96 were approximately $164 million, following
investments of $118 million in '95 and $111 million in '94. Capital spending in
fiscal '97 should approximate $200 million.
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:
- --------------------------------------------------------------------------------
Price Per Share Dividends
--------------------------
Fiscal 1996 quarter ended High Low Per Share
- --------------------------------------------------------------------------------
June 30 . . . . . . . . . . . $40 1/8 $36 3/8 $.10
March 31. . . . . . . . . . . 43 3/8 35 1/4 .10
December 31 . . . . . . . . . 41 1/8 34 .10
September 30. . . . . . . . . 35 3/8 31 .0875
--------------------------------------------------
Fiscal 1995 quarter ended
- --------------------------------------------------------------------------------
June 30 . . . . . . . . . . . $33 $30 1/4 $.0875
March 31. . . . . . . . . . . 32 3/4 28 3/4 .075
December 31 . . . . . . . . . 29 7/8 26 1/4 .075
September 30. . . . . . . . . 28 3/8 25 3/8 .075
--------------------------------------------------
As of June 30, 1996 there were approximately 26,800 holders of record of
Automatic Data Processing, Inc. common stock. Over 100,000 additional holders
have their stock in "street name". All per share information has been adjusted
to reflect a two-for-one stock split on January 1, 1996.
18
<PAGE>
STATEMENTS OF CONSOLIDATED EARNINGS
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------
Year ended June 30, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . $3,566,597 $2,893,742 $2,468,966
----------------------------------------
Operating expenses. . . . . . . . . . . . . . . . . . . . . 1,516,407 1,177,292 1,026,354
General, administrative and selling expenses . . . . . . . 933,805 792,121 666,344
Depreciation and amortization . . . . . . . . . . . . . . . 201,629 172,536 148,295
Systems development and programming costs . . . . . . . . . 249,635 193,173 160,803
Interest expense. . . . . . . . . . . . . . . . . . . . . . 29,731 24,340 20,840
----------------------------------------
2,931,207 2,359,462 2,022,636
----------------------------------------
Earnings before income taxes and cumulative effect
of accounting changes . . . . . . . . . . . . . . . . . . 635,390 534,280 446,330
Provision for income taxes. . . . . . . . . . . . . . . . . 180,690 139,450 112,210
----------------------------------------
Net earnings before cumulative effect of accounting changes 454,700 394,830 334,120
Cumulative effect of accounting changes . . . . . . . . . . ---- ---- (4,800)
----------------------------------------
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . $ 454,700 $ 394,830 $ 329,320
----------------------------------------
Earnings per share:
Before cumulative effect of accounting changes. . . . . . . $1.57 $1.38 $1.19
Cumulative effect of accounting changes . . . . . . . . . . ---- ---- (.02)
----------------------------------------
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . $1.57 $1.38 $1.17
----------------------------------------
Average number of common shares outstanding . . . . . . . . 288,967 285,112 281,780
----------------------------------------
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
Automatic Data Processing, Inc. and Subsidiaries
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------
June 30, 1996 1995
- -----------------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 314,416 $ 313,612
Short-term marketable securities 321,743 384,009
Accounts receivable 507,198 377,145
Other current assets 310,926 136,377
-------------------------------
Total current assets 1,454,283 1,211,143
-------------------------------
Long-term marketable securities 462,461 594,268
-------------------------------
Long-term receivables 188,184 189,858
-------------------------------
Property, plant and equipment - at cost:
Land and buildings 322,975 287,186
Data processing equipment 578,935 501,403
Furniture, leaseholds and other 330,610 309,592
-------------------------------
1,232,520 1,098,181
Less accumulated depreciation 764,254 682,222
-------------------------------
468,266 415,959
-------------------------------
Other assets 19,597 84,212
-------------------------------
Intangibles 1,247,094 705,656
-------------------------------
$3,839,885 $3,201,096
-------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 90,746 $ -
Accounts payable 96,351 65,955
Accrued expenses and other current liabilities 590,355 385,040
Income taxes 52,954 82,672
Current portion of long-term debt 5,207 9,556
-------------------------------
Total current liabilities 835,613 543,223
-------------------------------
Long-term debt 403,743 390,177
-------------------------------
Other liabilities 78,508 66,865
-------------------------------
Deferred income taxes 112,880 18,844
-------------------------------
Deferred revenue 93,795 85,372
-------------------------------
Shareholders' equity:
Preferred stock, $1.00 par value:
Authorized, 300 shares; issued, none
Common stock, $.10 par value:
Authorized, 500,000 shares; issued, 314,277 and
314,234 shares, respectively 31,428 31,424
Capital in excess of par value 406,200 351,907
Retained earnings 2,537,952 2,182,838
Treasury stock - at cost, 26,656 and 26,066 shares, respectively (660,234) (469,554)
-------------------------------
Total shareholders' equity 2,315,346 2,096,615
-------------------------------
$3,839,885 $3,201,096
-------------------------------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------
Capital in
Common Stock Excess of Retained Treasury
--------------------
Shares Amount Par Value Earnings Stock
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1993, AS PREVIOUSLY REPORTED 157,117 $15,712 $300,010 $1,630,135 $451,401
Two-for-one stock split as of January 1, 1996 157,117 15,712 (15,712) -- --
Employee stock plans and related tax benefits -- -- 23,699 -- (47,986)
Treasury stock acquired (5,158 shares) -- -- -- -- 129,389
Net earnings -- -- -- 329,320 --
Dividends ($.27 per share) -- -- -- (76,031) --
Other transactions -- -- 1,320 (1) 109
---------------------------------------------------------------
BALANCE, JUNE 30, 1994 314,234 31,424 309,317 1,883,423 532,913
Employee stock plans and related tax benefits -- -- 43,498 -- (39,384)
Treasury stock acquired (438 shares) -- -- - -- 13,146
Acquisitions (2,956 shares) -- -- (13,045) (6,206) (37,225)
Net earnings -- -- -- 394,830 --
Dividends ($.3125 per share) -- -- -- (89,224) --
Other transactions -- -- 12,137 15 104
---------------------------------------------------------------
BALANCE, JUNE 30, 1995 314,234 31,424 351,907 2,182,838 469,554
Employee stock plans and related tax benefits -- -- 68,286 -- (37,080)
Treasury stock acquired (6,640 shares) -- -- -- -- 245,224
Acquisitions (1,513 shares) -- -- 4,007 12,530 (17,809)
Net earnings -- -- -- 454,700 --
Dividends ($.3875 per share) -- -- -- (112,116) --
Other transactions 43 4 (18,000) -- 345
---------------------------------------------------------------
BALANCE, JUNE 30, 1996 314,277 $31,428 $406,200 $2,537,952 $660,234
---------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
Automatic Data Processing, Inc. and Subsidiaries
<TABLE><CAPTION>
(In thousands)
- ----------------------------------------------------------------------------------------------
Year ended June 30, 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 454,700 $ 394,830 $ 329,320
Depreciation and amortization 201,629 172,536 148,295
Deferred income taxes 13,940 (11,050) (3,200)
Changes in operating assets and liabilities:
Receivables and other assets 22,659 (89,131) (28,922)
Accounts payable and accrued expenses (36,175) (1,975) 17,105
Other (12,699) 13,575 46,530
--------------------------------------------
Net cash flows from operating activities 644,054 478,785 509,128
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities (1,014,244) (1,080,989) (953,494)
Proceeds from sale of marketable securities 1,208,317 926,276 835,580
Capital expenditures (163,525) (117,698) (110,733)
Other changes in property, plant and equipment 5,563 3,756 12,822
Additions to intangibles (111,054) (38,612) (24,460)
Acquisitions of businesses, net of cash acquired (472,783) (107,457) (81,082)
--------------------------------------------
Net cash flows from investing activities (547,726) (414,724) (321,367)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes 90,746 --- ---
Repayments of long-term debt (21,009) (6,217) (1,702)
Proceeds from issuance of common stock 125,617 99,412 77,981
Repurchases of common stock (245,224) (13,146) (129,389)
Dividends paid (112,116) (89,224) (76,031)
Other 66,462 20,100 (796)
--------------------------------------------
Net cash flows from financing activities (95,524) 10,925 (129,937)
--------------------------------------------
Net change in cash and cash equivalents 804 74,986 57,824
Cash and cash equivalents, at beginning of period 313,612 238,626 180,802
--------------------------------------------
Cash and cash equivalents, at end of period $ 314,416 $ 313,612 $ 238,626
--------------------------------------------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1996, 1995 and 1994 / Automatic Data Processing, Inc. and
Subsidiaries
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Consolidation and Basis of Preparation. 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from these
estimates.
B. Accounting Changes. In fiscal 1994 the Company adopted FASB 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 $2.7 million ($.01
per share). The cumulative effect of adopting Statement No. 112, which requires
certain postemployment benefits to be accrued as service is provided, was to
decrease net earnings by $7.5 million ($.03 per share), net of $5.0 million of
income tax benefits.
C. Cash and Cash Equivalents. Highly liquid investments with a maturity of three
months or less at the time of purchase are considered cash equivalents.
D. Marketable Securities. Marketable securities consist primarily of high grade
municipal investments. Most of the Company's marketable securities are
considered to be "available-for-sale", and, accordingly, are carried on the June
30, 1996 balance sheet at fair market value which approximates cost.
Gains/losses from the sale of marketable securitites have not been material.
Approximately $249 million of the Company's long-term marketable securities
mature in 1-2 years, $91 million in 2-3 years, and the remainder in less
than 7 years. E. 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.
The estimated useful lives of assets are primarily as follows:
- ----------------------------------------------------------------------
Data processing equipment 2 to 3 years
Buildings 20 to 40 years
Furniture and fixtures 3 to 7 years
- ----------------------------------------------------------------------
F. Intangibles. Intangible assets are recorded at cost and are amortized
primarily on a straight-line basis. Goodwill is amortized over periods from 15
to 40 years, and is periodically reviewed for impairment by comparing carrying
value to undiscounted expected future cash flows. If impairment is indicated, a
write-down to fair value (normally measured by discounting estimated future cash
flows) is taken.
G. 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.
H. Foreign Currency Translation. The net assets of the Company's foreign
subsidiaries are translated into U.S. dollars based on exchange rates in effect
at the end of each period, and revenue and expenses are translated at average
exchange rates during the periods. Currency transaction gains or losses, which
are included in the results of operations, are immaterial for all periods
presented. Gains or losses from balance sheet translation, which are not
material, are included in shareholders' equity.
I. Stock Split. As of January 1, 1996, the Company had a two-for-one stock
split. All per share earnings and dividends and references to common stock give
effect to this split.
J. Earnings Per Share. Earnings per share are based upon the weighted average
number of shares outstanding during the respective periods.
K. Line of Business. The Company is engaged in the computing services business.
L. Reclassification of Prior Financial Statements. Certain reclassifications
have been made to previous years' financial statements to conform to current
classifications.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
Effective November 1, 1995, ADP acquired control of GSI-Participations, a
leading computer services company based in Paris, France, for approximately $460
million in cash plus transaction costs and other related liabilities assumed. A
portion of the purchase price has been funded by borrowing approximately 466
million French francs (equivalent to $91 million as of June 30, 1996) on a
short-term basis at an average interest rate of 4.1% during the period
subsequent to the acquisition. This borrowing has been designated as a hedge
against the Company's net investment in GSI.
The financial results of GSI are included in ADP's consolidated results on a
one-month lag. Accordingly, the consolidated results for fiscal 1996 include
GSI's operations from November 1995 through May 1996. During the fourth quarter,
a decision was reached to sell GSI's facilities management
23
<PAGE>
business. Consequently, the net of revenues and pre-tax expenses of that
business for the quarter, which are not material, have been included in general,
administrative and selling expenses in the Statement of Consolidated Earnings.
Net assets of the business are included as assets held for sale in other current
assets on the Consolidated Balance Sheet.
Based on preliminary allocations of purchase price, the GSI transaction
results in approximately $523 million of goodwill and other intangibles
(primarily customer lists and software), which are being amortized over periods
ranging from 5 to 40 years. The allocation of purchase price is preliminary and
subject to adjustment upon receipt of final valuation information and
management's final estimates as to the fair value of assets acquired and
liabilities assumed.
On an unaudited pro forma basis, assuming that the acquisition had been made
as of July 1, 1994, the consolidated revenue of ADP for fiscal 1996 and 1995
would have increased by approximately $173 million and $400 million,
respectively, and net earnings would have decreased by approximately $9 million
($.03 per share) and $31 million ($.11 per share), respectively.
During fiscal 1996, 1995 and 1994, the Company purchased several other
businesses for approximately $91 million (including $20 million in common
stock), $123 million (including $16 million in common stock) and $81 million,
respectively. The results of these acquired businesses were not material to the
Company's consolidated financial statements, and are included from the date of
acquisition.
The Company also acquired several businesses in fiscal 1996 and 1995 in
pooling of interest transactions in exchange for 969,000 and 2,362,000 shares of
common stock, respectively. The Company's consolidated financial statements were
not restated because in the aggregate these transactions were not material.
NOTE 3. RECEIVABLES
Accounts receivable is net of an allowance for doubtful accounts of $35 million
and $23 million at June 30, 1996 and 1995, 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:
1996 1995
- --------------------------------------------------------------------------
(In thousands) Current Long-Term Current Long-Term
- --------------------------------------------------------------------------
June 30,
- --------------------------------------------------------------------------
Receivables $126,415 $243,522 $110,345 $247,145
Less:
Allowance
for doubtful
accounts (14,715) (25,727) (12,136) (26,166)
Unearned
income (25,144) (29,611) (24,102) (31,121)
----------------------------------------------------
$ 86,556 $188,184 $ 74,107 $189,858
----------------------------------------------------
Unearned income from finance receivables represents the excess of gross
receivables over the sales price 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, 1996 mature as follows:
(In thousands)
1998 $104,058
1999 74,898
2000 44,127
2001 16,752
Thereafter 3,687
--------
$243,522
--------
NOTE 4. INTANGIBLE ASSETS
Components of intangible assets are as follows:
(In thousands)
- -------------------------------------------------------------------------
June 30, 1996 1995
- -------------------------------------------------------------------------
Goodwill $ 931,424 $ 482,076
Other 709,803 528,277
------------------------------------------
1,641,227 1,010,353
Less accumulated amortization (394,133) (304,697)
------------------------------------------
$1,247,094 $ 705,656
------------------------------------------
Other intangibles consist primarily of purchased rights (acquired directly
or through acquisitions) to provide data processing services to various groups
of clients (amortized over periods from 5 to 36 years) and purchased software
(amortized over periods from 3 to 10 years). Amortization of intangibles
totalled $81 million for fiscal 1996, $66 million for 1995 and $61 million for
1994.
NOTE 5. LONG-TERM DEBT
Components of long-term debt are as follows:
(In thousands)
- -------------------------------------------------------------------------
June 30, 1996 1995
- -------------------------------------------------------------------------
Zero coupon convertible subordinated
notes (5 1/4% yield) $356,561 $339,132
Industrial revenue bonds
(with fixed and variable interest rates
from 3.6% to 8.3%) 39,200 39,560
Other 13,189 21,041
--------------------------------
408,950 399,733
Less current portion (5,207) (9,556)
--------------------------------
$403,743 $390,177
--------------------------------
The zero coupon convertible subordinated notes have a face value of
approximately $802 million at June 30, 1996, and mature February 20, 2012,
unless converted or redeemed earlier. The notes are convertible into
approximately 10.4 million shares of the Company's common stock. The notes are
callable at the option of the Company since February 1996, and the holders of
the notes can convert into common stock at any time or require redemption in
1997,
24
<PAGE>
2002, and 2007. During fiscal 1996, approximately $3 million face value of notes
were converted. As of June 30, 1996 and 1995, the quoted market prices for the
zero coupon notes were approximately $400 million and $360 million,
respectively. 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:
(In thousands)
- --------------------------------------
1998 $ 443
1999 435
2000 435
2001 435
Thereafter 401,995
---------
$403,743
---------
Interest payments were approximately $8 million during fiscal 1996 and $4
million during the years ended June 30, 1995 and 1994.
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
260,000 clients, files over 11.5 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 $80 million in any single instrument. The amount of collected but
unremitted funds varies significantly during the year and averaged approximately
$3.7 billion in fiscal 1996, $3.3 billion in fiscal 1995 and $2.8 billion in
fiscal 1994. The amount of such funds was $5.0 billion as of June 30, 1996, of
which $1 billion was supported by a letter of credit and a related ADP
guarantee, and was $4.6 billion as of June 30, 1995. Interest on collected but
unremitted funds amounted to approximately $178 million in fiscal 1996, $148
million in 1995, and $111 million in 1994.
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, 1996, there were 5,116 participants in the plans. The aggregate
purchase price for options outstanding at June 30, 1996 was approximately $556
million. The options expire between 1996 and 2006.
A summary of changes in the stock option plans for the three years ended
June 30, 1996 is as follows:
(In thousands, except per share amounts) Number of Options
- --------------------------------------------------------------------------------
Year ended June 30, 1996 1995 1994
- --------------------------------------------------------------------------------
Options outstanding, beginning of year 20,724 19,340 16,474
Options granted ($33 to $39 per share
in 1996, $27 to $31 in 1995 and $24
to $26 in 1994) 6,080 5,384 6,182
Options exercised ($6 to $31 per share
in 1996, $4 to $25 in 1995 and $4 to
$24 in 1994) (2,445) (2,282) (1,718)
Options cancelled (1,726) (1,764) (1,608)
Other 74 46 10
--------------------------------------
Options outstanding, end of year ($8 to
$39 per share in 1996, $6 to $31 in
1995 and $5 to $26 in 1994) 22,707 20,724 19,340
--------------------------------------
Options exercisable, end of year 6,677 5,652 5,180
--------------------------------------
Shares available for future grants,
end of year 10,015 4,442 8,108
--------------------------------------
Shares reserved for issuance under stock
option plans 32,722 25,166 27,448
--------------------------------------
The Financial Accounting Standards Board has issued a statement on
accounting for stock-based compensation, which allows companies to either retain
APB Opinion 25 for recognizing expense for stock-based compensation, or adopt a
new accounting method based on estimated fair value. The Company has decided to
continue to follow APB 25 and will describe the impact of using an estimated
fair value approach on a pro forma basis in fiscal 1997.
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, 1996, 1995 and 1994, the Company issued 186,800, 106,300 and 188,100
restricted shares, and repurchased 47,200, 50,200 and 46,200 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 the lower of market value as of the date of purchase election or end of
the plan. Approximately 1.9 million shares are scheduled for issuance on
December 31, 1996 and 2.3 million on December 31, 1997. Approximately 1.9
million and 2.0 million shares were issued during the years ended June 30, 1996
and 1995, respectively. At June 30, 1996 and 1995, there were approximately 8.6
million and 10.6 million shares reserved for purchase under the plan. Included
in liabilities as of June 30, 1996 and 1995 are employee stock purchase plan
withholdings of approximately $51 million and $45 million, respectively.
25
<PAGE>
D. Pension Plan. The Company has a defined benefit cash balance pension plan
covering substantially all domestic employees, 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:
(In thousands)
- -----------------------------------------------------------------------------
June 30, 1996 1995
- -----------------------------------------------------------------------------
Funded plan assets at market value,
primarily stocks and bonds $191,400 $134,200
-----------------------------
Actuarial present value of benefit obligations:
Vested benefits 140,900 119,000
Non-vested benefits 8,200 7,400
-----------------------------
Accumulated/projected benefit obligation 149,100 126,400
-----------------------------
Plan assets in excess of projected benefits 42,300 7,800
Prior service cost (3,400) (4,300)
Transition obligation 1,500 1,700
Unrecognized net actuarial loss due to
different experience than that assumed 22,700 31,400
-----------------------------
Prepaid pension cost $ 63,100 $ 36,600
-----------------------------
The components of net pension expense were as follows:
(In thousands)
- --------------------------------------------------------------------------------
Year ended June 30, 1996 1995 1994
- --------------------------------------------------------------------------------
Service cost -- benefits earned
during the period $13,600 $12,600 $10,700
Interest cost on projected benefits 10,000 8,400 6,800
Return on plan assets (20,000) (11,600) (1,500)
Net amortization and deferral 9,900 3,600 (7,300)
---------------------------------------
$13,500 $13,000 $ 8,700
---------------------------------------
Assumptions used to develop the actuarial present value of benefit
obligations for the three years ended June 30, 1996 were:
- --------------------------------------------------------------------------------
Discount rate 8.0%
Expected long-term rate of return on assets 8.5%
Rate of increase in compensation levels 6.0%
- --------------------------------------------------------------------------------
E. Retirement and Savings Plan. The Company has a 401(k) retirement and savings
plan which allows eligible employees to contribute up to 12% of their
compensation annually. The Company matches a portion of this contribution which
amounted to approximately $18 million, $11 million and $9 million for calendar
years 1995, 1994 and 1993, respectively.
NOTE 8. INCOME TAXES
In accordance with FASB statement No. 109, accounting for income taxes follows
the asset and liability approach. Deferred taxes reflect the tax consequences
on future years of differences between the financial reporting and tax bases of
assets and liabilities.
The provision for income taxes consists of the following components:
(In thousands)
- --------------------------------------------------------------------------------
Year ended June 30, 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $124,400 $106,440 $ 87,430
Foreign 20,750 19,150 10,670
State 21,600 24,910 17,310
--------------------------------------------------
Total current 166,750 150,500 115,410
--------------------------------------------------
Deferred:
Federal 6,060 (4,440) (620)
Foreign 5,860 (5,430) (2,880)
State 2,020 (1,180) 300
--------------------------------------------------
Total deferred 13,940 (11,050) (3,200)
--------------------------------------------------
$180,690 $139,450 $112,210
--------------------------------------------------
At June 30, 1996 and 1995, the Company had gross deferred tax assets of
approximately $114 million and $78 million, respectively, consisting primarily
of operating expenses not currently deductible for tax return purposes.
Valuation allowances approximated $23 million as of June 30, 1996, and were not
material as of June 30, 1995. Gross deferred tax liabilities approximated $214
million as of June 30, 1996 and $85 million as of June 30, 1995, consisting
primarily of differences in the accounting and tax values of certain fixed and
intangible assets.
Income tax payments were approximately $178 million in 1996, $131 million in
1995 and $90 million in 1994. Pretax domestic earnings approximated $592 million
in 1996, $505 million in 1995 and $430 million in 1994.
A reconciliation between the Company's effective tax rate and the U.S.
federal statutory rate is as follows:
(In thousands, except percentages)
- --------------------------------------------------------------------------------
Year ended June 30, 1996 % 1995 % 1994 %
- --------------------------------------------------------------------------------
Provision for taxes
at statutory rate $222,400 35.0 $187,000 35.0 $156,200 35.0
Increase (decrease)
in provision from:
Investments in
municipals and
and preferred
stocks (55,300) (8.7) (57,995) (10.9) (50,860) (11.4)
State taxes, net
of federal tax
benefit 15,370 2.4 15,425 2.9 12,540 2.8
Other (1,780) (.3) (4,980) (.9) (5,670) (1.3)
-------------------------------------------------------
$180,690 28.4 $139,450 26.1 $112,210 25.1
-------------------------------------------------------
26
<PAGE>
NOTE 9. LEASE OBLIGATIONS
The Company and its subsidiaries have various facilities and equipment lease
obligations. Total rental expense was approximately $164 million in 1996, $152
million in 1995 and $135 million in 1994 with minimum lease commitments under
operating leases as follows:
(In thousands)
- ------------------------------------------
Year ending June 30,
- ------------------------------------------
1997 $159,000
1998 117,000
1999 65,000
2000 34,000
2001 22,000
Thereafter 38,000
---------
$435,000
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. FINANCIAL DATA BY GEOGRAPHIC AREA
Information about the Company's operations by geographic area for the year ended
June 30, 1996 is as follows (in millions):
- --------------------------------------------------------------------------------
Other
Foreign
United (Primarily Consoli-
States Europe Canada) Corporate dated
- --------------------------------------------------------------------------------
Revenue $3,020 $388 $115 $ 44 $3,567
Earnings before
income taxes $ 562 $ 35 $ 8 $ 30 $ 635
Identifiable
assets $1,568 $290 $ 56 $1,926 $3,840
--------------------------------------------------------------
International operations prior to fiscal 1996 were not material to the
Company's consolidated financial results.
NOTE 11. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Summarized quarterly results of operations (as restated for a two-for-one stock
split on January 1, 1996) for the three years ended June 30, 1996 are as
follows:
(In thousands, except per share amounts)
- --------------------------------------------------------------------------
First Second Third Fourth
Year ended June 30, 1996 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------
Revenue $747,094 $819,723 $1,031,864 $967,916
Net earnings $ 81,900 $108,900 $ 143,900 $120,000
Earnings per share $ .28 $ .38 $ .49 $ .42
------------------------------------------------
Year ended June 30, 1995
- --------------------------------------------------------------------------
Revenue $622,286 $672,597 $ 798,989 $799,870
Net earnings $ 68,700 $ 94,920 $ 125,270 $105,940
Earnings per share $ .24 $ .33 $ .44 $ .37
------------------------------------------------
Year ended June 30, 1994
- --------------------------------------------------------------------------
Revenue $551,983 $577,661 $ 674,405 $664,917
Net earnings $ 53,710(a) $ 80,180 $ 104,990 $ 90,440
Earnings per share $ .19(a) $ .29 $ .37 $ .32
------------------------------------------------
(a) After decrease of $4.8 million ($.02 per share) from the cumulative effect
of accounting changes.
Third quarter revenue and earnings have historically been positively
impacted by calendar year-end processings associated with many of the Company's
services.
27
<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 four 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/ Arthur F. Weinbach /s/ Richard J. Haviland
Arthur F. Weinbach Richard J. Haviland
President and Vice President, Finance
Chief Executive Officer
Roseland, New Jersey
August 14, 1996
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, 1996 and 1995, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended June 30, 1996. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1996, 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 14, 1996
28
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 Europe S.A. France
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
ADP Broker-Dealer, Inc. New Jersey
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, 1996.
EXHIBIT 23
INDEPENDENT AUDITORS' REPORT ON SCHEDULE 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, 1996 and 1995, and for each of the three years
in the period ended June 30, 1996, and have issued our report thereon dated
August 14, 1996, 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 1996 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the financial statement schedule of
Automatic Data Processing, Inc., listed in Item 14. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, 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 Nos. 33-45150, 33-52876, 33-55909,
33-57207, 33-58165, 33-61629, 333-01839 and 333-02331 on Form S-3 and
Registration Statements Nos. 33-24987, 33-25290, 33-38338, 2-75287, 33-38366,
33-38365, 33-46168, 33-51979, 33-51977, 33-52629, 33-56419, 33-56463, 333-10281,
333-10279 and 333-10277 on Form S-8 of our report dated August 14, 1996,
included in your 1996 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, 1996.
/s/ Deloitte & Touche LLP
New York, New York
August 14, 1996
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