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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
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 No.)
ONE ADP BOULEVARD, ROSELAND, NEW JERSEY 07068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 973-974-5000
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 (ss.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 10, 1999 was approximately $25,993,400,000. On
September 10, 1999, there were 624,590,771 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1999 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 9, 1999. Part III
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PART I
ITEM 1. BUSINESS
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 Employer Services offers a comprehensive range of payroll, human
resources, benefits administration, time and attendance and tax filing and
reporting services to more than 425,000 employers in the United States, Canada,
Europe and Latin America. In addition to its direct marketing, Employer Services
has marketing relationships with many banks and accountants whereby ADP offers
its services to their business clients. In fiscal 1999, North America accounted
for 88% of Employer Services' revenues, with Europe generating 11% of Employer
Services' revenues and Latin America (principally Brazil) contributing the
remaining 1%.
In North America, payroll and tax filing and other reporting services
comprise approximately 83% of Employer Services' revenue. Payroll services
include the preparation of client employee paychecks and electronic direct
deposits (in conjunction with major bank partners), 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 and Financial Services Center
is also responsible for the efficient movement of funds and information to third
parties. In Europe and Latin America, ADP Employer Services provides the
European or Latin American equivalent of these services.
ADP's Employer Services approach to the market is to match a client's
needs with the product that will best meet expectations. In North America,
approximately 38% of Employer Services' payroll and payroll tax filing services
revenue during the past fiscal year was attributable to its Emerging Business
Services (companies with less than 100 employees); approximately 41% of such
revenue was attributable to Major Accounts (companies with between 100 and 999
employees) and approximately 21% of such revenue was attributable to National
Accounts (companies with 1,000 or more employees).
ADP's Human Resources (HR) services, operating in conjunction with a
client's payroll database, provide comprehensive recordkeeping HR services,
including benefits administration and
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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.
Emerging Business Services processes payroll for over 325,000 clients.
EBS provides these smaller companies of usually 1-100 employees with leading
solutions, including a range of value-added services that are specifically
designed for small business clients. Major Accounts (100-1000 employees) offers
a full suite of best-of-breed employer services solutions for mid-size
companies, including full database and other functional integration between
payroll and HR. Many of the world's largest corporations (over 1000 employees)
are ADP National Accounts clients. In many cases, ADP provides system solutions
for its clients' entire human resource, payroll and benefits needs. For those
companies who choose to process these applications in-house, ADP also delivers
stand-alone services such as payroll tax filing, check printing and
distribution, and year-end statements (I.E. W-2's). Other large clients rely on
ADP to design and deliver their own customized human resource information
systems and benefits outsourcing solutions.
The ADP Tax and Financial Services Center supports all three of these
market segments. It provides an electronic interface between approximately
330,000 ADP clients in the United States and Canada and about 2,000 federal,
state and local tax agencies, from the Internal Revenue Service to local town
governments. In fiscal 1999, the ADP Tax and Financial Service Center processed
over 16 million federal and other employer payroll tax returns.
This year, ADP became the second largest professional employer
organization ("PEO") in the United States with the acquisition of The Vincam
Group, Inc. A PEO provides a comprehensive outsourcing solution, including
payroll, HR, benefits and workers' compensation to its clients. ADP's combined
PEO business, called TOTALSOURCEsm, supports over 81,000 work-site employees in
eight states.
ADP complements its payroll and HR services with additional employer
services that include products ranging from time and attendance tracking to
401(k) recordkeeping. ADP's unemployment compensation services aid clients in
managing and reducing unemployment insurance costs. ADP enhanced its position as
a leading benefits administration provider with the acquisition of the benefits
administration business of Johnson & Higgins/Kirke Van Orsdel, Inc.
Additionally, ADP initiated relationships with enterprise resource providers,
enabling ADP to link its payroll and HR systems with ERP systems.
The continued increase in multinational companies makes payroll and
human resource management services a global opportunity. ADP Europe provides
payroll solutions to nearly 25,000 clients in nine European countries. ADP
Europe is the only Pan-European service provider, and more than half of the top
500 companies in Europe - those with 1,000 or more employees - are ADP Europe
clients. In fiscal 1999, ADP Europe acquired three companies: Chessington (UK),
Realisator (Switzerland) and Adid (France). Additionally, ADP is well positioned
in Latin America to take advantage of future growth in this market. As
previously stated, Employer Services' European and Latin American operations
already comprise 12% of the consolidated Employer Services worldwide revenues.
In fiscal 1999, ADP initiated Global Business Services. Through Global
Business Services, ADP will provide a dedicated sales and service organization
trained and equipped to handle payroll for clients with diverse locations in
ADP's major world markets.
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BROKERAGE SERVICES
ADP Brokerage Services provides transaction processing, desktop
productivity applications and investor communications services to the financial
services industry. These services include 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. ADP Brokerage Services serves a diverse
client base, including full-service and discount brokerage firms, global banks
and Internet brokerage companies, as well as corporations, mutual funds,
institutional investors, trading firms and other providers of financial
services.
In fiscal 1999, ADP Brokerage Services processed a significant portion
of all U.S. and Canadian retail equity transactions, with combined daily volumes
of 827,000 trades per day - clearly making ADP Brokerage Services the largest
provider of transaction processing in North America.
This year, ADP Brokerage Services introduced Internet-based products,
such as electronic delivery of trade confirmations and statements, and a mutual
fund sales tool, where users can view current fund information. ADP's clients
can now order trades on-line for immediate delivery to an investor. ADP
Brokerage Services also acquired Leading Edge Technologies, a supplier of
software solutions to traders in the mortgage-backed securities market, and OMR
Systems, a leading provider of global trade processing solutions for financial
institutions.
ADP Investor Communications Services (ICS), provides data processing,
computerized vote tabulation, printing, mailing and literature fulfillment
services. In fiscal 1999, ICS processed over 450 million shareholder mailings
for over 14,000 publicly-traded companies on behalf of more than 800 brokerage
firms and banks and 450 mutual fund families. This year, ICS tabulated over 50
million ballots representing more than 330 billion shares. Currently, 60% of all
shares are voted over the telephone, the Internet, or via ProxyEdge(R), our
PC-based electronic voting and recordkeeping product. ICS also distributed more
than 10 million prospectuses to meet the post-sale customer compliance
requirements of our clients. In March 1999, ADP ICS acquired Management
Information Services Corp., a provider of shareholder communication services to
mutual funds and the insurance industry.
Internationally, ADP Brokerage Services serves brokerage and banking
clients in 20 countries, processing their transactions in many currencies.
Thirteen of the top 15 global banks use ADP's transactions processing services.
ADP's Wilco Systems' GlossSM series international trading and settlement systems
offer global multi-instrument, multi-currency trading, settlement and accounting
services. The GlossSM product has specific features for North America, Europe,
Asia and emerging markets. In fiscal 1999, ADP ICS distributed proxies and
tabulated votes on behalf of client holdings in more than 70 countries. In
addition, ICS began processing beneficial proxy services for large cap issuers
in the domestic market of The Netherlands.
DEALER SERVICES
ADP's Dealer Services provides computing, data and professional
services to automobile and truck dealerships, as well as manufacturers,
world-wide. Approximately 18,000 dealers (including more than 7,500 European
automobile dealers and parts wholesalers) and more than 30 vehicle manufacturers
use ADP's on-site systems and communications networks to manage sales,
operations and marketing.
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ADP offers clients a service solution that includes computer hardware,
licensed software, software support, network consulting, design and hardware
maintenance services. Clients use ADP's systems to manage business activities
such as accounting, inventory, factory communications, scheduling, finance,
insurance, sales and service. ADP designs, establishes and maintains
communications networks for its clients that allow interactive communications
among multiple site locations for larger dealers as well as links between
franchise dealers and their respective manufacturers. These networks are used
for new vehicle ordering, status inquiry and warranty submission and validation,
parts and vehicle locating, credit application submissions, vehicle repair
estimates, vehicle registration and lienholder information.
Changes in customer expectations and manufacturers' 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. ADP also offers solutions to help improve
employee productivity and training, and provides the tools and services
necessary to improve dealership productivity and profitability. ADP continues to
automate the business processes for its clients through value-added products
such as electronic parts catalogues, repair shop pricing and scheduling, laser
printing, data archiving and document storage, and lease fleet management.
Through its ADP Sandy Group unit, ADP Dealer Services assists automobile dealers
and manufacturers in generating brand loyalty and customer satisfaction with
customized communications programs.
The Millennia3 platform is a key component of ADP's current dealer
management system and its go-forward strategy to deliver Web-based client/server
solutions for both automobile dealers and manufacturers. ADP's acquisition this
year of Dealer Solutions, Inc., a developer of Windows NT(R) dealer management
systems software, is another significant step in ADP's Web-based client/server
strategy.
CLAIMS SERVICES
ADP Claims Services offers a broad line of claims information products
to property and casualty insurance companies, claims adjusters, repair shops and
auto parts recycling facilities. These products help insurers to accurately
estimate auto damage, property damage and bodily injury claims and help repair
shops and recyclers locate parts and manage their operations. The products and
services include automated collision damage repair estimating products for cars
and trucks, integrated electronic digital imaging and communications services,
vehicle valuation services for total losses, collision repair management systems
products, aftermarket and recycled parts locating and pricing services and
related management information products. This year, ADP Claims Services
processed approximately 15 million claim estimates. ADP Claims Services has five
product groups.
Insurance Claims Services offers a broad range of cost containment
products and services to the automobile physical damage and property claims
markets in North America and Europe. Through its Claimsflo(R) brand, it assists
a growing number of clients to streamline their workflow, reduce internal
redundancies, prevent fraud and accelerate the process of claim settlement.
Integrated Medical Solutions offers products and services that allow insurers to
efficiently review medical expenses related to auto accidents and workers'
compensation claims. These products and services are designed to assist clients
in identifying and paying for only medically appropriate treatments. Collision
Repair Services provides products for collision repair facilities. ADP Hollander
provides inventory management and communications products and services to the
automotive recycling industry. The products are designed
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to assist clients in creating and capturing operational efficiencies and
expanding their market and sales through electronic parts locating with other
auto recyclers and their business partners. Audatex provides insurance claims
estimating outside of North America.
This year, ADP Claims Services introduced to the Canadian market
Electronic Medical Data Interchange (EMDI). EMDI creates an electronic link
between service providers and insurer to facilitate pre-authorization of
treatment. Payment for authorized services is then made via electronic funds
transfer.
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. 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 that 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, sales forces 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. Most ADP services are offered in Western Europe and some employer
services are now offered in Brazil. Services offered outside the United States
amounted to approximately 18% of fiscal 1999 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 to ADP's overall revenue. Employer Services also sells to auto
dealers, brokerage clients and insurance clients.
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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 world.
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 450,000 clients. Annual
revenues attributable to large client accounts range from $1 million to
approximately $43 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 1% 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 eight 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.
SYSTEMS DEVELOPMENT AND PROGRAMMING
During the fiscal years ended June 30, 1999, 1998 and 1997, ADP spent
$412,380,000, $376,485,000 and $297,794,000, respectively, on systems
development and programming activities for the development of new, and the
improvement and maintenance of existing, computing services.
PRODUCT DEVELOPMENT
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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 that run
various operating systems. These computer platforms include those offered by
IBM, IBM-compatibles, Compaq Computer Corp. (Digital Equipment Corp.), Apple,
Motorola, Hewlett Packard and Boeing Co. (McDonnell Douglas). The
industry-standard operating systems supporting such computer platforms include
DOS, Windows, NT, OS2/Warp, VSE, OS/390, 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 37,000 persons as of June 30, 1999.
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 5,600,000 square feet in the United
States, Canada, Europe, South America, Asia, Australia and South Africa, expire
at various times up to the year 2016. ADP owns 34 of its
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processing facilities and its corporate headquarters complex in Roseland, New
Jersey, which aggregate approximately 2,800,000 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, Dividend Data and Other" on page 17 of the
Registrant's 1999 Annual Report to Shareholders, which information is
incorporated herein by reference. As of September 10, 1999, the Registrant had
32,681 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.
On November 10, 1998, the Registrant issued 5,520 shares of its
Common Stock and on April 9, 1999, the Registrant issued an additional 16,377
shares of its Common Stock to the shareholder of a company acquired by the
Registrant in exchange for all of the issued and outstanding shares of the
capital stock of such company pursuant to the terms of a stock purchase
agreement. On April 22, 1999, the Registrant issued 328 shares of its Common
Stock to the shareholders of a company acquired by the Registrant in
exchange for all of the issued and outstanding shares of the capital stock of
such company pursuant to the terms of a stock purchase agreement. On May 21,
1999, the Registrant issued an aggregate amount of 1,395,651 shares of its
Common Stock to the shareholders of a company acquired by the Registrant in
exchange for all of the issued and outstanding shares of the capital stock of
such company in a pooling-of-interests transaction pursuant to the terms of a
merger agreement. On May 28, 1999, the Registrant issued 2,914,135 shares of
its Common Stock to the shareholders of a company acquired by the Registrant
in exchange for all of the issued and outstanding shares of the capital stock of
such company in a pooling-of-interests transaction pursuant to the terms of a
merger agreement. The Registrant issued the foregoing shares of Common Stock
without registration under the Securities Act of 1933, as amended, in
reliance upon the exemption therefrom set forth in Section 4(2) of such Act,
relating to sales by an issuer not involving a public offering.
ITEM 6. SELECTED FINANCIAL DATA
See "Selected Financial Data" on page 15 of the Registrant's 1999
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 16-17 of the
Registrant's 1999 Annual Report to Shareholders, the Letter to Shareholders on
pages 3-4 of such report and the business descriptions on pages 6-13 of such
report, which information is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant'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 Registrant to material market risk exposures.
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 1999 Annual
REPORT TO SHAREHOLDERS
Quarterly Financial Results (unaudited) for
the two years ended June 30, 1999 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:
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Employed by
NAME AGE POSITION ADP SINCE
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James B. Benson 54 Vice President, General 1977
Counsel and Secretary
Richard C. Berke 54 Vice President, Human 1989
Resources
Gary C. Butler 52 President and Chief 1975
Operating Officer
Richard J. Daly 46 Group President, 1989
Brokerage Services
G. Harry Durity 52 Vice President, 1994
Worldwide Business
Development
Russell P. Fradin 44 Group President, 1996
Employer Services
Eugene A. Hall 43 Senior Vice President 1998
Richard J. Haviland 53 Chief Financial Officer 1982
and Vice President
John Hogan 51 Group President, 1993
Brokerage Services
S. Michael Martone 51 Group President, Dealer 1987
Services
Arthur F. Weinbach 56 Chairman and 1980
Chief Executive Officer
</TABLE>
Messrs. Benson, Berke, Butler, Daly, Durity, Haviland, Hogan, Martone
and Weinbach have each been employed by ADP in senior executive positions for
more than the past five years.
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Russell P. Fradin joined ADP in 1996. Prior to his promotion to Group
President, Employer Services, he served as Senior Vice President. Prior to
joining ADP, he was a senior partner of McKinsey & Company and had been
associated with that firm for 18 years.
Eugene A. Hall joined ADP in 1998 as Senior Vice President. Prior to
joining ADP, he was a senior partner of McKinsey & Company and had been
associated with that firm for 16 years.
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
1999 Annual Meeting of Stockholders, which information is incorporated herein by
reference.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended June 30, 1999, no directors or officers
submitted late filings under Section 16(a) of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
See "Compensation of Executive Officers" in the Proxy Statement for
Registrant's 1999 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 1999 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 1999 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:
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<CAPTION>
Page in 1999 Annual
REPORT TO SHAREHOLDERS
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Independent Auditors' Report 29
Consolidated Balance Sheets - June 30, 1999 and 1998 19
Statements of Consolidated Earnings - years
ended June 30, 1999, 1998 and 1997 18
Statements of Consolidated Shareholders' Equity - years
ended June 30, 1999, 1998 and 1997 20
Statements of Consolidated Cash Flows - years
ended June 30, 1999, 1998 and 1997 21
Notes to Consolidated Statements 22 - 27
</TABLE>
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
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<CAPTION>
PAGE IN FORM 10-K
<S> <C>
Independent Auditors' Report on Schedule 14
Schedule II - Valuation and Qualifying Accounts 15
</TABLE>
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:
<TABLE>
<S> <C> <C>
3.1 - Amended and Restated Certificate of Incorporation dated November 11, 1998 -
incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 1998
</TABLE>
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<TABLE>
<S> <C> <C>
3.2 - By-Laws as currently in effect - incorporated by reference to Exhibit (3)-#2 to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1997
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 - Letter Agreement dated as of August 1, 1996 between Automatic Data Processing, Inc.
and Arthur F. Weinbach - incorporated by reference to Exhibit 10.2 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (Management
Contract)
10.2 - Letter Agreement dated September 14, 1998 between Automatic Data Processing, Inc.
and Gary Butler - incorporated by reference to Exhibit 10.2 to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998 (Management Contract)
10.3 - 1981 Key Employees' Stock Option Plan - incorporated by reference to Registrant's
Registration Statement No. 2-75287 on Form S-8 (Management Compensatory Plan)
10.3(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)
10.4 - Key Employees' Restricted Stock Plan - incorporated by reference to Registrant's
Registration Statement No. 33-25290 on Form S-8 (Management Compensatory Plan)
10.5 - 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)
10.5(a) - Amendment to Supplemental Officers' Retirement Plan (Management Compensatory Plan)
- 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, 1997
10.6 - 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)
10.6(a) - Amendment to 1989 Non-Employee Director Stock Option Plan - incorporated by
reference to Exhibit 10(6)(a)- to Registrant's Annual
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Report on Form 10-K for the
fiscal year ended June 30, 1997 (Management Compensatory Plan)
10.7 - 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)
10.7(a) - Amendment to 1990 Key Employees' Stock Option Plan (Management Compensatory Plan) -
incorporated by reference to Exhibit 10(7)(a) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1997
10.8 - 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)
10.9 - 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)
10.10 - 2000 Key Employees' Stock Option Plan (Management Compensatory Plan)
11 - Schedule of Calculation of Earnings Per Share
13 - Pages 3-29 of the 1999 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' Consent
27 - Financial Data Schedule
(b) None.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
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. and subsidiaries as of June 30, 1999 and 1998, and for each
of the three years in the period ended June 30, 1999, and have issued our
report thereon dated August 10, 1999; such consolidated financial statements
and report are included in your 1999 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 consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
New York, New York
August 10, 1999
<PAGE>
AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
ADDITIONS
----------------------------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts- Deductions- at end
of period expenses describe describe of period
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1999:
Allowance for doubtful accounts:
Current $45,595 $ 17,551 $ 1,788 (B) $(18,577) (A) $ 46,357
Long-term $14,431 $ 2,470 $ -- $ (345) (A) $ 16,556
Year ended June 30, 1998:
Allowance for doubtful accounts:
Current $40,374 $ 17,677 $ 907 (B) $(13,363) $ 45,595
Long-term $20,370 $ 1,345 $ -- $ (7,284) (A) $ 14,431
Year ended June 30, 1997:
Allowance for doubtful accounts:
Current $35,224 $ 13,787 $ 4,067 (B) $(12,704) $ 40,374
Long-term $25,727 $ 1,817 $ -- $ (7,174) (A) $ 20,370
</TABLE>
(A) Doubtful accounts written off, less recoveries on accounts previously
written off. (B) Acquired in purchase/pooling transactions.
<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 21, 1999 By: /s/ ARTHUR F. WEINBACH
----------------------
Arthur F. Weinbach
Chairman 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 Chairman, Chief Executive September 21, 1999
- ----------------------------- Officer and Director
(Arthur F. Weinbach) (Principal Executive Officer)
/s/ RICHARD J. HAVILAND Chief Financial Officer September 21, 1999
- ----------------------------- (Principal Financial Officer)
(Richard J. Haviland)
/s/ GARY C. BUTLER Director September 21, 1999
- -----------------------------
(Gary C. Butler)
/s/ JOSEPH A. CALIFANO, JR. Director September 21, 1999
- -----------------------------
(Joseph A. Califano, Jr.)
/s/ LEON G. COOPERMAN Director September 21, 1999
- -----------------------------
(Leon G. Cooperman)
<PAGE>
/s/ GEORGE H. HEILMEIER Director September 21, 1999
- -----------------------------
(George H. Heilmeier)
Director September 21, 1999
- -----------------------------
(Ann Dibble Jordan)
/s/ HARVEY M. KRUEGER Director September 21, 1999
- -----------------------------
(Harvey M. Krueger)
Director September 21, 1999
- -----------------------------
(Frederic V. Malek)
/s/ HENRY TAUB Director September 21, 1999
- -----------------------------
(Henry Taub)
/s/ LAURENCE A. TISCH Director September 21, 1999
- -----------------------------
(Laurence A. Tisch)
/s/ JOSH S. WESTON Director September 21, 1999
- -----------------------------
(Josh S. Weston)
</TABLE>
<PAGE>
AUTOMATIC DATA PROCESSING, INC.
2000 KEY EMPLOYEES' STOCK OPTION PLAN
Automatic Data Processing, Inc., a Delaware corporation (the
"Company"), hereby formulates and adopts the following 2000 Key Employees' Stock
Option Plan (the "Plan") for employees of the Company and its Subsidiaries (as
defined in Paragraph 5):
1. PURPOSE. The purpose of the Plan is to secure for the Company the
benefits of the additional incentive inherent in the ownership of common stock,
par value $.10, of the Company ("Common Stock") by selected employees of the
Company and its Subsidiaries who, in the judgment of the Committee (as defined
in Paragraph 2), are important to the success and the growth of the business of
the Company and its Subsidiaries and to help the Company and its Subsidiaries
secure and retain the services of such employees.
2. ADMINISTRATION. Except to the extent required in order to qualify
for exemptive relief under Rule 16b-3 or its successor provision under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or to satisfy
the requirements for performance-based compensation under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), in which case the Board
of Directors of the Company (the "Board of Directors"), or a committee appointed
by the Board of Directors which satisfies the requirements of such provisions
shall administer the Plan (and all applicable provisions of the Plan, including
any reference herein to the "Committee", shall be construed accordingly), the
Plan shall be administered by a Stock Option Committee (the "Committee") to be
appointed by the Board of Directors, which Committee may include employees who
are and who are not members of the Board of Directors. The Committee shall
select one of its members as Chairman and shall make such rules and regulations
as it shall deem appropriate concerning the holding of its meetings and
transaction of its business. Any member of the Committee may be removed at
any time either with or without cause by resolution adopted by the Board of
Directors, and any vacancy on the Committee may at any time be filled by
resolution adopted by the Board of Directors.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority to interpret the Plan, to prescribe, amend and rescind the
rules and regulations relating to it and to make all other determinations deemed
necessary and advisable for the administration of the Plan. The determinations
of the Committee shall be conclusive.
3. STOCK SUBJECT TO OPTIONS. Subject to the adjustment provisions of
Paragraph 13 below, a maximum of 14,750,000 shares of Common Stock may be made
subject to Options (as defined below) granted under the Plan. In addition,
subject to the adjustment provisions of Paragraph 13 below, no person may be
granted Options under the Plan during any of the Company's fiscal years with
respect to more than 500,000 shares of Common Stock.
If, and to the extent that, Options granted under the Plan shall
terminate, expire or be canceled for any reason without having been exercised,
new Options may be granted in respect of the shares
<PAGE>
covered by such terminated, expired or canceled Options. The granting and terms
of such new Options shall comply in all respects with the provisions of the
Plan.
Shares sold upon the exercise of any Option granted under the Plan may
be shares of authorized and unissued Common Stock, shares of issued Common Stock
held in the Company's treasury, or both.
There shall be reserved at all times for sale under the Plan a number
of shares of Common Stock, of either authorized and unissued shares of Common
Stock, shares of Common Stock held in the Company's treasury, or both, equal to
the maximum number of shares that may be purchased pursuant to Options granted
or that may be granted under the Plan.
4. GRANT OF OPTIONS. The Committee shall have the authority and
responsibility, within the limitations of the Plan, to determine the employees
to whom Options are to be granted, whether the Options granted shall be
"incentive stock options" ("Incentive Options"), within the meaning of Section
422(b) of the Code, or Options which are not Incentive Options ("Nonqualified
Options" and together with Incentive Options, "Options," individually, an
"Option"), the number of shares that may be purchased under each Option and the
Option price.
In determining the officers or key employees to whom Options shall be
granted and the number of shares to be covered by each such Option, the
Committee shall take into consideration the employee's present and potential
contribution to the success of the Company and its Subsidiaries (as defined
below) and such other factors as the Committee may deem proper and relevant.
5. EMPLOYEES ELIGIBLE. Incentive Options may be granted to any key
employee of the Company or any of its Subsidiaries. Nonqualified Options may
be granted to any key employee of the Company or any of its Subsidiaries or
Affiliates. Options may be granted to employees who hold or have held Options
under this Plan or any similar or other awards under any other plan of the
Company or any of its Subsidiaries or Affiliates. Employees who are also
officers or directors of the Company or any of its Subsidiaries or Affiliates
shall not by reason of such offices be ineligible as recipients of Options.
For purposes of the Plan, a "Subsidiary" of the Company shall mean any
"subsidiary corporation" as such term is defined in Section 424(f) of the Code.
An entity shall be deemed a Subsidiary of the Company only for such periods as
the requisite ownership relationship is maintained.
For purposes of the Plan, an "Affiliate" of the Company shall mean any
corporation, partnership, or other entity controlled by the Company.
Any Person who would own, directly or indirectly, immediately after the
granting of an Option to such Person, more than 10% of the total combined voting
power of all classes of stock of the Company or any of its Subsidiaries shall
only be eligible to receive an Incentive Option under the Plan if it satisfies
the requirements of Section 422(c)(5) of the Code.
An employee receiving an Option pursuant to the Plan is hereinafter
referred to as an "Optionee".
6. PRICE. The exercise price of each share of Common Stock purchasable
under any Option granted pursuant to the Plan shall not be less than the Fair
Market Value (as defined below) thereof at the time the Option is granted.
<PAGE>
For purposes of the Plan, "Fair Market Value" of a share of Common
Stock means the average of the high and low sales prices of a share of Common
Stock on the New York Stock Exchange Composite Tape on the date in question. If
shares of Common Stock are not traded on the New York Stock Exchange on such
date, "Fair Market Value" of a share of Common Stock shall be determined by the
Committee in its sole discretion.
7. DURATION OF OPTIONS. Options granted hereunder shall become
exercisable, in whole or in part, all as the Committee in its discretion may
provide upon the granting thereof.
Notwithstanding any provision of the Plan to the contrary, except as
otherwise provided in the applicable award agreement, the unexercised portion of
any Option granted under the Plan shall automatically and without notice
terminate and become null and void at the time of the earliest to occur of the
following:
(a) The expiration of 10 years (or, in the case of an
Incentive Option, five years, in the case of an Optionee described in
Section 422(c)(5) of the Code) from the date on which such Option was
granted;
(b) The expiration of 15 days (or such longer period as the
Committee may provide in the event of the Optionee's Permanent and
Total Disability (as defined in Section 22(a)(3) of the Code) from the
date of termination of the Optionee's employment with the Company or
any of its Subsidiaries; provided, however, that if the Optionee shall
die during such 15-day period (or such longer period as the Committee
may provide in the event of the Optionee's Permanent and Total
Disability) the provisions of subparagraph (c) below shall apply;
(c) The expiration of six months after the appointment and
qualification of the executor or administrator of the Optionee's estate
or 12 months after the date of the Optionee's death, whichever occurs
earlier, if such death occurs either during employment by the Company
or any of its Subsidiaries or during the 15-day period (or such longer
period as the Committee may provide in the event of the Optionee's
Permanent and Total Disability) following the date of termination of
such employment; and
(d) In whole or in part, at such earlier time or upon
occurrence of such earlier event as the Committee in its discretion may
provide upon the granting of such Option.
The Committee may determine whether any given leave of absence
constitutes a termination of employment. The Options granted under the Plan
shall not be affected by any change of employment so long as the Optionee
continues to be an employee of the Company or any of its Subsidiaries.
8. EXERCISE OF OPTIONS. Options shall be exercisable by the Optionee
(or the Optionee's executor or administrator), as to all or part of the shares
covered thereby, by the giving of written
<PAGE>
notice of the exercise thereof to the Company at its principal business office,
directed to the attention of its Secretary. The Company shall cause certificates
for the shares so purchased to be delivered to the Optionee (or the Optionee's
executor or administrator) at the Company's principal business office, against
payment in full of the purchase price, which payment may be made by cash,
check or money order and, subject to the Committee's consent, by shares of the
Company's Common Stock which are not subject to any pledge or security
interest and have been held for at least 6 months or previously acquired on
the open market or by delivery to the Committee of a copy of irrevocable
instructions to a stockbroker to deliver promptly to the Company any amount
of loan proceeds or proceeds of the sale of the shares subject to the Option
sufficient to pay the exercise price on the date specified in the notice of
exercise.
9. NONTRANSFERABILITY OF OPTIONS. No Option or any right evidenced
thereby shall be transferable in any manner other than by will or the laws of
descent and distribution, and, during the lifetime of an Optionee, only the
Optionee (or the Optionee's court-appointed legal representative) may exercise
an Option.
10. RIGHTS OF OPTIONEE. Neither the Optionee nor the Optionee's
executor or administrator shall have any of the rights of a stockholder of the
Company with respect to the shares subject to an Option until certificates for
such shares shall actually have been issued upon the due exercise of such
Option. No adjustment shall be made for any cash dividend or other right for
which the record date is prior to the date of such due exercise and full payment
for such shares has been made therefor.
11. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any Option
shall confer upon any Optionee the right to continue in the employment of the
Company or any of its Subsidiaries or affect the right of the Company or any of
its Subsidiaries to terminate the Optionee's employment at any time, subject,
however, to the provisions of any agreement of employment between the Company or
any of its Subsidiaries and the Optionee.
12. NONALIENATION OF BENEFITS. No right or benefit under the Plan shall
be subject to anticipation, alienation, sale, assignment, hypothecation, pledge,
exchange, transfer, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or
charge the same shall be void. To the extent permitted by applicable law, no
right or benefit hereunder shall in any manner be liable for or subject to the
debts, contracts, liabilities or torts of the person entitled to such benefits.
13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event of any
stock split, stock dividend, stock change, reclassification, recapitalization or
combination of shares which changes the character or amount of Common Stock
prior to exercise of any portion of an Option theretofore granted under the
Plan, such Option, to the extent that it shall not have been exercised, shall
entitle the Optionee (or the Optionee's executor or administrator) upon its
exercise to receive in substitution such number and kind of shares as the
Optionee would be entitled to receive if the Optionee had actually owned the
stock subject to such Option at the time of the occurrence of such change and
the Options shall be subject to such adjustments, as determined by the
Committee, as to the number, price or kind of stock as determined to be
equitable; provided, however, that if the change is of such a nature that the
Optionee, upon exercise of the Option, would receive property other than shares
of stock, then the Committee shall make an appropriate adjustment in the Option
to provide that the Optionee (or the Optionee's executor or administrator) shall
acquire upon exercise only shares of stock of such number and kind as the
Committee, in its sole judgment, shall deem equitable; and, provided further,
that any
<PAGE>
such adjustment shall be made so as to conform to the requirements of Section
424(a) or 162(m) of the Code and the regulations promulgated thereunder. The
Committee shall also make appropriate adjustment in the number of shares
subject to Options under the Plan and the maximum number of shares to be
granted to any person in any fiscal year as determined to be equitable.
In the event that any transaction (other than a change specified in the
preceding paragraph) described in Section 424(a) of the Code affects the Common
Stock subject to any unexercised Option, the Board of the surviving or acquiring
corporation shall make such similar adjustment as is permissible and
appropriate.
If any such change or transaction shall occur, the number and kind of
shares for which Options may thereafter be granted under the Plan shall be
adjusted to give effect thereto.
14. PURCHASE FOR INVESTMENT. Whether or not the Options and shares
covered by the Plan have been registered under the Securities Act of 1933, as
amended, each person exercising an Option under the Plan may be required by the
Company to give a representation in writing that such person is acquiring such
shares for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof.
The Company will endorse any necessary legend referring to the
foregoing restriction upon the certificate or certificates representing any
shares issued or transferred to the Optionee upon the exercise of any Option
granted under the Plan.
15. FORM OF AGREEMENTS WITH OPTIONEES. Each Option granted pursuant to
the Plan shall be in writing and shall have such form, terms and provisions, not
inconsistent with the provisions of the Plan, as the Committee shall provide for
such Option. Each Optionee shall be notified promptly of such grant, and a
written agreement shall be promptly executed and delivered by the Company and
the Optionee.
16. TERMINATION AND AMENDMENT OF PLAN AND OPTIONS. Unless the Plan
shall theretofore have been terminated as hereinafter provided, Options may be
granted under the Plan at any time, and from time to time, prior to the tenth
anniversary of the Effective Date (as defined below), on which date the Plan
will expire, except as to Options then outstanding under the Plan. Such Options
shall remain in effect until they have been exercised, have expired or have been
canceled.
The Plan may be terminated or modified at any time by the Board of
Directors; provided, however, that any such modification shall comply with all
applicable laws, applicable stock exchange listing requirements, and applicable
requirements for exemption (to the extent necessary) under Rule 16b-3 under the
Exchange Act.
No termination, modification or amendment of the Plan, without the
consent of the Optionee, may adversely affect the rights of such person with
respect to such Option. With the consent of the Optionee and subject to the
terms and conditions of the Plan, the Committee may amend outstanding award
agreements with any Optionee.
<PAGE>
17. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon its
adoption by the Board of Directors (the "Effective Date"), subject, however, to
its approval by the Company's stockholders within 12 months after the date of
such adoption.
18. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
with respect to Options granted under the Plan shall be subject to all
applicable laws, rules and regulations and such approvals by any governmental
agency as may be required, including, without limitation, the effectiveness of
any registration statement required under the Securities Act of 1933, as
amended, and the rules and regulations of any securities exchange on which the
Common Stock may be listed.
19. WITHHOLDING. The Company's obligation to deliver shares of Common
Stock in respect of any Option granted under the Plan shall be subject to all
applicable federal, state, local and foreign tax withholding requirements.
Federal, state, local and foreign withholding taxes due upon the exercise of
any Option (or upon any disqualifying disposition of shares of Common Stock
subject to an Incentive Option), in the Committee's sole discretion, may be
paid in shares of Common Stock (including the withholding of shares subject
to an Option) upon such terms and conditions as the Committee may determine.
20. SEPARABILITY. If any of the terms or provisions of the Plan
conflict with the requirements of Rule 16b-3 under the Exchange Act and/or
Section 422 of the Code, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3
under the Exchange Act and/or section 422 of the Code. With respect to
Incentive Options, if the Plan does not contain any provision required to be
included herein under Section 422 of the Code, such provision shall be deemed
to be incorporated herein with the same force and effect as if such provision
had been set out at length herein; provided, further, that to the extent any
Option which is intended to qualify as an Incentive Option cannot so qualify,
such Option, to the extent, shall be deemed to be a Nonqualified Option for
all purposes of the Plan.
21. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board of Directors nor the submission of the Plan to the stockholders of the
Company for approval shall be construed as creating any limitation on the power
of the Board of Directors to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options and
the awarding of stock and cash otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
22. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION. By
acceptance of an Option, each Optionee shall be deemed to have agreed that such
grant is special incentive compensation that will not be taken into account, in
any manner, as salary, compensation or bonus in determining the amount of any
payment under any pension, retirement or other employee benefit plan of the
Company or any of its Subsidiaries. In addition, each beneficiary of a deceased
Optionee shall be deemed to have agreed that such Option will not affect the
amount of any life insurance coverage, if any, provided by the Company on the
life of the Optionee which is payable to such beneficiary under any life
insurance plan covering employees of the Company or any of its Subsidiaries.
23. DEFERRAL. The Committee may, in its sole discretion, establish
procedures whereby one or more Optionees may elect to defer the receipt of
shares upon the exercise of Options for a specified period of time or until
the occurrence of a specified event.
<PAGE>
24. GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with, the laws of the State of New Jersey.
<PAGE>
EXHIBIT 11
AUTOMATIC DATA PROCESSING, INC
AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net earnings applicable to common shares $696,840 $608,262 $515,244 $454,747 $396,448
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average number of common shares outstanding 615,630 600,803 588,112 582,861 575,151
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Basic earnings per share $ 1.13 $ 1.01 $ 0.88 $ 0.78 $ 0.69
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
DILUTED EARNINGS PER SHARE:
Net earnings used in basic earnings per share $696,840 $608,262 $515,244 $454,747 $396,448
Adjustment for interest (net of tax) - Zero coupon
convertible subordinated notes (5 1/4% yield) 3,607 7,833 11,302 11,703 11,330
-------- -------- -------- -------- --------
Net earnings used for diluted earnings per share $700,447 $616,095 $526,546 $466,450 $407,778
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average number of shares outstanding on a diluted basis:
Shares used in calculating basic earnings per share 615,630 600,803 588,112 582,861 575,151
Diluted effect of all stock options outstanding after
application of treasury stock method 15,306 13,363 12,633 12,317 953
Shares assumed to be issued upon conversion of Debentures-
Zero coupon convertible subordinated notes (5 1/4% yield) 5,956 14,030 19,372 20,720 32,476
-------- -------- -------- -------- --------
Average number of shares outstanding on a diluted basis 636,892 628,196 620,117 615,898 608,580
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Diluted earnings per share $ 1.10 $ 0.98 $ 0.85 $ 0.76 $ 0.67
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<PAGE>
PAGE 3
Letter to Shareholders
50th Anniversary
1999 is the 50th Anniversary of a 21-year-old New Jersey accountant, Henry Taub,
starting a business by manually preparing payrolls for companies. That was the
start of ADP...and what a fabulous 50 years it has been for the Company. We've
grown to over $5 billion in revenues and we did it with style. ADP has a unique
record of continuous, consistent growth -- 152 consecutive quarters of record
revenues and earnings per share growth, and 38 consecutive years of double-digit
increases in EPS. The records are probably even longer, but the historical
records prior to ADP going public in 1961 (when annual revenues were $400,000)
aren't well preserved. During these 50 years, there have been only three
predecessors as CEO and each of them had a remarkable track record. Our thanks
to Henry Taub, Frank Lautenberg and Josh Weston for their vision and leadership
in helping create the terrific company ADP has become today.
Fiscal '99
Fiscal `99 was an excellent year for ADP. We had strong internal revenue growth
especially in Employer Services and Brokerage Services, our two largest
businesses, which combined, account for over 75% of ADP's revenues. This growth
was fueled by an exceptional 20% sales growth in Employer Services and over 30%
growth in brokerage trades processed for our Brokerage Services clients.
We overcame federal funds interest rate decreases aggregating 75 basis
points. Since the average daily balances we invest are about $6 billion, we are
not immune to interest rate fluctuations. Nevertheless, the positive momentum of
our core businesses and excellent expense control enabled us to achieve our
forecasted growth.
For `99, consolidated revenues grew 12% to $5.5 billion. Prior to the
impact of several non-recurring items related to acquisitions and dispositions,
pretax earnings increased 20%, net earnings were up 17% and EPS increased 15% to
$1.13 from $.98 last year.
In recognition of these strong operating results, our Board declared a
two-for-one stock split and our 25th consecutive annual dividend increase, to
$.305 per share, per year, effective January 1, 1999.
ADP has significant financial strength and liquidity. Cash flow from
operations exceeded $853 million, and year-end cash and marketable securities
approximated $2.2 billion, after spending of $193 million in `99 to acquire
businesses and ADP shares. We purchased 2.6 million ADP shares on the open
market to fund employee equity plans.
Shareholders' equity exceeds $4 billion and our long-term debt to equity
ratio is 4%. Our return on shareholders' equity is a healthy 19%.
Capital expenditures for the year were $178 million, about 3% of revenues.
This compared to $202 million last year.
The Future
While we occasionally look back with pride at ADP's accomplishments, we spend
virtually all of our time looking to the future, where all the uncertainty,
ambiguity, fun and successes reside.
Despite the accelerating pace of change -- which has been discussed so
often it has become a cliche -- and the resultant uncertainties, we know
strategically where we are heading, we have the adaptability to adjust, if
necessary, and we are excellent at day-to-day tactical execution.
Strategy
Where we are heading is very exciting. We have excellent growth in our core
markets. This growth is fueled by additional market penetration -- getting and
keeping more clients -- and by adding value-added services to our offerings,
which increases our revenues per client, enhances new sales opportunities and
improves client retention.
Our current internal revenue growth is 13 to 14%. Historically we have
supplemented our internal growth with strategic acquisitions that have added, on
average, 2 to 4%. The opportunities for ADP to acquire related products that we
can market to our over 450,000 clients remain excellent.
We are also focused on entering new business opportunities that extend our
core markets while taking advantage of synergies with our existing business. We
<PAGE>
are especially excited about our recent entry into the professional employer
organization (PEO) marketplace, benefits administration outsourcing, workers'
compensation claims management, and the global brokerage market through our
integration of U.S. and international equity and fixed income systems.
Opportunities
The Internet, delivering World Class Service, and continuing to acquire and
retain associates with the right skills are challenges and opportunities for us
in the years ahead.
(1) The Internet will play an increasing role in ADP's success. Today it
is an integral part of our strategy in every business. In the brokerage
industry, where the fastest growth is coming from on-line trading, we are the
leading service provider to the industry. In Employer Services, we recently
introduced an Internet payroll and human resource product for small employers
and the early response has been very positive. In Dealer Services, our joint
venture with Cox Communications has created the largest used car database Web
site (AutoConnect(Sm)) on the Internet.
<PAGE>
PAGE 4
We are players in the Internet world and we will play on an even wider scale in
the future.
(2) The primary differentiator for service organizations in the future
will increasingly be the quality of the service being offered. We have focused
and invested heavily over the last 2+ years to move to our World Class Service
goal. We have invested in tools, processes, training and staffing levels, and we
are seeing results across all of our businesses. Nevertheless, our overall
client retention rates have not yet sufficiently reflected the quality increase.
They will. We will continue to intensify the focus and investment in World Class
Service, as we strongly believe it is a fundamental foundation for ADP's
long-term success.
(3) We realized a year ago that one of the most rapid changes starting to
take place now -- and one we expect to continue through the next decade -- is
the shortage of qualified candidates entering the workforce who meet ADP's
needs. We have introduced an Employer of Choice initiative to improve ADP's
ability to attract and retain associates who will provide the expertise and
commitment to quality service that will make us succeed.
Are these enough for ADP to succeed?
If our culture remains sufficiently adaptive to change; if we take advantage of
our expert knowledge of the markets in which we compete; if we utilize our #1
market positions to out invest our competition in new and add-on products; if we
utilize our strong financial position intelligently; and if we create the
environment our 37,000 associates are proud to be part of...the answer is
absolutely yes. The ingredients for success are clearly here. Our challenge--one
we are confident we are up to--is to deliver.
Y2K
ADP has had a corporate Y2K office in place for multiple years. It has conducted
ongoing reviews and audits on every existing ADP business and each new
acquisition for Y2K compliance.
Collectively, ADP has over 120 million lines of computer code that have
been reviewed, remediated and tested for Y2K compliance. Additionally, we have
been in live production on our primary payroll engine (AutoPay(R)) since April
1998 and we have conducted extensive testing with both the banking community and
tax authorities. We also served as a lead participant and the primary provider,
along with the Securities Industry Association, of the database test bed for
brokerage industry-wide testing supervised by the Depository Trust Company
(DTC).
We have no known Y2K compliance issues at this time except final clean up
and testing with a few recent acquisitions. Nonetheless, we will continue to
inspect what we expect with internal audits and ongoing partner testing over the
remaining months in 1999.
Acquisitions and Dispositions
ADP supplements its internal growth with strategic acquisitions that extend our
markets or add applications to our product sets. In `99 we acquired 12
businesses with approximately $245 million in revenues.
Our largest acquisition was The Vincam Group, a leading PEO, with revenues
of approximately $125 million. Vincam provides a suite of human resource
functions to small-and medium-sized employers on an outsourced basis. Employer
Services also acquired the benefits administration business of J&H/KVI,
expanding our presence in that market.
With the acquisition of OMR Systems, Brokerage Services increased its
global processing capabilities for a wide range of non-securitized financial
instruments. An important acquisition for Dealer Services was Dealer Solutions,
a developer of client/server dealer management systems.
We also review each business and product line and dispose of those that
are no longer strategically relevant. In `98, we sold businesses with $95
million of annual revenues, and in `99 we stepped up the level of dispositions
of businesses with $270 million of annual revenues. These two years represent a
catch-up. We expect the level of dispositions to be lower in the future.
Importance of People
ADP's greatest strength is our team of 37,000 associates whose commitment to
<PAGE>
achieving World Class Service makes our service superior. Fortunately, we
attract and retain extremely motivated, talented associates who really care
about our clients and our company. They share our vision and help us win in the
marketplace. Our Corporate Philosophy statement says it best: "Outstanding
associates are the key to our success."
In `99, Richard Douville joined ADP as Vice President Finance and Steve
Anenen, Russ DeLoach and Karen Dykstra were promoted to Corporate Vice President
in recognition of their significant contributions to ADP's success and their
responsibilities.
Forecast
For the reasons we have expressed, we remain very confident in ADP's long-term
prospects. In fiscal `00, we expect another year of double-digit EPS growth,
while we manage through the Y2K changes and make significant investments in the
future. Revenues will grow about 10% despite the impact of '99 dispositions of
businesses.
We hope you share our excitement and enthusiasm.
/s/ Arthur F. Weinbach /s/ Gary C. Butler
Arthur F. Weinbach Gary C. Butler
Chairman & CEO President & COO
August 10, 1999
<PAGE>
PAGE 5
Financial Highlights
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands, except per share
amounts and number of employees)
Years ended June 30, 1999 1998 % Increase
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues $5,540,141 $4,925,956 12%
Net earnings* $ 714,172 $ 608,262 17%
Basic earnings per share* $ 1.16 $ 1.01 15%
Diluted earnings per share* $ 1.13 $ .98 15%
Cash dividends $ 181,133 $ 152,888 18%
Cash dividends per share $ .295 $ .25625 15%
Basic shares outstanding 615,630 600,803
Diluted shares outstanding 636,892 628,196
Return on equity 18.7% 20.0%
At year end:
Cash, cash equivalents and
marketable securities $2,169,040 $1,673,271
Working capital $ 907,864 $ 626,063
Total assets $5,824,820 $5,242,867
Long-term debt $ 145,765 $ 192,063
Shareholders' equity $4,007,941 $3,439,447
Number of employees 37,000 34,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
All share and per share data have been adjusted to reflect a two-for-one stock
split on January 1, 1999. The financial highlights shown above have also been
restated to reflect a March 1999 pooling of interests transaction. See Note 2 to
the consolidated financial statements.
* Excludes non-recurring charges totaling approximately $17 million
(after-tax) associated with certain acquisitions and dispositions.
Including these non-recurring charges, net earnings were $697 million and
diluted earnings per share were $1.10. See Note 3 to the consolidated
financial statements.
[GRAPHIC OMITTED]
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenues
(in millions) $2,931 $3,613 $4,193 $4,926 $5,540
Diluted EPS $ .67 $ .76 $ .85 $ .98 $ 1.13*
Operating Cash Flow
(in millions) $ 493 $ 674 $ 680 $ 783 $ 854
</TABLE>
<PAGE>
PAGE 6
[GRAPHIC OMITTED]
CAPTION:
WE'RE EMPLOYER SERVICES
O WE PAID MORE THAN 27 MILLION WORKERS ON PAYDAY WORLDWIDE THIS YEAR. . .
O MOVED $350 BILLION, ELECTRONICALLY, ON BEHALF OF OUR CLIENTS AND THEIR
EMPLOYEES TO TAX AUTHORITIES AND DIRECT DEPOSIT ACCOUNTS. . .
O INCREASED OUR SALES IN ALL NORTH AMERICAN MARKET SEGMENTS AND THROUGHOUT
EUROPE AND BRAZIL. . .
O BECAME THE SECOND LARGEST PEO IN THE WORLD WITH THE ACQUISITION OF THE
VINCAM GROUP. . .
O CONTINUED OUR PENETRATION OF THE MULTI-BILLION-DOLLAR BENEFITS
ADMINISTRATION MARKET. . .AND
O ARE MAKING INVESTMENTS IN PRODUCT AND INFRASTRUCTURE, AS WELL AS PARTNER
AND VENDOR RELATIONSHIPS, TO FULLY LEVERAGE THE BENEFITS AND ADVANTAGES OF
INTERNET TECHNOLOGY.
<PAGE>
PAGE 7
[GRAPHIC OMITTED]
CAPTION:
WE ARE CHARTING A COURSE TO BECOME THE UNDISPUTED INFORMATION SERVICES
TECHNOLOGY LEADER FOR A BROAD ARRAY OF HUMAN RESOURCES SERVICES, BY BRINGING
SIMPLICITY TO THE PROCESS AND PERFORMING THESE FUNCTIONS BETTER THAN EMPLOYERS
THEMSELVES CAN.
<PAGE>
FIRST FOLD-OUT PAGE FOLLOWING PAGE 7
ADP Employer Services (ES) provides a comprehensive set of business
solutions across the employment life cycle -- payroll, HR administrative
services, tax filing, benefits administration, time and labor management, and
compliance reporting -- to more than 425,000 employers in the United States,
Canada, Europe and Latin America.
We now process the paychecks of over 24 million workers in the Western
Hemisphere, and better than 3 million in Europe. This year, we also printed and
delivered a record 38 million W-2s in the U.S. and 4 million year-end statements
in Canada.
Broad economic currents, worldwide, are fueling sales and revenue growth.
First, the outsourcing of payroll and other employer services by companies of
every size continues unabated. The average payroll is also increasing,
especially in North America. The growing popularity of Internet-delivered
services has opened up a new way for clients to access a wide array of ADP
products and services.
In ES, we approach the marketplace by segment, enabling us to match the
needs of each client with products and services to best meet expectations.
North America
In North America, ES focuses on three distinct market segments: National
Accounts (for clients with 1,000 or more employees); Major Accounts (100 to 999
employees); and Emerging Business Services (fewer than 100 employees).
National Accounts is the largest provider of outsourced payroll, HR and
benefits administration services. In '99, our sales of new business in this
segment were double what they were just three years ago.
For some clients we provide entire system solutions. To clients who
process some
[GRAPHIC OMITTED]
<PAGE>
SECOND FOLD-OUT PAGE FOLLOWING PAGE 7
applications in-house, we deliver stand-alone services such as payroll tax
filing, check printing and distribution, and year-end statements. Other large
clients rely on us to design and deliver their own customized human resource
information systems and benefits outsourcing solutions.
- --------------------------------------------------------------------------------
"We have associates who want to be winners, who consistently produce even during
difficult times..."
-- Art Weinbach
- --------------------------------------------------------------------------------
Major Accounts, the largest ES business, provides mid-size companies with
a full suite of best-of-breed employer services solutions, including full
database and functional integration between payroll and human resources. Many
medium-size firms in the U.S., Canada and the Caribbean Basin are clients of
Major Accounts. New business sales in this segment grew significantly for the
fifth consecutive year in '99.
Emerging Business Services (EBS) is by far the largest provider of
payroll, tax filing and related services to small businesses in the U.S. market.
We serve over 340,000 smaller companies with leading solutions, including a
range of value-added services that are specifically designed for small business
clients.
The ADP Tax and Financial Services Center supports all ES market segments.
It serves as an electronic interface between more than 330,000 clients in North
America and about 2,000 federal, state and local tax agencies. In '99, we
processed over 16 million federal and other employer payroll tax returns.
This year, ADP also became the second largest professional employer
organization (PEO) in the U.S. with our acquisition of The Vincam Group. A PEO
provides a comprehensive outsourcing solution to meet the employment
administration needs (payroll, HR, benefits and workers' compensation insurance)
of client companies. PEO revenue per client averages more than 10 times the
revenue of a traditional payroll client relationship.
The combined PEO business, called ADP TotalSource(Sm), supports over
81,000 work-site employees in eight states. We believe the long-term growth
opportunities in the PEO market are substantial.
In each of our businesses, we continued to expand the value and number of
our capabilities through strategic alliances and marketing agreements with
best-quality service providers and partners. Additionally, we initiated
relationships with enterprise resource providers, enabling us to link ADP
payroll and HR systems with key ERP systems.
<PAGE>
THIRD FOLD-OUT PAGE FOLLOWING PAGE 7
In '99, we also acquired the benefits administration business of J&H/KVI.
This acquisition is part of our aggressive effort to become the leader in
providing benefits administration services.
Europe
ADP Europe provides payroll solutions to nearly 25,000 clients in nine European
countries. New business sales were up 40% and revenues increased 19% this year,
as the outsourcing trend accelerated. Client retention rates exceeded 90%.
Today, we are the only Pan-European service provider, and more than half
of the top 500 companies in Europe -- those with 1,000 or more employees -- are
ADP clients. As a majority of European countries move toward a single currency,
the euro, and employers are faced with retooling their payroll and bookkeeping
systems to be in compliance by 2002, ADP is uniquely positioned to increase its
market share in all market segments. Our value-added products and services give
us a distinct competitive advantage.
Additionally, our '99 acquisitions -- Chessington (UK), Realisator
(Switzerland), and Adid (France)-- are helping us to expand our penetration into
Europe's public sector, temporary employment and other markets.
Latin America
A growing number of businesses, from Puerto Rico to Brazil, now outsource
payroll and other employer services to ADP. We believe that our presence in this
market favorably positions us for future growth throughout the region.
Global Business Services
ADP already offers payroll and related services in 15 countries around the
world. To provide for the unique global needs of international companies, this
year we initiated Global Business Services. It provides the expertise of a
dedicated sales and service
[GRAPHIC OMITTED]
<PAGE>
FOURTH FOLD-OUT PAGE FOLLOWING PAGE 7
organization, trained and equipped to handle payroll for clients with diverse
locations in ADP's major world markets.
We expect Global Business Services to become the preferred resource for
many of these very large firms who choose to "one stop shop" as they outsource
their employer services worldwide.
The Internet
This year, ES launched a program to deliver products and services over the
Internet, empowering clients with convenient access to their data and our
services.
For example, EBS will offer EasyPayNet(Sm), enabling small businesses to
do payroll and access other ADP services over the Internet. Major Accounts is
developing an Internet version of its popular Windows-based PC product. National
Accounts is field testing ADP Remote Control(Sm), which gives large corporations
with multiple payrolls secure Internet access to their payroll and payroll tax
data.
- --------------------------------------------------------------------------------
"The Internet is ADP's newest frontier."
-- Gary Butler
- --------------------------------------------------------------------------------
The Internet is the most important technological advancement in the past
20 years, and clearly represents substantial strategic opportunities for each of
our market segments. We will continue to make significant internal investments,
and engage in relationships with other vendors and partners, to fully leverage
the benefits and advantages of Internet technology to meet our clients' needs.
ES is poised to enter the next century with a broad vision and strategy,
and robust opportunities to grow the business. Our major investments in people,
service, products and technology are paying off. We continue to deliver on our
commitment to provide World Class Service.
[GRAPHIC OMITTED]
<PAGE>
PAGE 8
[GRAPHIC OMITTED]
CAPTION:
WE'RE BROKERAGE SERVICES
WE DELIVER HIGH-QUALITY INVESTOR COMMUNICATION AND TRANSACTION PROCESSING
SERVICES WHEN AND WHERE OUR CLIENTS NEED THEM... ACROSS THE INTERNET AND AROUND
THE GLOBE.
<PAGE>
PAGE 9
[GRAPHIC OMITTED]
CAPTION:
o WE PROCESSED OVER 30% MORE NORTH AMERICAN RETAIL EQUITY TRANSACTIONS IN
'99 THAN A YEAR AGO -- WITH SOME DAILY PEAKS IN EXCESS OF ONE MILLION
TRADES...
o HANDLED MORE THAN 450 MILLION SHAREHOLDER MAILINGS AND TABULATED OVER 50
MILLION BALLOTS, REPRESENTING OVER 330 BILLION SHARES...
o PERFORMED THE SECURITIES TRANSACTION PROCESSING FOR MANY OF THE TOP-RATED
ON-LINE BROKERAGE FIRMS...
o HAVE CLIENTS IN 20 COUNTRIES, AND PROCESS TRANSACTIONS FOR THEM IN MOST OF
THE WORLD'S CURRENCIES...AND
o SERVE 13 OF THE TOP 15 GLOBAL BANKS WITH AN EXTENSIVE COMPLEMENT OF
TRANSACTION PROCESSING SERVICES.
<PAGE>
FIRST FOLD-OUT PAGE FOLLOWING PAGE 9
ADP Brokerage Services is a leading provider of transaction
processing, broker desktop productivity applications, and investor communication
services to the financial services industry.
We serve a diverse client base, including full-service and discount
brokerage firms, global banks, and Internet brokerage companies, as well as
corporations, mutual funds, institutional investors, trading firms, and other
providers of financial services.
In '99, Brokerage Services processed a significant portion of all U.S. and
Canadian retail equity transactions, with combined daily volumes of 827,000
trades per day -- clearly making us the largest provider of transaction
processing in North America. ADP Investor Communication Services (ICS) also
completed another proxy season with extremely high-quality performance levels
and client retention rates.
ICS offers industry-leading data processing, computerized proxy vote
tabulation, printing, mailing, and literature fulfillment services. It serves
more than 14,000 publicly-traded companies and 450 mutual fund families on
behalf of more than 800 brokerage firms and banks.
This year, we processed over 450 million shareholder mailings and
tabulated over 50 million ballots representing more than 330 billion shares. A
year ago, we introduced proxy voting and the delivery of shareowner
communications over the Internet. Currently, 60% of all shares are voted over
the telephone, the Internet, or via ProxyEdge(R), our PC-based electronic voting
and record keeping product.
[GRAPHIC OMITTED]
The mailing of pre- and post-sale literature to support our clients' needs
has become a strategic growth area for ICS.
Since entering the pre-sale fulfillment business less than two years ago,
we have experienced a 40% increase in processing volumes. Pre-sale literature
fulfillment includes collation and kit assembly, order entry, distribution,
inventory management, and "just-in-time" delivery of prospectuses.
This year, we also distributed more than 10 million prospectuses to meet
the post-sale customer compliance requirements of our clients.
In March 1999, we acquired Management Information Services Corp., a
well-known provider of shareowner communications to
<PAGE>
SECOND FOLD-OUT PAGE FOLLOWING PAGE 9
mutual funds and the insurance industry. We believe this acquisition will help
us significantly increase our market share in this important and growing market
segment.
The Internet
Many of the largest on-line trading firms already use ADP Brokerage Services to
process trades and provide their customers with real-time order entry and
account inquiry services.
[GRAPHIC OMITTED]
This year, ADP and Qwest Communications International Inc., which offers
broadband Internet-based communications services, started working together to
develop and market an end-to-end, single-source Internet solution. This alliance
will help our clients gain fast entry into the on-line brokerage market, and
enhance the capabilities of those clients who already offer on-line services.
We also introduced Web-based products, such as electronic delivery of
trade confirmations and statements, and a mutual funds sales tool, where users
can view current fund information. Our clients can now order a prospectus
on-line for immediate delivery to an investor.
Straight-through Processing
Increasingly, banks and brokerages are placing a heightened emphasis on
outsourcing systems and applications to service providers who can integrate them
into efficient processing streams. This "straight-through processing" improves
work flow, reduces operating costs and mitigates operational risks.
ADP's ability to provide integrated processing gives incremental value to
our product set and is a strategic market advantage. By integrating products
that serve the financial services industry, clients that might have had us
process a single application now have a viable reason to outsource multiple
applications to us that are critical to their businesses.
This year, for example, Discover Brokerage Direct, Inc. (DBD), a market
leader in on-line investment services, selected ADP to support its electronic
discount brokerage business. In addition to trade and order processing, DBD is
utilizing ADP's proxy, optical storage, and prospectus fulfillment services.
This comprehensive arrangement includes printing and mailing services for trade
confirmations, customer statements, and tax documents for DBD's customers.
<PAGE>
THIRD FOLD-OUT PAGE FOLLOWING PAGE 9
Last year, we also entered into a marketing agreement with Comprehensive
Software Systems, Ltd. to market their BrokerView(TM) desktop product for retail
brokers and trading desk personnel.
Essentially, it puts at the fingertips of a broker or financial consultant
valuable real-time information, so they can manage their customers' investments.
ADP has spent the past year linking this browser-based productivity tool with
our back-office system. Soon, clients will be able to use it to integrate
customer account information, stored in a back-office environment, with contact
management and portfolio management systems.
[GRAPHIC OMITTED]
Global Services
ADP Brokerage Services also is expanding globally and has a strong product set
for the international arena. Today, we serve brokerage and banking clients in 20
countries, processing their transactions in most currencies. Thirteen of the top
15 global banks use our transaction processing services.
- --------------------------------------------------------------------------------
"ADP's clear intention is to grow globally."
-- Art Weinbach
- --------------------------------------------------------------------------------
Our Wilco International subsidiary is a leader in the development of
global processing and settlement systems for international securities. It offers
the highly-functional and superior Gloss(SM) product set with specific features
for North America, Europe, Asia, and emerging markets.
In '99, we made two acquisitions which will aid global expansion. We
purchased Leading Edge Technologies, a supplier of software solutions to traders
in the mortgage-backed securities market, and acquired OMR Systems, a leading
provider of global trade processing solutions for financial institutions
worldwide.
ADP Global Proxy Services satisfies the proxy voting requirements of
investors and financial services firms around the world. A number of our proxy
clients are very large custodial banks, whose customers are public and private
pension funds, mutual funds and international
<PAGE>
FOURTH FOLD-OUT PAGE FOLLOWING PAGE 9
asset managers. In '99 we distributed proxies and tabulated votes on behalf of
our clients' holdings in more than 70 countries. In addition, ICS began
processing beneficial proxy services for large cap issuers in the domestic
market of The Netherlands.
Where We're Going
ADP Brokerage Services enters '00 with a set of strategic initiatives which will
strengthen our position as a premier provider of securities processing and
investor communication services worldwide.
Foremost, we will continue to provide more value-added services across all
of our businesses. New and enhanced products help to build client satisfaction
and present fresh referral opportunities, as well as new streams of revenue.
We also will continue to maximize the synergies of our brokerage
processing and investor communication lines of business to deliver more tightly
integrated, enterprise-wide solutions.
Additionally, we intend to accelerate the growth of our international
proxy services business. Already in development is a domestic proxy product for
clients in the United Kingdom, and similar proxy solutions are planned for
markets in Germany, Spain, and Japan.
As the Internet becomes a preferred delivery system for products and
services in the marketplace, we aim to be the vendor of choice for corporations,
banks, brokerages, and mutual funds who opt to offer on-line services. All of
our lines of business are expanding their Internet offerings.
Above all else, ADP Brokerage Services is committed to delivering an
unrivaled level of World Class Service that translates into improved performance
for our clients. It is our belief that service, ultimately, is the greatest
differentiator among competitors in the global marketplace.
[GRAPHIC OMITTED]
<PAGE>
PAGE 10
Our mission is to be the partner of choice for dealers, consolidators, and
manufacturers in the global auto and truck retail industry.
[GRAPHIC OMITTED]
CAPTION:
WE'RE DEALER SERVICES
o WE SERVE APPROXIMATELY 18,000 AUTO AND TRUCK DEALER CLIENTS AND OVER 30
VEHICLE MANUFACTURERS IN 13 COUNTRIES...
o HAVE A WORLDWIDE CLIENT RETENTION RATE THAT EXCEEDS 90%...
o INTRODUCED OUR NEWEST MILLENNIA 3(TM) SYSTEMS PLATFORM IN NORTH AMERICA,
RESULTING IN AN 18% INCREASE IN CPU SALES...
o CONNECTED OVER 30,000 AUTO DEALERS WITH 1.5 MILLION PROSPECTIVE BUYERS
EACH MONTH ON THE INTERNET...AND
o ACQUIRED DEALER SOLUTIONS, INC., A PRIVATELY-OWNED DEALER MANAGEMENT
SYSTEMS SOFTWARE FIRM, ENHANCING OUR DEVELOPMENT OF WEB-BASED, WINDOWS
NT(R) CLIENT-SERVER SOLUTIONS.
<PAGE>
PAGE 11
[GRAPHIC OMITTED]
<PAGE>
FIRST FOLD-OUT PAGE FOLLOWING PAGE 11
ADP Dealer Services is the leading provider of retail solutions for
automotive and truck dealerships, and their manufacturers, worldwide. We deliver
these solutions through state-of-the-art transaction systems, data products, and
an array of industry-specific professional services.
Today, about 18,000 dealers in North America, Europe, and Latin America,
and more than 30 vehicle manufacturers, use our on-site systems and
communications networks to manage sales, operations, and marketing efforts.
In '99, client retention worldwide exceeded 90%. We now support more than
200,000 dealership applications in a variety of client sites, ranging in
complexity from the largest retail consolidators, such as AutoNation USA and
Ford's Auto Collection, to single-point outlets. Dealer Services is positioned
to assist dealers of every size and configuration to enhance their operations,
optimize profits, and enrich the consumer buying experience.
[GRAPHIC OMITTED]
<PAGE>
SECOND FOLD-OUT PAGE FOLLOWING PAGE 11
North America
The auto and truck retail market was active in '99, energized by new vehicle
sales and leasing activities, especially in the strong North American economy.
Large dealer networks continued to be a substantial force in the industry,
implementing new processes and systems in order to gain greater economies of
scale. Manufacturers, more than ever before, were taking an active role in the
design and deployment of retail systems. In turn, manufacturers and dealers
placed a keen focus on customer loyalty and relationship marketing.
With all these developments, no company in the marketplace today is better
positioned than ADP Dealer Services to deliver innovative business solutions to
such a wide range of clients in the auto and truck industry. Our products,
systems, services, research and development capabilities, and industry knowledge
make us a logical partner of choice for retailers and manufacturers.
In '99, we introduced a new model of our powerful Millennia 3 systems
platform, boosting performance and capacity to support up to 2,300 users on a
single server. Millennia 3 sales continued to be
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THIRD FOLD-OUT PAGE FOLLOWING PAGE 11
extremely strong. ADP's Y2K-ready applications, like Windows(R)-based ADP Elite
Plus!(Tm), provide dealers with the ability to profitably manage their
businesses and their customer relationships.
The Millennia 3 platform is a key component of ADP's current dealer
management system and our go-forward strategy to deliver Web-based,
client-server solutions for both dealers and manufacturers. Our acquisition this
year of Dealer Solutions, Inc., a developer of Windows NT(R) dealer management
systems software, is another significant step in our Web-based, client-server
strategy.
- --------------------------------------------------------------------------------
"The market rewards superior capabilities and performance."
-- Gary Butler
- --------------------------------------------------------------------------------
Many of the publicly-traded automotive retailers are calling upon us to
design products and service systems that meet their specific needs -- from
network integration and management, to enterprise applications and data
warehousing. For example, this year, as one of its selected technology partners,
we were chosen by AutoNation Inc., the largest automotive retailer, to design
their new operating district model. In March 1999, we successfully implemented
the John Elway AutoNation USA project in Denver, CO, consolidating several
different competitive systems into a single networked enterprise system,
providing the client with the most advanced tools to manage multiple stores with
optimum efficiency.
As manufacturers and dealers concentrate on generating brand loyalty and
customer satisfaction, many of them turn to ADP's Sandy Group for the creation
of customized communications programs. Our Relationship Marketing System has
become an increasingly valuable resource for dealers and the auto companies. One
such program we developed this year was the Customer Dialog Network for
Pontiac*GMC.
The Internet
As more consumers turn to the Internet to purchase a variety of high ticket
goods, including autos, trucks and sports utility vehicles, ADP Dealer Services
continues to develop the means for our clients to effectively use this new sales
channel. In '99, through AutoConnect -- a joint venture with Cox Communications
- -- we connected more than 30,000 vehicle dealers with an average of 1.5 million
potential buyers, monthly, on the Internet. The July 1999 merger of AutoConnect
with AutoTrader.com is expected to
<PAGE>
FOURTH FOLD-OUT PAGE FOLLOWING PAGE 11
[GRAPHIC OMITTED]
expand the number of dealers to 50,000 and the number of monthly prospects to
2.5 million.
Europe
Today, more than 7,500 European auto dealers and parts wholesalers are ADP
clients. As the 1 service provider across much of Europe, ADP enjoys a solid
basis for further expansion. Sales were buoyant in '99, CPU installations
increased by over 75%, and client retention was extremely high.
We believe two, far-reaching factors will contribute to future growth in
this market. First, our Pan-European product set positions us to assist clients
as they retool their systems to the euro. In addition, strategic initiatives
currently underway with Ford, General Motors-Europe, and other manufacturers
present additional avenues to increase our market share, revenues and profits.
Partner of Choice
This year ADP Dealer Services made consistent progress toward our goal to be the
partner of choice for dealers, consolidators and manufacturers in the global
auto and truck retail industry. And as we did, we continued to fulfill an
equally compelling, strategic commient -- to be a World Class Service
provider.
[GRAPHIC OMITTED]
<PAGE>
PAGE 12
CAPTION:
o WE SERVE MOST OF THE PROPERTY AND CASUALTY INSURANCE CARRIERS IN NORTH
AMERICA AND EUROPE. . .
o PROVIDE OUR PRODUCTS AND SERVICES TO NEARLY 14,000 COLLISION REPAIR
CENTERS AND OVER 3,000 AUTO PARTS RECYCLERS. . .
o PROCESSED A RECORD 15 MILLION CLAIM ESTIMATES. . .
o BROADENED OUR GLOBAL CLAIMS CAPABILITIES THROUGH OUR INTERNATIONAL
BUSINESS, AUDATEX, WHICH BEGAN EXPANDING INTO AUSTRALIA, BRAZIL, AND
ITALY. . .
o GREW OUR BUSINESS THAT REVIEWS MEDICAL CLAIMS FROM AUTO ACCIDENTS AND
WORKERS' COMPENSATION FILINGS BY OVER 30% FOR THE FIFTH CONSECUTIVE YEAR.
. .AND
o COMPLETED '99 WITH 100% CLIENT RETENTION IN OUR CORE INSURANCE BUSINESS.
WE'RE CLAIMS SERVICES
[GRAPHIC OMITTED]
<PAGE>
PAGE 13
[GRAPHIC OMITTED]
CAPTION:
WE WILL CONTINUE TO ENHANCE THE CAPABILITIES OF OUR CLAIMSFLO(R) SOLUTIONS, TO
PROVIDE OUR CLIENTS WITH MAXIMUM WORKFLOW EFFICIENCIES THROUGHOUT THE CLAIMS
MANAGEMENT PIPELINE.
<PAGE>
FIRST FOLD-OUT PAGE FOLLOWING PAGE 13
ADP Claims Services is the international market leader in
state-of-the-art integrated settlement, workflow, enterprise management, and
information solutions to the property and casualty insurance claims industry.
Our products help clients improve their operational efficiency, while enabling
them to determine accurate settlements for their policyholders.
Our clients include most major property and casualty insurance carriers,
many independent adjuster firms, nearly 14,000 collision repair centers, and
over 3,000 auto parts recyclers, primarily in North America and Europe.
This year we processed approximately 15 million claim estimates, as we
continued to expand our presence in the global marketplace.
Our Lines of Business
ADP Claims Services has five lines of business: Insurance Claims Services,
Integrated Medical Solutions, Collision Repair Services, ADP Hollander, and
Audatex. All grew by approximately 10% in '99, providing clients with
significant value and new ways to improve productivity.
[GRAPHIC OMITTED]
<PAGE>
SECOND FOLD-OUT PAGE FOLLOWING PAGE 13
Insurance Claims Services (ICS), through our Claimsflo(R) brand, empowers
a growing number of clients to streamline their workflow, reduce internal
redundancies, prevent fraud, and accelerate the process of claim settlement. We
added several new products and enhancements to the Claimsflo line this year.
Each addition aims to further advance our clients toward a secure, paperless
environment, which facilitates claims handling, reduces overall costs, and
improves policyholder satisfaction. We retained all of our major clients this
year, and added two new leading property and casualty carriers to our growing
ICS client base. Further, Autosource(R), our total loss valuation product,
experienced nearly a 30% increase in average transaction volume this year.
- --------------------------------------------------------------------------------
"Each of our businesses is well positioned going into the 21st Century."
--Art Weinbach
- --------------------------------------------------------------------------------
Integrated Medical Solutions (IMS) grew by over 30% in '99. This was its
fifth consecutive year of growth that was 30% or better. IMS offers products and
services that allow insurers to efficiently review medical expenses related to
auto accidents and workers' compensation claims.
Detecting potential claims abuse and insurance fraud is an important and
implicit part of our commitment to our clients. Our products and services are
designed to assist insurers in identifying possible issues.
For example, during the past six years, our Provider Bill Audit (PBA(SM))
product which reviews medical claims enabled clients to accurately evaluate $6
billion in claims. In doing so, we helped our clients to detect over $1.5
billion in submitted provider charges that were in excess of reasonable and
appropriate fees.
To further enhance the functionality of our IMS product set, we developed
an advanced "N-tier" computer platform, on which the entire IMS suite of
products will eventually reside. Soon to be operational on this platform are:
PBA, our main medical claim review and management product; Injury Claims
Evaluation (ICE(R)) which helps adjusters make fair and accurate settlements
involving pain and suffering in third-party auto liability claims; our entire
Context product set, which handles an extensive array of workers' compensation
issues; and our PPO network services.
<PAGE>
THIRD FOLD-OUT PAGE FOLLOWING PAGE 13
Collision Repair Services, which provides a full complement of products
for collision repair facilities, grew nearly 25% this year. Shoplink(Tm)
estimating systems are now installed in nearly 10,000 body shops. And our
digital imaging solution for claims adjusters, repair centers, and insurers grew
in excess of 70% this year.
ADP Hollander continued its commitment to product initiatives that improve
the operation of automotive recyclers. We now serve more than 3,000 recycling
facilities. Among the products ADP Hollander introduced are: Powerlink(Tm), a
new inventory management system; AccuPart 2.0, a portable inventory entry
device; and EDENTm Online, an Internet product that broadens market potential
and opens an extensive new distribution channel for ADP Hollander clients.
Audatex, the leading provider of insurance claims estimating outside North
America, continued to expand its geographical reach in '99 and experienced
record revenue. Already serving the majority of top-echelon companies in the
European insurance market, we are poised for strong and significant
international expansion in both our existing and emerging markets.
This year, we also introduced to the Canadian market Electronic Medical
Data Interchange (EMDI). EMDI creates an electronic link between service
providers and insurers to facilitate pre-authorization of treatment. Payment for
authorized services is made via electronic funds transfer.
[GRAPHIC OMITTED]
<PAGE>
FOURTH FOLD-OUT PAGE FOLLOWING PAGE 13
Our Strategy
All of our lines of business completed '99 positioned to serve clients well into
the next century. We will continue to develop our robust Claimsflo product
family, giving clients powerful and more efficient decision support tools. IMS
will remain focused on additional enhancements to workers' compensation and
medical cost management solutions.
Collision Repair Services and ADP Hollander will add products and services
that further improve the capabilities of existing clients, while further
integrating the cross-industry claims settlement process. Audatex will introduce
a new suite of products that will redefine how claims are processed in Europe,
and accelerate its expansion into Australia, Brazil, and Italy -- which now is
the second largest insurance market in Europe.
Every business in ADP Claims Services is committed to providing World
Class Service. One very important demonstration of this commitment is the size
of our investment in product development and customer service. In '99, we
invested approximately a quarter of our revenues into these two vital areas,
representing our commitment to the property and casualty insurance industry.
ADP Claims Services has a clearly defined strategy to face, and help
shape, the future. We will continue to offer products and services that add
value, enhance growth, and help our clients serve their customers better.
[GRAPHIC OMITTED]
<PAGE>
PAGE 14
CAPTION:
50 YEARS OF ADP BUSINESS HISTORY AND GROWTH
1949
[GRAPHIC OMITTED]
CAPTION:
HENRY TAUB, A 21-YEAR-OLD NEW JERSEY ACCOUNTANT, STARTS A MANUAL PAYROLL
PROCESSING BUSINESS CALLED AUTOMATIC PAYROLLS, INC. FIRST YEAR REVENUES ARE
$2,000.
1957
API INTRODUCES AN AUTOMATED PUNCH CARD CAPABILITY TO INCREASE EFFICIENCY AND
CAPACITY FOR PAYROLL PROCESSING.
[GRAPHIC OMITTED]
CAPTION:
1961
[GRAPHIC OMITTED]
CAPTION:
THE COMPANY, NOW CALLED AUTOMATIC DATA PROCESSING, INC., GOES PUBLIC AND LEASES
ITS FIRST COMPUTER, AN IBM 1401. ADP HAS 300 CLIENTS. REVENUES TOP $400,000.
HENRY TAUB IS ADP'S FIRST CHIEF EXECUTIVE OFFICER.
1962
[GRAPHIC OMITTED]
CAPTION:
ADP BROKERAGE SERVICES BECOMES THE COMPANY'S SECOND MAJOR BUSINESS, AS ADP
BEGINS OFFERING BACK-OFFICE PROCESSING TO WALL STREET BROKERAGE FIRMS.
1972
[GRAPHIC OMITTED]
CAPTION:
ADP DEALER SERVICES BECOMES ADP'S THIRD MAJOR BUSINESS UNIT, OFFERING ACCOUNTING
AND INVENTORY SERVICES TO AUTO DEALERS.
1975
FRANK LAUTENBERG BECOMES ADP'S SECOND CEO. ADP HAS OVER 5,000 ASSOCIATES AND
35,000 CLIENTS. REVENUES ARE $155 MILLION.
[GRAPHIC OMITTED]
CAPTION:
1978
ADP INITIATES PAYROLL TAX FILING SERVICES. COMPANY REVENUES NEAR THE $300
MILLION MARK.
1979
ADP ENTERS THE CANADIAN MARKETPLACE OFFERING PAYROLL SERVICES IN A JOINT VENTURE
WITH BANK OF MONTREAL.
1980
ADP CLAIMS SERVICES IS FORMED WHEN ADP ENTERS THE AUTO DAMAGE ESTIMATING MARKET
VIA A SMALL ACQUISITION. TODAY THIS BUSINESS SERVES MOST PROPERTY AND CASUALTY
INSURANCE CARRIERS.
[GRAPHIC OMITTED]
CAPTION:
1981
COMPANY REVENUES TOP $500 MILLION AND ADP NOW HAS OVER 75,000 CLIENTS.
1982
JOSH WESTON BECOMES ADP'S THIRD CEO. ADP HAS 15,000 ASSOCIATES AND 100,000
CLIENTS. REVENUES ARE $670 MILLION.
[GRAPHIC OMITTED]
CAPTION:
1989
<PAGE>
ADP NOW PROCESSES THE PAYCHECKS FOR ABOUT 10% OF THE U.S. WORKFORCE, AND ENTERS
THE SHAREHOLDER PROXY SERVICES BUSINESS, BECOMING THE MARKET LEADER OVER THE
NEXT SEVERAL YEARS. ADP NOW HAS 200,000 CLIENTS WORLDWIDE.
[GRAPHIC OMITTED]
CAPTION:
1994
[GRAPHIC OMITTED]
CAPTION:
WILCO INTERNATIONAL, INC. IS ACQUIRED, POSITIONING ADP TO BE A LEADER IN GLOBAL
CURRENCY AND SECURITIES TRADING SERVICES.
1995
ADP ACQUIRED GSI, MAKING ADP THE LARGEST PAN-EUROPEAN PAYROLL AND HR SERVICE
PROVIDER.
1996
ART WEINBACH BECOMES ADP'S FOURTH CEO. ADP EXPANDS ITS PRESENCE IN EUROPE AND
OTHER GLOBAL MARKETS. ADP'S CORE BUSINESSES EXTEND THEIR MARKET REACH WITH A
COMMITMENT TO WORLD CLASS SERVICE. THE COMPANY HAS 29,000 ASSOCIATES AND 375,000
CLIENTS. REVENUES ARE $3.5 BILLION.
[GRAPHIC OMITTED]
CAPTION:
1999
[GRAPHIC OMITTED]
CAPTION:
TODAY, ADP HAS 37,000 ASSOCIATES AND 450,000 CLIENTS. REVENUES ARE OVER $5
BILLION, AND ADP SERVICES ARE NOW USED BY CLIENTS ON SIX CONTINENTS.
IN 1999, ADP EXTENDED ITS UNPARALLELED RECORD OF GROWTH AS A PUBLICLY-HELD
COMPANY BY REPORTING ITS 152D CONSECUTIVE QUARTER OF RECORD REVENUES AND 38TH
CONSECUTIVE YEAR OF DOUBLE-DIGIT EPS GROWTH.
- --------------------------------------------------------------------------------
CAPTION:
A PLACE WHERE CAREERS ARE BUILT...
FIVE DECADES OF CONSISTENT GROWTH HAVE MADE ADP A SPECIAL PLACE WHERE REWARDING
CAREERS CONTINUE TO BE BUILT -- MANY FROM ENTRY-LEVEL POSITIONS.
[GRAPHIC OMITTED]
CAPTION:
FOR EXAMPLE, MARIANNE BROWN, SENIOR VICE PRESIDENT OF BROKERAGE SERVICES,
GOT HER START AS AN ENTRY-LEVEL CLERK IN 1978.
[GRAPHIC OMITTED]
CAPTION:
JOHN BARFITT, PRESIDENT OF CLAIMS SERVICES, BEGAN HIS ADP CAREER IN 1979
AS AN ACCOUNT EXECUTIVE WITH DEALER SERVICES IN CANADA. KAREN DYKSTRA, ADP'S
CORPORATE CONTROLLER, JOINED THE COMPANY IN 1981 AS A JUNIOR ACCOUNTANT. GARY
BUTLER, OUR PRESIDENT AND CHIEF OPERATING OFFICER, BEGAN WITH ADP IN 1975
SELLING PAYROLL SERVICES IN ATLANTA.
[GRAPHIC OMITTED]
CAPTION:
MARIANNE, JOHN, KAREN AND GARY REPRESENT A WIDE RANGE OF TALENTED
ASSOCIATES WHO CAN BE FOUND THROUGHOUT OUR ORGANIZATION...PEOPLE WHO COME TO
WORK EVERYDAY TO MAKE A DIFFERENCE.
<PAGE>
PAGE 15
Selected Financial Data
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Years ended June 30, 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues $5,540,141 $4,925,956 $4,193,447 $3,613,014 $2,931,336
---------- ---------- ---------- ---------- ----------
Cost of operations 4,436,551 4,010,856 3,438,784 2,947,962 2,370,385
Interest expense 19,090 24,383 28,224 29,731 24,355
---------- ---------- ---------- ---------- ----------
4,455,641 4,035,239 3,467,008 2,977,693 2,394,740
---------- ---------- ---------- ---------- ----------
Earnings before income taxes 1,084,500 890,717 726,439 635,321 536,596
Provision for income taxes 387,660 282,455 211,195 180,574 140,148
---------- ---------- ---------- ---------- ----------
Net earnings $ 696,840 $ 608,262 $ 515,244 $ 454,747 $ 396,448
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Basic earnings per share $ 1.13 $ 1.01 $ .88 $ .78 $ .69
Diluted earnings per share $ 1.10 $ .98 $ .85 $ .76 $ .67
Basic shares outstanding 615,630 600,803 588,112 582,861 575,151
Diluted shares outstanding 636,892 628,196 620,117 615,898 608,580
Cash dividends per share $ .295 $ .25625 $ .2225 $ .19375 $ .15625
Return on equity 18.7% 20.0% 20.6% 20.3% 21.0%
---------- ---------- ---------- ---------- ----------
At year end:
Cash, cash equivalents and
marketable securities $2,169,040 $1,673,271 $1,516,450 $1,107,323 $1,299,699
Working capital $ 907,864 $ 626,063 $ 805,797 $ 618,409 $ 671,677
Total assets $5,824,820 $5,242,867 $4,439,293 $3,862,009 $3,218,926
Long-term debt $ 145,765 $ 192,063 $ 402,088 $ 405,157 $ 391,522
Shareholders' equity $4,007,941 $3,439,447 $2,689,415 $2,309,468 $2,098,957
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
All share and per share data have been adjusted to reflect a two-for-one stock
split on January 1, 1999. The selected financial data shown above have also been
restated to reflect a March 1999 pooling-of-interests transaction. See Note 2 to
the consolidated financial statements.
1999 data includes non-recurring charges totaling approximately $17 million
(after-tax) associated with certain acquisitions and dispositions.
1997 data includes non-recurring charges totaling approximately $12 million
(after-tax). See Note 3 to the consolidated financial statements.
<PAGE>
PAGE 16
Management's Discussion and Analysis
Operating Results
Revenues and earnings reached record levels during each of the past
three fiscal years. The Company's results have been restated to reflect a
January 1, 1999 two-for-one common stock split and the third quarter fiscal '99
pooling of interests transaction with The Vincam Group (Vincam). During fiscal
'99, revenues increased 12% to $5.5 billion. Prior to non-recurring charges,
pretax earnings increased 20% and diluted earnings per share increased 15% to
$1.13. During fiscal '99 the Company sold several businesses and decided to exit
several other businesses and contracts. The Company also recorded transaction
costs and other adjustments related to Employer Services' acquisition of Vincam.
The combination of these transactions resulted in non-recurring charges of $0.03
in fiscal '99. Fiscal '99 was ADP's 38th consecutive year of double-digit
earnings per share growth since becoming a public company in 1961.
Revenues and revenue growth by ADP's major business units are shown below:
<TABLE>
<CAPTION>
Revenues Revenue Growth
- -------------------------------------------------------------------------------
Years Ended June 30, Years Ended June 30,
----------------------------------------------------------
(In Millions) 1999 1998 1997 1999 1998 1997
----------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Employer Services $3,310 $2,874 $2,355 15% 22% 20%
Brokerage Services 1,154 1,100 892 5 23 13
Dealer Services 744 698 651 7 7 17
Other 332 254 295 31 (14) (6)
----------------------------- --------------------------
Consolidated $5,540 $4,926 $4,193 12% 17% 16%
----------------------------- --------------------------
----------------------------- --------------------------
- -------------------------------------------------------------------------------
</TABLE>
Consolidated revenues grew 12% in fiscal '99 primarily from increased
market penetration, from an expanded array of products and services, and from
acquisitions, with relatively minor contributions from price increases. Prior to
acquisitions and dispositions, revenue increased approximately 14%.
Prior to the non-recurring charges, the consolidated pretax margin was
19.3% in '99, 18.1% in '98, and 18.0% in '97. Pretax margin improved over the
previous year due to the disposal of several non-strategic, lower margin
businesses. In addition, continued automation and operating efficiencies enabled
the Company to offset start-up costs associated with new products and increased
spending on systems development and programming.
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
business units. 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. Consequently, comparisons of
specific margins between units are not meaningful, although trend information
within a business unit is a useful directional indicator.
Employer Services
Employer Services' (ES) revenues grew 15% in fiscal '99, and in the absence of
acquisitions, revenue growth would have been about 15% in '99, 15% in '98 and
12% in '97.
ES operating margin was 20.3% in '99, 19.8% in '98 and 21.1% in '97. ES
operating margin improved due to operating efficiencies slightly offset by
investments in new products and acquisitions as well as the Company's
integration and repositioning of several products and businesses.
ES' 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
standard rate of 6%.
Brokerage Services
Brokerage Services' revenue growth of 5% was impacted by the dispositions of the
<PAGE>
front-office business and several other small non-strategic businesses. In the
absence of acquisitions and dispositions, revenue growth would have been about
20% in '99, compared to 22% in '98 and 12% in '97.
The Brokerage Services operating margin was 19% in `99 compared to 15% in
`98 and 14% in `97. The improved margin resulted from the disposition of several
unprofitable businesses and strong trading activity.
In `99 the Company divested the $150 million revenue front-office "market
data" business and as part of the agreement took a minority investment in the
acquiring company.
Dealer Services
Dealer Services' revenues grew 7% in '99, compared to 7% in '98 and 17% in '97.
In the absence of acquisitions and dispositions, '99 revenue growth would have
been 7%, compared to 8% in '98 and 6% in '97. Dealer Services' operating margin
increased to 15% in fiscal '99 compared to 14% in '98 and 17% in '97. Dealer
Services' operating margin improved primarily in North America resulting from
operating efficiencies.
Other
The primary components of "Other" revenues are claims services, interest income,
foreign exchange differences, and miscellaneous processing services. In
addition, "Other" revenues have 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%.
During fiscal '99 the Company sold its Peachtree Software and Brokerage
Services front-office business, and decided to exit several other businesses and
contracts. The combination of these transactions and certain other charges
resulted in an approximately $37 million reduction in general, administrative
and selling expenses and a $40 million provision for income taxes.
<PAGE>
PAGE 17
Additionally, '99 includes approximately $21 million of transaction costs
and other adjustments in general, administrative and selling expenses, ($14
million after-tax) recorded by Vincam prior to the March 1999 pooling
transaction.
During '97, the Company recorded approximately $29 million of net
non-recurring pretax charges. Included in the pretax charges was an
approximately $18 million charge reflecting the Company's settlement with the
Federal Trade Commission and net pretax charges of approximately $11 million
related to the Brokerage Services front-office business.
In each of the past three years, investments in systems development and
programming have increased to accelerate automation, migrate to new computing
technologies, address Year 2000 compliance, and develop new products.
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.
In '99, the Company's effective tax rate was approximately 35.7%.
Excluding the impact of the non-recurring charges associated with certain
acquisitions, dispositions and other activities, the effective tax rate was
33.2%, up from 31.7% in '98 and 29.1% in '97. The increasing rate is primarily a
result of non-taxable investment income declining as a percentage of pretax
income.
For '00, ADP is planning another record year with double-digit growth in
revenues, and diluted earnings per share growth in the range of 13% to 15% over
'99 results prior to non-recurring items.
Additional comments and operating results are included in the Letter to
Shareholders on pages 3 through 4 and in the business descriptions presented on
pages 6 through 13.
Financial Condition
ADP's financial condition and balance sheet remain exceptionally strong. At June
30, 1999, cash and marketable securities approximated $2.2 billion.
Shareholders' equity exceeded $4.0 billion, and return on average equity for the
year was about 19%. The ratio of long-term debt to equity at June 30, 1999 was
4%.
Cash flow from operating activities exceeded $850 million in '99 with
another excellent year expected in '00.
In '99, 2.6 million shares of common stock were purchased at an average
price of approximately $33 as part of an ongoing program to fund equity-related
employee benefits. The Board of Directors has authorized the purchase of up to
14.5 million additional shares.
In '99, zero coupon convertible subordinated notes were converted to about
2.6 million shares of common stock.
During '99, the Company purchased several businesses for approximately
$107 million in cash. The cost of acquisitions in '98 and '97 aggregated $351
million and $128 million, respectively.
In March 1999, the Company issued 7.2 million shares of common stock to
acquire Vincam, a leading PEO providing a suite of human resource functions to
small- and medium-sized employers on an outsourced basis, in a pooling of
interests transaction.
<PAGE>
The Company also acquired several businesses in fiscal '99 (subsequent to
the Vincam acquisition), '98 and '97 in pooling of interests transactions in
exchange for approximately 4 million, 1 million, and 6 million shares of common
stock, respectively. The Company's consolidated financial statements were not
restated because in the aggregate these transactions were not material.
Capital expenditures during '99 were approximately $178 million following
investments of $202 million in '98 and $178 million in '97. Capital spending in
fiscal '00 should approximate $215 million.
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.
Market Price, Dividend Data and Other
The market price of the Company's common stock (symbol: AUD) based on New York
Stock Exchange composite transactions and cash dividends per share declared
during the past two years have been:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Price Per Share
---------------------- Dividends
Fiscal 1999 quarter ended High Low Per Share
---------------------- ---------
<S> <C> <C> <C>
June 30 $46 7/8 $39 1/16 $.07625
March 31 42 5/8 36 1/4 .07625
December 31 42 5/32 32 23/32 .07625
September 30 40 7/32 31 3/4 .06625
- ------------------------------------------------------------------
Fiscal 1998 quarter ended
June 30 $36 7/16 $30 13/16 $.06625
March 31 35 11/32 28 25/32 .06625
December 31 31 11/32 23 11/16 .06625
September 30 25 7/32 22 3/16 .0575
- ------------------------------------------------------------------
</TABLE>
As of June 30, 1999 there were approximately 33,000 holders of record of
the Company's common stock. Approximately 190,000 additional holders have their
stock in "street name."
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>
PAGE 18
Statements of Consolidated Earnings
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Years ended June 30, 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues, other than PEO $5,379,758 $4,789,236 $4,109,708
PEO revenues (net of pass-through costs of $1,748,841
$1,293,866 and $723,429, respectively) 160,383 136,720 83,739
---------- ---------- ----------
Total revenues 5,540,141 4,925,956 4,193,447
---------- ---------- ----------
Operating expenses 2,376,172 2,149,343 1,765,959
General, administrative and selling expenses 1,375,192 1,237,403 1,150,121
Systems development and programming costs 412,380 376,485 297,794
Depreciation and amortization 272,807 247,625 224,910
Interest expense 19,090 24,383 28,224
---------- ---------- ----------
4,455,641 4,035,239 3,467,008
---------- ---------- ----------
Earnings before income taxes 1,084,500 890,717 726,439
Provision for income taxes 387,660 282,455 211,195
---------- ---------- ----------
Net earnings $ 696,840 $ 608,262 $ 515,244
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per share $ 1.13 $ 1.01 $ .88
---------- ---------- ----------
Diluted earnings per share $ 1.10 $ .98 $ .85
---------- ---------- ----------
Basic shares outstanding 615,630 600,803 588,112
---------- ---------- ----------
Diluted shares outstanding 636,892 628,196 620,117
---------- ---------- ----------
---------- ---------- ----------
- --------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PAGE 19
Consolidated Balance Sheets
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
June 30, 1999 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 861,280 $ 763,063
Short-term marketable securities 231,214 144,936
Accounts receivable 860,836 751,609
Other current assets 240,927 220,926
----------- -----------
Total current assets 2,194,257 1,880,534
Long-term marketable securities 1,076,546 765,272
Long-term receivables 213,413 177,946
Property, plant and equipment -- at cost:
Land and buildings 400,189 388,315
Data processing equipment 550,757 702,268
Furniture, leaseholds and other 449,862 436,040
----------- -----------
1,400,808 1,526,623
Less accumulated depreciation (821,514) (936,309)
----------- -----------
579,294 590,314
Other assets 228,936 168,609
Intangibles 1,532,374 1,660,192
----------- -----------
$ 5,824,820 $ 5,242,867
----------- -----------
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 66,952 $ 239,811
Accounts payable 130,456 126,207
Accrued expenses and other current liabilities 952,326 834,187
Income taxes 136,659 54,266
----------- -----------
Total current liabilities 1,286,393 1,254,471
Long-term debt 145,765 192,063
Other liabilities 132,081 104,142
Deferred income taxes 138,236 147,397
Deferred revenue 114,404 105,347
Shareholders' equity:
Preferred stock, $1.00 par value:
Authorized, 300 shares; issued, none -- --
Common stock, $.10 par value:
Authorized, 1,000,000 shares; issued, 628,576 shares 62,858 62,858
Capital in excess of par value 421,333 476,686
Retained earnings 3,848,421 3,372,247
Treasury stock -- at cost 4,949 and 17,188 shares, respectively (189,204) (370,724)
Accumulated other comprehensive income (135,467) (101,620)
----------- -----------
Total shareholders' equity 4,007,941 3,439,447
----------- -----------
$ 5,824,820 $ 5,242,867
----------- -----------
----------- -----------
- ----------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PAGE 20
Statements of Consolidated Shareholders' Equity
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Accumulated
Common Stock Capital in Other
------------------- Excess of Retained Treasury Comprehensive Comprehensive
Shares Amount Par Value Earnings Stock Income Income
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 628,554 $62,856 $307,283 $2,532,067 $(581,725) $ (11,013)
Net earnings -- -- -- 515,244 -- $ 515,244 --
Currency translation (61,523) (61,523)
Unrealized loss on securities (1,003) (1,003)
---------
Comprehensive income $ 452,718 --
---------
---------
Employee stock plans and
related tax benefits -- -- 83,286 -- 44,204 --
Treasury stock acquired (4,241 shares) -- -- (8,972) -- (85,532) --
Acquisitions (5,956 shares) -- -- (35,390) 679 35,727 --
Debt conversion (1,258 shares) 22 2 13,138 -- 10,162 --
Dividends ($.2225 per share) -- -- -- (129,814) -- --
Other transactions -- -- -- (261) -- --
--------------------------------------------------------------------------------------------
Balance, June 30, 1997 628,576 62,858 359,345 2,917,915 (577,164) (73,539)
Net earnings -- -- -- 608,262 -- $ 608,262 --
Currency translation (26,531) (26,531)
Unrealized loss on securities (1,550) (1,550)
---------
Comprehensive income $ 580,181 --
---------
---------
Employee stock plans and
related tax benefits -- -- 68,050 -- 61,714 --
Treasury stock acquired (1,792 shares) -- -- -- -- (40,907) --
Acquisitions (1,911 shares) -- -- (15,841) (1,004) 29,431 --
Debt conversion (11,850 shares) -- -- 64,583 -- 156,202 --
Dividends ($.25625 per share) -- -- -- (152,888) -- --
Other transactions -- -- 549 (38) -- --
--------------------------------------------------------------------------------------------
Balance, June 30, 1998 628,576 62,858 476,686 3,372,247 (370,724) (101,620)
Net earnings -- -- -- 696,840 -- $ 696,840 --
Currency translation (47,674) (47,674)
Unrealized gain on securities 13,827 13,827
---------
Comprehensive income $ 662,993 --
---------
---------
Employee stock plans and
related tax benefits -- -- 44,163 -- 95,086 --
Treasury stock acquired (2,550 shares) -- -- -- -- (85,365) --
Acquisitions (4,316 shares) -- -- (97,594) (39,533) 119,583 --
Debt conversion (2,623 shares) -- -- (1,922) -- 52,216 --
Dividends ($.295 per share) -- -- -- (181,133) -- --
--------------------------------------------------------------------------------------------
Balance, June 30, 1999 628,576 $62,858 $421,333 $3,848,421 $(189,204) $(135,467)
------------------- -------- ---------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PAGE 21
Statements of Consolidated Cash Flows
Automatic Data Processing, Inc. and Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(In thousands)
Years ended June 30, 1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net earnings $ 696,840 $ 608,262 $ 515,244
Adjustments to reconcile net earnings to net cash flows
provided by operating activities:
Depreciation and amortization 272,807 247,625 224,910
Deferred income taxes (23,235) (3,020) (35,767)
Increase in receivables and other assets (155,132) (207,819) (157,860)
Increase in accounts payable and accrued expenses 20,698 47,931 51,440
Other 41,883 90,374 81,580
--------- --------- ---------
Net cash flows provided by operating activities 853,861 783,353 679,547
--------- --------- ---------
Cash Flows From Investing Activities
Purchase of marketable securities (608,300) (617,669) (659,835)
Proceeds from sale of marketable securities 276,992 550,405 627,176
Capital expenditures (177,700) (202,169) (177,861)
Additions to intangibles (62,360) (95,797) (15,321)
Acquisitions of businesses, net of cash acquired (107,317) (338,436) (118,223)
Disposals of businesses 276,035 59,171 39,529
Other 10,590 13,634 38,433
--------- --------- ---------
Net cash flows used in investing activities (392,060) (630,861) (266,102)
--------- --------- ---------
Cash Flows From Financing Activities
Payments of debt (289,141) (7,681) (3,371)
Proceeds from issuance of notes 91,696 120,986 47,731
Repurchases of common stock (85,365) (40,907) (127,709)
Proceeds from issuance of common stock 100,359 81,111 98,244
Dividends paid (181,133) (152,888) (129,814)
Other -- (1,845) (3,920)
--------- --------- ---------
Net cash flows used in financing activities (363,584) (1,224) (118,839)
--------- --------- ---------
Net change in cash and cash equivalents 98,217 151,268 294,606
Cash and cash equivalents, at beginning of period 763,063 611,795 317,189
--------- --------- ---------
Cash and cash equivalents, at end of period $ 861,280 $ 763,063 $ 611,795
--------- --------- ---------
--------- --------- ---------
- ------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PAGE 22
Notes to Consolidated Financial Statements
Years ended June 30, 1999, 1998 and 1997
Note 1. Summary of
Significant Accounting Policies
A. Consolidation and Basis of Preparation. The consolidated financial statements
include the financial results of Automatic Data Processing, Inc. and its
majority-owned subsidiaries. Intercompany balances 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. Cash and Cash Equivalents. Highly-liquid investments with a maturity of
ninety days or less at the time of purchase are considered cash equivalents.
C. Marketable Securities. Marketable securities consist primarily of high-grade
fixed income investments. All of the Company's marketable securities are
considered to be "available-for-sale" and, accordingly, are carried on the
balance sheet at fair market value, which approximates cost. Gains/losses from
the sale of marketable securities have not been material. Approximately $423
million of the Company's long-term marketable securities mature in 1-2 years,
$276 million in 2-3 years, $216 million in 3-4 years, and the remainder in 5-7
years.
D. 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E. Intangibles. Intangible assets are recorded at cost and are amortized
primarily on a straight-line basis. Goodwill is amortized over periods from 10
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.
F. Revenue Recognition. Service revenues, including monthly license, maintenance
and other fees, are recognized as services are provided. Prepaid software
licenses and the gross profit on the sale of hardware is recognized in revenue
primarily at installation and client acceptance with a portion deferred and
recognized on a straight-line basis over the initial contract period.
Professional Employer Organization (PEO) revenues are net of pass-through costs,
which include wages and taxes.
G. 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 revenues 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 are included in other
comprehensive income on the balance sheet.
H. Earnings Per Share (EPS). As of January 1, 1999, the Company had a
two-for-one stock split. All per share earnings, dividends and references to
common stock give effect to this split. The calculation of basic and diluted EPS
is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands, except EPS)
Effect of
zero coupon Effect of
subordinated stock
Basic notes options Diluted
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1999
Net earnings $696,840 $ 3,607 $ -- $700,447
Average shares 615,630 5,956 15,306 636,892
EPS $ 1.13 $ 1.10
-------- -------- -------- --------
1998
Net earnings $608,262 $ 7,833 $ -- $616,095
Average shares 600,803 14,030 13,363 628,196
EPS $ 1.01 $ .98
-------- -------- -------- --------
1997
Net earnings $515,244 $ 11,302 $ -- $526,546
Average shares 588,112 19,372 12,633 620,117
EPS $ .88 $ .85
-------- -------- -------- --------
-------- -------- -------- --------
- --------------------------------------------------------------------------------
</TABLE>
I. 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
In March 1999, the Company issued 7.2 million shares of common stock to acquire
The Vincam Group (Vincam), a leading PEO providing a suite of human resource
functions to small- and medium-sized employers on an outsourced basis, in a
pooling of interests transaction. Premerger results of the companies were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands except for EPS)
Total revenues Net earnings
----------------------------- -----------------------------
First Nine Months First Nine Months
of 1999 1998 of 1999 1998
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
ADP $3,966,754 $4,798,061 $ 516,551 $ 605,300
Vincam 102,700 127,895 (11,500) 2,962
-------------------------- --------------------------
As restated $4,069,454 $4,925,956 $ 505,051 $ 608,262
-------------------------- --------------------------
-------------------------- --------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 23
Notes to Consolidated Financial Statements (continued)
Automatic Data Processing, Inc. and Subsidiaries
During fiscal 1999, 1998 and 1997, the Company purchased several
businesses for approximately $107 million, $351 million (including $13 million
in common stock) and $128 million (including $7 million in common stock and $3
million in liabilities) respectively, net of cash acquired. The results of these
acquired businesses are included from the date of acquisition.
The Company also acquired several businesses in fiscal 1999 (subsequent to
the Vincam acquisition), 1998 and 1997 in pooling of interests transactions in
exchange for approximately 4.3 million, .9 million and 5.7 million shares of
common stock, respectively. The Company's consolidated financial statements were
not restated because in the aggregate these transactions were not material.
Additionally, in fiscal 1999 and 1998, the Company sold several businesses
with annual revenues of approximately $270 million and $95 million,
respectively. As part of the 1999 business dispositions, the Company received
$90 million of convertible preferred stock which is included in other assets.
The $90 million approximates fair value.
Note 3. Non-recurring Items
During fiscal 1999 the Company sold its Peachtree Software and Brokerage
Services front office "market data" businesses and decided to exit several other
businesses and contracts. The combination of these transactions and certain
other non-recurring charges resulted in a net pretax gain of approximately $37
million and a $40 million provision for income taxes.
Additionally, 1999 also includes approximately $21 million of transaction
costs and other non-recurring adjustments ($14 million after-tax) recorded by
Vincam prior to the March 1999 pooling transaction.
In the fourth quarter of fiscal 1997, the Company reached a settlement
with the Federal Trade Commission resulting in a pretax loss of approximately
$18 million. In the fourth quarter of fiscal 1997, the Company also recorded a
non-taxable gain of approximately $19 million and a provision of approximately
$31 million ($19 million after-tax) to reduce product lines and platforms and
consolidate data centers.
Note 4. Receivables
Accounts receivable is net of an allowance for doubtful accounts of $46 million
at both June 30, 1999 and 1998.
The Company finances the sale of computer systems to certain of its
clients. These finance receivables, most of which are due from automobile and
truck dealerships, are reflected in the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
June 30, 1999 1998
----------------------- -----------------------
Current Long-term Current Long-term
----------------------- -----------------------
<S> <C> <C> <C> <C>
Receivables $147,274 $259,585 $135,265 $217,644
Less:
Allowance for
doubtful accounts (14,196) (16,556) (15,738) (14,432)
Unearned income (26,776) (29,616) (24,072) (25,266)
----------------------- -----------------------
$106,302 $213,413 $ 95,455 $177,946
----------------------- -----------------------
----------------------- -----------------------
- --------------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
Long-term receivables at June 30, 1999 mature as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
<S> <C>
2001 $111,597
2002 78,779
2003 49,336
2004 17,977
2005 1,599
Thereafter 297
--------
$259,585
--------
--------
- --------------------------------------------------------------------------------
</TABLE>
Note 5. Intangible Assets
Components of intangible assets are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
June 30, 1999 1998
----------- -----------
<S> <C> <C>
Goodwill $ 1,215,179 $ 1,285,886
Other 978,240 942,786
----------- -----------
2,193,419 2,228,672
Less accumulated amortization (661,045) (568,480)
----------- -----------
$ 1,532,374 $ 1,660,192
----------- -----------
----------- -----------
- --------------------------------------------------------------------------------
</TABLE>
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 totaled
$126 million for fiscal 1999, $103 million for 1998 and $92 million for 1997.
Note 6. Debt
Components of long-term debt are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
June 30, 1999 1998
--------- ---------
<S> <C> <C>
Zero coupon convertible subordinated
notes (5 1/4% yield) $ 97,705 $ 142,953
Industrial revenue bonds
(with fixed and variable interest rates
from 3.3% to 5.5%) 37,267 38,040
Other 11,876 16,711
--------- ---------
146,848 197,704
Less current portion (1,083) (5,641)
--------- ---------
$ 145,765 $ 192,063
--------- ---------
--------- ---------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 24
Notes to Consolidated Financial Statements (continued)
Automatic Data Processing, Inc. and Subsidiaries
The zero coupon convertible subordinated notes have a face value of
approximately $190 million at June 30, 1999, and mature February 20, 2012,
unless converted or redeemed earlier. At June 30, 1999, the notes were
convertible into approximately 4.9 million shares of the Company's common stock.
The notes are callable at the option of the Company, and the holders of the
notes can convert into common stock at any time or require redemption in 2002
and 2007. During fiscal 1999 and 1998, approximately $101 million and $458
million face value of notes were converted or redeemed. As of June 30, 1999 and
1998, the quoted market prices for the zero coupon notes were approximately $197
million and $267 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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
<S> <C>
2001 $ 8,768
2002 1,400
2003 76
2004 81
2005 1,000
Thereafter 134,440
--------
$145,765
--------
--------
- --------------------------------------------------------------------------------
</TABLE>
During fiscal 1999 and 1998, the average interest rate for notes payable
was 4.3% and 3.8%, respectively.
Interest payments were approximately $12 million in both fiscal 1999 and
1998, and $10 million in fiscal 1997.
Note 7. 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
330,000 clients, files annually over 16 million returns, handles all regulatory
correspondence, amendments, and penalty and interest disputes, remits the funds
to the appropriate tax agencies, and handles other employer-related services. 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 fixed income instruments. The amount of
collected but unremitted funds for the Company's payroll and tax filing and
certain other services varies significantly during the year and averaged
approximately $5.9 billion in fiscal 1999, $5.2 billion in fiscal 1998 and $4.5
billion in fiscal 1997. The amount of such funds was $7.0 billion as of June 30,
1999 and $6.5 billion as of June 30, 1998. In June 1999, the Company entered
into interest rate swap agreements in the notional amount of $400 million for
twelve months. Interest on collected but unremitted funds amounted to
approximately $269 million in fiscal 1999, $246 million in 1998 and $213 million
in 1997.
Note 8. Employee Benefit Plans
A. Stock 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 years from the date of grant, at prices not less
than the fair market value on the date of grant. At June 30, 1999, there were
8,500 participants in the plans. The aggregate purchase price for options
outstanding at June 30, 1999 was approximately $1.1 billion. The options expire
at various points between 1999 and 2009.
<PAGE>
A summary of changes in the stock option plans for the three years ended
June 30, 1999 is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Number of options Weighted average price
---------------------------------- ----------------------
Years ended June 30, 1999 1998 1997 1999 1998 1997
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 45,596 43,176 45,846 $18 $15 $12
Options granted 11,616 11,377 7,346 $38 $29 $23
Options exercised (6,154) (5,970) (5,913) $12 $10 $ 9
Options canceled (3,591) (2,987) (4,103) $24 $18 $14
----------------------------------
Options outstanding,
end of year 47,467 45,596 43,176 $24 $18 $15
----------------------------------
Options exercisable,
end of year 16,898 14,820 14,525 $15 $11 $ 9
----------------------------------
Shares available for
future grants,
end of year 1,691 9,358 17,441
----------------------------------
Shares reserved for
issuance under
stock option plans 49,158 54,954 60,617
----------------------------------
----------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
Summarized information about stock options outstanding as of June 30, 1999
is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Outstanding Exercisable
- ---------------------------------------------------------------------------------------------
Exercise Remaining Average Average
Price No. of options Life Exercise No. of options Exercise
Range (in thousands) (in years) Price (in thousands) Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $15 13,129 3.6 $11 10,128 $10
$15 to $20 8,540 6.3 $18 3,660 $18
$20 to $25 5,486 7.7 $23 1,287 $23
$25 to $30 6,699 8.4 $27 1,105 $27
$30 to $35 2,908 8.9 $32 450 $32
Over $35 10,705 9.4 $40 268 $43
- ---------------------------------------------------------------------------------------------
</TABLE>
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 plans. Approximately 3.0
million and 3.3 million shares are scheduled for issuance on December 31, 2000
and 1999, respectively. Approximately 3.2 million and 3.6 million shares were
issued during the years ended June 30, 1999 and 1998, respectively. At June 30,
1999 and 1998, there were approximately 9.5 million and 11.0 million shares,
respectively, reserved for purchase under the plans. Included in liabilities as
of June 30, 1999 and 1998 are employee stock purchase plan withholdings of
approximately $72 million and $63 million, respectively.
<PAGE>
PAGE 25
Notes to Consolidated Financial Statements (continued)
Automatic Data Processing, Inc. and Subsidiaries
The Company follows APB 25 to account for its stock plans. The pro forma
net income impact of options and stock purchase plan rights granted subsequent
to July 1, 1995 is shown below. The fair value for these instruments was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ended June 30, 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate 4.5-5.7% 5.4-6.3% 5.8-6.6%
Dividend yield 1.0% 1.0% 1.0-1.1%
Volatility factor 19.7-21.8% 13.9-17.4% 12.7-13.2%
Expected life:
Options 6.3 6.2 6.2
Purchase rights 2.0 2.0 2.0
Weighted average fair value:
Options $11.63 $ 7.99 $6.22
Purchase rights $12.29 $10.72 $5.97
--------- --------- ---------
--------- --------- ---------
- --------------------------------------------------------------------------------
</TABLE>
The Company's pro forma information, amortizing the fair value of the
stock options and stock purchase plan rights issued subsequent to July 1, 1995
over their vesting period, is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In millions, except per share amounts)
Years ended June 30, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Pro forma net earnings $ 638 $ 569 $ 495
Pro forma basic earnings per share $ 1.04 $ .95 $ .84
Pro forma diluted earnings per share $ 1.01 $ .92 $ .81
-------- -------- --------
-------- -------- --------
- --------------------------------------------------------------------------------
</TABLE>
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, 1999, 1998 and 1997, the
Company issued 121,400, 261,000 and, 257,600 restricted shares, respectively.
B. Pension Plan. The Company has a defined benefit cash balance pension plan
covering substantially all U.S. employees, under which employees are credited
with a percentage of base pay 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. In
addition, the Company has various retirement plans for its non-U.S. employees.
<PAGE>
The plans' funded status is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
June 30, 1999 1998
--------- ---------
<S> <C> <C>
Change in plan assets:
Funded plan assets at market value at
beginning of year $ 306,900 $ 245,300
Actual return on plan assets 34,600 41,100
Employer contributions 19,200 25,500
Benefits paid (6,200) (5,000)
--------- ---------
Funded plan assets at market value at
end of year $ 354,500 $ 306,900
--------- ---------
--------- ---------
Change in benefit obligation:
Benefit obligation at beginning of year $ 231,300 $ 180,100
Service cost 23,400 18,000
Interest cost 16,400 14,500
Actuarial (gain) loss (8,500) 23,700
Benefits paid (6,200) (5,000)
--------- ---------
Projected benefit obligation end of year $ 256,400 $ 231,300
--------- ---------
--------- ---------
Plan assets in excess of projected benefits $ 98,100 $ 75,600
Prior service cost (700) (1,600)
Transition obligation 700 1,000
Unrecognized net actuarial (gain) loss due to
different experience than assumed (14,900) 4,400
--------- ---------
Prepaid pension cost $ 83,200 $ 79,400
--------- ---------
--------- ---------
- --------------------------------------------------------------------------------
</TABLE>
The components of net pension expense were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
Years ended June 30, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 23,400 $ 18,000 $ 15,500
Interest cost on projected benefits 16,400 14,500 11,800
Expected return on plan assets (24,500) (21,300) (16,700)
Net amortization and deferral (700) (700) (300)
-------- -------- --------
$ 14,600 $ 10,500 $ 10,300
-------- -------- --------
-------- -------- --------
- --------------------------------------------------------------------------------
</TABLE>
Assumptions used to develop the actuarial present value of benefit
obligations generally were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ended June 30, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.50% 7.25% 7.75%
Expected long-term rate on assets 8.75% 8.5% 8.5%
Increase in compensation levels 6.0% 6.0% 6.0%
---- ---- ----
---- ---- ----
- --------------------------------------------------------------------------------
</TABLE>
C. Retirement and Savings Plan. The Company has a 401(k) retirement and savings
plan which allows eligible employees to contribute up to 16% of their
compensation annually. The Company matches a portion of this contribution which
amounted to approximately $26 million, $22 million and $19 million for calendar
years 1998, 1997 and 1996, respectively.
<PAGE>
PAGE 26
Notes to Consolidated Financial Statements (continued)
Automatic Data Processing, Inc. and Subsidiaries
Note 9. Income Taxes
The Company accounts for its income taxes using 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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands)
Years ended June 30, 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 296,397 $ 198,932 $ 171,930
Non-U.S 66,440 41,209 37,090
State 48,058 45,334 37,942
--------- --------- ---------
Total current 410,895 285,475 246,962
Deferred:
Federal (6,045) (4,145) (30,192)
Non-U.S (15,175) 3,115 4,360
State (2,015) (1,990) (9,935)
--------- --------- ---------
Total deferred (23,235) (3,020) (35,767)
--------- --------- ---------
$ 387,660 $ 282,455 $ 211,195
--------- --------- ---------
--------- --------- ---------
- --------------------------------------------------------------------------------
</TABLE>
At June 30, 1999 and 1998, the Company had gross deferred tax assets of
approximately $168 million and $134 million, respectively, consisting primarily
of operating expenses not currently deductible for tax return purposes.
Valuation allowances approximated $23 million as of June 30, 1999 and 1998.
Gross deferred tax liabilities approximated $277 million and $256 million, as of
June 30, 1999 and June 30, 1998, respectively, consisting primarily of
differences in the accounting and tax values of certain fixed and intangible
assets.
Income tax payments were approximately $270 million in 1999, $247 million
in 1998, and $201 million in 1997.
A reconciliation between the Company's effective tax rate and the U.S.
federal statutory rate is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(In thousands, except percentages)
Years ended June 30, 1999 % 1998 % 1997 %
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for taxes
at statutory rate $ 379,600 35.0 $ 311,800 35.0 $ 254,300 35.0
Increase (decrease)
in provision from:
Investments in
municipals and
preferred stock (68,360) (6.3) (68,670) (7.7) (62,200) (8.6)
State taxes, net
of federal tax
benefit 29,930 2.8 28,119 3.2 18,209 2.5
Other* 46,490 4.2 11,206 1.2 886 0.2
------------------ ------------------ ------------------
$ 387,660 35.7 $ 282,455 31.7 $ 211,195 29.1
------------------ ------------------ ------------------
------------------ ------------------ ------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
* Includes impact of certain acquisitions, dispositions and other
non-recurring adjustments.
Note 10. Commitments and Contingencies
The Company and its subsidiaries have various facilities and equipment lease
obligations. Total rental expense was approximately $202 million in 1999, $174
million in 1998 and $166 million in 1997, with minimum lease commitments under
operating leases as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In millions)
Years ending June 30,
<S> <C>
2000 $194
2001 143
2002 92
2003 57
2004 36
Thereafter 96
----
$618
----
----
- --------------------------------------------------------------------------------
</TABLE>
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.
In the normal course of business, the Company is subject to various claims
and litigation. The Company does not believe that the resolution of these
matters will have a material impact on the consolidated financial statements.
Note 11. Financial Data By Segment
Employer Services, Brokerage Services and Dealer Services are the Company's
largest business units. 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. 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%. Business unit assets exclude
cash, marketable securities and goodwill. Other consists primarily of Claims
Services, corporate expenses, non-recurring items and the above-mentioned
reconciling items.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(In millions) Employer Brokerage Dealer
Year ended June 30, 1999 Services Services Services Other Total
-------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues $ 3,310 $ 1,154 $ 744 $ 332 $ 5,540
Pretax earnings $ 673 $ 223 $ 109 $ 80 $ 1,085
Assets $ 798 $ 412 $ 242 $ 4,373 $ 5,825
Capital expenditures $ 92 $ 35 $ 25 $ 26 $ 178
Depreciation and amortization $ 175 $ 73 $ 40 $ (15) $ 273
------- ------- ------- ------- -------
Year ended June 30, 1998
------- ------- ------- ------- -------
Revenues $ 2,874 $ 1,100 $ 698 $ 254 $ 4,926
Pretax earnings $ 569 $ 165 $ 96 $ 61 $ 891
Assets $ 788 $ 400 $ 224 $ 3,831 $ 5,243
Capital expenditures $ 108 $ 49 $ 24 $ 21 $ 202
Depreciation and amortization $ 158 $ 80 $ 39 $ (29) $ 248
------- ------- ------- ------- -------
Year ended June 30, 1997
------- ------- ------- ------- -------
Revenues $ 2,355 $ 892 $ 651 $ 295 $ 4,193
Pretax earnings $ 498 $ 123 $ 110 $ (5) $ 726
Assets $ 716 $ 246 $ 207 $ 3,270 $ 4,439
Capital expenditures $ 96 $ 40 $ 21 $ 21 $ 178
Depreciation and amortization $ 136 $ 70 $ 36 $ (17) $ 225
------- ------- ------- ------- -------
------- ------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 27
Notes to Consolidated Financial Statements (continued)
Automatic Data Processing, Inc. and Subsidiaries
Revenues and assets by geographic area are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In millions) United
Year ended June 30, 1999 States Europe Canada Other Total
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues $4,564 $ 704 $ 212 $ 60 $5,540
Assets $4,356 $1,216 $ 170 $ 83 $5,825
------ ------ ------ ------ ------
Year ended June 30, 1998
------ ------ ------ ------ ------
Revenues $4,172 $ 493 $ 194 $ 67 $4,926
Assets $3,741 $1,248 $ 178 $ 76 $5,243
------ ------ ------ ------ ------
Year ended June 30, 1997
------ ------ ------ ------ ------
Revenues $3,549 $ 512 $ 127 $ 5 $4,193
Assets $3,030 $1,315 $ 84 $ 10 $4,439
------ ------ ------ ------ ------
------ ------ ------ ------ ------
- --------------------------------------------------------------------------------
</TABLE>
Note 12. Quarterly Financial Results
(Unaudited)
Summarized quarterly results of operations for the two years ended June 30, 1999
are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
First Second Third Fourth
Year ended June 30, 1999 (a) Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,245,126 $1,310,196 $1,514,132 $1,470,687
Net earnings $ 125,424 $ 153,977 $ 225,650 $ 191,789
Basic earnings per share $ .20 $ .25 $ .37 $ .31
Diluted earnings per share $ .20 $ .24 $ .36 $ .30
---------- ---------- ---------- ----------
Year ended June 30, 1998
---------- ---------- ---------- ----------
Revenues $1,065,634 $1,182,762 $1,341,250 $1,336,310
Net earnings $ 106,234 $ 146,167 $ 192,013 $ 163,848
Basic earnings per share $ .18 $ .25 $ .32 $ .27
Diluted earnings per share $ .17 $ .24 $ .31 $ .26
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
- ------------------------------------------------------------------------------------------
</TABLE>
(a) After impact of non-recurring items. See note 3 to the consolidated
financial statements.
Third quarter revenue and earnings have historically been positively
impacted by calendar year-end processing associated with many of the Company's
services.
<PAGE>
PAGE 28
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 judgments, have been prepared in conformity with
generally accepted accounting principles. Deloitte & Touche, 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
Arthur F. Weinbach
Chairman and Chief Executive Officer
/s/ Richard J. Haviland
Richard J. Haviland
Chief Financial Officer
/s/ Karen E. Dykstra
Karen E. Dykstra
Controller
Roseland, New Jersey
August 10, 1999
<TABLE>
<S> <C> <C>
DIRECTORS AND CORPORATE OFFICERS
DIRECTORS
Henry Taub(3) Joseph A. Califano, Jr.(1) Harvey M. Krueger(1),(3)
Honorary Chairman of the Board Chairman of the Board and President, Vice Chairman of Lehman Brothers
Chairman, ADP Executive Committee The National Center on Addiction and Substance Chairman, ADP Audit Committee
Abuse at Columbia University (CASA)
Josh S. Weston(3) Frederic V. Malek(2),(3)
Honorary Chairman of the Board Leon G. Cooperman1 Chairman, Thayer Capital Partners
Chairman and Chief Executive Officer Chairman, ADP Compensation Committee
Arthur F. Weinbach(3) of Omega Advisors, Inc.
Chairman and Chief Executive Officer Laurence A. Tisch(2)
George H. Heilmeier(2) Co-Chairman of Loews Corporation
Gary C. Butler Chairman Emeritus of Bellcore
President and Chief Operating Officer (1) Audit Committee
Ann Dibble Jordan(1) (2) Compensation Committee
Consultant (3) Executive Committee
Member of various boards
CORPORATE OFFICERS
Arthur F. Weinbach John D. Barfitt Raymond A. Marlinga
Chairman and Chief Executive Officer James B. Benson Gordon R. Mettam
Richard C. Berke Michael W. Reece
Gary C. Butler Raymond L. Colotti Michael P. Rooney
President and Chief Operating Officer Renato Crocetti George I. Stoeckert
J. Russ DeLoach Dante F. Terzo
Group Presidents Richard A. Douville Thomas J. Tremba
G. Harry Durity Staff Vice Presidents
Richard J. Daly Karen E. Dykstra Brian E. Heiser
Russell P. Fradin Philippe A. Gluntz Terri J. LeCamp
John P. Hogan Eugene A. Hall, Senior VP Gary E. Tarino>
S. Michael Martone Richard J. Haviland
Timothy D. Lamb
Corporate Vice Presidents
Steven J. Anenen
Albert J. Angelus
</TABLE>
<PAGE>
PAGE 29
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders [LOGO]
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, 1999 and 1998, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended June 30, 1999. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
August 10, 1999
<TABLE>
<S> <C> <C>
AUTOMATIC DATA PROCESSING, INC.
CORPORATE HEADQUARTERS CORPORATE COUNSEL INTERNET HOME PAGE
Automatic Data Processing, Inc. Paul, Weiss, Rifkind To obtain financial, product and other information,
One ADP Boulevard Wharton & Garrison visit ADP's registered home page address:
Roseland, New Jersey 07068-1728 HTTP://WWW.ADP.COM
(973) 974-5000 AUDITORS
Deloitte & Touche LLP ANNUAL MEETING
TRANSFER AGENT This year's shareholders' meeting will be
ChaseMellon Shareholder Services ADDITIONAL INFORMATION held at Automatic Data Processing, Inc., One ADP
Overpeck Centre The Form 10-K Annual Report to the Boulevard, Roseland, New Jersey, on November 9,
85 Challenger Road Securities and Exchange Commission 1999 at 10:00 a.m. A notice of the meeting, proxy
Ridgefield Park, New Jersey 07660 provides certain additional information statement, and proxy voting card will be mailed
and is available upon request to to shareholders starting on or about
James B. Benson, Secretary of the September 21, 1999.
Company.
-COPYRIGHT- 1999 Automatic Data Processing, Inc.
Windows is a registered trademark of
Microsoft Corporation.
ADP ASSOCIATES PHOTOGRAPHED IN THIS REPORT
INSIDE FRONT COVER BROKERAGE SERVICES CLAIMS SERVICES
(left to right): (top row, left to right): (in order of appearance):
Gail Wright, Claims Services; Glen Carol Rose, Chris Thompson, Louise Celeste Moore, Rolf Rast, Myrna Eng,
Schreitmueller, Brokerage Services; Rayner, Kyle Perkins, Meherun Yasser Said, John Waldek (Corporate),
Francis Fung, Employer Services; Choudhury, Edward Casazza Scott Ades (Corporate), Portia
Debbie Keller, Dealer Services; Cannon Dunmore, Greg Thompson
David Keller, Dealer Services; (bottom row, left to right):
Adrienne Cesta, Employer Services Hugh Sun, Pattie Ruggiero, 50TH YEAR TIMELINE
Arnold Gibbs, Michele Krzemienski, Henry Taub, Frank Lautenberg,
EMPLOYER SERVICES Steve Beesley, Marilyn Dietzmann Josh Weston, Art Weinbach,
(in order of appearance): Marianne Brown, John Barfitt,
Jin Chong, Brenda Cornwell Thomas, Inside: Tom Bickerton Karen Dykstra, Gary Butler
Joe Iavaroni, Jean Perrone
DEALER SERVICES
(in order of appearance):
Clif Mason, Magda Van Vaerenbergh,
Martha Manting, Nidal Hosien
1999 ADP ANNUAL REPORT CREDIT ATTRIBUTIONS
DESIGN: PHOTOGRAPHY: ADP CREATIVE TEAM:
Beau Gardner Associates, New York George Lange, Norman Jean Roy Emmanuelle Bugeant, Robert Caruba,
Beau Gardner, Christine Zamora Arlene Driscoll, Pamela Glynn, John Gray,
WRITING CONSULTANT: Lynn Horowitz, John Maxwell, Theresa Roberts,
Edward J. Kanarkowski Joel Shuflin, Todd Sprague, Linda Strauss
</TABLE>
[LOGO]THIS REPORT WAS PRINTED ON RECYCLED PAPER.
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
------------------ -------------
<S> <C>
ADP Atlantic, Inc. Delaware
ADP Broker-Dealer, Inc. New Jersey
ADP Central, Inc. Delaware
ADP Claims Solutions Group, Inc. Delaware
ADP Credit Corp. Delaware
ADP Dealer Services Ltd. Canada (Federal)
ADP Dealer Services Italia SpA Italy
ADP Deutschland Autonom Computer AG Germany
ADP do Brasil Representacoes Ltda. Brazil
ADP East, Inc. Delaware
ADP Europe S.A. France
ADP Financial Information Services, Inc. Delaware
ADP Hollander, Inc. Delaware
ADP, Inc. Delaware
ADP Insurance Company, Ltd. Delaware
ADP Integrated Medical Solutions, Inc. Delaware
ADP Nederland B.V. The Netherlands
ADP Network Services International, Inc. Delaware
ADP of North America, Inc. Delaware
ADP of Roseland, Inc. Delaware
ADP Pacific, Inc. Delaware
ADP Savings Association Pennsylvania
ADP Systems Empresa de Computacao Ltda. Brazil
ADP Tax Services, Inc. Delaware
ADP Taylorix Gmbh Germany
Audatex Holding Gmbh Switzerland
Audatex Deutchland Datenverarbeitungs Gmbh Germany
Automatic Data Processing Limited United Kingdom
Canadian Automatic Data Processing Services Ltd. Canada (Federal)
Health Benefits America Utah
Securities Industry Software Corporation Colorado
Wilco International Limited United Kingdom
The Vincam Group, Inc. Florida
</TABLE>
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, 1999.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
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, 333-02331, 333-12767, 333-15103, 333-29713,
333-48493, 333-57075, 333-80237, 333-79749 and 333-72497 on Form S-3,
Registration Statement No. 333-72023 on Form S-4, 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, 333-10277, 333-13945, 333-50123, 333-84647, 333-81725 and
333-74265 on Form S-8 of our reports dated August 10, 1999, included in
or incorporated by reference in this Annual Report on Form 10-K of Automatic
Data Processing, Inc. for the year ended June 30, 1999.
/s/ Deloitte & Touche LLP
New York, New York
September 21, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 861,280
<SECURITIES> 1,307,760
<RECEIVABLES> 907,193
<ALLOWANCES> 46,357
<INVENTORY> 45,124
<CURRENT-ASSETS> 2,194,257
<PP&E> 1,400,808
<DEPRECIATION> 821,514
<TOTAL-ASSETS> 5,824,820
<CURRENT-LIABILITIES> 1,286,393
<BONDS> 145,765
0
0
<COMMON> 62,858
<OTHER-SE> 3,945,083
<TOTAL-LIABILITY-AND-EQUITY> 5,824,820
<SALES> 0
<TOTAL-REVENUES> 5,540,141
<CGS> 0
<TOTAL-COSTS> 4,419,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,551
<INTEREST-EXPENSE> 19,090
<INCOME-PRETAX> 1,084,500
<INCOME-TAX> 387,660
<INCOME-CONTINUING> 696,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 696,840
<EPS-BASIC> 1.13
<EPS-DILUTED> 1.10
</TABLE>
