AUTOMATIC DATA PROCESSING INC — Interim / Quarterly Report 1995

May 11, 1995

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, 1995 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 May 8, 1995 there were 144,156,693 common shares outstanding. Form 10Q Part I. Financial Information Statements of Consolidated Earnings (In thousands, except per share amounts) Three Months Ended Nine Months Ended March 31, March 31, 1995 1994 1995 1994 Revenue $798,989 $674,405 $2,093,872 $1,804,049 Operating expenses 309,574 266,061 830,378 729,317 General, administrative and selling expenses 224,096 184,313 596,946 508,605 Depreciation and amortization 42,131 36,571 119,641 108,881 Systems development and programming costs 48,120 41,841 138,940 115,865 Interest expense 5,978 5,129 18,177 15,461 629,899 533,915 1,074,082 1,478,129 EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 169,090 140,490 389,790 325,920 Provision for income taxes 43,820 35,500 100,900 82,240 NET EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 125,270 104,990 288,890 243,680 Cumulative effect of accounting changes -- -- -- (4,800) NET EARNINGS $125,270 $104,990 $ 288,890 $ 238,880 EARNINGS PER SHARE: Before cumulative effect of accounting changes $ .87 $ .74 $ 2.03 $ 1.73 Cumulative effect of accounting changes -- -- -- (.03) NET INCOME $ .87 $ .74 $ 2.03 $ 1.70 Dividends per share $ .15 $ .13 $ .45 $ .39 See notes to consolidated statements. Form 10Q Consolidated Balance Sheets (In thousands) March 31, June 30, Assets 1995 1994 Cash and cash equivalents $ 377,597 $ 238,626 Short-term marketable 355,246 351,969 securities Accounts receivable 379,224 298,096 Other current assets 110,993 96,726 Total current assets 1,223,060 985,417 Long-term marketable 533,728 471,595 securities Long-term receivables 177,901 162,272 Land and buildings 284,333 275,088 Data processing equipment 490,410 433,161 Furniture, leaseholds and 299,859 293,044 other 1,074,602 1,001,293 Less accumulated (668,152) (605,445) depreciation 406,450 395,848 Other assets 82,653 81,408 Intangibles 656,408 609,025 $3,080,200 $2,705,565 Liabilities and Shareholders' Equity Accounts payable $ 53,641 $ 56,151 Accrued expenses 373,326 346,960 & other current liabilities Income taxes 76,799 72,867 Current portion of long-term 2,792 2,196 debt Total current liabilities 506,558 478,174 Long-term debt 394,482 372,959 Other liabilities 67,939 69,504 Deferred income taxes 18,500 33,553 Deferred revenue 73,130 60,124 Shareholders' equity: Common stock 15,712 15,712 Capital in excess of par 358,769 325,029 value Retained earnings 2,106,332 1,883,423 Treasury stock (461,222) (532,913) 2,019,591 1,691,251 $3,080,200 $2,705,565 See notes to consolidated statements. Form 10Q Condensed Statements of Consolidated Cash Flows (In thousands) Nine Months Ended March 31, 1995 1994 Cash Flows From Operating Activities: Net earnings $ 288,890 $ 238,880 Expenses not requiring 129,140 126,728 outlay of cash Changes in operating net (97,429) (26,474) assets Net cash flows from operating 320,601 339,134 activities Cash Flows From Investing Activities: Marketable securities (65,410) (197,756) Capital expenditures (81,047) (73,287) Other changes to property, plant 1,338 7,762 and equipment Additions to intangibles (28,274) (20,240) Acquisitions of businesses (41,676) (40,716) Net cash flows from investing (215,069) (324,237) activities Cash Flows From Financing Activities: Repayments of long-term debt (1,837) (1,480) Proceeds from issuance of common 93,546 67,906 stock Repurchases of common stock (1,999) (84,572) Dividends paid (63,993) (55,016) Other 7,722 (1,010) Net cash flows from financing 33,439 (74,172) activities Net change in cash and cash 138,971 (59,275) equivalents Cash and cash equivalents, at 238,626 180,802 beginning of period Cash and cash equivalents, at $ 377,597 $ 121,527 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, 1994. Note A - Effective July 1, 1993, the Company adopted Financial Accounting Standards Board Statements No. 109, "Accounting for Income Taxes", and No. 112, "Employers' Accounting for Postemployment Benefits". The cumulative effect of adopting Statement No. 109 was to increase net earnings by $2.7 million ($.02 per share). The cumulative effect of adopting Statement No. 112, which requires that certain postemployment benefits be accrued as service is provided, was to decrease net earnings by $7.5 million ($.05 per share), after $5.0 million of income tax benefit. Note B - The results of operations for the nine months ended March 31, 1995 may not be indicative of the results to be expected for the year ending June 30, 1995. Note C - Earnings per share are based on the weighted average number of shares outstanding, which for the quarters ended March 31, 1995 and 1994 were 143,546,000 and 141,649,000, respectively. The weighted average number of shares for the nine months ended March 31, 1995 and 1994 were 142,019,000 and 140,940,000 respectively. Note D - Effective July 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", under which most of the Company's investments in marketable securities are classified as "available-for-sale securities". The impact of adopting this statement was not material. Form 10Q MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING RESULTS Revenue and earnings again reached record levels during the quarter ended March 31, 1995. Revenue and revenue growth by ADP's major service groups are shown below: Revenue 3 Months Ended 9 Months Ended March 31, March 31, 1994 1995 1994 1995 ($ in millions) Employer Services $ 419 $ 475 $1071 $1211 Brokerage Services 152 170 410 444 Dealer Services 85 112 246 317 Other 18 42 77 122 $ 674 $ 799 $1804 $2094 Revenue Growth 3 Months Ended 9 Months Ended March 31, March 31, 1994 1995 1994 1995 Employer Services 9% 13% 9% 13% Brokerage Services 18 12 24 8 Dealer Services 20 32 22 29 Other (33) 133 (29) 58 10% 18% 11% 16% Consolidated revenue for the quarter of $799 million was up 18% from last year. Revenue growth in each of the three largest businesses, which in the aggregate represent over 90% of total revenue, was at a double-digit rate. Employer Services' revenue growth of 13% was due to strong new client sales, improved client retention and previously announced acquisitions. Dealer Services'buoyant revenue growth of 32% reflects internal growth of over 15% and the effect of several small acquisitions. Brokerage Services'growth of 12% was higher than expected primarily as a result of very strong seasonal Proxy mailing volume, and several small non-recurring items. Consolidated revenue for the 9 months of $2094 million was up 16% from last year. The primary components of "Other revenue" shown above are services for auto claims, wholesalers and European payroll users. 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 7.8%. Pre-tax earnings for both the quarter and the nine months increased 20% from last year. Pre-tax margins improved slightly, primarily from continued productivity improvements and the impact of higher interest rates. This increase was after absorbing increased systems development and programming investments. Form 10Q Net earnings for the quarter and the nine month period increased 19%. The effective tax rate of 25.9% was higher than in the comparable period last year as earnings on municipal investments are expected to represent a smaller percent of total earnings in fiscal 1995 than in fiscal 1994. Earnings per share for the quarter increased 18% to $.87 from $.74 last year. Earnings per share for the nine month period increased 17% to $2.03 from $1.73 last year, before the effects of one-time accounting changes in fiscal 1994. In 1994, the Company adopted Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes", and No. 112, "Employers' Accounting for Postemployment Benefits", effective July 1, 1993. The cumulative effect of adopting these statements was to decrease net earnings in the quarter ended September 30, 1993 by $4.8 million ($.03 per share). 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, 1995, the Company had cash and marketable securities in excess of $1.2 billion. Shareholders' equity exceeded $2 billion and the ratio of long-term debt to equity was approximately 20%. Capital expenditures for fiscal 1995 are expected to approximate $125 million. Capital expenditures for fiscal 1994 were $111 million. During the nine months, ADP purchased approximately 38,000 shares of common stock for treasury at an average price of about $52. The Company has remaining Board authorization to purchase up to approximately 2.3 million additional shares to fund various equity related employee benefit plans. 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: May 11, 1995 /s/ Fred D. Anderson, Jr. Fred D. Anderson, Jr. Chief Financial Officer and Corporate Vice President (Principal Financial Officer) (Title)