AUTOMATIC DATA PROCESSING INC — Interim / Quarterly Report 1994

Feb 9, 1994

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, 1993 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 (201) 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, 1994 there were 141,857,246 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, 1993 1992 1993 1992 Revenue $577,661 $518,471 $1,129,644 $1,013,774 Operating expenses 233,127 212,602 463,257 420,681 General, administrative and selling expenses 158,748 144,754 324,292 295,281 Depreciation and amortization 36,700 33,277 72,310 66,147 Systems development and programming costs 37,467 30,866 74,024 61,229 Interest expense 5,049 4,692 10,331 9,836 471,091 426,191 944,214 853,174 EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 106,570 92,280 185,430 160,600 Provision for income taxes 26,390 22,150 46,740 38,550 NET EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 80,180 70,130 138,690 122,050 Cumulative effect of accounting change -- -- 2,700 -- NET EARNINGS $ 80,180 $ 70,130 $ 141,390 $ 122,050 EARNINGS PER SHARE: Before Cumulative Effect of Accounting Change $ .57 $ .50 $ .99 $ .87 Cumulative Effect of Accounting Change -- -- .02 -- NET INCOME $ .57 $ .50 $ 1.01 $ .87 Dividends per share $ .13 $ .115 $ .26 $ .23 See notes to consolidated statements. Form 10Q Consolidated Balance Sheets (In thousands) December 31, June 30, Assets 1993 1993 Cash and cash equivalents $ 143,482 $ 180,802 Short-term marketable 308,524 187,358 securities Accounts receivable 286,095 294,282 Other current assets 98,770 108,861 Total current assets 836,871 771,303 Long-term marketable 532,082 518,292 securities Long-term receivables 148,842 134,631 Land and buildings 255,906 257,837 Data processing equipment 398,124 382,049 Furniture, leaseholds and 277,596 272,036 other 931,626 911,922 Less accumulated (571,638) (550,747) depreciation 359,988 361,175 Other assets 78,162 78,820 Intangibles 561,245 575,179 $2,517,190 $2,439,400 Liabilities and Shareholders' Equity Accounts payable $ 44,407 $ 65,537 Accrued expenses & other current liabilities 275,864 309,097 Income taxes 76,393 40,176 Current portion of long-term 1,305 1,446 debt Total current liabilities 397,969 416,256 Long-term debt 358,134 347,583 Other liabilities 63,947 49,519 Deferred income taxes 39,027 74,931 Deferred revenue 57,595 56,655 Shareholders' equity: Common stock 15,712 15,712 Capital in excess of par 309,877 300,010 value Retained earnings 1,734,966 1,630,135 Treasury stock (460,037) (451,401) 1,600,518 1,494,456 $2,517,190 $2,439,400 See notes to consolidated statements. Form 10Q Condensed Statements of Consolidated Cash Flows (In thousands) Six Months Ended December 31, 1993 1992 Cash Flows From Operating Activities: Net earnings $ 141,390 $ 122,050 Expenses not requiring 85,509 76,457 outlay of cash Changes in operating net (38,722) (30,979) assets Net cash flows from operating 188,177 167,528 activities Cash Flows From Investing Activities: Marketable securities (134,956) (164,049) Capital expenditures (45,353) (41,721) Other changes to property, plant 4,180 2,516 and equipment Additions to intangibles (14,285) (16,337) Acquisitions of businesses (12,306) (10,083) Net cash flows from investing (202,720) (229,674) activities Cash Flows From Financing Activities: Proceeds from long-term debt -- 691 Repayments of long-term debt (780) (1,894) Proceeds from issuance of common 52,166 48,286 stock Repurchases of common stock (45,915) (3,805) Dividends paid (36,559) (32,362) Other 8,311 (2,653) Net cash flows from financing (22,777) 8,263 activities Net change in cash and cash (37,320) (53,883) equivalents Cash and cash equivalents, at 180,802 304,021 beginning of period Cash and cash equivalents, at $ 143,482 $ 250,138 end of period 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, 1993. Note A - The Company adopted Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes", effective July 1, 1993. The cumulative effect of adopting this statement on the Company's financial statements was to increase net earnings by $2.7 million ($.02 per share) for the three months ended September 30, 1993. The method used to compute the provision for income taxes is based on the effective income tax rate anticipated for the fiscal years, and for fiscal '94 reflects the increased statutory rate contained in the Omnibus Budget Reconciliation Act of 1993 enacted in August 1993. The provision for the three months ended September 30, 1993 also includes certain one-time impacts of the Act, which in the aggregate were not material. Note B - The results of operations for the six months ended December 31, 1993 may not be indicative of the results to be expected for the year ending June 30, 1994. Note C - Earnings per share are based on a weighted average of the number of shares outstanding, which for the quarters ended December 31, 1993 and 1992 were 140,513,000 and 140,782,000, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING RESULTS Revenue and earnings again reached record levels during the quarter ended December 31, 1993. Revenue and revenue growth by ADP's major service groups are shown below: Revenue 3 Months Ended 6 Months Ended December 31, December 31, 1992 1993 1993 1993 ($ in millions) Employer Services $ 306 $ 334 $ 600 $ 652 Brokerage Services 102 131 202 258 Dealer Services 68 84 130 161 Other 42 29 82 59 $ 518 $ 578 $1014 $1130 Revenue Growth 3 Months Ended 6 Months Ended December 31, December 31, 1992 1993 1992 1993 Employer Services 17% 9% 17% 9% Brokerage Services 20 28 22 28 Dealer Services 24 24 20 24 Other (13) (31) (12) (28) 15% 11% 15% 11% Consolidated revenue for the quarter of $578 million was up 11% from last year. Revenue growth in Employer, Brokerage, and Dealer Services, was 9%, 28%, and 24%, respectively. These three businesses account for over 90% of ADP's total revenue. Brokerage and Dealer Services had very bouyant revenue growth which was further aided by fiscal 1993 acquisitions. Overall revenue growth is expected to decelerate in the second half as the acquisition anniversary dates are reached. The primary components of Other revenue shown above are Automotive Claims, Network, Wholesale Distribution, and European payroll services. In addition, Other revenue has been reduced to adjust for the difference between actual interest earned on invested tax filing funds and income credited to Employer Services at a standard rate of 7.8%. Pre-tax earnings for the quarter increased 15% from last year, as margins improved more than expected in each major business due to aggressive automation and high Brokerage trading volume. Systems development and programming costs increased during the quarter at a faster rate than revenue growth. R&D investments have increased, especially in Employer Services, to accelerate automation, adopt new technologies, and develop new products. Net earnings for the quarter, on a higher effective tax rate, increased 14% to $80 million. The effective tax rate of 24.8% increased from 24.0% in the comparable quarter last year, primarily as a result of the increased statutory tax rate enacted in August by the Omnibus Budget Reconciliation Act of 1993. The Company expects the effective tax rate for the full year to approximate 25.0%. Earnings per share for the quarter increased 14% to $.57 from $.50 last year. Earnings per share for the first six months of fiscal 1994 increased 14% to $.99 from $.87 last year, before a one-time gain of $.02 in the quarter ended September 30, 1993 from an accounting change. The Company adopted Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes", effective July 1, 1993. The cumulative effect of adopting this statement was to increase net earnings by $2.7 million ($.02 per share) for the 3 months ended September 30, 1993. 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, 1993, the Company had cash and marketable securities of about $984 million. Shareholders' equity exceeded $1.6 billion and the ratio of long-term debt to equity was 22%. Capital expenditures for fiscal 1994 are expected to approximate $100 million. Capital expenditures for fiscal 1993 were $87 million. During the first six months, ADP purchased approximately 948,000 shares of common stock for treasury at an average price of about $48. The Company has remaining Board authorization to purchase up to approximately 4 million additional shares. Form 10Q PART II. OTHER INFORMATION All items are either inapplicable or would result in negative responses and, therefore, have been omitted. 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 9, 1994 /s/ Fred D. Anderson, Jr. Fred D. Anderson, Jr. Chief Financial Officer and Corporate Vice President (Principal Financial Officer) (Title)