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 December 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) 974-5000
--------------
No change
- - -----------------------------------------------------------------
Former name, former address & former fiscal year, if changed
since last report.
Indicate by check mark whether the Registrant (1)
has filed all annual, quarterly and other reports
required to be filed with the commission and (2)
has been subject to the filing requirements for
at least the past 90 days.
|X| Yes |_| No
As of January 31, 2000 there were 630,265,028
common shares outstanding.
<PAGE>
Form 10Q
Part I. Financial Information
STATEMENTS OF CONSOLIDATED EARNINGS
-----------------------------------
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues, other
than PEO $1,444,725 $1,273,986 $2,751,663 $2,482,417
PEO revenues (net of
pass-through costs
of $515,507,
$430,965, $982,618
and $817,202,
respectively) 47,761 36,210 91,918 72,905
---------- ---------- ---------- ----------
Total revenues 1,492,486 1,310,196 2,843,581 2,555,322
---------- ---------- ---------- ----------
Operating expenses 613,778 560,794 1,164,868 1,114,102
General,
administrative
and selling expenses 395,094 314,773 800,085 644,362
Depreciation and
amortization 67,547 68,813 133,181 138,475
Systems development
and programming
costs 109,225 105,722 212,880 206,793
Interest expense 3,642 5,652 7,177 11,373
---------- ---------- ---------- ----------
1,189,286 1,055,754 2,318,191 2,115,105
---------- ---------- ---------- ----------
EARNINGS BEFORE
INCOME TAXES 303,200 254,442 525,390 440,217
Provision for
income taxes 103,700 100,465 179,690 160,816
---------- ---------- ---------- ----------
NET EARNINGS $ 199,500 $ 153,977 $ 345,700 $ 279,401
========== ========== ========== ==========
BASIC EARNINGS
PER SHARE $ .32 $ 0.25 $ .55 $ 0.46
========== ========== ========== ==========
DILUTED EARNINGS
PER SHARE $ .31 $ 0.24 $ .54 $ 0.44
========== ========== ========== ==========
Dividends per
share $ 0.0875 $ 0.07625 $ 0.16375 $ 0.1425
========== ========== ========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS)
December 31, June 30,
Assets 1999 1999
- - ------ ----------- ----------
Cash and cash equivalents $ 1,099,549 $ 861,280
Short-term marketable securities 430,171 231,214
Accounts receivable 877,127 860,836
Other current assets 243,852 240,927
----------- ----------
Total current assets 2,650,699 2,194,257
Long-term marketable securities 951,286 1,076,546
Long-term receivables 234,324 213,413
Land and buildings 405,289 400,189
Data processing equipment 570,586 550,757
Furniture, leaseholds and other 455,798 449,862
----------- ----------
1,431,673 1,400,808
Less accumulated depreciation (871,845) (821,514)
----------- ----------
559,828 579,294
Other assets 279,580 228,936
Intangibles 1,457,119 1,532,374
----------- ----------
$ 6,132,836 $5,824,820
=========== ==========
Liabilities and Shareholders' Equity
- - ------------------------------------
Notes payable $ 50,446 $ 66,952
Accounts payable 124,667 130,456
Accrued expenses & other current
liabilities 987,469 952,326
Income taxes 114,894 136,659
----------- ----------
Total current liabilities 1,277,476 1,286,393
Long-term debt 140,791 145,765
Other liabilities 157,063 132,081
Deferred income taxes 134,083 138,236
Deferred revenue 100,914 114,404
Shareholders' equity:
Common stock 63,145 62,858
Capital in excess of par value 450,507 421,333
Retained earnings 4,092,238 3,848,421
Treasury stock (86,993) (189,204)
Accumulated other comprehensive income (196,388) (135,467)
----------- ----------
4,322,509 4,007,941
----------- ----------
$ 6,132,836 $5,824,820
=========== ==========
See notes to consolidated statements.
<PAGE>
Form 10Q
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
-----------------------------------------------
(IN THOUSANDS)
Six Months Ended
December 31,
1999 1998
---------- ---------
Cash Flows From Operating Activities:
- - -------------------------------------
Net earnings $ 345,700 $ 279,401
Expenses not requiring outlay of cash 126,125 158,353
Changes in operating net assets (8,240) (58,246)
---------- ----------
Net cash flows from operating activities 463,585 379,508
---------- ---------
Cash Flows From Investing Activities:
- - -------------------------------------
Purchase of marketable securities (369,864) (209,492)
Proceeds from sale of marketable
securities 283,497 145,462
Capital expenditures (59,490) (83,534)
Additions to intangibles (28,771) (35,243)
Net(acquisitions)dispositions of businesses 3,109 17,671
Other (11,176) 8,773
---------- ---------
Net cash flows used in
investing activities (182,695) (156,363)
---------- ---------
Cash Flows From Financing Activities:
- - -------------------------------------
Proceeds from issuance of notes payable 3,130 118,237
Proceeds from issuance of common stock 75,529 48,939
Repurchases of common stock - (85,364)
Dividends paid (102,381) (86,727)
Repayments of debt (18,899) (267,869)
---------- ---------
Net cash flows used in
financing activities (42,621) (272,784)
---------- ---------
Net change in cash and cash equivalents 238,269 (49,639)
Cash and cash equivalents, at beginning
of period 861,280 763,063
---------- ---------
Cash and cash equivalents, at end
of period $1,099,549 $ 713,424
========== =========
See notes to consolidated statements.
<PAGE>
Form 10Q
NOTES TO CONSOLIDATED STATEMENTS
--------------------------------
The information furnished herein reflects all
adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for
the interim periods. Adjustments are of a normal
recurring nature. These statements should be read
in conjunction with the annual financial statements
and related notes of the Company for the year ended
June 30, 1999.
Note A - The results of operations for the six
months ended December 31, 1999 may not
be indicative of the results to be
expected for the year ending June 30,
2000.
Note B - The calculation of basic and diluted
earnings per share is as follows:
(In thousands, except EPS)
Periods ended December 31, 1999
----------------------------------------------------
Three month period Six month period
------------------------- ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $199,500 625,665 $ 0.32 $345,700 625,031 $ 0.55
Effect of zero
coupon
subordinated
notes 737 4,585 1,490 4,665
Effect of
stock
options - 15,408 - 14,557
------------------------- ------------------------
Diluted EPS $200,237 645,658 $ 0.31 $347,190 644,253 $ 0.54
========================= ========================
Periods ended December 31, 1998
----------------------------------------------------
Three month period Six month period
------------------------- ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $153,977 611,978 $0.25 $279,401 612,230 $0.46
Effect of zero
coupon
subordinated
notes 929 6,147 1,998 6,638
Effect of
stock
options - 15,495 - 15,228
------------------------- ------------------------
Diluted EPS $154,906 633,620 $0.24 $281,399 634,096 $0.44
========================= ========================
<PAGE>
Form 10Q
Note C - Comprehensive income is as follows:
(In thousands)
Three months ended Six months ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
Net earnings $199,500 $153,977 $345,700 $279,401
Other comprehensive
income:
Foreign currency
translation
adjustments (28,276) 25,182 (56,127) 58,055
Unrealized
gains (losses)
on securities 4,720 (107) (4,794) (2,043)
-------- -------- -------- --------
Comprehensive
income $175,944 $179,052 $284,779 $335,413
======== ======== ======== ========
Note D - Interim financial data by segment:
ADP evaluates performance of its business
units based on recurring operating results
before interest, income taxes and foreign
currency gains and losses. Certain revenues
and expenses are charged to business units at
a standard rate for management and motivation
reasons. Other costs are recorded based on
management responsibility. As a result,
various income and expense items, including
non-recurring gains and losses, are recorded
at the corporate level and certain shared costs
are not allocated. Goodwill amortization is
charged to business units at an accelerated
rate to act as a surrogate for the cost of
capital for acquisitions. Revenues on invested
client funds are credited to Employer Services
at a standard rate of 6%. Prior year's business
unit results have been restated to reflect the
current year's foreign exchange standard rates.
Results of the Company's three largest business
units, Employer Services, Brokerage Services
and Dealer Services are shown below.
Three months ended December 31,
---------------------------------------
(In millions) Employer Brokerage Dealer
Services Services Services
---------- ----------- -----------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Revenues $ 873 $ 794 $ 314 $ 220 $ 191 $ 183
Pretax earnings $ 181 $ 145 $ 63 $ 37 $ 32 $ 29
Six months ended December 31,
-----------------------------------------
Employer Brokerage Dealer
Services Services Services
------------ ------------ -----------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Revenues $1,682 $1,514 $ 572 $ 471 $ 378 $ 362
Pretax earnings $ 328 $ 256 $ 117 $ 67 $ 62 $ 53
<PAGE>
Form 10Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OPERATING RESULTS
Revenues and earnings again reached record levels
during the quarter ended December 31, 1999.
Revenues and revenue growth by ADP's major business
units are shown below:
Revenues
----------------------------------
3 Months Ended 6 Months Ended
December 31, December 31,
------------- -------------
1999 1998 1999 1998
------ ------ ------ ------
($ in millions)
Employer Services $ 873 $ 794 $1,682 $1,514
Brokerage Services 314 220 572 471
Dealer Services 191 183 378 362
Other 114 113 212 208
------ ------ ------ ------
$1,492 $1,310 $2,844 $2,555
====== ====== ====== ======
Revenue Growth
----------------------------------
3 Months Ended 6 Months Ended
December 31, December 31,
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
Employer Services 10% 15% 11% 17%
Brokerage Services 43 (5) 21 4
Dealer Services 4 7 4 8
Other 1 24 1 25
----- ---- ----- ----
14% 11% 11% 14%
===== ==== ===== ====
Consolidated revenues for the quarter grew 14%
from last year to $1.5 billion aided by a single
large company mailing in our Brokerage Investor
Communications business. Without the $35
million of revenue from the distribution, revenue
growth would have been 11%. Revenue growth in
Brokerage Services was 43%. Without the large
mailing in the Investor Communications business,
Brokerage Services grew 27%. Employer Services
revenue growth, impacted by prior year dispositions,
was 10%. Revenue growth in Dealer Services was
4%. Margins in the quarter increased primarily
from the impact of prior year dispositions and
increased operating efficiencies in each of our
core businesses. Margins also benefited from
increasing interest rates.
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 differences between actual interest income
and income credited to Employer Services at a standard
rate of 6%. The prior year's business unit results
have been restated to reflect the current year's
budgeted foreign exchange rates.
<PAGE>
Form 10Q
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
19% from last year. Excluding the impact
of several prior year, non-recurring
transactions pretax earnings increased 20%.
Net earnings for the quarter increased 30%
to $200 million. Excluding the impact of
several prior year, non-recurring transactions,
net earnings increased 17% on a higher
effective tax rate. The effective tax rate
of 34.2% increased from 32.5% in the
comparable quarter last year, adjusted for
the prior year non-recurring transactions.
The increase in the effective tax rate is
primarily a result of the greater weighting
of taxable versus non-taxable earnings.
Diluted earnings per share grew 29% to $0.31
from $0.24 last year. Excluding the prior year
non-recurring transactions, diluted earnings
per share increased 15% from $0.27 last year.
For the full year, we expect revenue growth
of about 10% and diluted earnings per share
growth of about 15% above the $1.13 reported
prior to non-recurring items in fiscal 1999.
We have accelerated $25 million of investments
to benefit future years that were not
originally planned in fiscal 2000. The
investments, primarily new business and
Internet related, will be expensed in the
current fiscal year.
FINANCIAL CONDITION
The Company's financial condition and balance
sheet remain exceptionally strong, and
operations continue to generate a strong cash
flow. At December 31, 1999, the Company had
cash and marketable securities of $2.5 billion.
Shareholders' equity was $4.3 billion and the
ratio of long-term debt to equity was 3%.
Capital expenditures for fiscal 2000 are
expected to approximate $200 million,
compared to $178 million in fiscal 1999.
The Company's investment portfolio for
corporate and client funds consists primarily
of fixed income securities subject to
interest rate risk, including reinvestment
risk. The Company has historically had the
ability to hold these investments until maturity
and, therefore, interest rate risk has not
had an adverse impact on income or cash flows.
<PAGE>
Form 10Q
OTHER MATTERS
The majority of the Company's services involve
computer processing and, as a result,
the Company has worked for several years
addressing both internal and third-party
Year 2000 compliance issues.
As of the date of this report, the
Company is not aware of any material issues
that have arisen as a result of Year 2000.
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 4. Submission of Matters to a Vote
of Security Holders
The Company's Annual Meeting of the Stockholders
was held on November 9, 1999. The following
members were elected to the Company's Board
of Directors to hold office for the ensuing year.
Nominee In Favor Opposed Abstained Not voted
- - ------- -------- ------- --------- ---------
Gary C. Butler 519,729,332 145,756 3,164,786 105,503,700
Joseph A. Califano,
Jr. 518,772,709 1,102,379 4,121,409 104,547,077
Leon G. Cooperman 519,792,050 83,038 3,102,068 105,566,418
George H. Heilmeier 519,729,687 145,401 3,164,431 105,504,055
Ann Dibble Jordan 519,593,673 281,415 3,300,445 105,368,041
Harvey M. Krueger 517,610,203 2,264,885 5,283,915 103,384,571
Frederic V. Malek 519,519,371 355,717 3,374,747 105,293,739
Henry Taub 519,412,108 462,980 3,482,010 105,186,476
Laurence A. Tisch 518,948,264 926,824 3,945,854 104,722,632
Arthur F. Weinbach 519,781,080 94,008 3,113,038 105,555,448
Josh S. Weston 519,437,766 437,322 3,456,352 105,212,134
The result of the voting on the following additional
item was as follows:
(a) To approve the Company's 2000 Key Employees'
Stock Option Plan, and to authorize the issuance
of up to 14,750,000 shares of the Common Stock
of the Company for acquisition upon the exercise
of options that may be granted to employees
under such plan.
The votes of the stockholders on this ratification were as follows:
In Favor Opposed Abstained Not voted
-------- ------- --------- ---------
491,074,240 28,730,134 3,068,347 105,670,853
<PAGE>
Form 10Q
(b) To ratify the appointment of Deloitte
& Touche LLP to serve as the Company's
independent certified public accountants
for the fiscal year begun on July 1, 1999.
The votes of the stockholders on this ratification
were as follows:
In Favor Opposed Abstained Not voted
-------- ------- --------- ---------
520,694,342 648,191 1,508,017 105,693,024
Item 6. Exhibits and Reports on Form 10Q
(a) 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: February 7, 2000 /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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,099,549
<SECURITIES> 430,171
<RECEIVABLES> 925,702
<ALLOWANCES> 48,575
<INVENTORY> 45,325
<CURRENT-ASSETS> 2,650,699
<PP&E> 1,431,673
<DEPRECIATION> 871,845
<TOTAL-ASSETS> 6,132,836
<CURRENT-LIABILITIES> 1,277,476
<BONDS> 140,791
0
0
<COMMON> 63,173
<OTHER-SE> 4,259,336
<TOTAL-LIABILITY-AND-EQUITY> 6,132,836
<SALES> 0
<TOTAL-REVENUES> 2,843,581
<CGS> 0
<TOTAL-COSTS> 2,300,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,763
<INTEREST-EXPENSE> 7,177
<INCOME-PRETAX> 525,390
<INCOME-TAX> 179,690
<INCOME-CONTINUING> 345,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 345,700
<EPS-BASIC> .55
<EPS-DILUTED> .54
</TABLE>
