Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Earnings

(In millions, except per share amounts)

(Unaudited)

 

 

		Three Months Ended						Six Months Ended
		December 31,						December 31,
		2006			2005			2006			2005
REVENUES:
Revenues, other than interest on funds held for Employer Services’ clients and PEO revenues		$	1,968.3		$	1,748.0		$	3,837.8		$	3,390.5
Interest on funds held for Employer Services’ clients			142.4			118.9			277.0			227.3
PEO revenues (A)			205.4			163.5			400.4			319.3
TOTAL REVENUES			2,316.1			2,030.4			4,515.2			3,937.1
EXPENSES:
Costs of revenues
Operating expenses			1,110.4			947.7			2,209.5			1,859.5
Systems development and programming costs			145.1			145.9			282.8			287.9
Depreciation and amortization			62.2			51.0			123.7			99.7
TOTAL COST OF REVENUES			1,317.7			1,144.6			2,616.0			2,247.1
Selling, general and administrative expenses			564.3			481.0			1,108.5			956.0
Separation costs			8.0			—			10.6			—
Other income, net			(27.6	)		(9.0	)		(82.4	)		(11.4	)
TOTAL EXPENSES			1,862.4			1,616.6			3,652.7			3,191.7
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			453.7			413.8			862.5			745.4
Provision for income taxes			170.7			156.8			324.4			282.6
NET EARNINGS FROM CONTINUING OPERATIONS		$	283.0		$	257.0		$	538.1		$	462.8
Earnings from discontinued operations, net of provision for income taxes of $1.9 and $1.2 for the three months ended December 31, 2006 and 2005, respectively, and $3.3 and $8.5 for the six months ended December 31, 2006 and 2005, respectively			14.7			2.7			17.0			16.9
NET EARNINGS		$	297.7		$	259.7		$	555.1		$	479.7
Basic Earnings Per Share from Continuing Operations		$	0.52		$	0.45		$	0.98		$	0.80
Basic Earnings Per Share from Discontinued Operations			0.03			—			0.03			0.03
BASIC EARNINGS PER SHARE		$	0.54		$	0.45		$	1.01		$	0.83
Diluted Earnings Per Share from Continuing Operations		$	0.51		$	0.44		$	0.97		$	0.80
Diluted Earnings Per Share from Discontinued Operations			0.03			—			0.03			0.03
DILUTED EARNINGS PER SHARE		$	0.54		$	0.45		$	1.00		$	0.83
Basic weighted average shares outstanding			548.5			576.2			551.4			576.8
Diluted weighted average shares outstanding			555.3			582.3			557.9			582.0
Dividends declared per common share		$	0.2300		$	0.1850		$	0.4150		$	0.3400

 

  

(A)

Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs of $2,442.5 and $1,719.2 for the three months ended December 31, 2006 and 2005, respectively, and $4,345.3 and $3,209.9 for the six months ended December 31, 2006 and 2005, respectively.

  See notes to the consolidated financial statements.

 

 

Automatic Data Processing, Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except per share amounts)

(Unaudited)

 

 

		December 31,			June 30,
Assets		2006			2006
Current assets:
Cash and cash equivalents		$	1,294.7		$	1,900.6
Short-term marketable securities (includes $40.4 and $40.3 of segregated securities deposited with clearing organizations or segregated for regulatory purposes, respectively)			249.4			367.9
Accounts receivable, net			1,280.7			1,185.5
Securities clearing receivables			924.0			836.8
Other current assets			522.8			451.5
Assets of discontinued operations			20.5			18.0
Total current assets			4,292.1			4,760.3
Long-term marketable securities			155.6			334.0
Long-term receivables, net			196.4			215.4
Property, plant and equipment, net			780.6			782.2
Other assets			896.3			830.1
Goodwill			2,753.4			2,466.2
Intangible assets, net			738.3			618.0
Total assets before funds held for clients			9,812.7			10,006.2
Funds held for clients			21,799.5			17,483.9
Total assets		$	31,612.2		$	27,490.1
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	171.8		$	205.6
Accrued expenses and other current liabilities			1,463.2			1,542.3
Securities clearing payables			790.5			613.6
Income taxes payable			94.8			205.7
Liabilities of discontinued operations			31.2			35.0
Total current liabilities			2,551.5			2,602.2
Long-term debt			73.8			74.3
Other liabilities			426.1			373.4
Deferred income taxes			183.1			123.7
Deferred revenues			534.3			517.5
Total liabilities before client funds obligations			3,768.8			3,691.1
Client funds obligations			21,936.9			17,787.4
Total liabilities			25,705.7			21,478.5
Stockholders’ equity:
Preferred stock, $1.00 par value:
Authorized 0.3 shares; issued, none			—			—
Common stock, $0.10 par value:
Authorized 1,000.0 shares; issued 638.7 shares			63.9			63.9
Capital in excess of par value			260.5			157.4
Retained earnings			9,438.0			9,111.4
Treasury stock - at cost: 90.7 and 77.3 shares, respectively			(3,872.6	)		(3,194.8	)
Accumulated other comprehensive income (loss)			16.7			(126.3	)
Total stockholders’ equity			5,906.5			6,011.6
Total liabilities and stockholders’ equity		$	31,612.2		$	27,490.1

 

See notes to the consolidated financial statements.

 

 

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Cash Flows

(In millions)

(Unaudited)

 

		Six Months Ended
		December 31,
		2006			2005
Cash Flows from Operating Activities:
Net earnings		$	555.1		$	479.7
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Gain on sale of cost-based investment			(38.6	)		—
Depreciation and amortization			168.0			142.5
Deferred income taxes			4.3			3.8
Stock-based compensation expense			82.6			83.5
Pension expense			22.6			17.2
Net realized (gain) loss from the sales of marketable securities			(17.9	)		15.9
Amortization of premiums and discounts on available-for-sale securities			21.7			44.3
Gain on sale of business			(13.2	)		—
Impairment of assets of discontinued operations business			—			19.0
Other			27.8			15.9
Operating activities of discontinued operations			(2.4	)		1.4
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses:
Decrease in securities deposited with clearing organizations or segregated for regulatory purposes			(0.1	)		178.4
Increase in receivables and other assets			(176.7	)		(20.1	)
Decrease in accounts payable, accrued expenses and other liabilities			(225.4	)		(103.1	)
Increase in securities clearing receivables			(87.2	)		(84.6	)
Increase in securities clearing payables			176.8			106.4
Net cash flows provided by operating activities			497.4			900.2
Cash Flows from Investing Activities:
Purchases of marketable securities			(2,468.1	)		(2,931.6	)
Proceeds from the sales and maturities of marketable securities			2,614.3			2,584.4
Net purchases of client funds securities			(4,044.7	)		(1,595.3	)
Change in client funds obligations			4,188.3			2,001.4
Capital expenditures			(89.7	)		(150.8	)
Additions to intangibles			(101.2	)		(56.2	)
Proceeds from the sale of investment			38.6			—
Proceeds from the sale of business			13.2			—
Acquisitions of businesses, net of cash acquired			(369.2	)		(285.9	)
Other			9.2			5.6
Investing activities of discontinued operations			—			(8.7	)
Net cash flows used in investing activities			(209.3	)		(437.1	)
Cash Flows from Financing Activities:
Proceeds from issuance of notes			0.3			0.3
Payments of debt			(1.2	)		(0.4	)
Repurchases of common stock			(872.0	)		(341.0	)
Proceeds from stock purchase plan and exercises of stock options			178.6			149.2
Dividends paid			(207.9	)		(181.1	)
Financing activities of discontinued operations			—			4.3
Net cash flows used in financing activities			(902.2	)		(368.7	)
Effect of exchange rate changes on cash and cash equivalents			8.2			(7.2	)
Net change in cash and cash equivalents			(605.9	)		87.2
Cash and cash equivalents, beginning of period			1,900.6			975.0
Cash and cash equivalents, end of period		$	1,294.7		$	1,062.2
Less cash and cash equivalents of discontinued operations, end of period			—			117.8
Cash and cash equivalents of continuing operations, end of period		$	1,294.7		$	944.4

 

See notes to the consolidated financial statements.

 

 

 

Automatic Data Processing, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(Tabular dollars in millions, except per share amounts)

(Unaudited)

 

Note 1. Basis of Presentation

 

The accompanying unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. Adjustments are of a normal recurring nature. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes of Automatic Data Processing, Inc. and Subsidiaries (“ADP” or the “Company”) as of and for the year ended June 30, 2006. The results of operations for the three and six months ended December 31, 2006 may not be indicative of the results to be expected for the fiscal year ending June 30, 2007.

 

Note 2. Discontinued Operations

 

During the three months ended December 31, 2006, the Company entered into a definitive agreement to sell its Sandy division, a business within the Dealer Services segment, which specializes in sales and marketing training, for approximately $5.2 million in cash, subject to final closing adjustments, plus an additional earn-out payment if certain revenue targets are achieved. On January 23, 2007, the Company completed the sale of its Sandy division. The Company has classified the results of operations of this business as discontinued operations for all periods presented.

 

On April 13, 2006, the Company completed the sale of its Claims Services business to Solera, Inc. for $975.0 million in cash and reported a gain of $560.9 million, or $452.8 million after tax, during the fiscal year ended June 30, 2006. During the three months ended December 31, 2006, the Company received an additional payment of $13.2 million, or $12.6 million after tax, from Solera, Inc., which represented the final purchase price adjustment for the sale of the Claims Services business. The Claims Services business was a separate operating segment of the Company and was reported in the “Other” segment. In connection with the disposal of this business, the Company has classified the results of operations of this business as discontinued operations for all periods presented.

 

On January 20, 2006, the Company completed the sale of its Brokerage Services’ financial print business. The Company classified the results of operations of this business as discontinued operations during the fiscal year ended June 30, 2006.

 

Operating results of these discontinued operations were as follows:

 

		Three Months Ended						Six Months Ended
		December 31,						December 31,
		2006			2005			2006			2005
Revenues		$	17.7		$	145.0		$	36.2		$	284.5
Earnings from discontinued operations before income taxes			3.4			3.9			7.1			25.4
Provision for income taxes			1.3			1.2			2.7			8.5
Net earnings from discontinued operations before gain on disposal of discontinued operations			2.1			2.7			4.4			16.9
Gain on disposal of discontinued operations, net of provision for income taxes of $0.6			12.6			—			12.6			—
Net earnings from discontinued operations		$	14.7		$	2.7		$	17.0		$	16.9

 

 

The following are the major classes of assets and liabilities related to the discontinued operations as of December 31, 2006 and June 30, 2006.

 

 

		December 31,			June 30,
		2006			2006
Assets:
Accounts receivable, net		$	19.5		$	16.9
Property, plant and equipment, net			0.1			0.2
Other assets			0.9			0.9
Total		$	20.5		$	18.0
Liabilities:
Accounts payable		$	1.8		$	1.7
Accrued expenses			7.8			9.2
Income taxes payable			14.5			14.6
Deferred revenue			7.1			9.5
Total		$	31.2		$	35.0

 

 

Note 3. Cost of Revenues

 

The Company has revised the format of our Statements of Consolidated Earnings to include a separate line item for cost of revenues. The Company’s costs and expenses applicable to revenues (“cost of revenues”) represent the total of operating expenses and systems development and programming costs as presented on the Statements of Consolidated Earnings, as well as the portion of depreciation and amortization that relates to our services and products.

 

The Company previously reported that depreciation and amortization from continuing operations totaled $72.5 million and $142.5 million for the three and six months ended December 31, 2005, respectively. The portion of depreciation and amortization that relates to our services and products equals $51.0 million and $99.7 million for the three and six months ended December 31, 2005, respectively, and is included in cost of revenues. The portion of depreciation and amortization that does not relate to our services and products of $21.5 million and $42.8 million for the three and six months ended December 31, 2005, respectively, was reclassified to selling, general and administrative expenses on the Statements of Consolidated Earnings.

 

The following table provides the cost of revenues from continuing operations for the three fiscal years ended June 30, 2006:

 

 

Years ending June 30,			2006			2005			2004
Operating expenses		$	4,234.6		$	3,713.8		$	3,257.0
Systems development and programming costs			589.8			549.9			523.6
Depreciation and amortization			216.8			209.5			215.9
Cost of revenues		$	5,041.2		$	4,473.2		$	3,996.5

 

  

Note 4. Spin-off of Brokerage Services Group

 

On August 2, 2006, the Company announced that its Board of Directors approved a plan to spin-off the Brokerage Services Group business, comprised of Brokerage Services and Securities Clearing and Outsourcing Services, into an independent publicly traded company through a tax-free spin-off of 100% of Brokerage Services Group to ADP shareholders. This new independent publicly traded company will be called Broadridge Financial Solutions, Inc. (“Broadridge"). The Company has requested a favorable ruling from the Internal Revenue Service (the “IRS”) with respect to the spin-off and intends to complete the spin-off only if the favorable ruling and a favorable opinion of counsel confirming the spin-off’s tax-free status are received. The spin-off is also subject to other conditions, including necessary regulatory approvals.

 

In December 2006, Broadridge (under the name of “BSG LLC”) filed a registration statement on Form 10 with the Securities and Exchange Commission (“SEC”). The financial presentation of Broadridge in the Form 10 differs from the financial presentation of the Brokerage Services and Securities Clearing and Outsourcing Services segments in ADP’s financial statements due to adjustments made in the Form 10 to reflect the additional corporate expenses and other operating costs of Broadridge as if it were a stand-alone company.

 

Upon completion of the spin-off, the ADP shareholders will have separate ownership interests in ADP and Broadridge. Broadridge will be a global provider of technology-based outsourcing solutions to the financial services industry. ADP and Broadridge will be two distinct businesses with separate ownership and management. To facilitate Broadridge’s separation from ADP, ADP will provide certain services to Broadridge during a transition period following completion of the spin-off. ADP expects to incur incremental costs associated with the spin-off of approximately $45 to $55 million. Incremental costs associated with the spin-off of $8.0 million and $10.6 million for the three and six months ended December 31, 2006, respectively, are included in separation costs on the Statements of Consolidated Earnings and are principally related to professional services.

 

Note 5. New Accounting Pronouncements

 

In September 2006, the staff of the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires companies to evaluate the materiality of identified unadjusted errors on each financial statement and related financial statement disclosure using both the rollover approach and the iron curtain approach. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The Company plans to include the effect of adopting SAB 108 in its Annual Report on Form 10-K for the year ending June 30, 2007 and is currently evaluating the effect that the adoption will have on its consolidated results of operations and financial condition.

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). This statement would require a company to (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status, (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year, and (c) recognize changes in the funded status of a defined postretirement plan in the year in which the changes occur (reported in comprehensive income). The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The Company plans to include the effect of adopting SFAS No. 158 in its Annual Report on Form 10-K for the year ending June 30, 2007 and is currently assessing the impact of adoption. The requirement to measure the plan assets and benefit obligations as of the date of the  

employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company does not believe this requirement will have a material impact on its consolidated results of operations and financial condition.

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect that the adoption of SFAS No. 157 will have, if any, on its consolidated results of operations and financial condition.

 

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 applies to all tax positions accounted for under SFAS No. 109, “Accounting for Income Taxes” and defines the confidence level that a tax position must meet in order to be recognized in the financial statements. The interpretation requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If a tax position is not considered “more-likely-than-not” to be sustained then no benefits of the position are to be recognized. FIN 48 requires additional annual disclosures and is effective as of the beginning of the first fiscal year beginning after December 15, 2006. The Company expects to adopt FIN 48 on July 1, 2007 and is currently evaluating the effect that the adoption of FIN 48 will have on its consolidated results of operations and financial condition.

 

Note 6. Acquisitions

 

The Company acquired four businesses during the six months ended December 31, 2006 for approximately $368.3 million, net of cash acquired and subject to post-closing purchase adjustments. The Company has allocated the purchase price of these acquisitions based upon preliminary estimates and assumptions. Accordingly, these allocations are subject to revision when the Company receives final information, including appraisals and other analyses. These acquisitions resulted in approximately $264.8 million of goodwill. Intangible assets acquired, which totaled approximately $100.3 million, consisted primarily of customer contracts and lists, software and trademarks that are being amortized over a weighted average life of 10 years. The acquisitions were not material, either individually or in the aggregate, to the Company’s operations, financial position or cash flows. The Company also made $0.9 million of contingent payments relating to previously consummated acquisitions.

 

 

Note 7. Earnings Per Share (“EPS”)

 

 

		For the three months ended December 31,
		2006								2005
		Net Earnings from Continuing Operations			Weighted Average Shares		EPS from Continuing Operations			Net Earnings from Continuing Operations			Weighted Average Shares		EPS from Continuing Operations
Basic		$	283.0		548.5		$	0.52		$	257.0		576.2		$	0.45
Effect of zero coupon subordinated notes			0.4		1.1						0.3		1.2
Effect of employee compensation related shares			—		5.7						—		4.9
Diluted		$	283.4		555.3		$	0.51		$	257.3		582.3		$	0.44

 

 

		For the six months ended December 31,
		2006								2005
		Net Earnings from Continuing Operations			Weighted Average Shares		EPS from Continuing Operations			Net Earnings from Continuing Operations			Weighted Average Shares		EPS from Continuing Operations
Basic		$	538.1		551.4		$	0.98		$	462.8		576.8		$	0.80
Effect of zero coupon subordinated notes			0.8		1.1						0.6		1.2
Effect of employee compensation related shares			—		5.4						—		4.0
Diluted		$	538.9		557.9		$	0.97		$	463.4		582.0		$	0.80

 

Options to purchase 21.5 million and 29.2 million shares of common stock for the three months ended December 31, 2006 and 2005, respectively, and 24.9 million and 34.5 million shares of common stock for the six months ended December 31, 2006 and 2005, respectively, were excluded from the calculation of diluted earnings per share, as the effect would have been anti-dilutive for each respective period.

 

Note 8. Fair Value Accounting for Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), which requires the measurement of stock-based compensation expense to be recognized in net earnings based on the fair value of the award on the date of grant. Stock-based compensation primarily consists of the following:

•

Stock Options. Stock options are granted to employees at exercise prices equal to the fair market value of the Company’s common stock on the dates of grant. Stock options are issued under a grade vesting schedule and, generally vest ratably over five years and have a term of 10 years. Compensation expense for stock options is recognized over the requisite service period for each separately vesting portion of the stock option award. In fiscal 2007, the Company has reduced the number of stock options issued to employees and replaced these awards with the issuance of performance-based restricted stock.

•

Employee Stock Purchase Plan. Prior to November 2005, the Company offered an employee stock purchase plan that allowed eligible employees to purchase shares of common stock at 85% of the lower of market value as of the date the purchase price for an offering was determined or as of the end of such offering. In November 2005, the Company revised the employee stock purchase plan offering beginning on January 1, 2006, whereby eligible employees can purchase shares of common stock at 85% of the market value at the date the purchase price for the offering is determined. Compensation expense for the employee stock purchase plan is recognized over the vesting period of 24 months on a straight-line basis.

•

Restricted Stock. The Company has a restricted stock program under which shares of common stock have been issued to certain key employees. These shares are restricted as to transfer and in certain circumstances must be returned to the Company at the original purchase price. The Company records stock compensation expense relating to the issuance of restricted stock over the period during which the transfer restrictions exist, which is up to five years from the date of grant. The value of the Company’s restricted stock, based on market prices, is recognized as compensation expense over the restriction period on a straight-line basis.

 

The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under its employee stock purchase plan and restricted stock awards. Stock-based compensation expense of $44.2 million and $40.5 million was recognized in earnings from continuing operations for the three months ended December 31, 2006 and 2005, respectively, as well as related tax benefits of $13.5 million and $11.6 million, respectively. Stock-based compensation expense of $82.6 million and $83.5 million was recognized in earnings from continuing operations for the six months ended December 31, 2006 and 2005, respectively, as well as related tax benefits of $24.7 million and $23.9 million, respectively.

 

 

		Three Months Ended						Six Months Ended
		December 31,						December 31,
		2006			2005			2006			2005
Operating expenses		$	8.5		$	7.7		$	15.0		$	15.9
Selling, general and administrative expenses			26.6			24.9			51.5			51.0
System development and programming costs			9.1			7.9			16.1			16.6
Total pretax stock-based compensation expense included in continuing operations		$	44.2		$	40.5		$	82.6		$	83.5
Total pretax stock-based compensation expense included in discontinued operations			0.2			2.3			0.3			4.8
Total pretax stock-based compensation expense		$	44.4		$	42.8		$	82.9		$	88.3

 

 

As of December 31, 2006, the total remaining unrecognized compensation cost related to non-vested stock options, the employee stock purchase plan and restricted stock awards amounted to $109.2 million, $9.9 million and $105.3 million respectively, which will be amortized over the weighted average remaining requisite service periods of 1.2 years, 0.6 years and 1.2 years, respectively.

 

The fair value of each stock option issued prior to January 1, 2005 was estimated on the date of grant using a Black-Scholes option pricing model. For stock options issued on or after January 1, 2005, the fair value of each stock option was estimated on the date of grant using a binomial option pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial model are based on a combination of implied market volatilities, historical volatility of the Company’s stock price and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial  

model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grants is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding.

 

The following assumptions were used to determine the fair values estimated at the date of grant of stock options granted during the six months ended December 31, 2006 and 2005:

 

Risk-free interest rate			4.7% — 5.4	%		4.0	%
Dividend yield			1.6	%		1.4	%
Weighted average volatility factor			24.5% — 24.7	%		24.7	%
Weighted average expected life (in years)			5.6			5.5
Weighted average fair value (in dollars)		$	12.21		$	10.37

 

Note 9. Other Income, net

 

		Three Months Ended						Six Months Ended
		December 31,						December 31,
		2006			2005			2006			2005
Interest income on corporate funds		$	(41.8	)	$	(37.8	)	$	(93.6	)	$	(71.7	)
Interest expense			32.3			25.7			67.7			44.4
Gain on sale of investment			—			—			(38.6	)		—
Realized gains on available-for-sale securities			(19.7	)		(0.1	)		(20.1	)		(0.6	)
Realized losses on available-for-sale securities			1.6			3.2			2.2			16.5
Other income, net		$	(27.6	)	$	(9.0	)	$	(82.4	)	$	(11.4	)

 

Proceeds from sales and maturities of available-for-sale securities were $2,614.3 million and $2,584.4 million for the six months ended December 31, 2006 and 2005, respectively.

 

During the six months ended December 31, 2006, the Company sold a minority investment that was previously accounted for using the cost basis and had a net book value of $0. The Company’s sale of this investment resulted in a gain of approximately $38.6 million.

 

Note 10. Comprehensive Income

 

 

		Three Months Ended						Six Months Ended
		December 31,						December 31,
		2006			2005			2006			2005
Net earnings		$	297.7		$	259.7		$	555.1		$	479.7
Other comprehensive income (loss):
Foreign currency translation adjustments			10.3			(32.8	)		31.9			(16.4	)
Unrealized net gain (loss) on available-for-sale securities, net of tax			(10.0	)		(36.2	)		111.1			(109.5	)
Comprehensive income		$	298.0		$	190.7		$	698.1		$	353.8

 

 

Note 11. Interim Financial Data by Segment

 

Employer Services, Brokerage Services, Securities Clearing and Outsourcing Services and Dealer Services are the Company's reportable segments. The primary components of “Other” are miscellaneous processing services and corporate allocations and expenses, including stock-based compensation expense.

 

 The Company evaluates the performance of its reportable segments based on operating results before interest on corporate funds, foreign currency gains and losses and income taxes. Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are recorded based on management responsibility. The prior year’s reportable segment revenues and earnings from continuing operations before income taxes have been adjusted to reflect updated fiscal 2007 budgeted foreign exchange rates.

 

Reconciling items include foreign exchange differences between the actual foreign exchange rates and fiscal 2007 budgeted foreign exchange rates, and the adjustment for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services at a standard rate of 4.5%. Both of these adjustments are eliminated in consolidation and as such represent reconciling items to revenues and earnings from continuing operations before income taxes. The reportable segment results also include an internal cost of capital charge related to the funding of acquisitions and other investments. This charge is eliminated in consolidation and as such represents a reconciling item to earnings from continuing operations before income taxes.

 

Segment Results:

 

 

		Revenues
		Three Months Ended						Six Months Ended
		December 31,						December 31,
		2006			2005			2006			2005
Employer Services		$	1,540.5		$	1,376.6		$	2,994.2		$	2,679.7
Brokerage Services			404.3			368.4			816.9			725.1
Securities Clearing and Outsourcing Services			23.2			19.8			45.0			37.5
Dealer Services			302.9			253.8			597.5			493.5
Other			32.5			31.8			39.9			43.6
Reconciling items:
Foreign exchange			18.1			(3.7	)		33.6			(6.0	)
Client fund interest			(5.4	)		(16.3	)		(11.9	)		(36.3	)
Total		$	2,316.1		$	2,030.4		$	4,515.2		$	3,937.1

 

 

		Earnings From Continuing Operations Before Income Taxes
		Three Months Ended						Six Months Ended
		December 31,						December 31,
		2006			2005			2006			2005