AUTOMATIC DATA PROCESSING INC — Interim / Quarterly Report 1995

Feb 10, 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 December 31, 1994 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, 1995 there were 143,071,379 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, 1994 1993 1994 1993 Revenue $672,597 $577,661 $1,294,883 $1,129,644 Operating expenses 268,107 233,127 520,804 463,257 General, administrative and selling expenses 183,923 158,748 372,852 324,292 Depreciation and amortization 39,751 36,700 77,509 72,310 Systems development and programming costs 46,464 37,467 90,819 74,024 Interest expense 6,252 5,049 12,199 10,331 544,497 471,091 1,074,183 944,214 EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 128,100 106,570 220,700 185,430 Provision for income taxes 33,180 26,390 57,080 46,740 NET EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 94,920 80,180 163,620 138,690 Cumulative effect of accounting changes -- -- -- (4,800) NET EARNINGS $ 94,920 $ 80,180 $ 163,620 $ 133,890 EARNINGS PER SHARE: Before Cumulative Effect of Accounting Changes $ .67 $ .57 $ 1.16 $ .99 Cumulative Effect of Accounting Changes -- -- -- (.03) NET INCOME $ .67 $ .57 $ 1.16 $ .96 Dividends per share $ .15 $ .13 $ .30 $ .26 See notes to consolidated statements. Form 10Q Consolidated Balance Sheets (In thousands) December 31, June 30, Assets 1994 1994 Cash and cash equivalents $ 288,160 $ 238,626 Short-term marketable 340,002 351,969 securities Accounts receivable 325,998 298,096 Other current assets 105,759 96,726 Total current assets 1,059,919 985,417 Long-term marketable 539,604 471,595 securities Long-term receivables 172,343 162,272 Land and buildings 283,013 275,088 Data processing equipment 462,679 433,161 Furniture, leaseholds and 289,966 293,044 other 1,035,658 1,001,293 Less accumulated (634,395) (605,445) depreciation 401,263 395,848 Other assets 84,174 81,408 Intangibles 630,558 609,025 $2,887,861 $2,705,565 Liabilities and Shareholders' Equity Accounts payable $ 50,911 $ 56,151 Accrued expenses 322,421 346,960 & other current liabilities Income taxes 81,544 72,867 Current portion of long-term 2,366 2,196 debt Total current liabilities 457,242 478,174 Long-term debt 382,091 372,959 Other liabilities 81,450 69,504 Deferred income taxes 15,817 33,553 Deferred revenue 66,285 60,124 Shareholders' equity: Common stock 15,712 15,712 Capital in excess of par 347,293 325,029 value Retained earnings 2,006,066 1,883,423 Treasury stock (484,095) (532,913) 1,884,976 1,691,251 $2,887,861 $2,705,565 See notes to consolidated statements. Form 10Q Condensed Statements of Consolidated Cash Flows (In thousands) Six Months Ended December 31, 1994 1993 Cash Flows From Operating Activities: Net earnings $ 163,620 $ 133,890 Expenses not requiring 78,930 85,509 outlay of cash Changes in operating net (66,244) (31,222) assets Net cash flows from operating 176,306 188,177 activities Cash Flows From Investing Activities: Marketable securities (56,042) (134,956) Capital expenditures (52,230) (45,353) Other changes to property, plant 2,797 4,180 and equipment Additions to intangibles (8,531) (14,285) Acquisitions of businesses (26,301) (12,306) Net cash flows from investing (140,307) (202,720) activities Cash Flows From Financing Activities: Repayments of long-term debt (364) (780) Proceeds from issuance of common 59,411 52,166 stock Repurchases of common stock (1,999) (45,915) Dividends paid (42,543) (36,559) Other (970) 8,311 Net cash flows from financing 13,535 (22,777) activities Net change in cash and cash 49,534 (37,320) equivalents Cash and cash equivalents, at 238,626 180,802 beginning of period Cash and cash equivalents, at $ 288,160 $ 143,482 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 $5.0 million of income tax benefit. Note B - The results of operations for the six months ended December 31, 1994 may not be indicative of the results to be expected for the year ending June 30, 1995. Note C - Earnings per share are based on the weighted average number of shares outstanding, which for the quarters ended December 31, 1994 and 1993 were 141,718,000 and 140,513,000, respectively. The weighted average number of shares for the six months ended December 31, 1994 and 1993 were 141,250,000 and 140,585,000 respectively. Note D - Effective July 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", under which most of the Company's investments in marketable securities are classified as "available-for-sale securities". The impact of adopting this statement was not material. Form 10Q MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING RESULTS Revenue and earnings again reached record levels during the quarter ended December 31, 1994. Revenue and revenue growth by ADP's major service groups are shown below: Revenue 3 Months Ended 6 Months Ended December 31, December 31, 1993 1994 1993 1994 ($ in millions) Employer Services $ 334 $ 382 $ 652 $ 737 Brokerage Services 131 139 258 274 Dealer Services 84 109 161 204 Other 29 43 59 80 $ 578 $ 673 $1130 $1295 Revenue Growth 3 Months Ended 6 Months Ended December 31, December 31, 1993 1994 1993 1994 Employer Services 9% 14% 9% 13% Brokerage Services 28 6 28 6 Dealer Services 24 30 24 27 Other (31) 48 (28) 36 11% 16% 11% 15% Consolidated revenue for the quarter of $673 million was up 16% from last year. Revenue growth in Employer, and Dealer Services, was 14% and 30% respectively. The primary leading indicators of these businesses, new client sales and client retention, continue to be very strong. Dealer Services' bouyant growth included internal growth of over 15% and the effect of several small acquisitions. Brokerage Services' growth of 6% was, as expected, about the same as the first quarter; overall trading volume was relatively flat with last year's record level. The primary components of "Other revenue" shown above are for automotive 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 the quarter increased 20% from last year, as pre-tax margins improved primarily from continued productivity improvements, aided by automation. 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, migrate to new computing technologies, and develop new products. Form 10Q Net earnings for the quarter increased 18% to $95 million. 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 $.67 from $.57 last year. Earnings per share for the six month period increased 17% to $1.16 from $.99 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 December 31, 1994, the Company had cash and marketable securities of almost $1.2 billion. Shareholders' equity exceeded $1.8 billion and the ratio of long-term debt to equity was 20%. Capital expenditures for fiscal 1995 are expected to approximate $130 million. Capital expenditures for fiscal 1994 were $111 million. During the first six 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. 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 10, 1995 /s/ Fred D. Anderson, Jr. Fred D. Anderson, Jr. Chief Financial Officer and Corporate Vice President (Principal Financial Officer) (Title)