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, 1999 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) 974-5000
--------------
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, 1999 there were 625,108,036 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,
1999 1998
---- ----
Revenues, other than PEO $1,306,938 $1,208,431
PEO revenues (net of pass-through
costs of $467,111 and $386,237,
respectively) 44,157 36,695
---------- ----------
Total revenues 1,351,095 1,245,126
---------- ----------
Operating expenses 551,090 553,308
General, administrative and
selling expenses 404,991 329,589
Depreciation and amortization 65,634 69,662
Systems development and
programming costs 103,655 101,071
Interest expense 3,535 5,721
---------- ----------
1,128,905 1,059,351
---------- ----------
EARNINGS BEFORE INCOME TAXES 222,190 185,775
Provision for income taxes 75,990 60,351
---------- ----------
NET EARNINGS $ 146,200 $ 125,424
========== ==========
BASIC EARNINGS PER SHARE $ 0.23 $ 0.20
========== ==========
DILUTED EARNINGS PER SHARE $ 0.23 $ 0.20
========== ==========
Dividends per share $ .07625 $ .06625
========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS)
September 30, June 30,
1999 1999
------------ -----------
Assets
- - ------
Cash and cash equivalents $ 953,800 $ 861,280
Short-term marketable securities 419,082 231,214
Accounts receivable 825,420 860,836
Other current assets 245,570 240,927
---------- ----------
Total current assets 2,443,872 2,194,257
Long-term marketable securities 945,947 1,076,546
Long-term receivables 218,412 213,413
Land and buildings 399,453 400,189
Data processing equipment 559,695 550,757
Furniture, leaseholds and other 451,410 449,862
---------- ----------
1,410,558 1,400,808
Less accumulated depreciation (846,180) (821,514)
---------- ----------
564,378 579,294
Other assets 287,806 228,936
Intangibles 1,486,310 1,532,374
---------- ----------
$5,946,725 $5,824,820
========== ==========
Liabilities and Shareholders' Equity
- - ------------------------------------
Notes payable $ 60,185 $ 66,952
Accounts payable 103,026 130,456
Accrued expenses & other current
liabilities 1,012,757 952,326
Income taxes 147,091 136,659
---------- ----------
Total current liabilities 1,323,059 1,286,393
Long-term debt 140,935 145,765
Other liabilities 145,189 132,081
Deferred income taxes 136,250 138,236
Deferred revenue 106,951 114,404
Shareholders' equity:
Common stock 62,858 62,858
Capital in excess of par value 405,736 421,333
Retained earnings 3,947,496 3,848,421
Treasury stock (148,917) (189,204)
Accumulated other comprehensive
income (172,832) (135,467)
---------- ----------
4,094,341 4,007,941
---------- ----------
$5,946,725 $5,824,820
========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
-----------------------------------------------
(IN THOUSANDS)
Three Months Ended
September 30,
1999 1998
---- ----
Cash Flows From Operating Activities:
- - -------------------------------------
Net earnings $146,200 $125,424
Expenses not requiring outlay of cash 66,093 69,063
Changes in operating net assets 27,717 40,020
-------- --------
Net cash flows from operating activities 240,010 234,507
-------- --------
Cash Flows From Investing Activities:
- - -------------------------------------
Purchase of marketable securities (172,216) (133,363)
Proceeds from sale of marketable securities 99,092 69,067
Capital expenditures (23,919) (39,345)
Additions to intangibles (11,646) (16,481)
Acquisitions of businesses (886) (8,020)
Other (12,030) 6,229
-------- --------
Net cash flows from investing
activities (121,605) (121,913)
-------- --------
Cash Flows From Financing Activities:
- - -------------------------------------
Proceeds from issuance of notes 1,478 53,209
Repayments of debt (7,398) (3,721)
Proceeds from issuance of common stock 27,659 23,569
Repurchases of common stock - (7,033)
Dividends paid (47,624) (40,138)
-------- --------
Net cash flows from financing activities (25,885) 25,886
-------- --------
Net change in cash and cash equivalents 92,520 138,480
Cash and cash equivalents, at beginning of
period 861,280 763,063
-------- --------
Cash and cash equivalents, at end of
period $953,800 $901,543
======== ========
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. 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, 1999.
Note A - The results of operations for the three months
ended September 30, 1999 may not be indicative
of the results to be expected for the year
ending June 30, 2000.
Note B - The calculation of basic and diluted earnings
per share is as follows:
(In thousands, except EPS)
Periods ended September 30,
---------------------------------------------------
1999 1998
------------------------ ------------------------
Income Shares EPS Income Shares EPS
-------- ------- ----- -------- ------- -----
Basic $146,200 624,392 $0.23 $125,424 612,477 $0.20
Effect of zero
coupon
subordinated
notes 753 4,745 1,069 7,128
Effect of stock
options - 13,683 - 14,985
----------------- -----------------
Diluted $146,953 642,820 $0.23 $126,493 634,590 $0.20
======================== ========================
Note C - Comprehensive income for the three months ended
September 30, 1999 and 1998 follows:
September 30,
1999 1998
-------- --------
Net income $146,200 $125,424
Other comprehensive income:
Foreign currency translation
adjustment (27,851) 32,873
Unrealized gain(loss) on
securities (9,514) (1,936)
-------- --------
Comprehensive income $108,835 $156,361
======== ========
<PAGE>
Form 10Q
Note D - Interim financial data by segment:
ADP evaluates performance of its business units
based on recurring operating results before
interest, income taxes and foreign currency gains
and losses. 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,
including non-recurring gains and losses, are
recorded at the corporate level and certain shared
costs are not allocated. Goodwill amortization is
charged to business units at an accelerated rate
to act as a surrogate for the cost of capital for
acquisitions. Revenues on invested client funds
are credited to Employer Services at a standard
rate of 6%. Prior year's business unit results
have been restated to reflect the current year's
foreign exchange standard rates.
Results of the Company's three largest business
units, Employer Services, Brokerage Services and
Dealer Services are shown below.
(In millions) Employer Brokerage Dealer
Three months ended Services Services Services
September 30, ---------- ----------- -----------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Revenues $ 809 $ 720 $ 258 $ 251 $ 187 $ 179
Pretax earnings $ 147 $ 111 $ 54 $ 30 $ 30 $ 24
<PAGE>
Form 10Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OPERATING RESULTS
Revenues and earnings again reached record levels during
the quarter ended September 30, 1999.
Revenues and revenue growth by ADP's major business units
for the three months ended September 30, 1999 and 1998
are shown below:
Revenues Revenue Growth
September 30, September 30,
---------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
($ in millions)
Employer Services $ 809 $ 720 12% 19%
Brokerage Services 258 251 3 13
Dealer Services 187 179 4 10
Other 97 95 2 27
------ ------ ---- ----
$1,351 $1,245 9% 17%
====== ====== ==== ====
Consolidated revenues for the quarter of approximately
$1.4 billion were up 9% from last year. Revenue growth
in the Company's three largest businesses, Employer,
Brokerage and Dealer Services, was 12%, 3%, and 4%,
respectively. Brokerage Services' growth was 24%
excluding the impact of last year's sale of the
Front Office business.
The primary components of "Other" revenues are claims
services, interest income, foreign exchange differences,
and miscellaneous processing services. In addition,
"Other" revenues has been reduced to adjust for the
difference between actual interest income earned on
invested client funds and income credited to Employer
Services at a standard rate of 6%. The prior year's
business unit results have been restated to reflect
the current year's foreign exchange standard rates.
Pretax earnings for the quarter increased 20% to
approximately $222 million. Consolidated pre-tax
margins increased primarily from the impact of
prior year dispositions in Employer Services and
Brokerage Services and increased productivity
in core businesses. Systems development and
programming investments increased to accelerate
automation, migrate to new computing technologies,
and develop new products. Excluding prior year
dispositions, systems development and programming
investments increased over 10% from the last year.
Net earnings for the quarter, after a higher
effective tax rate, increased 17% to approximately
$146 million. The effective tax rate of 34.2%
increased from 32.5% 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 15% to $0.23
from $0.20 last year.
For the full year, we expect revenue growth of about
10% and diluted earnings per share growth of about
15% above the $1.13 reported prior to non-recurring
items in fiscal 1999.
<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,
1999, the Company had cash and marketable securities
of $2.3 billion. Shareholders' equity was $4.1
billion and the ratio of long-term debt to equity
was 3%.
Capital expenditures for fiscal 2000 are expected to
approximate $215 million, compared to $178 million in
fiscal 1999.
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 interest rate risk 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.
The majority of the Company's mission-critical
systems are Year 2000 compliant and the few
remaining systems, primarily from recent
acquisitions, are expected to be compliant
before the end of the calendar year. In
addition, the Company has been actively working
with external agencies and partners, including
government 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 are
dependent upon those third parties completing
their own Year 2000 remediation efforts.
The cost of 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)
Date: November 5, 1999 /s/ Richard J. Haviland
-----------------------
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-30-2000
<PERIOD-START> JUL-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 953,800
<SECURITIES> 419,082
<RECEIVABLES> 869,867
<ALLOWANCES> 44,447
<INVENTORY> 44,115
<CURRENT-ASSETS> 2,443,872
<PP&E> 1,410,558
<DEPRECIATION> 846,180
<TOTAL-ASSETS> 5,946,725
<CURRENT-LIABILITIES> 1,323,059
<BONDS> 140,935
0
0
<COMMON> 62,858
<OTHER-SE> 4,031,483
<TOTAL-LIABILITY-AND-EQUITY> 5,946,725
<SALES> 0
<TOTAL-REVENUES> 1,351,095
<CGS> 0
<TOTAL-COSTS> 1,122,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,855
<INTEREST-EXPENSE> 3,535
<INCOME-PRETAX> 222,190
<INCOME-TAX> 75,990
<INCOME-CONTINUING> 146,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,200
<EPS-BASIC> .23
<EPS-DILUTED> .23
</TABLE>
