Back to GetFilings.com
- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 Identification No.)
incorporation or organization)
One ADP Boulevard, Roseland, New Jersey 07068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 973-994-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.10 Par Value New York Stock Exchange
(voting) Chicago Stock Exchange
Pacific Stock Exchange
Liquid Yield Option Notes due 2012 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of September 11, 1998 was approximately $21,830,440,000. On
September 11, 1998, there were 303,200,554 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 Annual Report to Shareholders
Parts I, II & IV
Portions of the Registrant's Proxy Statement for Annual Meeting of Stockholders
to be held on November 10, 1998.
Part III
- --------------------------------------------------------------------------------
2
Part I
Item 1. Business
Automatic Data Processing, Inc., incorporated in Delaware in 1961, and
its subsidiaries (collectively, "ADP") are engaged in the computing services
business. The following summary describes ADP's activities.
Industry Segment
All of ADP's computing services enable clients to process and/or
distribute data (their own, ADP's or that of third parties) and/or to
interactively access and utilize ADP and third party databases and information,
utilizing ADP's batch, interactive and client site systems.
Employer Services
ADP Employer Services offers a comprehensive range of payroll, human
resources, benefits administration, time and attendance and tax filing and
reporting services to more than 400,000 employers in the United States, Canada,
Europe and South America. In addition to its direct marketing, Employer Services
has marketing relationships with many banks and accountants whereby ADP offers
its services to their business clients.
Payroll and tax filing and reporting services comprise over 80% of
Employer Services' revenue. Payroll services include the preparation of pay
checks and direct deposits (with major bank partners), along with supporting
journals, summaries and management reports. ADP also supplies the quarterly and
annual social security, medicare, and federal, state and local income tax
withholding reports required to be filed by employers and employees. ADP's tax
filing services process federal, state and local payroll taxes on behalf of ADP
clients and remit such taxes to the appropriate taxing authorities when due. As
new products evolve (such as new hire reporting, ADP check/full service direct
deposit and wage garnishment payment), the ADP Tax Filing Center is also
responsible for the efficient movement of funds and information to third
parties.
ADP's "Payroll AnyWay" strategy presents to businesses of virtually
every size and type an extensive menu of outsourced and on-site payroll
solutions, from simple software packages to turnkey payroll services. ADP's
Employer Services approach to the market is to match a client's needs with the
product that will best meet expectations. Approximately 29% of Employer
Services' payroll and payroll tax filing services revenue during the past fiscal
year was attributable to Emerging Business Services (companies with less than
100 employees); approximately 31% of such revenue was attributable to Major
Accounts (companies with between 100 and 999 employees) and approximately 26% of
such revenue was attributable to National Accounts (companies with 1,000 or more
employees).
ADP's Human Resources (HR) services, operating in conjunction with a
client's payroll database, provide comprehensive recordkeeping HR services,
including benefits administration and outsourcing, applicant tracking, employee
history and position control. The various HR systems run on standalone PC's,
local or wide area networks or client/server systems.
Emerging Business Services processes payroll for approximately 325,000
clients. Major
3
Accounts offers a robust line of best-of-breed payroll and human resource
solutions for medium-size companies with full database and functional
integration between payroll and HR. Many of the world's largest corporations are
ADP National Accounts clients. In many cases, ADP provides system solutions for
clients' entire human resource, payroll and benefits needs. For those companies
who choose to process these applications in-house, ADP delivers stand-alone
services such as tax filing, check printing and distribution, year-end
statements (W-2's), and benefits administration.
The ADP Tax Filing Center supports all three market segments. It
provides an electronic interface between approximately 315,000 ADP clients in
the United States and Canada and over 2,000 tax agencies, from the Internal
Revenue Service to town governments.
ADP complements its payroll and HR services with additional employer
services that include products ranging from time and attendance tracking to
401(k) recordkeeping. ADP's unemployment compensation services aid clients in
managing and reducing unemployment insurance costs. Peachtree and One Write
software business applications are sold to small clients through retail
channels. ADP enhanced its position as a leading benefits administration
provider with the acquisition of the benefits administration business of William
M. Mercer, Incorporated ("Mercer"), and the formation with Mercer of the
Administrative Solutions Group, an alliance providing benefits administration
and consulting services.
TotalSource-SM-, ADP's professional employer organization, supports
26,000 work-site employees in Florida, Georgia and Illinois and is positioned to
substantially increase its presence in the fast-expanding employee leasing
industry.
The continued increase in multinational companies makes payroll and
human resource management services a global opportunity. Employer Services
already has 23,000 payroll and HR clients in Belgium, France, Germany, Italy,
the Netherlands, Spain, Switzerland, the United Kingdom and Brazil. In late
1997, ADP acquired the payroll services business of Royal Bank of Canada. The
addition of Royal Bank's payroll clients makes ADP the largest payroll
outsourcer in Canada. ADP's acquisition of a Brazilian computing services
company permits it to offer employer services solutions to many businesses in
Brazil, the world's ninth-largest economy.
Brokerage Services
ADP's Brokerage Services provides securities processing, desktop
productivity applications, and investor communications services to the financial
services industry. ADP is the largest provider of securities processing services
in North America. In fiscal 1998, ADP processed more than 15% of the retail
equity transactions in the United States and Canada, handling an average of over
620,000 trades per day, and on October 28, 1997, ADP's systems handled more than
one million trades.
In September 1998, ADP signed an agreement with Bridge Information
Systems, Inc., a global market information and news company, to create a
long-term, strategic alliance to provide market data, desktop applications and
transaction processing services to the financial services industry. As part of
this alliance, Bridge will purchase the market data assets and products of ADP,
which generated approximately $190 million of revenue in fiscal 1998. ADP will
acquire a minority interest in Bridge.
In addition, ADP signed an agreement with Comprehensive Software
Systems (CSS) to
4
exclusively market their BrokerView(TM) desktop product, a browser-based support
tool for retail, discount, or independent brokers and trading desk personnel.
ADP acquired a minority interest in CSS.
ADP Investor Communications Services (ICS), the largest processor and
provider of shareholder communications services, handles shareholder mailings
and proxy processing for shareholders whose securities are left in "street name"
in the custody of ADP's "nominee" clients (principally brokerage firms and
banks). In fiscal 1998, ADP processed over 360 million shareholder mailings for
over 12,000 publicly-traded companies on behalf of more than 800 brokerage firms
and banks and 450 mutual fund families. Shareholder ballots representing
approximately 250 billion shares were processed.
ADP provides back-office stock brokerage and related financial
computing services such as trade processing, cage management, stock loan
accounting, on-line inquiry and data collection, portfolio reporting, order
matching and on-line trading. All of these services are offered in the United
States and Canada. ADP's Wilco Systems' Gloss series international trading and
settlement systems offer global multi-instrument, multi-currency trading,
settlement and accounting services.
As part of its shareholder communication services, StreetLink is a
quickly deliverable laser printed alternative to expensive quarterly mailings to
shareholders. Proxy Edge is an electronic voting service which dramatically
improves voting efficiency and record keeping. PhoneVOTE Services enable mutual
fund shareholders to vote their proxy over the telephone for same-day
tabulation.
Dealer Services
ADP's Dealer Services provides computing, data and professional
services to automobile and truck dealerships, as well as manufacturers,
world-wide. Over 18,000 dealers use ADP's on-site systems and communications
networks to manage every area of sales and operations in the U.S., Canada,
Europe, Latin America and Taiwan. ADP addresses critical dealership areas and
offers software and professional services to improve consumer loyalty, asset
management, innovative technology, employee productivity training, manufacturer
relations, business improvements and real-time information access.
ADP offers clients a service solution that includes computer hardware,
licensed software, software support, network consulting, design and hardware
maintenance services. Clients use ADP's systems to manage business activities
such as accounting, inventory, factory communications, scheduling, finance,
insurance, sales and service. ADP designs, establishes and maintains
communications networks for its clients that allow interactive communications
among multiple site locations for larger dealers as well as links between
franchise dealers and their respective manufacturers. These networks are used
for new vehicle ordering, status inquiry and warranty submission and validation,
parts and vehicle locating, credit application submissions, vehicle repair
estimates, vehicle registration and lienholder information.
ADP continues to automate the business processes for its clients
through value-added products such as electronic parts catalogues, repair shop
pricing and scheduling, laser printing, data archiving and document storage, and
lease fleet management.
Changes in customers' expectations and manufacturers' requirements
are modifying how the
5
traditional dealership conducts business. In response to these changes, ADP is
providing consulting services to its dealer clients to help them reengineer
their management processes. ADP also offers solutions to help employee
productivity and training, and provides the tools and services necessary to
improve dealership productivity and profitability.
Claims Services
ADP Claims Services offers a broad line of information products to
property and casualty insurance companies, claims adjusters, repair shops and
auto parts recycling facilities. These products help insurers to accurately
estimate auto damage, bodily injury and property claims and help repairshops
and recyclers locate parts and manage their operations.
Claims Services offers a broad range of cost containment products and
services to the automobile physical damage and property claims markets in North
America and Europe. These products and services are designed to assist clients
in determining settlement amounts, to improve work flow efficiency, and to
locate and utilize cost effective parts options. The products and services
include automated collision damage repair estimating products for cars and
trucks, integrated electronic digital imaging and communications services,
vehicle valuation services for total losses, collision repair management systems
products, aftermarket and recycled parts locating and pricing services and
related management information products.
In 1998, ADP acquired Audatex Holding A.G., the leading provider of
automobile insurance claims estimating services outside of North America. With
Audatex, Claims Services is able to support clients on a worldwide basis.
ADP Hollander provides inventory management and communications products
and services to the automotive recycling industry. The products are designed to
assist clients in creating and capturing operational efficiencies and expanding
their market and sales through electronic parts locating with other auto
recyclers and their business partners. In connection with a settlement reached
with the Federal Trade Commission, in fiscal 1998 ADP completed the divestiture
of certain assets used to facilitate electronic commerce among automotive parts
recyclers. The remaining business, formerly called the Parts Services unit, was
renamed ADP Hollander.
Integrated Medical Solutions provides services designed to assist
clients in containing medical expenses and personal injury settlements arising
from auto liability and workers compensation claims. ADP delivers integrated
proprietary and state legislated fee schedules and treatment protocols, personal
injury algorithms, access to preferred provider networks, and medical and bill
review outsourcing services. These products and services are designed to assist
clients in identifying and paying for only medically appropriate treatments.
Nature of Services Provided
In each of Employer Services, Dealer Services, Claims Services and most
of Brokerage Services, ADP's services primarily involve the processing and
utilization of client and/or third party data. In the front-office component of
the Brokerage Services business, the primary service takes the form of providing
securities, commodities and currencies quotation data (which data is provided by
various exchanges) and news to clients; this front-office component represents
less than 10% of
6
consolidated revenue.
Services to all industries are generally available by the electronic
transmission (through communications lines) of computer-generated data and
information from and to clients. Services are offered through a variety of
systems and networks which run on industry-standard operating systems. Virtually
none of ADP's services require ADP-proprietary hardware and/or operating
systems.
All of ADP's services utilize somewhat similar facilities, computers,
communications networks, salesforces, and client service support personnel.
ADP's businesses share numerous facilities, selected computer rooms and
communications networks, and ADP occasionally transfers some of its employees
among business units. The input and output of all of ADP's businesses is data
and information. On occasion ADP has transferred services and products between
business units.
While the labor intensiveness of a service may vary somewhat based on
the degree of automation and complexity in providing the service, all services
use the same basic functions as described above. None of ADP's service offerings
are particularly capital intensive.
Markets and Marketing Methods
ADP's services are sold broadly across the United States and Canada.
Most ADP services are offered in Western Europe and some employer services are
now offered in Brazil. Services offered outside the United States amounted to
approximately 16% of fiscal 1998 revenue. All services use common marketing
techniques, including direct sales methodologies with emphasis on referral
sources.
None of ADP's major business groups have a single homogenous client
base or market. For example, while Brokerage Services primarily serves the
retail brokerage market, it also serves banks, commodity dealers, the
institutional brokerage market and individual non-brokerage corporations. Dealer
Services primarily serves automobile dealers, but also serves truck and
agricultural equipment dealers, auto repair shops, used car lots, state
departments of motor vehicles, and manufacturers of automobiles, trucks and
agricultural equipment. Claims Services has many clients who are insurance
companies, but also provides services to automobile manufacturers, body repair
shops, salvage yards, distributors of new and used automobile parts and other
non-insurance clients. Employer Services has clients from a large variety of
industries and markets. Within this client base are concentrations of clients in
specific industries. While concentrations of clients exist, no one business
group is material to ADP's overall revenue. Employer Services also sells to auto
dealers, brokerage clients, and insurance clients.
None of ADP's businesses are overly sensitive to price changes.
Economic conditions among selected clients and groups of clients may and do have
a temporary impact on demand for ADP's services.
ADP enjoys a leadership position in each of its major service offerings
and does not believe any major service or business unit in ADP is subject to
unique market risk.
Competition
The computing services industry is highly competitive. ADP knows of no
reliable statistics by
7
which it can determine the number of its competitors, but it believes that it is
one of the largest independent computing services companies in the world.
ADP's competitors include other independent computing services
companies, divisions of diversified enterprises and banks. Another competitive
factor in the computing services industry is the in-house computing function,
whereby a company installs and operates its own computing systems.
Competition in the computing services industry is primarily based on
service responsiveness, product quality and price. ADP believes that it is very
competitive in each of these areas and that there are no material negative
factors impacting ADP's competitive position in the computing services industry.
No one competitor or group of competitors is dominant in the computing services
industry.
Clients and Client Contracts
ADP provides computing services to over 425,000 clients. Annual
revenues attributable to large client accounts range from $1 million to
approximately $45 million per client, while thousands of small client accounts
produce annual revenues of less than $1,000 each. ADP's largest single client
accounts for approximately 1% of its annual revenue.
ADP has no material "backlog" because the period between the time a
client agrees to use ADP's services and the time the service begins is generally
very short and because no sale is considered firm until it is installed and
begins producing revenue.
ADP's average client retention is eight years in Employer Services and
is ten or more years in Brokerage, Dealer and Claims Services, and does not vary
significantly from period to period.
Discounts, rebates and promotions offered by ADP to clients are not
material.
ADP's services are provided under written Price Quotations or Services
Agreements having varying terms and conditions. No one Price Quotation or
Service Agreement is material to ADP.
Systems Development and Programming
During the fiscal years ended June 30, 1998, 1997 and 1996, ADP spent
$375,214,000, $296,544,000, and $249,635,000, respectively, on systems
development and programming activities for the development of new, and the
improvement and maintenance of existing, computing services.
Product Development
ADP continually upgrades, enhances and expands its existing products
and services. Generally, no new product or service has a significant effect on
ADP's revenue or negatively impacts its existing products and services, and each
existing product and service has a significant remaining life cycle.
Licenses
ADP is the licensee under a number of agreements for computer programs
and databases. ADP's business is not dependent upon a single license or group of
licenses. Licenses, patents,
8
trademarks and franchises are not material to ADP's business as a whole.
Compensation of Marketing and Sales Personnel
The compensation arrangements of ADP's marketing and sales personnel
vary significantly based on the tenure of the particular salesperson, with the
commission-based portion of total compensation averaging approximately 40%. ADP
sets minimum sales quotas on an individual basis.
Computer Systems
ADP does not manufacture computer systems or act as a distributor of
computer systems. ADP may, however, be deemed to be a value-added reseller of
computer systems insofar as its services often include computer equipment as
part of the total service solution.
ADP's services are offered on a variety of computer platforms which run
various operating systems. These computer platforms include those offered by
IBM, IBM-compatibles, Digital Equipment Corporation, Apple, Motorola, Hewlett
Packard and McDonnell Douglas. The industry-standard operating systems
supporting such computer platforms include DOS, Windows, OS2, VSE, MVS, VMS,
System 7 OS, Unix, Reality and Pick.
ADP's service warranty to its clients is that if any errors or
omissions occur in its service offerings, ADP will correct them as soon as
possible. In addition, ADP provides, either directly or through third parties,
maintenance and support for the ADP-provided equipment and software which
facilitates the delivery of its services to clients.
Number of Employees
ADP employed approximately 34,000 persons as of June 30, 1998.
Executive Officers of the Registrant
See Item 10 in Part III hereof.
Item 2. Properties
ADP leases space for more than 55 of its processing centers. In
addition, ADP leases numerous small processing centers and sales offices. All of
these leases, which aggregate approximately 5,900,000 square feet in the United
States, Canada, Europe, South America, Asia, Australia and South Africa, expire
at various times up to the year 2016. ADP owns 25 of its processing facilities
and its corporate headquarters complex in Roseland, New Jersey, which aggregate
approximately 2,750,000 square feet.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
9
None
10
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
See "Market Price, Dividend Data and Other" on page 18 of the
Registrant's 1998 Annual Report to Shareholders, which information is
incorporated herein by reference. As of June 30, 1998, the Registrant had
approximately 30,000 registered holders of its Common Stock, par value $.10 per
share. The Registrant's Common Stock is traded on the New York, Chicago and
Pacific Stock Exchanges.
On February 20, 1998, the Registrant issued an aggregate amount of
158,595 shares of its Common Stock to the two shareholders (one such shareholder
being a limited liability company) of a company acquired by the Registrant in
exchange for all of the issued and outstanding shares of capital stock of such
company pursuant to the terms of a stock purchase agreement. On April 28, 1998,
the Registrant issued an aggregate amount of 45,978 shares of its Common Stock
to six shareholders of another company acquired by the Registrant in exchange
for all of the issued and outstanding shares of capital stock of such other
company pursuant to the terms of a stock purchase agreement. No underwriters
were involved in the foregoing sales of securities. The Company issued the
foregoing shares of Common Stock without registration under the Securities Act
of 1933, as amended, in reliance upon the exemption therefrom set forth in
Section 4(2) of such Act, relating to sales by an issuer not involving a public
offering.
Item 6. Selected Financial Data
See "Selected Financial Data" on page 16 of the Registrant's 1998
Annual Report to Shareholders, which information is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
See "Management's Discussion and Analysis" on pages 17-18 of the
Registrant's 1998 Annual Report to Shareholders, the Letters to Shareholders on
pages 2-4 of such report and the business descriptions on pages 5-15 of such
report, which information is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Registrant'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 Registrant to material market risk exposures.
Item 8. Financial Statements and Supplementary Data
The financial statements described in Item 14(a) hereof are
incorporated herein.
The following supplementary data is incorporated herein by reference:
Page in 1998 Annual
Report to Shareholders
----------------------
11
Quarterly Financial Results (unaudited) for
the three years ended June 30, 1998 27
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Registrant
Executive Officers of the Registrant
The executive officers of the Registrant, their ages, positions and the
period during which they have been employed by ADP are as follows:
Employed by
Name Age Position ADP Since
---- --- -------- -----------
James B. Benson 53 Vice President, General 1977
Counsel and Secretary
Richard C. Berke 53 Vice President, Human 1989
Resources
Gary C. Butler 51 President and Chief 1975
Operating Officer
Richard J. Daly 45 Group President, 1989
Brokerage Services
G. Harry Durity 51 Vice President, 1994
Worldwide Business
Development
Russell P. Fradin 43 Group President, 1996
Employer Services
Eugene A Hall 42 Senior Vice President 1998
Richard J. Haviland 52 Vice President, Chief 1982
Financial Officer
John Hogan 50 Group President, 1993
Brokerage Services
S. Michael Martone 50 Group President, Dealer 1987
Services
Arthur F. Weinbach 55 Chairman and 1980
Chief Executive Officer
12
Messrs. Benson, Berke, Butler, Daly, Haviland, Martone and Weinbach
have each been employed by ADP in senior executive positions for more than the
past five years.
G. Harry Durity joined ADP in August 1994 as Vice President,
Worldwide Business Development. Prior to joining ADP he was Senior Vice
President--Corporate Development of Revlon Consumer Products Company. Between
1990 and February 1993 when he joined Revlon, he was President of The
Highlands Group, Inc.
Russell P. Fradin joined ADP in 1996. Prior to his promotion to Group
President, Employer Services, he served as Senior Vice President. Prior to
joining ADP, he was a senior partner of McKinsey & Company and had been
associated with that firm for 18 years.
Eugene A. Hall joined ADP in 1998 as Senior Vice President. Prior to
joining ADP, he was a senior partner of McKinsey & Company and had been
associated with that firm for 16 years.
John Hogan joined ADP in 1993. Prior to his promotion to Group
President of the Brokerage Services Group in July 1997, he held various senior
Brokerage Services' positions. Prior to joining ADP in July 1993, he had been
Senior Vice President, Processing Division for Fidelity Investments/National
Financial Services, Inc. for three years.
Each of ADP's executive officers is elected for a term of one year and
until their successors are chosen and qualified or until their death,
resignation or removal.
Directors of the Registrant
See "ELECTION OF DIRECTORS" in the Proxy Statement for Registrant's
1998 Annual Meeting of Stockholders, which information is incorporated herein by
reference.
Section 16(B) Beneficial Ownership Reporting Compliance
See "SECTION 16(B) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Proxy
Statement for Registrant's 1998 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
Item 11. Executive Compensation
See "COMPENSATION OF EXECUTIVE OFFICERS" in the Proxy Statement for
Registrant's 1998 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See "ELECTION OF DIRECTORS--Security Ownership of Certain Beneficial
Owners and Managers" in the Proxy Statement for Registrant's 1998 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
13
Item 13. Certain Relationships and Related Transactions
See "COMPENSATION OF EXECUTIVE OFFICERS--Certain Transactions" in the
Proxy Statement for Registrant's 1998 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
14
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements
The following consolidated financial statements of Automatic Data
Processing, Inc. and its subsidiaries are included in Part II, Item 8:
Page in 1998 Annual
Report to Shareholders
----------------------------
Independent Auditors' Report 28
Consolidated Balance Sheets - June 30, 1998 and 1997 20
Statements of Consolidated Earnings - years
ended June 30, 1998, 1997 and 1996 19
Statements of Consolidated Shareholders' Equity - years
ended June 30, 1998, 1997 and 1996 21
Statements of Consolidated Cash Flows - years
ended June 30, 1998, 1997 and 1996 22
Notes to Consolidated Statements 23 - 27
Financial information of the Registrant is omitted because the
Registrant is primarily an operating company. The Registrant's subsidiaries
which are listed on Exhibit 21 attached hereto are wholly-owned.
2. Financial Statement Schedules
Page in Form 10-K
-----------------
Independent Auditors' Report on Schedule 18
Schedule II - Valuation and Qualifying Accounts 19
All other Schedules have been omitted because they are inapplicable or
are not required or the information is included elsewhere in the financial
statements or notes thereto.
3. The following exhibits are filed with this Form 10-K or incorporated
herein by reference to the document set forth next to the exhibit in the list
below:
3.1 - Amended and Restated Certificate of Incorporation dated December 15, 1994 -
incorporated by reference to Exhibit (3)-#1 to Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995
15
3.2 - By-Laws as currently in effect - incorporated by reference to Exhibit (3)-#2 to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997
4 - Indenture dated as of February 20, 1992 between Automatic Data Processing, Inc.
and Bankers Trust Company, as trustee, regarding the Liquid Yield Option Notes
due 2012 of the Registrant - incorporated by reference to Exhibit (4)-#1 to
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992
10.1 - Letter Agreement dated as of August 1, 1996 between Automatic Data Processing,
Inc. and Arthur F. Weinbach - incorporated by reference to Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1996
(Management Contract)
10.2 - Letter Agreement, dated September 14, 1998 between Automatic Data Processing,
Inc. and Gary C. Butler (Management Contract)
10.3 - 1981 Key Employees' Stock Option Plan - incorporated by reference to
Registrant's Registration Statement No. 2-75287 on Form S-8 (Management
Compensatory Plan)
10.3(a) - Amendment to 1981 Key Employees' Stock Option Plan - incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30,
1989 (Management Compensatory Plan)
10.4 - Key Employees' Restricted Stock Plan - incorporated by reference to Registrant's
Registration Statement No. 33-25290 on Form S-8 (Management Compensatory Plan)
10.5 - Supplemental Officers' Retirement Plan, as amended and restated - incorporated
by reference to Exhibit 10(iii)(A)-#5 to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993 (Management Compensatory Plan)
10.5(a) - Amendment to Supplemental Officers' Retirement Plan (Management Compensatory
Plan) - incorporated by reference to Exhibit 10(iii)(A)-#5 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997
10.6 - 1989 Non-Employee Director Stock Option Plan - incorporated by reference to
Exhibit 10(iii)(A)-#7 to Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1990 (Management Compensatory Plan)
10.6(a) - Amendment to 1989 Non-Employee Director Stock Option Plan [ - incorporated by
reference to Exhibit 10(6)(a) to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 (Management Compensatory Plan)
16
10.7 - 1990 Key Employees' Stock Option Plan - incorporated by reference to Exhibit
10(iii)(A)-#8 to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1990 (Management Compensatory Plan)
10.7(a) - Amendment to 1990 Key Employees' Stock Option Plan (Management Compensatory
Plan) - incorporated by reference to Exhibit 10(7)(a) to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997
10.8 - 1994 Directors' Pension Arrangement - incorporated by reference to Exhibit
10(iii)(A)-#10 to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994 (Management Compensatory Plan)
10.9 - 1994 Executive Compensation Plan - incorporated by reference to Exhibit A to
Registrant's Proxy Statement for its Annual Meeting of Stockholders held
November 15, 1994 (Management Compensatory Plan)
11 - Schedule of Calculation of Earnings Per Share
13 - Pages 2-28 of the 1998 Annual Report to Shareholders (with the exception of the
pages incorporated by reference herein, the Annual Report is not a part of this
filing)
21 - Subsidiaries of the Registrant
23 - Independent Auditors' Consent
27 - Financial Data Schedule
(b) None.
17
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors
and Shareholders of
Automatic Data Processing, Inc.
Roseland, New Jersey
We have audited the consolidated financial statements of Automatic Data
Processing, Inc. as of June 30, 1998 and 1997, and for each of the three years
in the period ended June 30, 1998, and have issued our report thereon dated
August 13, 1998; such consolidated financial statements and report are included
in your 1998 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial statement schedule of
Automatic Data Processing, Inc., listed in Item 14. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
New York, New York
August 13, 1998
18
AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- ---------
Additions
-------------------------------
(1) (2)
Charged
Balance at Charged to to other Balance at
beginning costs and accounts- Deductions - end of
of period expenses describe describe period
---------- ---------- --------- ------------ ----------
Year ended June 30, 1998:
Allowance for doubtful accounts:
Current $39,542 $15,402 $ 907(B) $(13,292)(A) $42,559
Long-term $20,370 $ 1,345 $ -- $ (7,284)(A) $14,431
Year ended June 30, 1997:
Allowance for doubtful accounts:
Current $34,627 $13,230 $4,067(B) $ 12,382 (A) $39,542
Long-term $25,727 $ 1,817 $ -- $ 7,174 (A) $20,370
Year ended June 30, 1996:
Allowance for doubtful accounts:
Current $23,035 $ 9,115 $4,835(B) $ 2,358 (A) $34,627
Long-term $26,166 $ 2,986 $ -- $ 3,425 (A) $25,727
(A) Doubtful accounts written off, less recoveries on accounts previously
written off.
(B) Acquired in purchase/pooling transactions.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
September 22, 1998 By: /s/ Arthur F. Weinbach
----------------------
Arthur F. Weinbach
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Arthur F. Weinbach Chairman, Chief Executive September 22, 1998
-------------------------------- Officer and Director
(Arthur F. Weinbach) (Principal Executive Officer)
/s/ Richard J. Haviland Chief Financial Officer September 22, 1998
--------------------------------- (Principal Financial Officer)
(Richard J. Haviland)
/s/ Gary C. Butler Director September 22, 1998
----------------------------------
(Gary C. Butler)
/S/ Joseph A. Califano, Jr. Director September 22, 1998
---------------------------------
(Joseph A. Califano, Jr.)
/s/ Leon G. Cooperman Director September 22, 1998
-------------------------------
(Leon G. Cooperman)
/s/ George H. Heilmeier Director September 22, 1998
---------------------------------
(George H. Heilmeier)
/s/ Ann Dibble Jordan Director September 22, 1998
----------------------------------
(Ann Dibble Jordan)
20
Director September 22, 1998
----------------------------------
(Harvey M. Krueger)
21
/s/ Fred V. Malek Director September 22, 1998
----------------------------------
(Frederic V. Malek)
Director September 22, 1998
----------------------------------
(Henry Taub)
/s/ Laurence A. Tisch Director September 22, 1998
-----------------------------------
(Laurence A. Tisch)
/s/ Josh S. Weston Director September 22, 1998
----------------------------------
(Josh S. Weston)
22
APPENDIX
(As required pursuant to Rule 304(a) of Regulation S-T)
The following is a narrative description of the graphic or image
material that appears in Exhibit 13 to the registrant's Annual Report of Form
10-K (the Form "10-K"). Exhibit 13 contains particular pages from the
Registrant's 1998 Annual Report to Shareholders (the "1998 Annual Report") that
are incorporated by reference into the Form 10-K.
Page in 1998
Annual Report Description
- ------------- -----------
2 The photograph on page 2 of the 1998 Annual
Report is of Arthur F. Weinbach, Chairman and
Chief Executive Officer.
4 The photograph on page 4 of the 1998 Annual
Report is of Josh S. Weston, Honorary Chairman.
5 The photograph on page 5 of the 1998 Annual
Report is described in the following caption on
page 5: "Softchoice Corporation of Norwalk, CT.
is one of more than 400,000 companies in the U.S.
that uses the payroll services of ADP. Kelly
Mcilwaine (left) is the human resources
supervisor at Softchoice. Melanie Testa (right)
is the ADP account executive who set up the
Softchoice payroll earlier this year on the ADP
system."
6 The photograph to the left on page 6 of the 1998
Annual Report is described in the following
caption on page 6: "When First Security
Corporation of Salt Lake City, UT, a regional
bank holding company with 9,500 employees and
nearly 1,500 retirees in 28 states, decided to
outsource their payroll, human resource and
benefits administration functions, ADP's
Administrative Solutions Group (ASG) was its
vendor of choice. ASG has a unique pool of talent
and resources to help a company realize such a
far-reaching goal. Trudy Hoffman (left), ASG's
Program Manager, and Althea DeBrule (right),
Executive Vice President and Director of Human
Resources at First Security, are leading the
effort to implement First Security's outsourcing
plan. The photograph to the right on page 6 of
the 1998 Annual Report is described by the
following caption on page 6: "An increasing
number of ADP payroll service clients are using
our processing system to handle the
administrative details of their 401(k) retirement
and savings plans. ADP senior 401(k)
implementation specialist, Jolene White (left),
is working with Tara S. Moroney (right),
Accounting Manager of Sudbury Systems, Inc.,
Sudbury, MA, to ensure that the proper forms and
agenda for the client's upcoming 401(k)
enrollment meeting are ready."
23
7 The photograph on page 7 of the 1998 Annual
Report is described by the following caption on
page 7: "Denton Hall is a large, London-based
legal firm with corporate, commercial and
international clients. This year, Denton Hall
began processing its payroll with ADP. It
selected ADP over four other competitors,
primarily because of the superior functionality
of our product and the responsiveness of the ADP
staff. Several of the people who helped create
this new client relationship are (left to right):
David G. Gilbert, Payroll Manager, Denton Hall;
John C. Green, District Manager, National
Accounts, ADP; Steven D. Rowan, Financial
Controller, Denton Hall; and Mark Jones, Area
Sales Manager-London, ADP."
8 The photograph appearing fully on page 8 of the
1998 Annual Report is described by the following
caption on page 8: "Earlier this year, Alex,
Brown & Sons, Inc. and Bankers Trust merged to
create BT Alex, Brown, Inc. ADP helped them
convert their books and records to a new
consolidated operating system. (Left to right )
BT Alex, Brown Inc. Principal, John K. Forrester;
ADP Account Manager/Director, Susan S. Kauffman;
and BT Alex, Brown Inc. Managing Director, Mario
P. Deangelo, share some ideas about future
processing needs."
8-9 The photograph appearing on page 8 and 9 of the
1998 Annual Report is described by the following
caption on page 9: "Intel Corporation of Santa
Clara, CA, was one of the first companies to use
our new investor Communications Services (ICS)
internet service to electronically vote proxies.
Cary I. Klafter (left), Intel's Director of
Corporate Affairs and Senior Counsel, Discusses
the benefits of electronic delivery of
shareholder communications with Richard J.
Specht, ADP's Director of ICS Sales."
9 The photograph appearing fully on page 9 of the
1998 Annual Report is described by the following
caption on page 9: "ADP's Year 2000 master
securities database was chosen by the Securities
Industry Association to be test bed for
industry-wide year 2000 testing. ABN AMRO,
Incorporated was among the first firms to
undertake Y2K testing with ADP. ADP and ABN AMRO
worked closely to ensure test results were timely
and accurate. Ben A. Witt (far left), Sr. Vice
President, ABN AMRO, and Lois M. Chianese (center
left), ADP Director or Service Delivery, discuss
the general merits of the project, as James D.
Nolan (center right), Sr. Vice President, ABN
AMRO, and Janice Rittbert-Snuffer (far right),
ADP Director of Product Management, review the
testing timetable."
10 The photograph on page 10 of the 1998 Annual
Report is described by the following caption on
page 10: "Fernando Lovo (left), ADP Key Account
Executive, is with Richard Stoff (right), Vice
President of Gunther Motor Company, Fort
Lauderdale, FL. Gunther Motor is a
multi-franchise auto retailer that uses its ADP
systems to manage virtually all aspects of its
business. It also is the largest Volkswagen
dealer and the second largest
24
Mazda dealer in the U.S."
11 The photograph to the left on page 11 of the 1998
Annual Report is described by the following
caption on page 11: "ADP Dealer Services provides
system support for auto dealers of every size and
complexity. Valarie Rodriguez (right), ADP Sr.
Client Technical Analyst, reviews how to
standardize applications set up and training with
Brad Willingham (left), Information Technology
Director, M.F. Salta Company, an ADP mega-dealer
client with 14 stores in California, Oregon and
Hawaii. The photograph to the right on page 11 of
the 1998 Annual Report is described by the
following caption on page 11: "ADP has served the
growth oriented Corsmann Group since that
multi-store auto franchise was founded in 1989.
Corsmann utilizes a full range of ADP's dealer
services to manage its 14 dealerships, which are
located throughout Germany. Markus Jastroch
(left), ADP marketing Specialist, confers with
Bolko Prussok (right), General Manager of the
Corsmann Group, about the Client's growth plans."
The photograph to the right on page 11 of the
1998 Annual Report is described by the following
caption on page 11: "Nationwide Insurance
Enterprise, Inc., Columbus, OH, has been a client
of ADP Integrated Medical Solutions since 1991
and uses our Provider Bill Audit(TM) (PBA)
computerized medical bill review system
nationally. Nationwide also is ADP's strategic
partner in the development of our Injury Claims
Evaluation (ICE)(TM) product, which complements
PBA and helps to settle third-party auto
liability claims. Michelle Premo (left) is
director of claims at Nationwide. Tina Brown
(right) was ADP's first Account Manger to serve
Nationwide."
12 The photograph to the left on page 12 of the 1998
Annual Report is described by the following
caption on page 12: "When typhoon Paka slammed
into Guam with high winds and heavy rains in
December 1997, insurance carriers immediately
sent in estimators to make prompt settlements.
The catastrophe team from USAA, San Antonio, TX
included Vinson Pluma (first row, right), their
ADP Account Representative. He gave up his
holiday to help USAA assist its members. Vinson
prepared numerous estimates, using PENPRO(TM),
ADP's pen-based laptop PC product. Pictured with
Vinson are team members from USAA: (back row,
left to right) James J. Horner, Physical Damage
Claims Program Administrator; Rudy Rios,
Northeast and Overseas Property Damage
Specialist; and Kenneth E. Rosen, Northeast and
Overseas Property Damage Specialist; (front row,
left) Ester Brundige, Appraisal Dispatch.
13 The photograph on page 13 of the 1998 Annual
Report is described by the following caption on
page 13: "ADP's Audatex business provides
insurance carriers in 16 European countries with
leading-edge automated estimating capabilities.
Allianz Insurance Stock Corporation,
25
headquartered in Munich, Germany, is a major
Audatex client. Wolfgang Gilbert (right),
Director of Marketing and Sales of Audatex
Germany, discusses Audatex advantages with
Allianz Insurance Director, Dr. Jr.
Gerhard Kuppersbusch (left)."
14 The photograph on page 14 of the 1998 Annual
Report is described by the following caption on
page 14: "Merrill Lynch continued its global
rollout of our Wilco Gloss(TM) international
securities transaction processing system in '98
with installations in its Paris and Milan
offices. Stephen Norman (left), Vice President,
Merrill Lynch and Steve Bloomer (right), Deputy
Managing Director, Wilco, directed these
successful rollouts."
15 The photograph on page 15 of the 1998 Annual
Report is described by the following caption on
page 15: "World Class Service is a worldwide
effort. Ton Van Der Starre (left), Database
Administrator; Marcel De Dood (center), Project
Leader and Information Manager; and Frans Hartman
(right), Business Analyst, are part of the team
at ADP, The Netherlands, that implemented ADP's
advanced client service support system for our
clients in The Netherlands. It utilizes
highly-functional Clarify systems software, which
also supports other ADP client service operations
throughout Europe and North America."
26