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 March 31, 2000 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 April 30, 2000, there were 627,208,423 shares outstanding.
Form 10Q Part I. Financial Information STATEMENTS OF CONSOLIDATED EARNINGS ----------------------------------- (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended March 31, March 31, ------------------ ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Revenues, other than PEO 1,665,379 $1,469,903 $4,417,042 $3,952,320 PEO revenues (net of pass-through costs of $567,387, $451,498, $1,550,005, and $1,276,091, respectively) 54,351 44,229 146,269 117,134 ---------- ---------- ---------- ---------- 1,719,730 1,514,132 4,563,311 4,069,454 ---------- ---------- ---------- ---------- Operating expenses 661,935 611,234 1,826,802 1,725,336 General, administrative and selling expenses 446,931 379,476 1,247,017 1,023,838 Depreciation and amortization 72,851 65,399 206,032 203,874 Systems development and programming costs 119,747 102,543 332,627 309,336 Interest expense 2,816 3,880 9,993 15,253 ---------- ---------- ---------- ---------- 1,304,280 1,162,532 3,622,471 3,277,637 ---------- ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES 415,450 351,600 940,840 791,817 Provision for income taxes 144,140 125,950 323,830 286,766 ---------- ---------- ---------- ---------- NET EARNINGS $ 271,310 $ 225,650 $ 617,010 $ 505,051 ========== ========== ========== ========== BASIC EARNINGS PER SHARE $ .43 $ .37 $ .99 $ .82 ========== ========== ========== ========== DILUTED EARNINGS PER SHARE $ .42 $ .36 $ .96 $ .80 ========== ========== ========== ========== Dividends per share $ .0875 $ .07625 $ .25125 $ .21875 ========== ========== ========== ========== See notes to the consolidated financial statements.
Form 10Q CONSOLIDATED BALANCE SHEETS --------------------------- (In thousands) (Unaudited) March 31, June 30, Assets 2000 1999 - - ------ ---------- ---------- Cash and cash equivalents $1,428,618 $ 861,280 Short-term marketable securities 498,288 231,214 Accounts receivable 900,601 860,836 Other current assets 200,405 240,927 ---------- ---------- Total current assets 3,027,912 2,194,257 Long-term marketable securities 618,918 1,076,546 Long-term receivables 238,882 213,413 Land and buildings 423,610 400,189 Data processing equipment 592,203 550,757 Furniture, leaseholds and other 465,612 449,862 ---------- ---------- 1,481,425 1,400,808 Less accumulated depreciation (902,000) (821,514) ---------- ---------- 579,425 579,294 Other assets 273,813 228,936 Intangibles 1,464,042 1,532,374 ---------- ---------- $6,202,992 $5,824,820 ========== ========== Liabilities and Shareholders' Equity - - ------------------------------------ Notes payable $ 41,474 $ 66,952 Accounts payable 103,155 130,456 Accrued expenses & other current liabilities 1,055,390 952,326 Income taxes 134,587 136,659 ---------- --------- Total current liabilities 1,334,606 1,286,393 Long-term debt 138,475 145,765 Other liabilities 149,527 132,081 Deferred income taxes 132,972 138,236 Deferred revenue 102,844 114,404 Shareholders' equity: Common stock 63,145 62,858 Capital in excess of par value 418,856 421,333 Retained earnings 4,308,357 3,848,421 Treasury stock (221,849) (189,204) Accumulated other comprehensive income (223,941) (135,467) ---------- ---------- 4,344,568 4,007,941 ---------- ---------- $6,202,992 $5,824,820 ========== ========== See notes to the consolidated financial statements.
Form 10Q CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS ----------------------------------------------- (In thousands) (Unaudited) Nine Months Ended March 31, 2000 1999 ---------- --------- Cash Flows From Operating Activities: - - ------------------------------------- Net earnings $ 617,010 $ 505,051 Expenses not requiring outlay of cash 230,512 138,716 Changes in operating net assets 42,162 47,560 ---------- --------- Net cash flows from operating activities 889,684 691,327 ---------- --------- Cash Flows From Investing Activities: - - ------------------------------------- Purchase of marketable securities (662,235) (313,544) Proceeds from sale of marketable securities 821,889 219,772 Capital expenditures (116,306) (137,115) Additions to intangibles (55,553) (51,183) Acquisitions of businesses (41,546) (85,607) Dispositions of businesses 10,943 200,505 Other (12,675) 13,570 ---------- --------- Net cash flows used in investing activities (55,483) (153,602) ---------- --------- Cash Flows From Financing Activities: - - ------------------------------------- Proceeds from issuance of notes 10,547 90,568 Repayments of long-term debt (35,979) (273,659) Proceeds from issuance of common stock 117,148 74,136 Repurchases of common stock (201,007) (85,365) Dividends paid (157,572) (133,863) ---------- --------- Net cash flows used in financing activities (266,863) (328,183) ---------- --------- Net change in cash and cash equivalents 567,338 209,542 Cash and cash equivalents, at beginning of period 861,280 763,063 ---------- --------- Cash and cash equivalents, at end of period $1,428,618 $ 972,605 ========== ========= See notes to the consolidated financial statements.
Form 10Q NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (Unaudited) 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 Automatic Data Processing, Inc. (the "Company") for the year ended June 30, 1999. Note A - The results of operations for the nine months ended March 31, 2000 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 March 31, 2000 ---------------------------------------------------- Three month period Nine month period ------------------------- ------------------------ Income Shares EPS Income Shares EPS ------ ------ --- ------ ------ --- Basic $271,310 629,144 $ 0.43 $617,010 626,401 $ 0.99 Effect of zero coupon subordinated notes 718 4,416 2,208 4,582 Effect of stock options - 14,199 - 14,324 ----------------- ----------------- Diluted $272,028 647,759 $ 0.42 $619,218 645,307 $ 0.96 ========================= ======================== 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 ========================= ========================
Form 10Q Note C - Comprehensive income for the three and nine months ended March 31, 2000 and 1999 is as follows: (In thousands) Three months ended Nine months ended March 31 March 31 2000 1999 2000 1999 ---- ---- ---- ---- Net earnings $271,310 $225,650 $617,010 $505,051 Other comprehensive income: Foreign currency translation adjustments (28,614) (73,870) (84,741) (15,815) Unrealized gains (losses) on securities 1,061 31,722 (3,733) 29,679 -------- -------- -------- -------- Comprehensive income $243,757 $183,502 $528,536 $518,915 ======== ======== ======== ======== Note D - Interim financial data by segment: The Company 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 March 31, ---------------------------------------- (In millions) Employer Brokerage Dealer Services Services Services -------- -------- -------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Revenues $1,036 $ 953 $ 402 $ 287 $ 184 $ 183 Pretax earnings $ 295 $ 271 $ 99 $ 58 $ 29 $ 30 Nine months ended March 31, ------------------------------------------ Employer Brokerage Dealer Services Services Services -------- --------- -------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Revenues $2,718 $2,467 $ 974 $ 758 $ 562 $ 545 Pretax earnings $ 623 $ 527 $ 216 $ 125 $ 91 $ 83
Form 10Q MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OPERATING RESULTS Revenues and earnings again reached record levels during the quarter ended March 31, 2000. Revenues and revenue growth by the Company's major business units are shown below: Revenues ------------------------------------- Three Months Ended Nine Months Ended March 31, March 31, 2000 1999 2000 1999 ------ ------ ------ ------ ($ in millions) Employer Services $1,036 $ 953 $2,718 $2,467 Brokerage Services 402 287 974 758 Dealer Services 184 183 562 545 Other 98 91 309 299 ------ ------ ------ ------ $1,720 $1,514 $4,563 $4,069 ====== ====== ====== ====== Revenue Growth ------------------------------------- Three Months Ended Nine Months Ended March 31, March 31, 2000 1999 2000 1999 ------ ------ ----- ----- Employer Services 9% 18% 10% 17% Brokerage Services 40 3 28 3 Dealer Services 1 3 3 6 Other 8 25 3 25 ------ ------ ----- ---- 14% 13% 12% 13% ====== ====== ===== ==== Consolidated revenues for the quarter grew 14% from last year to $1.7 billion. Revenue growth in Employer Services was 9%, impacted by prior year dispositions and slower new business sales in November and December resulting from Year 2000 related decision deferrals. Employer Services sales rebounded during the third quarter. Brokerage revenue growth was 40%, supported by strong trading volume. Dealer Services revenue growth of 1% was affected by the impact of prior year dispositions, slower international installations and lower consulting activity. The primary components of "Other" revenues are claims services, interest income, foreign exchange differences and miscellaneous processing services. In addition, "Other" revenues has been reduced to adjust for the difference between actual interest income earned on invested client funds and income credited to Employer Services at a standard rate of 6%. The prior year's business unit results have been restated to reflect the current year's budgeted foreign exchange rates.
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 18% from last year. Excluding the impact of several prior year, non-recurring transactions pretax earnings increased 23%. Net earnings for the quarter, after a lower effective tax rate, increased 20% to $271 million. The effective tax rate of 34.7% increased from 33.0% 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 a change in the investment mix to a greater weighting of taxable versus non-taxable investments. Diluted earnings per share grew 17% to $.42 from $.36 last year. For the full year, the Company expects revenue growth to exceed 10% and expects to meet or exceed diluted earnings per share growth of about 15% above the $1.13 reported prior to non-recurring items in fiscal 1999. The Company has accelerated $45 million of investments to benefit future years that were not originally planned in fiscal 2000 expenses. These investments are primarily new business and Internet related. 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, 2000, the Company had cash and marketable securities of approximately $2.5 billion. Shareholders' equity was approximately $4.3 billion and the ratio of long-term debt to equity was 3%. Capital expenditures for fiscal 2000 are expected to be approximately $200 million, compared to $178 million in fiscal 1999. During the first nine months of fiscal 2000, the Company purchased 4.6 million shares of common stock for treasury at an average price per share of approximately $43. The Company has remaining Board authorization to purchase up to 19.9 million additional shares to fund equity related employee benefit plans. The Company's investment portfolio for corporate and client funds consists primarily of fixed income securities subject to interest rate risk, including
Form 10Q reinvestment risk. The Company has historically had the ability to hold these investments until maturity and, therefore, interest rate risk has not had an adverse impact on income or cash flows. OTHER MATTERS 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; 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
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 9, 2000 /s/ Richard J. Haviland ----------------------- Richard J. Haviland Chief Financial Officer (Principal Financial Officer) ---------------------------- (Title)