Automatic Data Processing, Inc., also known as ADPยฎ, is a leading global technology company providing human capital management (HCM) solutions. With over 1.1 million clients, ADP is considered a leading provider of HR services such as talent, time management, benefits and payroll.
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, 1997 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 January 31, 1998 there were 298,927,832 common shares outstanding.
Form 10Q <TABLE> <CAPTION> Part I. Financial Information STATEMENTS OF CONSOLIDATED EARNINGS ----------------------------------- (In thousands, except per share amounts) Three Months Ended Six Months Ended December 31, December 31, --------------------- ---------------------- 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenue $1,148,026 $995,575 $2,186,524 $1,906,305 ---------- -------- ---------- ---------- Operating expenses 490,202 418,015 933,585 809,535 General, administrative and 286,427 261,531 575,873 522,320 selling expenses Depreciation and amortization 58,193 55,284 115,623 108,353 Systems development and 91,361 73,065 178,650 139,128 programming costs Interest expense 7,303 6,970 14,813 14,159 ---------- -------- ---------- ---------- 933,486 814,865 1,818,544 1,593,495 ---------- -------- ---------- ---------- EARNINGS BEFORE INCOME TAXES 214,540 180,710 367,980 312,810 Provision for income taxes 67,150 53,130 115,180 91,950 ---------- -------- ---------- ---------- NET EARNINGS $ 147,390 $127,580 $ 252,800 $ 220,860 ========== ======== ========== ========== BASIC EARNINGS PER SHARE $ .50 $ .44 $ .86 $ .76 ========== ======== ========== ========== DILUTED EARNINGS PER SHARE $ .49 $ .43 $ .84 $ .74 ========== ======== ========== ========== Dividends per share $ .1325 $ .115 $ .2475 $ .215 ========== ======== ========== ========== </TABLE> See notes to consolidated statements.
Form 10Q <TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS --------------------------- (IN THOUSANDS) December 31, June 30, ASSETS 1997 1997 - - ------ ----------- ---------- <S> <C> <C> Cash and cash equivalents $ 686,049 $ 590,578 Short-term marketable securities 340,215 434,341 Accounts receivable 670,710 605,068 Other current assets 204,088 175,335 ---------- ---------- Total current assets 1,901,062 1,805,322 ---------- ---------- Long-term marketable securities 573,338 470,164 ---------- ---------- Long-term receivables 170,195 176,771 ---------- ---------- Land and buildings 367,674 361,594 Data processing equipment 755,660 626,013 Furniture, leaseholds and other 288,616 364,161 ---------- ---------- 1,411,950 1,351,768 Less accumulated depreciation (884,807) (832,423) ---------- ---------- 527,143 519,345 ---------- ---------- Other assets 92,220 96,383 ---------- ---------- Intangibles 1,431,042 1,314,787 ---------- ---------- $4,695,000 $4,382,772 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - - ------------------------------------ Notes payable $ 183,262 $ 129,168 Accounts payable 110,532 110,266 Accrued expenses & other current liabilities 775,284 717,868 Income taxes 74,230 61,479 Current portion of long-term debt 1,395 1,091 ---------- ---------- Total current liabilities 1,144,703 1,019,872 ---------- ---------- Long-term debt 258,587 401,162 ---------- ---------- Other liabilities 110,448 91,685 ---------- ---------- Deferred income taxes 48,314 102,751 ---------- ---------- Deferred revenue 99,728 106,737 ---------- ---------- Shareholders' equity: Common stock 31,429 31,429 Capital in excess of par value 566,727 480,492 Retained earnings 3,102,398 2,922,317 Treasury stock (576,937) (697,887) Translation adjustment (90,397) (75,786) ---------- ---------- 3,033,220 2,660,565 ---------- ---------- $4,695,000 $4,382,772 ========== ========== </TABLE> See notes to consolidated statements.
Form 10Q <TABLE> <CAPTION> CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS ----------------------------------------------- (IN THOUSANDS) Six Months Ended December 31, 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: - - ------------------------------------- <S> <C> <C> Net earnings $ 252,800 $ 220,860 Expenses not requiring outlay of cash 133,842 112,720 Changes in operating net assets 39,657 21,714 --------- --------- Net cash flows from operating activities 426,299 355,294 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: - - ------------------------------------- Purchase of marketable securities (239,835) (275,549) Proceeds from sale of marketable securities 232,612 267,948 Capital expenditures (79,853) (79,093) Other changes to property, plant and equipment 4,052 (752) Additions to intangibles (48,676) (32,711) Acquisitions of businesses (176,606) (64,494) --------- --------- Net cash flows from investing activities (308,306) (184,651) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: - - ------------------------------------- Proceeds from issuance of notes payable, net 60,863 41,780 Proceeds from issuance of common stock 30,241 39,257 Repurchases of common stock (40,907) (37,358) Dividends paid (72,719) (62,447) Repayments of long-term debt - (3,991) --------- --------- Net cash flows from financing activities (22,522) (22,759) --------- --------- Net change in cash and cash equivalents 95,471 147,884 Cash and cash equivalents, at beginning of period 590,578 314,416 --------- --------- Cash and cash equivalents, at end of period $ 686,049 $ 462,300 ========= ========= </TABLE> See notes to consolidated statements.
Form 10Q NOTES TO CONSOLIDATED STATEMENTS -------------------------------- The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. All adjustments are of a normal recurring nature. These statements should be read in conjunction with the annual financial statements and related notes of the Company for the year ended June 30, 1997. Note A - The results of operations for the six months ended December 31, 1997 may not be indicative of the results to be expected for the year ending June 30, 1998. Note B - The Company implemented Statement of Financial Accounting Standards No. 128, "Earnings Per Share" as of December 31, 1997 which required the disclosure of basic and diluted earnings per share. A reconciliation of the income and weighted average shares used in both calculations follows: (In thousands, except EPS) <TABLE> <CAPTION> Periods ended December 31, 1997 ---------------------------------------------------- Three month period Six month period -------------------------- ----------------------- Income Shares EPS Income Shares EPS ------ ------ --- ------ ------ --- <S> <C> <C> <C> <C> <C> <C> Basic EPS $147,390 293,632 $0.50 $252,800 293,128 $0.86 Effect of zero coupon subordinated notes 2,464 8,663 5,218 7,140 Effect of stock options - 6,252 - 6,001 ------------------------- ------------------------ Diluted EPS $149,854 308,547 $0.49 $258,018 306,269 $0.84 ========================= ======================== <CAPTION> Periods ended December 31, 1996 ---------------------------------------------------- Three month period Six month period -------------------------- ---------------------- Income Shares EPS Income Shares EPS ------ ------ --- ------ ------ --- <S> <C> <C> <C> <C> <C> <C> Basic EPS $127,580 290,502 $ 0.44 $220,860 289,493 $ 0.76 Effect of zero coupon subordinated notes 2,841 10,341 5,444 10,341 Effect of stock options - 5,823 - 5,892 ------------------------- ------------------------ Diluted EPS $130,421 306,666 $ 0.43 $226,304 305,726 $ 0.74 ========================= ======================== </TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OPERATING RESULTS Revenue and earnings again reached record levels during the quarter ended December 31, 1997. Revenue and revenue growth by ADP's major business groups are shown below: <TABLE> <CAPTION> Revenue ---------------------------------- 3 Months Ended 6 Months Ended December 31, December 31, -------------- ------------- 1997 1996 1997 1996 ------ ------ ------ ----- ($ in millions) <S> <C> <C> <C> <C> Employer Services $ 667 $ 551 $1,254 $1,042 Brokerage Services 232 200 455 388 Dealer Services 173 162 339 315 Other 76 83 139 161 ------ ----- ------ ------ $1,148 $ 996 $2,187 $1,906 ====== ===== ====== ====== <CAPTION> Revenue Growth ---------------------------------- 3 Months Ended 6 Months Ended December 31, December 31, -------------- ------------- 1997 1996 1997 1996 ------ ------ ------ ----- <S> <C> <C> <C> <C> Employer Services 21% 24% 20% 24% Brokerage Services 16 18 17 15 Dealer Services 7 23 8 22 Other (8) 12 (14) 26 ----- ----- ----- ----- 15% 21% 15% 22% ===== ===== ===== ===== </TABLE> Consolidated revenue for the quarter grew 15% from last year to $1,148 million. Revenue growth in the Company's three largest businesses, Employer, Brokerage and Dealer Services, was strong at 21%, 16% and 7% respectively. Each includes some acquisitions. The primary components of "Other revenue" are claims services, services for wholesalers, interest income, foreign exchange differences and miscellaneous processing services. In addition, "Other revenue" has been reduced to adjust for the difference between actual interest income earned on invested tax filing funds and income credited to Employer Services at a standard rate of 6%. Pretax earnings for the quarter increased 19% from last year. Consolidated pre-tax margins increased slightly in the quarter, due primarily to the impact of higher trading volume in Brokerage Services. 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 16% to $147 million. The effective tax rate of 31.3% increased from 29.4% in the comparable quarter last year, primarily as a result of the greater weighting of taxable versus non-taxable earnings. Basic earnings per share grew 14% to $.50 from $.44 last year, on a greater number of shares outstanding. The Company expects over 15% growth in revenue and pretax earnings for the full year and basic EPS growth in the area of 13-14% above fiscal 1997's $1.80 per share (which is prior to non-recurring items in 1997). 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, 1997, the Company had cash and marketable securities of $1.6 billion. Shareholders' equity was $3.0 billion and the ratio of long-term debt to equity was 9%. Capital expenditures for fiscal 1998 are expected to approximate $225 million, compared to $175 million in fiscal 1997. During the first half of fiscal 1998, ADP purchased 896,000 shares of common stock for treasury at an average price of approximately $46. The Company has remaining Board authorization to purchase up to 8.5 million additional shares to fund equity related employee benefit plans. During the first half of fiscal 1998, 315,000 of the Company's zero coupon convertible subordinated notes were converted to over 4 million shares of common stock. The Company'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 Company to material market risk. PART II. OTHER INFORMATION Except as noted below, all other items are inapplicable or would result in negative responses and, therefore, have been omitted.
PART II. OTHER INFORMATION, CONTINUED Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of the Stockholders was held on November 11, 1997. The following members were elected to the Company's Board of Directors to hold office for the ensuing year. <TABLE> <CAPTION> Nominee In Favor Withheld ------- -------- -------- <S> <C> <C> Gary C. Butler 236,374,432 1,434,137 Joseph A. Califano, Jr. 236,240,611 1,567,958 Leon G. Cooperman 236,435,603 1,372,966 George H. Heilmeier 236,409,109 1,399,460 Ann Dibble Jordan 236,371,779 1,436,790 Harvey M. Krueger 236,364,178 1,444,391 Frederic V. Malek 236,342,309 1,466,260 Henry Taub 236,301,977 1,506,592 Laurence A. Tisch 236,016,506 1,792,063 Arthur F. Weinbach 236,439,455 1,369,114 Josh S. Weston 236,379,233 1,429,336 </TABLE> The result of the voting on the following additional item was as follows: (a) Ratify the appointment of Deloitte & Touche LLP to serve as the Company's independent certified public accountants for the fiscal year which began on July 1, 1997. The votes of the stockholders on this ratification were as follows: <TABLE> <CAPTION> In Favor Opposed Abstained -------- ------- --------- <S> <C> <C> 236,442,654 318,300 1,047,615 </TABLE> Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Number Exhibit ------ ------- 27.1 Financial Data Schedule
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 11, 1998 /s/ Richard J. Haviland ---------------------------- Richard J. Haviland Chief Financial Officer (Principal Financial Officer) ---------------------------- (Title)