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, 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.
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.
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.
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.
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 ========================= ========================
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
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.
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.
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
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
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)