AUTOMATIC DATA PROCESSING INC .

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period Ended March 31, 2007

	OR

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Transition Period From to

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 incorporation or organization)		(IRS Employer Identification No.)

One ADP Boulevard, Roseland, New Jersey		07068
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (973) 974-5000

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 such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [X]

Accelerated filer [ ]

Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

The number of shares outstanding of the registrant’s common stock as of April 30, 2007 was 553,238,164.

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						Nine Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
REVENUES:
Revenues, other than interest on funds
held for Employer Services' clients and
PEO revenues	$	1,741.9		$	1,563.2		$	4,729.5		$	4,211.7
Interest on funds held for
Employer Services' clients		198.3			166.2			475.3			393.5
PEO revenues (A)		249.1			197.6			649.5			516.9
TOTAL REVENUES		2,189.3			1,927.0			5,854.3			5,122.1

EXPENSES:
Costs of revenues
Operating expenses		899.4			781.8			2,536.8			2,160.5
Systems development and programming costs		122.2			120.5			355.7			343.2
Depreciation and amortization		54.0			42.3			155.8			122.9
TOTAL COST OF REVENUES		1,075.6			944.6			3,048.3			2,626.6

Selling, general and administrative expenses		554.1			495.3			1,570.5			1,376.4
Interest expense		7.0			7.0			74.8			51.3
Other income, net		(25.2	)		(23.0	)		(175.4	)		(78.6	)
TOTAL EXPENSES		1,611.5			1,423.9			4,518.2			3,975.7

EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES		577.8			503.1			1,336.1			1,146.4

Provision for income taxes		213.5			188.5			495.7			430.1

NET EARNINGS FROM CONTINUING OPERATIONS	$	364.3		$	314.6		$	840.4		$	716.3

Earnings from discontinued operations, net of provision
for income taxes of $51.4 and $35.0 for the three months
ended March 31, 2007 and 2006, respectively, and
$96.9 and $84.5 for the nine months ended March 31,
2007 and 2006, respectively		24.6			56.0			103.6			134.0

NET EARNINGS	$	388.9		$	370.6		$	944.0		$	850.3

Basic Earnings Per Share from Continuing Operations	$	0.66		$	0.54		$	1.52		$	1.24
Basic Earnings Per Share from Discontinued Operations		0.04			0.10			0.19			0.23
BASIC EARNINGS PER SHARE	$	0.70		$	0.64		$	1.71		$	1.47

Diluted Earnings Per Share from Continuing Operations	$	0.65		$	0.54		$	1.51		$	1.23
Diluted Earnings Per Share from Discontinued Operations		0.04			0.10			0.19			0.23
DILUTED EARNINGS PER SHARE	$	0.70		$	0.64		$	1.69		$	1.46

Basic weighted average shares outstanding		552.1			577.5			551.6			577.0
Diluted weighted average shares outstanding		558.7			582.8			558.5			582.7

Dividends declared per common share	$	0.2300		$	0.1850		$	0.6450		$	0.5250

(A)	Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs of $2,417.8 and $1,957.6 for the three months ended March 31, 2007 and 2006, respectively, and $6,763.1 and $5,167.5 for the nine months ended March 31, 2007 and 2006, respectively.

See notes to the consolidated financial statements

Automatic Data Processing, Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except per share amounts)

(Unaudited)

	March 31,			June 30,
Assets	2007			2006
Current assets:
Cash and cash equivalents	$	2,473.5		$	1,867.3
Short-term marketable securities		207.8			327.5
Accounts receivable, net		915.0			765.0
Other current assets		455.5			400.4
Assets of discontinued operations		4.6			2,122.0
Total current assets		4,056.4			5,482.2

Long-term marketable securities		105.9			333.7
Long-term receivables, net		205.1			215.4
Property, plant and equipment, net		710.1			701.5
Other assets		840.1			772.3
Goodwill		2,317.5			1,985.8
Intangible assets, net		717.0			515.3
Total assets before funds held for clients		8,952.1			10,006.2
Funds held for clients		23,970.8			17,483.9
Total assets	$	32,922.9		$	27,490.1

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	105.9		$	127.2
Accrued expenses and other current liabilities		1,413.5			1,373.9
Income taxes payable		220.3			202.2
Liabilities of discontinued operations		25.6			967.5
Total current liabilities		1,765.3			2,670.8

Long-term debt		43.6			74.3
Other liabilities		396.6			361.6
Deferred income taxes		190.5			103.0
Deferred revenues		479.9			481.4
Total liabilities before client funds obligations		2,875.9			3,691.1
Client funds obligations		24,058.3			17,787.4
Total liabilities		26,934.2			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		315.7			157.4
Retained earnings		9,220.2			9,111.4
Treasury stock - at cost: 83.7 and 77.3
shares, respectively		(3,636.5	)		(3,194.8	)
Accumulated other comprehensive income (loss)		25.4			(126.3	)
Total stockholders’ equity		5,988.7			6,011.6
Total liabilities and stockholders’ equity	$	32,922.9		$	27,490.1

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Cash Flows

(In millions)

(Unaudited)

	Nine Months Ended
	March 31,
	2007			2006
Cash Flows from Operating Activities:
Net earnings	$	944.0		$	850.3
Adjustments to reconcile net earnings to cash flows provided by
operating activities:
Gain on sale of cost-based investment		(38.6	)		-
Depreciation and amortization		214.4			181.9
Deferred income taxes		(16.1	)		(61.7	)
Stock-based compensation expense		103.9			106.6
Pension expense		30.4			23.5
Net realized (gain) loss from the sales of marketable securities		(17.3	)		16.8
Amortization of premiums and discounts on available-for-sale securities		31.3			60.8
Gain on sale of business		(24.4	)		-
Impairment of assets of discontinued operations businesses		-			18.6
Other		27.1			35.8
Changes in operating assets and liabilities, net of effects from acquisitions and
divestitures of businesses:
Increase in receivables and other assets		(207.4	)		(46.6	)
(Decrease) increase in accounts payable, accrued expenses and other liabilities		(9.0	)		(11.5	)
Operating activities of discontinued operations		73.7			299.6
Net cash flows provided by operating activities		1,112.0			1,474.1

Cash Flows from Investing Activities:
Purchases of marketable securities		(3,347.7	)		(4,164.9	)
Proceeds from the sales and maturities of marketable securities		3,513.6			3,325.6
Net purchases of client funds securities		(6,065.1	)		(3,787.7	)
Change in client funds obligations		6,225.4			4,756.6
Capital expenditures		(122.6	)		(189.6	)
Additions to intangibles		(138.4	)		(73.4	)
Proceeds from the sale of investment		38.6			-
Proceeds from the sale of business, net of cash divested		17.2			6.2
Acquisitions of businesses, net of cash acquired		(433.0	)		(335.5	)
Dividend received from Broadridge Financial Solutions, Inc.		690.0			-
Cash retained by Broadridge Financial Solutions, Inc.		(29.9	)		-
Other		16.3			12.9
Investing activities of discontinued operations		(28.2	)		(56.1	)
Net cash flows provided by (used in) investing activities		336.2			(505.9	)

Cash Flows from Financing Activities:
Proceeds from issuance of notes		0.4			0.4
Payments of debt		(1.6	)		(0.5	)
Repurchases of common stock		(906.3	)		(545.2	)
Proceeds from stock purchase plan and exercises of stock options		224.5			175.9
Dividends paid		(334.0	)		(286.9	)
Financing activities of discontinued operations		134.1			55.0
Net cash flows used in financing activities		(882.9	)		(601.3	)

Effect of exchange rate changes on cash and cash equivalents		7.5			(5.1	)

Net change in cash and cash equivalents		572.8			361.8

Cash and cash equivalents, beginning of period		1,900.7			975.4

Cash and cash equivalents, end of period	$	2,473.5		$	1,337.2

Less cash and cash equivalents of discontinued operations, end of period		-			217.5

Cash and cash equivalents of continuing operations, end of period	$	2,473.5		$	1,119.7

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 nine months ended March 31, 2007 may not be indicative of the results to be expected for the fiscal year ending June 30, 2007.

Note 2. Discontinued Operations

On March 30, 2007 the Company completed the tax free spin-off of its former Brokerage Services Group business, comprised of Brokerage Services and Securities Clearing and Outsourcing Services, into an independent publicly traded company called Broadridge Financial Solutions, Inc. (“Broadridge"). As a result of the spin-off, ADP stockholders of record on March 23, 2007 (the “record date”) received one share of Broadridge common stock, with a par value $0.01 per share, for every four shares of ADP common stock held by them on the record date and cash for any fractional shares of Broadridge common stock. ADP distributed approximately 138.8 million shares of Broadridge common stock in the distribution. The spin-off was made without the payment of any consideration or the exchange of any shares by ADP stockholders.

The Company has classified the results of operations of Broadridge as discontinued operations for all periods presented. Additionally, the Company recorded a decrease to retained earnings of $1.2 billion for the non-cash reduction in net assets of Broadridge related to the spin-off, offset by an increase to retained earnings of $690.0 million related to the cash dividend received from Broadridge as part of the spin-off. The spin-off and the transitional and on-going relationships between ADP and Broadridge are governed by a Separation and Distribution Agreement entered into between ADP and Broadridge, and certain other ancillary agreements.

Incremental costs associated with the spin-off of $25.0 million and $35.5 million for the three and nine months ended March 31, 2007, respectively, are included in earnings from discontinued operations on the Statements of Consolidated Earnings and are principally related to professional services. ADP expects to incur total incremental costs associated with the spin-off of approximately $40.0 million during fiscal 2007.

On January 23, 2007, the Company completed the sale of Sandy Corporation, a business within the Dealer Services segment, which specializes in sales and marketing training, for approximately $4.0 million in cash and the assumption of certain liabilities by the buyer, plus an additional earn-out payment if certain revenue targets are achieved. The Company reported a gain of $11.2 million, or $6.9 million after tax within earnings from discontinued operations on the Statements of Consolidated Earnings. 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 nine months ended March 31, 2007, 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 Company reported the gain and the final purchase price adjustment within earnings from discontinued operations on the Statements of Consolidated Earnings. 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 for $7.5 million in cash. The Company classified the results of operations of this business as discontinued operations during the fiscal year ended June 30, 2006. In connection with the plan to dispose of the financial print business, the Company recorded an impairment charge of $18.6 million in order to reflect the assets of this business at fair value during the three months ended December 31, 2005 in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This impairment charge is included in the earnings from discontinued operations on the Statements of Consolidated Earnings.

Operating results of these discontinued operations were as follows:

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2007		2006		2007		2006

Revenues	$	558.5	$	625.6	$	1,444.9	$	1,652.1

Earnings from discontinued operations before income taxes		64.8		91.0		176.1		218.5
Provision for income taxes		47.1		35.0		92.0		84.5
Net earnings from discontinued operations before gain on
disposal of discontinued operations		17.7		56.0		84.1		134.0
Gain on disposal of discontinued operations, net of provision
for income taxes of $4.3 for the three months ended March 31,
2007 and $4.9 for the nine months ended March 31, 2007		6.9		-		19.5		-
Net earnings from discontinued operations	$	24.6	$	56.0	$	103.6	$	134.0

The following are the major classes of assets and liabilities related to the discontinued operations as of March 31, 2007 and June 30, 2006.

	March 31,		June 30,
	2007		2006
Assets:
Cash	$	-	$	33.4
Short-term marketable securities		-		40.3
Accounts receivable, net		4.6		437.3
Securities clearing receivables		-		836.8
Property, plant and equipment, net		-		80.9
Goodwill		-		480.4
Intangible assets, net		-		102.7
Other assets		-		110.2

Total	$	4.6	$	2,122.0


Liabilities:
Accounts payable	$	-	$	80.1
Accrued expenses		4.8		210.1
Securities clearing payables		-		613.6
Income taxes payable		20.8		18.1
Deferred revenue		-		45.6

Total	$	25.6	$	967.5

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 $61.9 million and $181.9 million for the three and nine months ended March 31, 2006, respectively. The portion of depreciation and amortization that relates to our services and products equals $42.3 million and $122.9 million for the three and nine months ended March 31, 2006, respectively, and is included in cost of revenues. The portion of depreciation and amortization that does not relate to our services and products of $19.6 million and $59.0 million for the three and nine months ended March 31, 2006, 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	$	2,997.9	$	2,621.4	$	2,271.5
Systems development and programming costs		472.6		426.9		402.8
Depreciation and amortization		166.0		156.1		159.6
Cost of revenues	$	3,636.5	$	3,204.4	$	2,833.9

Note 4. New Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 provides companies with an option to measure selected financial assets and liabilities at fair value. The Company is currently evaluating the effect that the adoption of SFAS No. 159 will have, if any, on its consolidated results of operations and financial condition.

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 currently estimates the adoption of SAB 108 to result in an increase to retained earnings of $40.0 million, net of tax, which will be primarily due to a reduction in certain accrued expenses.

In September 2006, the FASB issued 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 benefit 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 first 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. Based on the unrecognized actuarial losses of ADP’s pension plans in its June 30, 2006 Annual Report on Form 10-K, we expect to reclassify $116 million, net of tax, from other assets to accumulated other comprehensive income on the Consolidated Balance Sheets upon the adoption of SFAS No. 158, which will result in a reduction of stockholders’ equity. The Company will reevaluate this estimate upon adoption of SFAS No. 158, based upon its June 30, 2007 plan measurement date, which will likely impact the above-described amount. 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 that the adoption of SFAS No. 158 will have a material impact on the 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 believes that the adoption of SFAS No. 157 will not have a material effect on its consolidated results of operations, cash flows or financial condition.

In July 2006, the FASB issued FASB Interpretation 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 5. Acquisitions

The Company acquired 100% interest in nine businesses during the nine months ended March 31, 2007 for approximately $432.1 million, net of cash acquired and subject to post-closing purchase price 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 $304.5 million of goodwill. Intangible assets acquired, which totaled approximately $154.5 million, consisted primarily of customer contracts and lists, as well as software, that are being amortized over a weighted average life of approximately 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 6. Earnings Per Share (“EPS”)

	For the three months ended March 31,
	2007						2006
	Net				EPS		Net				EPS
	Earnings from		Weighted		from		Earnings from		Weighted		from
	Continuing		Average		Continuing		Continuing		Average		Continuing
	Operations		Shares		Operations		Operations		Shares		Operations

Basic	$	364.3		552.1	$	0.66	$	314.6		577.5	$	0.54
Effect of zero coupon
subordinated notes		0.3		0.9				0.2		1.1
Effect of employee
compensation
related shares		-		5.7				-		4.2
Diluted	$	364.6		558.7	$	0.65	$	314.8		582.8	$	0.54

	For the nine months ended March 31,
	2007						2006
	Net				EPS		Net				EPS
	Earnings from		Weighted		from		Earnings from		Weighted		from
	Continuing		Average		Continuing		Continuing		Average		Continuing
	Operations		Shares		Operations		Operations		Shares		Operations

Basic	$	840.4		551.6	$	1.52	$	716.3		577.0	$	1.24
Effect of zero coupon
subordinated notes		1.1		1.0				0.8		1.2
Effect of employee
compensation
related shares		-		5.9				-		4.5
Diluted	$	841.5		558.5	$	1.51	$	717.1		582.7	$	1.23

Options to purchase 13.0 million and 35.8 million shares of common stock for the three months ended March 31, 2007 and 2006, respectively, and 19.0 million and 28.4 million shares of common stock for the nine months ended March 31, 2007 and 2006, respectively, were excluded from the

calculation of diluted earnings per share, as the effect would have been anti-dilutive for each respective period.

Note 7. 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 consists of the following: