AUTOMATIC DATA PROCESSING INC — Interim / Quarterly Report 1999

Feb 10, 1999

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, 1998 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, 1999 there were 609,042,989 common shares outstanding. Form 10Q Part I. Financial Information STATEMENTS OF CONSOLIDATED EARNINGS ----------------------------------- (In thousands, except per share amounts)

See notes to consolidated statements. Form 10Q CONSOLIDATED BALANCE SHEETS --------------------------- (IN THOUSANDS)

See notes to consolidated statements. Form 10Q CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS ----------------------------------------------- (IN THOUSANDS)

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, 1998. Note A - The results of operations for the six months ended December 31, 1998 may not be indicative of the results to be expected for the year ending June 30, 1999. Note B - The Board of Directors declared a two-for-one common stock split effective on January 1, 1999 to shareholders of record on the close of business on December 11, 1998. Note C - A reconciliation of the income and weighted average shares used in the basic and diluted earnings per share calculations follows: (In thousands, except EPS)

Form 10Q Note D - Effective July 1, 1998, the Company adopted FASB Statement No. 130 "Reporting Comprehensive Income." Comprehensive income for the three and six months ended December 31, 1998 and 1997 follows: (In thousands)

Note E - In November 1998 the Company sold its "front-office" market data business to Bridge Information Systems, Inc. The transaction gave rise to a pretax gain of $22 million and a $25 million provision for income taxes, resulting in a net loss of $3 million. Note F - In December 1998 the Company entered into an agreement to acquire The Vincam Group for approximately 7.4 million shares of ADP common stock in a pooling of interests transaction. Vincam, with net revenues of approximately $125 million, is a leading Professional Employer Organization providing a suite of human resource functions to small and medium sized employers on an outsourced basis. The transaction is subject to Vincam shareholder and various regulatory approvals and is expected to close during the quarter ending March 31, 1999. Note G - In February 1999 the Company reached a definitive agreement to sell its Peachtree Software business to The Sage Group plc, for $145 million. The agreement is subject to regulatory approvals and is expected to close during the quarter ending March 31, 1999. Form 10Q MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OPERATING RESULTS Revenues and earnings again reached record levels during the quarter ended December 31, 1998. Revenues and revenue growth by ADP's major business units are shown below:

Consolidated revenues for the quarter grew 11% from last year to $1,275 million. Revenue growth in Employer and Dealer Services was 15% and 8%, respectively. Brokerage Services revenue, down 5%, was impacted by the sale of the "front office" market data business in the quarter. Excluding the sale of the front office business, Brokerage Services revenue grew 14%. 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 the difference between actual interest income earned on invested tax filing funds and income credited to Employer Services at a standard rate of 6%. The sale of the front office business resulted in a $22 million pretax gain, a $25 million provision for taxes and a $3 million net loss. Pretax earnings for the quarter increased 29% from last year, helped by the gain on the "front office" sale. Prior to the one-time impact of the front office sale, pretax earnings increased 18%. Systems development and programming investments increased to accelerate automation, migrate to new computing technologies, and develop new products. Form 10Q Net earnings for the quarter, after a higher effective tax rate, increased 14% to $168 million. Excluding the impact of the front office sale, net earnings increased 16%. The effective tax rate of 39.0% increased from 31.3% in the comparable quarter last year. Excluding the impact of the front office sale, the effective tax rate increased to 32.6% this quarter, primarily as a result of the greater weighting of taxable versus non-taxable earnings. Diluted earnings per share grew 13% to $0.27 from $0.24 last year. Excluding the front office sale, diluted earnings per share increased 17%. The Company expects double digit revenue growth for the full year and diluted earnings per share growth of 13-16%. 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, 1998, the Company had cash and marketable securities of $1.7 billion. Shareholders' equity was $3.7 billion and the ratio of long-term debt to equity was 4%. Capital expenditures for fiscal 1999 are expected to approximate $200 million, compared to $199 million in fiscal 1998. During the first half of fiscal 1999, ADP purchased 2.6 million shares of common stock for treasury at an average price of approximately $33. The Company has remaining Board authorization to purchase up to 14.5 million additional shares to fund equity related employee benefit plans. During the first half of fiscal 1999,the Company's zero coupon convertible subordinated notes were converted to 1.6 million shares of common stock. 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, this has not had an adverse impact on income or cash flows. OTHER MATTERS The majority of the Company's services involve computer processing and, as such, the Year 2000 could have a significant impact on the Company's products and services. As a result, the Company has worked for several years addressing both internal and third-party Year 2000 compliance issues. The majority of the Company's mission-critical systems are Year 2000 compliant and the few remaining systems, primarily from recent acquisitions, are expected to be compliant by March 31, 1999. In addition, the Company has been actively working with external agencies and partners, including government agencies, to determine and conform to their Year 2000 compliance plans. Third party interface testing and resolution of Year 200 issues with external agencies and partners is dependent upon those third parties completing their own Year 2000 remediation efforts. Form 10Q The Year 2000 remediation is not expected to have a material adverse effect on the Company's overall results, as these costs are not expected to be substantially different from normal recurring costs that are incurred for systems development and implementation. 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 All share and vote results are prior to the stock split. The Company's Annual Meeting of the Stockholders was held on November 10, 1998. The following members were elected to the Company's Board of Directors to hold office for the ensuing year. Nominee In Favor Withheld ------- -------- -------- Gary C. Butler 248,065,729 1,597,079 Joseph A. Califano, Jr. 247,872,536 1,790,272 Leon G. Cooperman 248,083,612 1,579,196 George H. Heilmeier 248,060,799 1,602,009 Ann Dibble Jordan 247,999,348 1,663,460 Harvey M. Krueger 245,468,769 4,194,039 Frederic V. Malek 247,982,439 1,680,369 Henry Taub 247,927,042 1,735,766 Laurence A. Tisch 247,650,299 2,012,509 Arthur F. Weinbach 248,051,128 1,611,680 Josh S. Weston 247,824,586 1,838,222 The result of the voting on the following additional item was as follows: (a) Ratify an amendment to the Company's Employees' Savings-Stock Purchase Plan approved by the Board of Directors increasing by five million shares the number of shares of Common Stock of the Company that may be acquired by employees under such plan. Form 10Q PART II. OTHER INFORMATION, continued The votes of the stockholders on this ratification were as follows: In Favor Opposed Abstained -------- ------- --------- 237,283,659 10,979,070 1,400,079 (b) Ratify an amendment to the Restated Certificate of Incorporation of the Company to increase the number of authorized shares of Common Stock of the Company to one billion shares. The votes of the stockholders on this ratification were as follows: In Favor Opposed Abstained -------- ------- --------- 233,808,508 14,894,015 960,285 (c) 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, 1998. The votes of the stockholders on this ratification were as follows: In Favor Opposed Abstained -------- ------- --------- 248,202,359 254,705 1,205,744 Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Number Exhibit ------- ------- 3.1 Amended and Restated Certificate of Incorporation of Automatic Data Processing 27.1 Financial Data Schedule 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, 1999 /s/ Richard J. Haviland ------------------------------- Richard J. Haviland Chief Financial Officer (Principal Financial Officer) ------------------------------- (Title)