AUTOMATIC DATA PROCESSING INC — Interim / Quarterly Report 1998

Feb 11, 1998

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, 1997 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) 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, 1998 there were 298,927,832 common shares outstanding. Form 10Q

See notes to consolidated statements. Form 10Q

See notes to consolidated statements. Form 10Q

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, 1997. Note A - The results of operations for the six months ended December 31, 1997 may not be indicative of the results to be expected for the year ending June 30, 1998. Note B - The Company implemented Statement of Financial Accounting Standards No. 128, "Earnings Per Share" as of December 31, 1997 which required the disclosure of basic and diluted earnings per share. A reconciliation of the income and weighted average shares used in both calculations follows: (In thousands, except EPS)

MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OPERATING RESULTS Revenue and earnings again reached record levels during the quarter ended December 31, 1997. Revenue and revenue growth by ADP's major business groups are shown below:

Consolidated revenue for the quarter grew 15% from last year to $1,148 million. Revenue growth in the Company's three largest businesses, Employer, Brokerage and Dealer Services, was strong at 21%, 16% and 7% respectively. Each includes some acquisitions. The primary components of "Other revenue" are claims services, services for wholesalers, interest income, foreign exchange differences and miscellaneous processing services. 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 6%. Pretax earnings for the quarter increased 19% from last year. Consolidated pre-tax margins increased slightly in the quarter, due primarily to the impact of higher trading volume in Brokerage Services. Systems development and programming investments increased to accelerate automation, migrate to new computing technologies, and develop new products. Net earnings for the quarter, after a higher effective tax rate, increased 16% to $147 million. The effective tax rate of 31.3% increased from 29.4% in the comparable quarter last year, primarily as a result of the greater weighting of taxable versus non-taxable earnings. Basic earnings per share grew 14% to $.50 from $.44 last year, on a greater number of shares outstanding. The Company expects over 15% growth in revenue and pretax earnings for the full year and basic EPS growth in the area of 13-14% above fiscal 1997's $1.80 per share (which is prior to non-recurring items in 1997). 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, 1997, the Company had cash and marketable securities of $1.6 billion. Shareholders' equity was $3.0 billion and the ratio of long-term debt to equity was 9%. Capital expenditures for fiscal 1998 are expected to approximate $225 million, compared to $175 million in fiscal 1997. During the first half of fiscal 1998, ADP purchased 896,000 shares of common stock for treasury at an average price of approximately $46. The Company has remaining Board authorization to purchase up to 8.5 million additional shares to fund equity related employee benefit plans. During the first half of fiscal 1998, 315,000 of the Company's zero coupon convertible subordinated notes were converted to over 4 million shares of common stock. The Company's investment portfolio consists primarily of high grade fixed income investments, such as AA or better rated fixed income municipal instruments, maturing in less than 7 years and such portfolio does not subject the Company to material market risk. PART II. OTHER INFORMATION Except as noted below, all other items are inapplicable or would result in negative responses and, therefore, have been omitted. PART II. OTHER INFORMATION, CONTINUED Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of the Stockholders was held on November 11, 1997. The following members were elected to the Company's Board of Directors to hold office for the ensuing year.

The result of the voting on the following additional item was as follows: (a) Ratify the appointment of Deloitte & Touche LLP to serve as the Company's independent certified public accountants for the fiscal year which began on July 1, 1997. The votes of the stockholders on this ratification were as follows:

Item 6. Exhibits and Reports on Form 8-K (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 11, 1998 /s/ Richard J. Haviland ---------------------------- Richard J. Haviland Chief Financial Officer (Principal Financial Officer) ---------------------------- (Title)