Investor Relations
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ADP Reports Second Quarter Fiscal 2006 Results;
Revenues Grow 9%; EPS From Continuing Operations Increases 31%;
Raises Fiscal 2006 Revenue Guidance to 10% Growth;
Fiscal 2006 EPS From Continuing Operations Forecast is 23% - 25% Growth
CONTACT:
ADP Investor Relations
Elena Charles
(973) 974-4077
|
Debbie Morris
(973) 974-7821 |
ROSELAND, New Jersey -- January 25, 2006 -- Automatic Data Processing, Inc. (NYSE:ADP) reported 9% revenue growth, to $2.2 billion, and $0.47 earnings per share from continuing operations for the second fiscal quarter ended December 31, 2005, Arthur F. Weinbach, chairman and chief executive officer, announced today. On a reported basis, including stock compensation expense in the current period, pretax and net earnings from continuing operations grew 10% and 9%, respectively, and diluted earnings per share from continuing operations increased 12%. Fiscal 2006 earnings comparisons are affected by the inclusion of stock compensation expense as of July 1, 2005. On a comparable basis, including stock compensation expense in the second quarter of fiscal 2005, pretax and net earnings from continuing operations grew 25% and 26%, respectively, and diluted earnings per share from continuing operations increased 31% from $0.36 per share a year ago on fewer shares outstanding.
On January 20, ADP sold its Brokerage Services' financial print business with annual revenues of approximately $100 million and recorded a one-time non-cash charge in the second quarter of approximately $0.02 per share to record the assets of the business at market value. The results of operations for this business, as well as the one-time non-cash charge, are reported within discontinued operations in the second quarter and in prior periods.
Commenting on the results, Mr. Weinbach said, "The positive momentum continued in our core businesses and we are pleased with our excellent results for the second quarter. Results were ahead of our expectations, with particular strength in our Employer Services' business. Additionally, we have accelerated investments in additional sales headcount and implementation resources to fuel future growth opportunities. Revenues for Employer Services increased 10% in the quarter. New business sales, which reflect annualized recurring revenues anticipated from new orders, grew 9% in the United States and 8% worldwide, slightly below our expectations. Our sales results were particularly strong in National Accounts and Small Business Services, and while year-to-date sales have been weak internationally, our pipeline is solid. The number of employees on our clients' payrolls increased over 2%, with growth in all market segments in the United States. The number of employees on our clients' payrolls in Europe, which had been declining in previous quarters, was flat compared with the second quarter last year. Our client retention was excellent in the United States as we entered the critical calendar year-end retention period. Although slightly lower than last year's second quarter, on a year-to-date basis, we maintained last year's record client retention levels.
"Brokerage Services' revenues grew 8% compared with last year's second quarter driven by growth in our investor communications business. Beneficial proxy and interim communications revenues grew 12% primarily due to increased mutual fund meetings and other required mutual fund communications. Strong sales in transaction reporting and electronic solutions, as well as increased volumes from existing clients, drove revenue growth of 14% in our beyond beneficial products. Back office revenues declined 6%, reflecting a decline in revenue per trade of 6% and a decline in other service revenues, partially offset by increased trade volumes of 4%.
"Securities Clearing and Outsourcing Services' revenues were $20 million for the quarter, in line with our expectations. We continue to sign new clients and our pipeline is solid. Dealer Services' revenues grew 10%, favorably impacted by the acquisition of UK-based Kerridge Computer Company Ltd. announced last month. Claims Services' revenues grew 6% compared with last year's second quarter. Foreign currency exchange rates during the quarter reduced overall ADP revenue growth 0.5%.
"Our interest earned on funds held for clients grew nearly 31% above last year's second quarter to $119 million, based on a very strong increase in average client funds balances of nearly 13% and a higher interest yield. Corporate cash and marketable securities were $1.9 billion at December 31, 2005.
"As previously announced, we adopted Statement of Financial Accounting Standards (SFAS) No. 123R as of July 1, 2005, which requires the expensing of our stock compensation programs. Our second quarter results included incremental pretax stock compensation expenses, reducing earnings per share by approximately $0.05. The second quarter of fiscal 2005 results would have been lower by approximately $0.06 per share had we expensed stock compensation. For the full fiscal year, the impact of adopting SFAS No. 123R is expected to lower earnings per share by about $0.19 and would have lowered earnings per share in fiscal 2005 by $0.22. The lower dilution for the quarter, and anticipated for the year, is primarily driven by the reduction in the number of options granted to associates beginning in fiscal 2005. Stock compensation expense is reflected in our "Other" segment and not within the business segment results.
"Our results continue to be better than expected as we moved into the second half of the year. With our core businesses executing well against plan and the additional revenues from the Dealer Services acquisition, we anticipate about 10% revenue growth for fiscal 2006, up from previous guidance of high single-digit revenue growth. We have raised the bottom end of our forecast for earnings per share from continuing operations resulting in updated guidance of $1.93 - $1.96, or 23% - 25% growth, from $1.91 - $1.96, or 22% - 25% growth, assuming stock compensation was expensed in fiscal 2005. We are increasingly confident in achieving the higher end of the range. Interest income on client funds is expected to grow to over $540 million based on over 10% anticipated growth in average client funds balances and improvement of 60 basis points in the overall yield on the client funds portfolio to about 4.0% for the full year. In addition, we continue to forecast double-digit sales growth for Employer Services, with stronger results anticipated during the second half of the year.
"This fiscal year we have acquired over 7.6 million ADP shares for treasury for approximately $335 million reflecting our confidence in the long-term growth opportunities of our businesses," Mr. Weinbach concluded.
The following items have been adjusted to show discontinued operations and will be posted today to the investor relations home page of our website at www.adp.com under financial data:
- Quarterly and full-year statements of earnings for fiscal 2005
- Statement of earnings for the first quarter of fiscal 2006
- Tables containing fiscal 2005 quarterly detail adjusted for stock compensation expense
An analyst conference call to review the second quarter results will be held today, Wednesday, January 25 at 1:30 p.m. EST. A live audio webcast of the call will be available to the public on a listen-only basis. To listen to the webcast go to www.adp.com and click on the webcast icon. ADP's news releases, current financial information, SEC filings and Investor Relations presentations are accessible at the same website.
ADP, with $8.5 billion in revenues and approximately 590,000 clients worldwide, is one of the largest providers of a broad range of premier, mission-critical, cost-effective transaction processing and information-based business solutions.
Automatic Data Processing, Inc. and Subsidiaries
Consolidated Statements of Earnings
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2005 (B) 2004 (C) 2005 (B) 2004 (C)
--------- --------- --------- ---------
Revenues, other than interest
on funds held for Employer
Services' clients and PEO
revenues $1,870.8 $1,745.4 $3,632.6 $3,368.6
Interest on funds held for
Employer Services' clients 118.9 91.1 227.3 175.8
PEO revenues (A) 163.5 133.4 319.3 258.9
--------- --------- --------- ---------
Total revenues 2,153.2 1,969.9 4,179.2 3,803.3
--------- --------- --------- ---------
Operating expenses 992.2 895.2 1,947.7 1,743.8
Selling, general and
administrative expenses 489.0 463.4 971.1 906.6
Systems development and
programming costs 163.7 149.6 323.1 297.9
Depreciation and amortization 79.4 75.5 156.5 149.4
Other income, net (9.5) (11.4) (12.8) (23.9)
--------- --------- --------- ---------
Total expenses 1,714.8 1,572.3 3,385.6 3,073.8
--------- --------- --------- ---------
Earnings from continuing
operations before income
taxes 438.4 397.6 793.6 729.5
Provision for income taxes 165.3 147.5 299.2 270.6
--------- --------- --------- ---------
Net earnings from continuing
operations $273.1 $250.1 $494.4 $458.9
--------- --------- --------- ---------
Loss from discontinued
operations, net of benefit
from income taxes of $7.3 and
$0.0 for the three months ended
December 31, 2005 and 2004,
respectively, and $8.1 and
$0.3 for the six months ended
December 31, 2005 and 2004,
respectively 13.4 - 14.7 0.6
--------- --------- --------- ---------
Net earnings $259.7 $250.1 $479.7 $458.3
========= ========= ========= =========
Basic earnings per share from
continuing operations $0.47 $0.43 $0.86 $0.79
Basic earnings per share from
discontinued operations (0.02) - (0.03) -
--------- --------- --------- ---------
Basic earnings per share $0.45 $0.43 $0.83 $0.79
========= ========= ========= =========
Diluted earnings per share from
continuing operations $0.47 $0.42 $0.85 $0.78
Diluted earnings per share from
discontinued operations (0.02) - (0.02) -
--------- --------- --------- ---------
Diluted earnings per share $0.45 $0.42 $0.83 $0.78
========= ========= ========= =========
Dividends per common share $0.1850 $0.1550 $0.3400 $0.2950
========= ========= ========= =========
(A) Net of pass-through costs of $1,719.2 and $1,352.0 for the three
months ended December 31, 2005 and 2004, respectively, and
$3,209.9 and $2,501.5 for the six months ended December 31, 2005
and 2004, respectively.
(B) The Consolidated Statements of Earnings for the three and six
months ended December 31, 2005 reflect the results of the Company
on an "as reported" basis and include incremental stock
compensation expense relating to the Company's stock compensation
plans of $8.0 and $16.6 in operating expenses, $20.9 and $43.5 in
selling, general and administrative expenses and $8.6 and $18.0 in
systems development and programming costs, respectively, as well
as a related tax benefit of $10.2 and $21.3 for the three and six
months ended December 31, 2005, respectively, in accordance with
SFAS No. 123R, "Share-Based Payment," which the Company adopted as
of July 1, 2005.
(C) The Consolidated Statements of Earnings for the three and six
months ended December 31, 2004 reflect the results of the Company
on an "as reported" basis and do not include incremental stock
compensation expense.
In order to show the results for the three and six months ended
December 31, 2005 and 2004 on a comparable basis, adjustments for
incremental stock compensation expense relating to the Company's stock
compensation plans are shown in the Consolidated Statements of
Earnings - Comparable Basis, as Adjusted for Stock Compensation
Expense for the Three & Six Months Ended December 31, 2004 that
follows.
Automatic Data Processing, Inc. and Subsidiaries
Consolidated Statements of Earnings - Comparable Basis, as Adjusted
for Stock Compensation Expense for the Three & Six Months Ended
December 31, 2004
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2005 (B) 2004 2005 (B) 2004
------------------------------------------
Adjusted Adjusted
for Stock for Stock
Compensation Compensation
Expense (C) Expense (C)
Revenues, other than
interest on funds held for
Employer Services' clients
and PEO revenues $1,870.8 $1,745.4 $3,632.6 $3,368.6
Interest on funds held for
Employer Services' clients 118.9 91.1 227.3 175.8
PEO revenues (A) 163.5 133.4 319.3 258.9
------------------------------------------
Total revenues 2,153.2 1,969.9 4,179.2 3,803.3
------------------------------------------
Operating expenses 992.2 905.2 1,947.7 1,764.9
Selling, general and
administrative expenses 489.0 488.6 971.1 957.3
Systems development and
programming costs 163.7 160.5 323.1 321.4
Depreciation and
amortization 79.4 75.5 156.5 149.4
Other income, net (9.5) (11.4) (12.8) (23.9)
------------------------------------------
Total expenses 1,714.8 1,618.4 3,385.6 3,169.1
------------------------------------------
Earnings from continuing
operations before income
taxes 438.4 351.5 793.6 634.2
Provision for income taxes 165.3 134.7 299.2 244.0
------------------------------------------
Net earnings from continuing
operations $273.1 $216.8 $494.4 $390.2
------------------------------------------
Loss from discontinued
operations, net of benefit
from income taxes of $7.3 and
$0.1 for the three months
ended December 31, 2005 and
2004, respectively, and $8.1
and $0.6 for the six months
ended December 31, 2005 and
2004, respectively 13.4 0.3 14.7 1.2
------------------------------------------
Net earnings $259.7 $216.5 $479.7 $389.0
==========================================
Basic earnings per share
from continuing operations $0.47 $0.37 $0.86 $0.67
Basic earnings per share
from discontinued
operations (0.02) - (0.03) -
------------------------------------------
Basic earnings per share $0.45 $0.37 $0.83 $0.67
==========================================
Diluted earnings per share
from continuing operations $0.47 $0.36 $0.85 $0.66
Diluted earnings per share
from discontinued
operations (0.02) - (0.02) -
------------------------------------------
Diluted earnings per share $0.45 $0.36 $0.83 $0.66
==========================================
Dividends per common share $0.1850 $0.1550 $0.3400 $0.2950
==========================================
(A) Net of pass-through costs of $1,719.2 and $1,352.0 for the three
months ended December 31, 2005 and 2004, respectively, and
$3,209.9 and $2,501.5 for the six months ended December 31, 2005
and 2004, respectively.
(B) The Consolidated Statements of Earnings for the three and six
months ended December 31, 2005 reflect the results of the Company
on an "as reported" basis and include incremental stock
compensation expense relating to the Company's stock compensation
plans of $8.0 and $16.6 in operating expenses, $20.9 and $43.5 in
selling, general and administrative expenses and $8.6 and $18.0 in
systems development and programming costs, respectively, as well
as a related tax benefit of $10.2 and $21.3 for the three and six
months ended December 31, 2005, respectively, in accordance with
SFAS No. 123R, "Share-Based Payment," which the Company adopted as
of July 1, 2005.
(C) The adjusted Consolidated Statements of Earnings for the three and
six months ended December 31, 2004 include adjustments for
incremental stock compensation expense relating to the Company's
stock compensation plans of $10.0 and $21.1 in operating expenses,
$25.2 and $50.7 in selling, general and administrative expenses
and $10.9 and $23.5 in systems development and programming costs,
respectively, as well as a related tax benefit of $12.8 and $26.6
for the three and six months ended December 31, 2004,
respectively.
Tables showing fiscal 2005 quarterly detail, as adjusted for stock
compensation expense related to the Company's stock compensation
plans, are posted to the investor relations homepage of our website at
www.adp.com under financial data.
Automatic Data Processing, Inc. and Subsidiaries
Other Selected Financial Data
(Dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2005 2004 2005 2004
--------- --------- --------- ------------
Revenues for select business
units (A)
Employer Services $1,372.5 $1,250.3 $2,671.9 $2,440.7
Brokerage Services 366.3 338.8 720.9 651.8
Dealer Services 270.0 245.8 523.8 486.1
Securities Clearing and
Outsourcing Services 19.8 15.4 37.5 15.4
Pre-tax earnings for select
business units (A)
Employer Services $309.5 $284.9 $581.0 $505.2
Brokerage Services 53.5 50.6 106.9 91.9
Dealer Services 40.2 38.5 81.3 74.7
Securities Clearing and
Outsourcing Services (7.6) (5.2) (19.4) (5.2)
(A) Prior year's segment results were adjusted to reflect fiscal
year 2006 budgeted foreign exchange rates.
Components of Other Income,
net:
---------------------------
Interest income on corporate
funds $(38.3) $(26.1) $(73.1) $(51.9)
Interest expense 25.7 10.8 44.4 18.9
Realized losses (gains) on
available-for-sale
securities, net 3.1 3.9 15.9 9.1
--------- --------- --------- ------------
Total other income, net $(9.5) $(11.4) $(12.8) $(23.9)
========= ========= ========= ============
Earnings per share
information:
------------------
Net earnings from continuing
operations $273.1 $250.1 $494.4 $458.9
Net earnings $259.7 $250.1 $479.7 $458.3
Basic weighted average
shares outstanding 576.2 583.2 576.8 583.4
Basic earnings per share
from continuing operations $0.47 $0.43 $0.86 $0.79
Basic earnings per share $0.45 $0.43 $0.83 $0.79
Diluted net earnings from
continuing operations $273.4 $250.4 $495.0 $459.4
Diluted net earnings $260.0 $250.4 $480.2 $458.8
Diluted weighted average
shares outstanding 582.3 591.1 582.0 590.5
Diluted earnings per share
from continuing operations $0.47 $0.42 $0.85 $0.78
Diluted earnings per share $0.45 $0.42 $0.83 $0.78
Three Months Ended Six Months Ended
December 31, December 31,
2004 Comparable 2004 Comparable
Basis, As Basis, As
Adjusted for Adjusted for
Stock Stock
Compensation Compensation
Expense Expense
----------------- ----------------
Net earnings from continuing
operations $216.8 $390.2
Net earnings $216.5 $389.0
Basic weighted average
shares outstanding 583.2 583.4
Basic earnings per share
from continuing operations $0.37 $0.67
Basic earnings per share $0.37 $0.67
Diluted net earnings from
continuing operations $217.1 $390.7
Diluted net earnings $216.8 $389.5
Diluted weighted average
shares outstanding 591.1 590.5
Diluted earnings per share
from continuing operations $0.36 $0.66
Diluted earnings per share $0.36 $0.66
Automatic Data Processing, Inc. and Subsidiaries
Other Selected Financial Data (Continued)
(Dollars in millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2005 2004 2005 2004
-------- -------------- --------- ------
Key Statistics:
---------------
Internal revenue growth:
Employer Services 10% 7% 10% 6%
Brokerage Services 9% 10% 11% 11%
Dealer Services 4% 6% 4% 6%
Average investment
balances at cost (in
billions):
Corporate investments $4.2 $3.7 $4.1 $3.8
Funds held for
clients 12.0 10.7 11.7 10.4
-------- -------------- --------- ------
Total $16.2 $14.4 $15.8 $14.2
======== ============== ========= ======
Average interest rates
earned exclusive of
realized losses (gains)
on:
Corporate investments 3.67% 2.79% 3.55% 2.74%
Funds held for
clients 3.92% 3.39% 3.85% 3.34%
Total 3.86% 3.24% 3.78% 3.18%
Stock Compensation Impact
on Diluted EPS:
-------------------------
Year-Over-
Fiscal Fiscal Year
2005 2006 (F) Growth (F)
-------- -------------- ---------
Diluted EPS, as reported:
From Continuing
Operations $1.79
From Discontinued
Operations -
--------
Diluted EPS, as reported $1.79
Less: Pro forma EPS impact
of stock compensation
expense on:
Continuing Operations 0.22
Discontinued
Operations -
Pro forma EPS impact of
stock compensation --------
expense 0.22
Diluted EPS assuming stock
compensation expensed in
both periods:
Continuing Operations $1.57 $1.93 - $1.96 23% - 25%
Discontinued
Operations - (0.02)
Diluted EPS, assuming
stock compensation -------- -------------- ---------
expensed in both periods $1.57(P) $1.91 - $1.94 22% - 24%
======== ============== =========
Diluted EPS assuming stock
compensation not expensed
in either period:
Continuing Operations $1.79 $2.12 - $2.15 18% - 20%
Discontinued
Operations - (0.02)
Diluted EPS, assuming
stock compensation not -------- -------------- ---------
expensed in either period $1.79 $2.10 - $2.13(P) 17% - 19%
======== ============== =========
(F) Forecast
(P) Pro forma
Automatic Data Processing, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
December 31, June 30,
2005 2005
------------- -------------
(Unaudited)
Assets
------
Cash and cash equivalents/Short-term
marketable securities $1,571.1 $1,670.8
Securities clearing receivables 1,049.8 965.2
Other current assets 1,794.4 1,785.6
Assets of discontinued operations 15.9 32.9
------------- -------------
Total current assets 4,431.2 4,454.5
Long-term marketable securities 326.4 447.9
Property, plant and equipment, net 761.9 671.4
Other non-current assets 4,399.0 4,144.1
Funds held for clients 19,724.7 17,897.5
------------- -------------
Total assets $29,643.2 $27,615.4
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Securities clearing payables $851.7 $745.2
Other current liabilities 1,934.6 2,048.8
Liabilities of discontinued operations 10.2 6.7
------------- -------------
Total current liabilities 2,796.5 2,800.7
Long-term debt 74.4 75.8
Other non-current liabilities 1,055.8 1,095.9
Client funds obligations 19,860.6 17,859.2
------------- -------------
Total liabilities 23,787.3 21,831.6
Total stockholders' equity 5,855.9 5,783.8
------------- -------------
Total liabilities and stockholders'
equity $29,643.2 $27,615.4
============= =============
This release and other written or oral statements made from time to time by ADP may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and which may be identified by the use of words like "expects," "assumes," "projects," "anticipates," "estimates," "we believe," "could be" and other words of similar meaning, are forward-looking statements. These statements are based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include: ADP's success in obtaining, retaining and selling additional services to clients; the pricing of products and services; changes in laws regulating payroll taxes, professional employer organizations, employee benefits and registered clearing agencies and broker-dealers; overall market and economic conditions, including interest rate and foreign currency trends; competitive conditions; stock market activity; auto sales and related industry changes; employment and wage levels; changes in technology; availability of skilled technical associates and the impact of new acquisitions and divestitures. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
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