<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1997 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
incorporation or organization) Identification Number)
One ADP Boulevard, Roseland, New Jersey 07068
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (973) 994-5000
-----------------------------
No change
- - --------------------------------------------------------------------------------
Former name, former address & former fiscal year, if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all annual,
quarterly and other reports required to be filed with the commission and (2) has
been subject to the filing requirements for at least the past 90 days.
X Yes No
- - ---------------------------------- --------------------------------
As of January 31, 1998 there were 298,927,832 common shares outstanding.
<PAGE>
Form 10Q
<TABLE>
<CAPTION>
Part I. Financial Information
STATEMENTS OF CONSOLIDATED EARNINGS
-----------------------------------
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $1,148,026 $995,575 $2,186,524 $1,906,305
---------- -------- ---------- ----------
Operating expenses 490,202 418,015 933,585 809,535
General, administrative and 286,427 261,531 575,873 522,320
selling expenses
Depreciation and amortization 58,193 55,284 115,623 108,353
Systems development and 91,361 73,065 178,650 139,128
programming costs
Interest expense 7,303 6,970 14,813 14,159
---------- -------- ---------- ----------
933,486 814,865 1,818,544 1,593,495
---------- -------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 214,540 180,710 367,980 312,810
Provision for income taxes 67,150 53,130 115,180 91,950
---------- -------- ---------- ----------
NET EARNINGS $ 147,390 $127,580 $ 252,800 $ 220,860
========== ======== ========== ==========
BASIC EARNINGS PER SHARE $ .50 $ .44 $ .86 $ .76
========== ======== ========== ==========
DILUTED EARNINGS PER SHARE $ .49 $ .43 $ .84 $ .74
========== ======== ========== ==========
Dividends per share $ .1325 $ .115 $ .2475 $ .215
========== ======== ========== ==========
</TABLE>
See notes to consolidated statements.
<PAGE>
Form 10Q
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS)
December 31, June 30,
ASSETS 1997 1997
- - ------ ----------- ----------
<S> <C> <C>
Cash and cash equivalents $ 686,049 $ 590,578
Short-term marketable securities 340,215 434,341
Accounts receivable 670,710 605,068
Other current assets 204,088 175,335
---------- ----------
Total current assets 1,901,062 1,805,322
---------- ----------
Long-term marketable securities 573,338 470,164
---------- ----------
Long-term receivables 170,195 176,771
---------- ----------
Land and buildings 367,674 361,594
Data processing equipment 755,660 626,013
Furniture, leaseholds and other 288,616 364,161
---------- ----------
1,411,950 1,351,768
Less accumulated depreciation (884,807) (832,423)
---------- ----------
527,143 519,345
---------- ----------
Other assets 92,220 96,383
---------- ----------
Intangibles 1,431,042 1,314,787
---------- ----------
$4,695,000 $4,382,772
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Notes payable $ 183,262 $ 129,168
Accounts payable 110,532 110,266
Accrued expenses & other current
liabilities 775,284 717,868
Income taxes 74,230 61,479
Current portion of long-term debt 1,395 1,091
---------- ----------
Total current liabilities 1,144,703 1,019,872
---------- ----------
Long-term debt 258,587 401,162
---------- ----------
Other liabilities 110,448 91,685
---------- ----------
Deferred income taxes 48,314 102,751
---------- ----------
Deferred revenue 99,728 106,737
---------- ----------
Shareholders' equity:
Common stock 31,429 31,429
Capital in excess of par value 566,727 480,492
Retained earnings 3,102,398 2,922,317
Treasury stock (576,937) (697,887)
Translation adjustment (90,397) (75,786)
---------- ----------
3,033,220 2,660,565
---------- ----------
$4,695,000 $4,382,772
========== ==========
</TABLE>
See notes to consolidated statements.
<PAGE>
Form 10Q
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
-----------------------------------------------
(IN THOUSANDS)
Six Months Ended
December 31,
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
- - -------------------------------------
<S> <C> <C>
Net earnings $ 252,800 $ 220,860
Expenses not requiring outlay of cash 133,842 112,720
Changes in operating net assets 39,657 21,714
--------- ---------
Net cash flows from operating activities 426,299 355,294
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
- - -------------------------------------
Purchase of marketable securities (239,835) (275,549)
Proceeds from sale of marketable securities 232,612 267,948
Capital expenditures (79,853) (79,093)
Other changes to property, plant and equipment 4,052 (752)
Additions to intangibles (48,676) (32,711)
Acquisitions of businesses (176,606) (64,494)
--------- ---------
Net cash flows from investing activities (308,306) (184,651)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
- - -------------------------------------
Proceeds from issuance of notes payable, net 60,863 41,780
Proceeds from issuance of common stock 30,241 39,257
Repurchases of common stock (40,907) (37,358)
Dividends paid (72,719) (62,447)
Repayments of long-term debt - (3,991)
--------- ---------
Net cash flows from financing activities (22,522) (22,759)
--------- ---------
Net change in cash and cash equivalents 95,471 147,884
Cash and cash equivalents, at beginning of
period 590,578 314,416
--------- ---------
Cash and cash equivalents, at end of
period $ 686,049 $ 462,300
========= =========
</TABLE>
See notes to consolidated statements.
<PAGE>
Form 10Q
NOTES TO CONSOLIDATED STATEMENTS
--------------------------------
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods. All adjustments are of a normal recurring nature. These
statements should be read in conjunction with the annual financial statements
and related notes of the Company for the year ended June 30, 1997.
Note A - The results of operations for the six months ended December 31, 1997
may not be indicative of the results to be expected for the year
ending June 30, 1998.
Note B - The Company implemented Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" as of December 31, 1997 which required
the disclosure of basic and diluted earnings per share. A
reconciliation of the income and weighted average shares used in both
calculations follows:
(In thousands, except EPS)
<TABLE>
<CAPTION>
Periods ended December 31, 1997
----------------------------------------------------
Three month period Six month period
-------------------------- -----------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $147,390 293,632 $0.50 $252,800 293,128 $0.86
Effect of zero coupon
subordinated notes 2,464 8,663 5,218 7,140
Effect of stock
options - 6,252 - 6,001
------------------------- ------------------------
Diluted EPS $149,854 308,547 $0.49 $258,018 306,269 $0.84
========================= ========================
<CAPTION>
Periods ended December 31, 1996
----------------------------------------------------
Three month period Six month period
-------------------------- ----------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $127,580 290,502 $ 0.44 $220,860 289,493 $ 0.76
Effect of zero coupon
subordinated notes 2,841 10,341 5,444 10,341
Effect of stock
options - 5,823 - 5,892
------------------------- ------------------------
Diluted EPS $130,421 306,666 $ 0.43 $226,304 305,726 $ 0.74
========================= ========================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OPERATING RESULTS
Revenue and earnings again reached record levels during the quarter ended
December 31, 1997.
Revenue and revenue growth by ADP's major business groups are shown below:
<TABLE>
<CAPTION>
Revenue
----------------------------------
3 Months Ended 6 Months Ended
December 31, December 31,
-------------- -------------
1997 1996 1997 1996
------ ------ ------ -----
($ in millions)
<S> <C> <C> <C> <C>
Employer Services $ 667 $ 551 $1,254 $1,042
Brokerage Services 232 200 455 388
Dealer Services 173 162 339 315
Other 76 83 139 161
------ ----- ------ ------
$1,148 $ 996 $2,187 $1,906
====== ===== ====== ======
<CAPTION>
Revenue Growth
----------------------------------
3 Months Ended 6 Months Ended
December 31, December 31,
-------------- -------------
1997 1996 1997 1996
------ ------ ------ -----
<S> <C> <C> <C> <C>
Employer Services 21% 24% 20% 24%
Brokerage Services 16 18 17 15
Dealer Services 7 23 8 22
Other (8) 12 (14) 26
----- ----- ----- -----
15% 21% 15% 22%
===== ===== ===== =====
</TABLE>
Consolidated revenue for the quarter grew 15% from last year to $1,148 million.
Revenue growth in the Company's three largest businesses, Employer, Brokerage
and Dealer Services, was strong at 21%, 16% and 7% respectively. Each includes
some acquisitions.
The primary components of "Other revenue" are claims services, services for
wholesalers, interest income, foreign exchange differences and miscellaneous
processing services. In addition, "Other revenue" has been reduced to adjust
for the difference between actual interest income earned on invested tax filing
funds and income credited to Employer Services at a standard rate of 6%.
Pretax earnings for the quarter increased 19% from last year. Consolidated
pre-tax margins increased slightly in the quarter, due primarily to the impact
of higher trading volume in Brokerage Services. Systems development and
programming investments increased to accelerate automation, migrate to new
computing technologies, and develop new products.
<PAGE>
Net earnings for the quarter, after a higher effective tax rate, increased 16%
to $147 million. The effective tax rate of 31.3% increased from 29.4% in the
comparable quarter last year, primarily as a result of the greater weighting of
taxable versus non-taxable earnings.
Basic earnings per share grew 14% to $.50 from $.44 last year, on a greater
number of shares outstanding. The Company expects over 15% growth in revenue
and pretax earnings for the full year and basic EPS growth in the area of 13-14%
above fiscal 1997's $1.80 per share (which is prior to non-recurring items in
1997).
FINANCIAL CONDITION
The Company's financial condition and balance sheet remain exceptionally strong,
and operations continue to generate a strong cash flow. At December 31, 1997,
the Company had cash and marketable securities of $1.6 billion. Shareholders'
equity was $3.0 billion and the ratio of long-term debt to equity was 9%.
Capital expenditures for fiscal 1998 are expected to approximate $225 million,
compared to $175 million in fiscal 1997.
During the first half of fiscal 1998, ADP purchased 896,000 shares of common
stock for treasury at an average price of approximately $46. The Company has
remaining Board authorization to purchase up to 8.5 million additional shares to
fund equity related employee benefit plans.
During the first half of fiscal 1998, 315,000 of the Company's zero coupon
convertible subordinated notes were converted to over 4 million shares of common
stock.
The Company's investment portfolio consists primarily of high grade fixed
income investments, such as AA or better rated fixed income municipal
instruments, maturing in less than 7 years and such portfolio does not subject
the Company to material market risk.
PART II. OTHER INFORMATION
Except as noted below, all other items are inapplicable or would result in
negative responses and, therefore, have been omitted.
<PAGE>
PART II. OTHER INFORMATION, CONTINUED
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of the Stockholders was held on November 11, 1997.
The following members were elected to the Company's Board of Directors to hold
office for the ensuing year.
<TABLE>
<CAPTION>
Nominee In Favor Withheld
------- -------- --------
<S> <C> <C>
Gary C. Butler 236,374,432 1,434,137
Joseph A. Califano, Jr. 236,240,611 1,567,958
Leon G. Cooperman 236,435,603 1,372,966
George H. Heilmeier 236,409,109 1,399,460
Ann Dibble Jordan 236,371,779 1,436,790
Harvey M. Krueger 236,364,178 1,444,391
Frederic V. Malek 236,342,309 1,466,260
Henry Taub 236,301,977 1,506,592
Laurence A. Tisch 236,016,506 1,792,063
Arthur F. Weinbach 236,439,455 1,369,114
Josh S. Weston 236,379,233 1,429,336
</TABLE>
The result of the voting on the following additional item was as follows:
(a) Ratify the appointment of Deloitte & Touche LLP to serve as the Company's
independent certified public accountants for the fiscal year which began on July
1, 1997.
The votes of the stockholders on this ratification were as follows:
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
236,442,654 318,300 1,047,615
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Number Exhibit
------ -------
27.1 Financial Data Schedule
<PAGE>
Form 10Q
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUTOMATIC DATA PROCESSING, INC.
-------------------------------
(Registrant)
Date: February 11, 1998 /s/ Richard J. Haviland
----------------------------
Richard J. Haviland
Chief Financial Officer
(Principal Financial Officer)
----------------------------
(Title)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 686,049
<SECURITIES> 340,215
<RECEIVABLES> 710,909
<ALLOWANCES> 40,199
<INVENTORY> 43,184
<CURRENT-ASSETS> 1,901,062
<PP&E> 1,411,950
<DEPRECIATION> 884,807
<TOTAL-ASSETS> 4,695,000
<CURRENT-LIABILITIES> 1,144,703
<BONDS> 258,587
0
0
<COMMON> 31,429
<OTHER-SE> 3,001,791
<TOTAL-LIABILITY-AND-EQUITY> 3,033,220
<SALES> 0
<TOTAL-REVENUES> 2,186,524
<CGS> 0
<TOTAL-COSTS> 1,798,815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,916
<INTEREST-EXPENSE> 14,813
<INCOME-PRETAX> 367,980
<INCOME-TAX> 115,180
<INCOME-CONTINUING> 252,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252,800
<EPS-PRIMARY> .86
<EPS-DILUTED> .84
</TABLE>
