SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999 Commission File Number 1-5397
Automatic Data Processing, Inc
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-1467904
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One ADP Boulevard, Roseland, New Jersey 07068
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (973) 994-5000
No change
- - --------------------------------------------------------------------------------
Former name, former address & former fiscal year, if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all annual,
quarterly and other reports required to be filed with the commission and (2) has
been subject to the filing requirements for at least the past 90 days.
|X| Yes |_| No
As of April 30, 1999, there were 618,746,403 shares outstanding.
<PAGE>
Form 10Q
Part I. Financial Information
Statements of Consolidated Earnings
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues, other than PEO $1,469,903 $1,306,904 $3,952,320 $3,490,559
PEO revenues (net of pass-
through costs of $451,498,
$337,090, $1,276,091, and
$918,166 respectively) 44,229 34,346 117,134 99,087
---------- ---------- ---------- ----------
1,514,132 1,341,250 4,069,454 3,589,646
---------- ---------- ---------- ----------
Operating expenses 611,234 557,746 1,725,336 1,532,520
General, administrative and
selling expenses 379,476 341,109 1,023,838 934,228
Depreciation and amortization 65,399 62,236 203,874 179,411
Systems development and
programming costs 102,543 93,956 309,336 273,254
Interest expense 3,880 4,724 15,253 19,692
---------- ---------- ---------- ----------
1,162,532 1,059,771 3,277,637 2,939,105
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 351,600 281,479 791,817 650,541
Provision for income taxes 125,950 89,466 286,766 206,127
---------- ---------- ---------- ----------
NET EARNINGS $ 225,650 $ 192,013 $ 505,051 $ 444,414
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ .37 $ .32 $ .82 $ .74
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ .36 $ .31 $ .80 $ .72
========== ========== ========== ==========
Dividends per share $ .07625 $ .06625 $ .21875 $ .19
========== ========== ========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
Consolidated Balance Sheets
(In thousands)
March 31, June 30,
Assets 1999 1998
- - ------ ---------- --------
Cash and cash equivalents $ 972,605 $ 763,063
Short-term marketable securities 194,316 144,936
Accounts receivable 888,993 751,609
Other current assets 255,208 220,926
---------- ----------
Total current assets 2,311,122 1,880,534
---------- ----------
Long-term marketable securities 814,353 765,272
---------- ----------
Long-term receivables 202,704 177,946
---------- ----------
Land and buildings 400,068 388,315
Data processing equipment 579,299 702,268
Furniture, leaseholds and other 446,575 436,040
---------- ----------
1,425,942 1,526,623
Less accumulated depreciation (850,452) (936,309)
---------- ----------
575,490 590,314
---------- ----------
Other assets 283,613 168,609
---------- ----------
Intangibles 1,577,657 1,660,192
---------- ----------
$5,764,939 $5,242,867
========== ==========
Liabilities and Shareholders' Equity
Notes payable $ 80,227 $ 239,811
Accounts payable 91,659 126,207
Accrued expenses & other current
liabilities 965,910 834,187
Income taxes 185,455 54,266
---------- ----------
Total current liabilities 1,323,251 1,254,471
---------- ----------
Long-term debt 146,308 192,063
---------- ----------
Other liabilities 121,858 104,142
---------- ----------
Deferred income taxes 155,832 147,397
---------- ----------
Deferred revenue 106,691 105,347
---------- ----------
Shareholders' equity:
Common stock 62,858 62,858
Capital in excess of par value 514,785 476,686
Retained earnings 3,743,435 3,372,247
Treasury stock (322,323) (370,724)
Accumulated other comprehensive income (87,756) (101,620)
---------- ----------
3,910,999 3,439,447
---------- ----------
$5,764,939 $5,242,867
========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
Condensed Statements of Consolidated Cash Flows
(In thousands)
Nine Months Ended
March 31,
1999 1998
---- ----
Cash Flows From Operating Activities:
Net earnings $ 505,051 $ 444,414
Expenses not requiring outlay of cash 138,716 196,036
Changes in operating net assets 47,560 24,428
--------- ---------
Net cash flows from operating activities 691,327 664,878
--------- ---------
Cash Flows From Investing Activities:
Purchase of marketable securities (313,544) (347,483)
Proceeds from sale of marketable securities 219,772 396,697
Capital expenditures (137,115) (132,161)
Additions to intangibles (51,183) (81,868)
Acquisitions of businesses (85,607) (206,186)
Dispositions of businesses 200,505 26,571
Other 13,570 9,768
--------- ---------
Net cash flows from investing activities (153,602) (334,662)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of notes 90,568 100,123
Repayments of long-term debt (273,659) (32,315)
Proceeds from issuance of common stock 74,136 25,064
Repurchases of common stock (85,365) (40,907)
Dividends paid (133,863) (112,252)
Other -- (3,043)
--------- ---------
Net cash flows from financing activities (328,183) (63,330)
--------- ---------
Net change in cash and cash equivalents 209,542 266,886
Cash and cash equivalents, at beginning of
period 763,063 611,795
--------- ---------
Cash and cash equivalents, at end of
period $ 972,605 $ 878,681
========= =========
See notes to consolidated statements.
<PAGE>
Form 10Q
Notes to Consolidated Statements
The information furnished herein reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the results for
the interim periods. Adjustments are of a normal recurring nature. These
statements should be read in conjunction with the annual financial statements
and related notes of the Company for the year ended June 30, 1998.
Note A - The results of operations for the nine months ended March 31,
1999 may not be indicative of the results to be expected for the
year ending June 30, 1999.
Note B - All prior period results have been restated for the March 1999
pooling of The Vincam Group, a leading Professional Employer
Organization (PEO) providing a suite of human resource functions to
small and medium sized employers on an outsourced basis. PEO
revenues are net of pass-through costs, which include wages and
taxes.
Note C - A reconciliation of the income and weighted average shares used
in both calculations follows:
(In thousands, except EPS)
Periods ended March 31, 1999
--------------------------------------------------
Three month period Nine month period
----------------------- ----------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $225,650 617,364 $ 0.37 $505,051 613,927 $ 0.82
Effect of zero coupon
subordinated notes 847 5,598 2,845 6,291
Effect of stock
options -- 14,140 -- 14,912
----------------- -----------------
Diluted $226,497 637,102 $ 0.36 $507,896 635,130 $ 0.80
========================= ========================
Periods ended March 31, 1998
--------------------------------------------------
Three month period Nine month period
----------------------- ----------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $192,013 606,822 $0.32 $444,414 597,773 $0.74
Effect of zero coupon
subordinated notes 1,433 10,694 6,651 15,818
Effect of stock
options -- 14,383 -- 12,335
----------------- -----------------
Diluted $193,446 631,899 $0.31 $451,065 625,926 $0.72
========================= ========================
<PAGE>
Form 10Q
Note D - Effective July 1, 1998, the Company adopted FASB Statement No.
130 "Reporting Comprehensive Income." Comprehensive income for the
three and nine months ended March 31, 1999 and 1998 follows:
(In thousands)
Three months ended Nine months ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
Net earnings $225,650 $192,013 $505,051 $444,414
Other comprehensive income:
Foreign currency
translation adjustments (73,870) (9,476) (15,815) (24,087)
Unrealized gains (losses)
on securities 31,722 3,987 29,679 5,812
--------- -------- -------- --------
Comprehensive income $183,502 $186,524 $518,915 $426,139
======== ======== ======== ========
Note E - The Board of Directors declared a two-for-one common stock split
effective on January 1, 1999 to shareholders of record on the close
of business on December 11, 1998.
Note F - In the quarter ended March 31, 1999 the Company sold its
Peachtree Software business and decided to exit several other
businesses and contracts. The combination of these transactions and
certain other non-recurring charges resulted in approximately $15
million of pretax income and a $15 million provision for income
taxes in the quarter.
Note G - The quarter ended December 31, 1998 includes a pretax gain of
approximately $22 million, a provision for income taxes of
approximately $25 million, and a net loss of approximately $3
million resulting from the sale of the Brokerage Services "front
office" market data business. The quarter ended December 31, 1998
also includes approximately $21 million of transaction costs and
other non-recurring adjustments, ($14 million after tax) recorded by
Vincam prior to the March 1999 pooling transaction.
<PAGE>
Form 10Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING RESULTS
Revenues and earnings again reached record levels during the quarter ended March
31, 1999.
All prior period results have been restated for the March 1999 pooling of The
Vincam Group, a leading Professional Employer Organization providing a suite of
human resource functions to small and medium sized employers on an outsourced
basis.
Revenues and revenue growth by ADP's major business units are shown below:
Revenues
----------------------------------
3 Months Ended 9 Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
($ in millions)
Employer Services $ 964 $ 823 $2,499 $2,139
Brokerage Services 288 281 761 736
Dealer Services 186 180 553 519
Other 76 57 256 196
----- ----- ----- -----
$1,514 $1,341 $4,069 $3,590
====== ====== ====== ======
Revenue Growth
----------------------------------
3 Months Ended 9 Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
Employer Services 17% 20% 17% 21%
Brokerage Services 2 24 3 20
Dealer Services 3 10 7 9
Other 33 (19) 31 (16)
------ ----- ------ -----
13% 17% 13% 16%
===== ===== ===== =====
Consolidated revenues for the quarter grew 13% from last year to $1.5 billion.
Revenue growth in Employer Services was 17%, reflecting strong new business
sales and internal revenue growth. Brokerage revenue growth was 2%, impacted by
the sale of the front office business. Excluding this sale, Brokerage revenue
growth was 23%, helped by strong trading volume. Dealer Services revenue growth
of 3% was affected by slower activity in consulting and several small non-core
Dealer businesses.
The primary components of "Other" revenues are claims services, interest income,
foreign exchange differences and miscellaneous processing services. In addition,
"Other" revenues has been reduced to adjust for the difference between actual
interest income earned on invested tax filing funds and income credited to
Employer Services at a standard rate of 6%.
<PAGE>
Form 10Q
In the quarter ended March 31, 1999 the Company sold its Peachtree Software
business and decided to exit several other businesses and contracts. The
combination of these transactions and certain other non-recurring charges
resulted in approximately $15 million of pretax income, included in selling,
general and administrative expenses, and a $15 million provision for income
taxes in the quarter.
The quarter ended December 31, 1998 includes a pretax gain of approximately $22
million, included in selling, general and administrative expenses, a provision
for income taxes of approximately $25 million, and a net loss of approximately
$3 million resulting from the sale of the Brokerage Services "front office"
market data business. The quarter ended December 31, 1998 also includes
approximately $21 million of transaction costs and other non-recurring
adjustments, included in selling, general and administrative expenses ($14
million after tax) recorded by Vincam prior to the March 1999 pooling
transaction.
Pretax earnings for the quarter increased 25% from last year, helped by the
impact of the Peachtree sale and the non-recurring charges. Excluding these
items, pretax earnings increased 20%. Systems development and programming
investments increased to accelerate automation, migrate to new computing
technologies, and develop new products.
Net earnings for the quarter, after a higher effective tax rate, increased 18%
to $226 million. The effective tax rate of 35.8% increased from 31.8% in the
comparable quarter last year. Excluding the impact of the Peachtree sale and the
non-recurring charges, the effective tax rate increased to 33.0% this quarter,
primarily as a result of the greater weighting of taxable versus non-taxable
earnings.
Diluted earnings per share grew 16% to $.36 from $.31 last year.
FINANCIAL CONDITION
The Company's financial condition and balance sheet remain exceptionally strong,
and operations continue to generate a strong cash flow. At March 31, 1999, the
Company had cash and marketable securities of approximately $2.0 billion.
Shareholders' equity was approximately $3.9 billion and the ratio of long-term
debt to equity was 4%.
Capital expenditures for fiscal 1999 are expected to be slightly more than $200
million, compared to about $200 million in fiscal 1998.
During the first nine months of fiscal 1999, ADP purchased 2.6 million shares of
common stock for treasury at an average price per share of approximately $33.
The Company has remaining Board authorization to purchase up to 14.5 million
additional shares to fund equity related employee benefit plans.
During the first nine months of fiscal 1999, zero coupon convertible
subordinated notes were converted to 2.5 million shares of common stock.
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.
<PAGE>
Form 10Q
OTHER MATTERS
The majority of the Company's services involve computer processing and, as such,
the Year 2000 could have a significant impact on the Company's products and
services. As a result, the Company has worked for several years addressing both
internal and third-party Year 2000 compliance issues. The majority of the
Company's mission-critical systems are Year 2000 compliant and the few remaining
systems, primarily from recent acquisitions, are expected to be compliant by
June 30, 1999. 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 is dependent
upon those third parties completing their own Year 2000 remediation efforts.
The Year 2000 remediation is not expected to have a material adverse effect on
the Company's overall results, as these costs are not expected to be
substantially different from normal recurring costs that are incurred for
systems development and implementation.
This report contains "forward-looking statements" based on management's
expectations and assumptions and are subject to risks and uncertainties that may
cause actual results to differ from those expressed. Factors that could cause
differences include: ADP's success in obtaining, retaining and selling
additional services to clients; the pricing of products and services; overall
economic trends, including interest rate and foreign currency trends; impact of
Year 2000; stock market activity; auto sales and related industry changes;
employment levels; changes in technology; availability of skilled technical
associates and the impact of new acquisitions.
PART II. OTHER INFORMATION
Except as noted below, all other items are inapplicable or would result in
negative responses and, therefore, have been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Exhibit
------ -------
27.1 Financial Data Schedule
<PAGE>
Form 10Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUTOMATIC DATA PROCESSING, INC.
(Registrant)
Date: May 11, 1999 /s/ Richard J. Haviland
------------------------
Richard J. Haviland
Chief Financial Officer
(Principal Financial Officer)
-----------------------------
(Title)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 972,605
<SECURITIES> 194,316
<RECEIVABLES> 937,894
<ALLOWANCES> 48,901
<INVENTORY> 47,299
<CURRENT-ASSETS> 2,311,122
<PP&E> 1,425,942
<DEPRECIATION> 850,452
<TOTAL-ASSETS> 5,764,939
<CURRENT-LIABILITIES> 1,323,251
<BONDS> 146,308
0
0
<COMMON> 62,858
<OTHER-SE> 3,848,141
<TOTAL-LIABILITY-AND-EQUITY> 5,764,939
<SALES> 0
<TOTAL-REVENUES> 4,069,454
<CGS> 0
<TOTAL-COSTS> 3,249,972
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,412
<INTEREST-EXPENSE> 15,253
<INCOME-PRETAX> 791,817
<INCOME-TAX> 286,766
<INCOME-CONTINUING> 505,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 505,051
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.80
</TABLE>
