SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 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 April 30, 1998, there were 301,025,427 shares outstanding.
<PAGE>
Form 10Q
Part I. Financial Information
Statements of Consolidated Earnings
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenue $1,309,329 $1,126,284 $3,495,853 $3,032,589
---------- ---------- ---------- ----------
Operating expenses 535,975 440,329 1,469,560 1,249,864
General, administrative and
selling expenses 334,506 308,063 910,379 830,383
Depreciation and amortization 61,512 59,163 177,135 167,515
Systems development and 93,626 74,849 272,276 213,977
programming costs
Interest expense 4,650 7,250 19,463 21,410
---------- ---------- ---------- ----------
1,030,269 889,654 2,848,813 2,483,149
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 279,060 236,630 647,040 549,440
Provision for income taxes 88,460 71,700 203,640 163,650
---------- ---------- ---------- ----------
NET EARNINGS $ 190,600 $ 164,930 $ 443,400 $ 385,790
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ .64 $ .56 $ 1.50 $ 1.33
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ .62 $ .55 $ 1.46 $ 1.29
========== ========== ========== ==========
Dividends per share $ .1325 $ .115 $ .38 $ .33
========== ========== ========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
Consolidated Balance Sheets
(In thousands)
March 31, June 30,
Assets 1998 1997
---------- ----------
Cash and cash equivalents $ 871,040 $ 590,578
Short-term marketable securities 233,651 434,341
Accounts receivable 738,583 605,068
Other current assets 203,000 175,335
---------- ----------
Total current assets 2,046,274 1,805,322
---------- ----------
Long-term marketable securities 600,188 470,164
---------- ----------
Long-term receivables 173,935 176,771
---------- ----------
Land and buildings 369,659 361,594
Data processing equipment 679,723 626,013
Furniture, leaseholds and other 406,727 364,161
---------- ----------
1,456,109 1,351,768
Less accumulated depreciation (916,997) (832,423)
---------- ----------
539,112 519,345
---------- ----------
Other assets 150,857 96,383
---------- ----------
Intangibles 1,438,204 1,314,787
---------- ----------
$4,948,570 $4,382,772
========== ==========
Liabilities and Shareholders' Equity
Notes payable $ 183,831 $ 129,168
Accounts payable 110,127 110,266
Accrued expenses & other current
liabilities 847,558 717,868
Income taxes 84,874 61,479
Current portion of long-term debt 1,404 1,091
---------- ---------
Total current liabilities 1,227,794 1,019,872
---------- ---------
Long-term debt 223,596 401,162
---------- ---------
Other liabilities 92,120 91,685
---------- ---------
Deferred income taxes 57,196 102,751
---------- ---------
Deferred revenue 105,646 106,737
---------- ---------
Shareholders' equity:
Common stock 31,429 31,429
Capital in excess of par value 603,759 480,492
Retained earnings 3,253,465 2,922,317
Treasury stock (546,562) (697,887)
Translation adjustment (99,873) (75,786)
---------- ---------
3,242,218 2,660,565
---------- ----------
$4,948,570 $4,382,772
========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
Condensed Statements of Consolidated Cash Flows
(In thousands)
Nine Months Ended
March 31,
1998 1997
---- ----
Cash Flows From Operating Activities:
Net earnings $ 443,400 $ 385,790
Expenses not requiring outlay of cash 191,012 203,638
Changes in operating net assets 73,798 31,903
--------- ---------
Net cash flows from operating activities 708,210 621,331
--------- ---------
Cash Flows From Investing Activities:
Purchase of marketable securities (346,447) (537,091)
Proceeds from sale of marketable securities 394,930 477,905
Capital expenditures (129,317) (111,799)
Other changes to property, plant and equipment 9,768 6,076
Additions to intangibles (81,868) (40,961)
Acquisitions of businesses (206,186) (92,238)
--------- ---------
Net cash flows from investing activities (359,120) (298,108)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of notes 59,810 87,582
Repayments of long-term debt - (52,426)
Proceeds from issuance of common stock 24,721 69,323
Repurchases of common stock (40,907) (107,990)
Dividends paid (112,252) (96,311)
--------- ---------
Net cash flows from financing activities (68,628) (99,822)
--------- ---------
Net change in cash and cash equivalents 280,462 223,401
Cash and cash equivalents, at beginning of 590,578 314,416
period --------- ---------
Cash and cash equivalents, at end of $ 871,040 $ 537,817
period ========= =========
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 nine months ended March 31,
1998 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)
Periods ended March 31, 1998
----------------------------------------------------
Three month period Nine month period
------------------------- ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $190,600 299,847 $0.64 $443,400 295,370 $1.50
Effect of zero coupon
subordinated notes 1,433 5,347 6,651 7,909
Effect of stock
options - 7,030 - 6,014
----------------- -----------------
Diluted $192,033 312,224 $0.62 $450,051 309,293 $1.46
========================= ========================
Periods ended March 31, 1997
----------------------------------------------------
Three month period Nine month period
------------------------- ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $164,930 292,624 $ 0.56 $385,790 290,504 $ 1.33
Effect of zero coupon
subordinated notes 2,844 9,707 8,473 9,707
Effect of stock
options - 5,442 - 6,038
----------------- -----------------
Diluted $167,774 307,773 $ 0.55 $394,263 306,249 $ 1.29
========================= ========================
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING RESULTS
Revenue and earnings again reached record levels during the quarter ended March
31, 1998.
Revenue and revenue growth by ADP's major business units are shown below:
Revenue
-----------------------------------
3 Months Ended 9 Months Ended
March 31, March 31,
1998 1997 1998 1997
------ ------ ------ ------
($ in millions)
Employer Services $ 791 $ 667 $2,045 $1,708
Brokerage Services 281 226 736 614
Dealer Services 180 164 519 479
Other 57 69 196 232
------ ------ ------ ------
$1,309 $1,126 $3,496 $3,033
====== ====== ====== ======
Revenue Growth
-----------------------------------
3 Months Ended 9 Months Ended
March 31, March 31,
1998 1997 1998 1997
------ ------ ------ ------
Employer Services 19% 16% 20% 20%
Brokerage Services 24 12 20 14
Dealer Services 10 13 8 19
Other (17) (37) (16) (3)
----- ----- ----- -----
16% 9% 15% 17%
===== ===== ===== =====
Consolidated revenue for the quarter grew 16% from last year to $1,309 million.
Revenue growth in the Company's three largest businesses, Employer, Brokerage
and Dealer Services, was strong at 19%, 24%, and 10%, respectively.
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 18% to $279 million. 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 $191 million. The effective tax rate of 31.7% increased from 30.3% in the
comparable quarter last year, primarily as a result of the greater proportion of
taxable earnings versus non-taxable interest earnings.
Basic earnings per share grew 14% to $.64 from $.56 last year.
For the full year, the Company expects over 15% growth in revenue and pretax
earnings and basic earnings per share growth in the area of 13-14% above 1997's
$1.80 per share (which is prior to non-recurring items).
FINANCIAL CONDITION
The Company's financial condition and balance sheet remain exceptionally strong,
and operations continue to generate a strong cash flow. At March 31, 1998, the
Company had cash and marketable securities of approximately $1.7 billion.
Shareholders' equity was approximately $3.2 billion and the ratio of long-term
debt to equity was 7%.
Capital expenditures for fiscal 1998 are expected to be approximately $200 to
$225 million depending on the completion of certain projects, compared to $175
million in fiscal 1997.
During the first nine months 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 nine months of fiscal 1998, 392,000 of the Company's zero
coupon convertible subordinate notes were converted to over 5 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 exposures.
PART II. OTHER INFORMATION
Except as noted below, all other items are inapplicable or would result in
negative responses and, therefore, have been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Exhibit
------ -------
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: May 13, 1998 /s/ Richard J. Haviland
--------------------------
Richard J. Haviland
Chief Financial Officer
(Principal Financial Officer)
-----------------------------
(Title)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 871,040
<SECURITIES> 233,651
<RECEIVABLES> 779,743
<ALLOWANCES> 41,160
<INVENTORY> 23,243
<CURRENT-ASSETS> 2,046,274
<PP&E> 1,456,109
<DEPRECIATION> 916,997
<TOTAL-ASSETS> 4,948,570
<CURRENT-LIABILITIES> 1,227,794
<BONDS> 223,596
0
0
<COMMON> 31,429
<OTHER-SE> 3,210,789
<TOTAL-LIABILITY-AND-EQUITY> 4,948,570
<SALES> 0
<TOTAL-REVENUES> 3,495,853
<CGS> 0
<TOTAL-COSTS> 2,818,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,777
<INTEREST-EXPENSE> 19,463
<INCOME-PRETAX> 647,040
<INCOME-TAX> 203,640
<INCOME-CONTINUING> 443,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 443,400
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.46
</TABLE>
