SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 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 October 31, 1998 there were 302,102,291 common shares outstanding.
<PAGE>
Form 10Q
Part I. Financial Information
Statement of Consolidated Earnings
(In thousands, except per share amounts)
Three Months Ended
-----------------------------
September 30, September 30,
1998 1997
---------- ----------
Revenue $1,210,327 $1,038,498
---------- ----------
Operating expenses 529,857 443,383
General, administrative and 322,973 289,446
selling expenses
Depreciation and amortization 68,907 57,430
Systems development and
programming costs 100,740 87,289
Interest expense 5,600 7,510
---------- ----------
1,028,077 885,058
---------- ----------
EARNINGS BEFORE INCOME TAXES 182,250 153,440
Provision for income taxes 59,050 48,030
---------- ----------
NET EARNINGS $ 123,200 $ 105,410
========== ==========
BASIC EARNINGS PER SHARE $ 0.41 $ 0.36
========== ==========
DILUTED EARNINGS PER SHARE $ 0.40 $ 0.35
========== ==========
Dividends per share $ .1325 $ .115
========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
Consolidated Balance Sheets
(In thousands)
September 30, June 30,
1998 1998
------------ ----------
Assets
Cash and cash equivalents $ 893,800 $ 752,240
Short-term marketable securities 173,823 144,936
Accounts receivable 731,595 727,936
Other current assets 183,671 204,192
---------- ----------
Total current assets 1,982,889 1,829,304
---------- ----------
Long-term marketable securities 806,399 765,272
---------- ----------
Long-term receivables 182,049 177,946
---------- ----------
Land and buildings 394,352 386,745
Data processing equipment 723,475 696,424
Furniture, leaseholds and other 444,195 432,654
---------- ----------
1,562,022 1,515,823
Less accumulated depreciation (980,717) (932,150)
---------- ----------
581,305 583,673
---------- ----------
Other assets 154,110 166,112
---------- ----------
Intangibles 1,693,886 1,653,048
---------- ----------
$5,400,638 $5,175,355
========== ==========
Liabilities and Shareholders' Equity
Notes payable $ 298,084 $ 239,811
Accounts payable 117,102 119,803
Accrued expenses & other current
liabilities 806,467 806,297
Income taxes 80,448 55,130
---------- ----------
Total current liabilities 1,302,101 1,221,041
---------- ----------
Long-term debt 176,885 192,063
---------- ----------
Other liabilities 116,562 103,056
---------- ----------
Deferred income taxes 151,859 147,397
---------- ----------
Deferred revenue 107,865 105,347
---------- ----------
Shareholders' equity:
Common stock 31,429 31,429
Capital in excess of par value 622,991 617,758
Retained earnings 3,457,791 3,374,729
Treasury stock (496,162) (515,845)
Accumulated other comprehensive income (70,683) (101,620)
---------- ----------
3,545,366 3,406,451
---------- ----------
$5,400,638 $5,175,355
========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
Condensed Statements of Consolidated Cash Flows
(In thousands)
Three Months Ended
September 30,
1998 1997
--------- ---------
Cash Flows From Operating Activities:
Net earnings $ 123,200 $ 105,410
Expenses not requiring outlay of cash 68,115 75,847
Changes in operating net assets 43,177 65,947
--------- ---------
Net cash flows from operating activities 234,492 247,204
--------- ---------
Cash Flows From Investing Activities:
Purchase of marketable securities (133,363) (126,146)
Proceeds from sale of marketable securities 69,067 132,961
Capital expenditures (38,523) (40,442)
Other changes to property, plant and equipment 6,229 2,874
Additions to intangibles (16,481) (11,680)
Acquisitions of businesses (8,020) (154,793)
--------- ---------
Net cash flows from investing activities (121,091) (197,226)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of notes 51,823 90,088
Proceeds from issuance of common stock 23,507 12,830
Repurchases of common stock (7,033) (38,316)
Dividends paid (40,138) (33,706)
Repayments of long-term debt -- (6,802)
--------- ---------
Net cash flows from financing activities 28,159 24,094
--------- ---------
Net change in cash and cash equivalents 141,560 74,072
Cash and cash equivalents, at beginning of
period 752,240 590,578
--------- ---------
Cash and cash equivalents, at end of
period $ 893,800 $ 664,650
========= =========
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, 1998.
Note A - The results of operations for the three months ended September 30, 1998
may not be indicative of the results to be expected for the year ending
June 30, 1999.
Note B - A reconciliation of the income and weighted average shares used in the
basic and diluted earnings per share calculations for the three months
ended September 30, 1998 and 1997 follows:
(In thousands, except EPS)
Periods ended September 30,
----------------------------------------------------
1998 1997
------------------------- ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $123,200 302,647 $0.41 $105,410 292,628 $0.36
Effect of zero coupon
subordinated notes 1,069 3,564 2,754 9,663
Effect of stock
options -- 7,407 -- 5,699
----------------- -----------------
Diluted $124,269 313,618 $0.40 $108,164 307,990 $0.35
========================= ========================
Note C - Effective July 1, 1998, the Company has adopted FASB Statement No. 130
"Reporting Comprehensive Income". Comprehensive income for the three
months ended September 30, 1998 and 1997 follows:
September 30,
-----------------------
1998 1997
---- ----
Net income $123,200 $105,410
Other comprehensive income
Foreign currency translation
adjustment 32,873 (6,390)
Unrealized gain (loss) on
securities (1,936) 1,842
-------- --------
Comprehensive income $154,137 $100,862
======== ========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING RESULTS
Revenue and earnings again reached record levels during the quarter ended
September 30, 1998.
Revenue and revenue growth by ADP's major business units for the three months
ended September 30, 1998 and 1997 are shown below:
Revenue Revenue Growth
September 30, September 30,
------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
($ in millions)
Employer Services $ 695 $ 587 18% 20%
Brokerage Services 252 223 13 19
Dealer Services 181 166 9 9
Other 82 62 32 (23)
------ ------- -- ---
$1,210 $ 1,038 17% 14%
====== ======= == ===
Consolidated revenue for the quarter of $1,210 million was up 17% from last
year. Revenue growth in the Company's three largest businesses, Employer,
Brokerage and Dealer Services, was strong at 18%, 13%, and 9%, respectively.
The primary components of "Other" revenue are claims services, 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% to $182 million. Systems
development and programming investments increased to accelerate automation,
migrate to new computing technologies, and develop new products.
Net earnings for the quarter, after a higher effective tax rate, increased 17%
to $123 million. The effective tax rate of 32.4% increased from 31.3% in the
comparable quarter last year, primarily as a result of the greater weighting of
taxable versus non-taxable earnings.
Diluted earnings per share grew 14% to $0.40 from $0.35 last year.
For the full year, we expect double digit revenue growth and diluted earnings
per share growth of 13-16%.
<PAGE>
Form 10Q
FINANCIAL CONDITION
The Company's financial condition and balance sheet remain exceptionally strong,
and operations continue to generate a strong cash flow. At September 30, 1998,
the Company had cash and marketable securities of $1.9 billion. Shareholders'
equity was $3.5 billion and the ratio of long-term debt to equity was 5%.
Capital expenditures for fiscal 1999 are expected to approximate $200 million,
compared to $199 million in fiscal 1998.
During the quarter, ADP purchased 108,500 shares of common stock for treasury at
an average price of about $65. At September 30, 1998, the Company had remaining
Board authorization to purchase up to 8.4 million additional shares to fund
equity related employee benefit plans.
The Company's investment portfolio for corporate and client funds consists
primarily of fixed income securities subject to interest rate risk, including
reinvestment risk. The Company has historically had the ability to hold these
investments until maturity, and therefore this has not had an adverse impact on
income or cash flows.
OTHER MATTERS
The majority of the Company's services involve computer processing and, as such,
the Year 2000 could have a significant impact on the Company's products and
services. As a result, the Company has worked for several years addressing both
internal and third-party Year 2000 compliance issues. To date, the Company has
completed its process of identifying and assessing Year 2000 issues related to
its mission-critical systems and is currently in the remediation and testing
phases. The Company plans to have the majority of mission-critical systems Year
2000 compliant by December 31, 1998, with the few remaining systems, primarily
from recent acquisitions, compliant by March 31, 1999. In addition, the Company
has been actively working with external agencies and partners, including
governmental agencies, to determine and conform to their Year 2000 compliance
plans. Third-party interface testing and resolution of Year 2000 issues with
external agencies and partners is dependent upon those third parties completing
their own Year 2000 remediation efforts.
The Year 2000 remediation is not expected to have a material adverse effect on
the Company's overall results, as these costs are not expected to be
substantially different from normal recurring costs that are incurred for
systems development and implementation.
This report contains "forward-looking statements" based on management's
expectations and assumptions and are subject to risks and uncertainties that may
cause actual results to differ from those expressed. Factors that could cause
differences include: ADP's success in obtaining, retaining and selling
additional services to clients; the pricing of products and services; overall
economic trends, including interest rate and foreign currency trends; impact of
Year 2000; stock market activity; auto sales and related industry changes;
employment levels; changes in technology; availability of skilled technical
associates and the impact of new acquisitions.
<PAGE>
Form 10Q
PART II. OTHER INFORMATION
Except as noted below, all other items are either inapplicable or would result
in negative responses and, therefore, have been omitted.
Item 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)
/s/ Richard J. Haviland
Date: November 12, 1998 -------------------------------
Richard J. Haviland
Chief Financial Officer
(Principal Financial Officer)
-------------------------------
(Title)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 893,800
<SECURITIES> 173,823
<RECEIVABLES> 777,447
<ALLOWANCES> 45,852
<INVENTORY> 48,389
<CURRENT-ASSETS> 1,982,889
<PP&E> 1,562,022
<DEPRECIATION> 980,717
<TOTAL-ASSETS> 5,400,638
<CURRENT-LIABILITIES> 1,302,101
<BONDS> 176,885
0
0
<COMMON> 31,429
<OTHER-SE> 3,513,937
<TOTAL-LIABILITY-AND-EQUITY> 5,400,638
<SALES> 0
<TOTAL-REVENUES> 1,210,327
<CGS> 0
<TOTAL-COSTS> 1,018,187
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<LOSS-PROVISION> 4,290
<INTEREST-EXPENSE> 5,600
<INCOME-PRETAX> 182,250
<INCOME-TAX> 59,050
<INCOME-CONTINUING> 123,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,200
<EPS-PRIMARY> .41
<EPS-DILUTED> .40
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