ADP Reports Second Fiscal Quarter Results; Revenues Rise 9%, EPS Incre

    Business Editors/High-Tech Writers

    ROSELAND, N.J.--(BUSINESS WIRE)--Jan. 21, 2005--Automatic Data Processing, Inc. (NYSE:ADP) reported 9% revenue growth, with revenues of $2.0 billion and $.42 earnings per share for the second fiscal quarter ended December 31, 2004, Arthur F. Weinbach, chairman and chief executive officer, announced today. Pretax and net earnings both increased 9% compared with the second quarter last year. Diluted earnings per share, on fewer shares outstanding, increased 11% from $.38 per share last year, the first double-digit earnings per share increase in eight quarters.
    Commenting on the quarter, Mr. Weinbach said, "We are pleased with our results as there is positive momentum in each of our businesses. Revenues in Employer Services increased 7% based on solid growth in the new business started in the quarter, the number of employees on our clients' payrolls and client fund balances. New business sales growth was 8% in the second quarter and 11% for the first half compared with last year, and we remain confident in our double-digit sales growth forecast for the year. Although the critical year-end retention period is still ahead of us, we are very pleased with our results for the first half which are .7% ahead of last year's record levels.
    "Brokerage Services' revenues grew 4% in the quarter compared with the second quarter last year. Our internal revenue growth rate was 10% after adjusting for last year's divestitures. Investor communications mailings increased 18% over last year driven by increased mutual fund meeting activity. Back-office average trades per day increased 18% over last year, while average revenue per trade declined 15% primarily due to mix changes. Our acquisition of the U.S. Clearing and BrokerDealer Services divisions of Bank of America was completed on November 1, 2004. Revenues for this new reportable segment, Securities Clearing and Outsourcing Services, were $15 million in the quarter and we anticipate about $.02 per share dilution in fiscal 2005 from this transaction. Dealer Services' revenues grew 11% and Claims Services' revenues grew 6% in the quarter compared with the second quarter last year.
    "Our results for the first half of the fiscal year have been positive. This quarter was the first in more than three years in which the yield on our investment portfolio exceeded the same quarter in the previous year. We are encouraged by our business momentum and product position coupled with the improving economic conditions, the trend in labor statistics and the increase in total brokerage trade volumes. Our revenue guidance has been increased to 7% to 9% growth and we are refining our earnings estimate to between 12% and 15% earnings per share growth. We are optimistic about the market opportunities for future growth," Mr. Weinbach concluded.
    An analyst conference call to review the second quarter results will be held today, Friday, January 21 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 approximately $8 billion in revenues and 550,000 clients, is one of the largest providers of a broad range of premier mission-critical, cost effective transaction processing and information-based business solutions in selected markets on a global basis.

Automatic Data Processing, Inc. and Subsidiaries Consolidated Statements of Earnings (In thousands, except per share amounts) (Unaudited)

Three Months Ended Six Months Ended December 31, December 31, -------------------- --------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Revenues, other than interest on funds held for Employer Services clients and PEO revenues $1,769,094 $1,636,333 $3,413,627 $3,168,722 Interest on funds held for Employer Services clients 91,129 82,202 175,792 165,136 PEO revenues (A) 133,361 108,865 258,847 213,819 ---------- ---------- ---------- ----------- 1,993,584 1,827,400 3,848,266 3,547,677 ---------- ---------- ---------- -----------

Operating expenses 915,719 810,300 1,782,739 1,604,541 Selling, general and administrative expenses 465,363 459,293 911,521 886,171 Systems development and programming costs 150,070 133,125 298,794 264,879 Depreciation and amortization 76,161 73,609 150,582 148,335 Other income, net (11,349) (14,067) (23,930) (32,659) ---------- ---------- ---------- ----------- Total expenses 1,595,964 1,462,260 3,119,706 2,871,267 ---------- ---------- ---------- ----------- Earnings before income taxes 397,620 365,140 728,560 676,410

Provision for income taxes 147,517 136,560 270,296 252,980 ---------- ---------- ---------- ----------- Net earnings $ 250,103 $ 228,580 $ 458,264 $ 423,430 ========== ========== ========== =========== Basic earnings per share $ 0.43 $ 0.39 $ 0.79 $ 0.71 ========== ========== ========== =========== Diluted earnings per share $ 0.42 $ 0.38 $ 0.78 $ 0.71 ========== ========== ========== =========== Dividends per common share $ 0.1550 $ 0.1400 $ 0.2950 $ 0.2600 ========== ========== ========== ===========

(A) Net of pass-through costs of $1,352,004 and $1,037,864 for the three months ended December 31, 2004 and 2003, respectively, and $2,501,491 and $1,949,433 for the six months ended December 31, 2004 and 2003, respectively.

Automatic Data Processing, Inc. and Subsidiaries Other Selected Financial Data (In thousands, except per share amounts) (Unaudited)

Three Months Ended Six Months Ended December 31, December 31, --------------------- ---------------------- 2004 2003 2004 2003 ---- ---- ---- ----

Revenues for select business units (B) Employer Services $1,235,000 $1,160,000 $2,412,000 $2,271,000 Brokerage Services 355,000 341,000 686,000 655,000 Dealer Services 243,000 218,000 481,000 429,000 Securities Clearing and Outsourcing Services (C) 15,000 - 15,000 -

Pre-tax earnings for select business units (B) Employer Services $ 286,000 $ 263,000 $ 505,000 $ 470,000 Brokerage Services 49,000 33,000 88,000 53,000 Dealer Services 37,000 37,000 72,000 69,000 Securities Clearing and Outsourcing Services (C) (5,000) - (5,000) -

(B) Prior year's segment results were adjusted to reflect fiscal year 2005 budgeted foreign exchange rates. (C) On November 1, 2004, the Company acquired the U.S. Clearing and BrokerDealer Services divisions of Bank of America, which provide third-party clearing operations. The Company has determined that the acquired operations constitute a separate reportable segment in accordance with Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information." The Company established a reportable segment called Securities Clearing and Outsourcing Services as of November 1, 2004 to report the results of the acquired business.

With this acquisition, the Company has reported two additional line items on the balance sheet, which are Securities Clearing and Outsourcing Receivables and Securities Clearing and Outsourcing Payables. Securities Clearing and Outsourcing Receivables consists primarily of receivables from customers for margin loans, as well as receivables from brokers, dealers and clearing organizations as a result of securities clearing transactions. Securities Clearing and Outsourcing Receivables also includes receivables for cash payments to brokers and dealers for securities that were borrowed by the Company. Securities Clearing and Outsourcing Payables represent the payables to customers for customer deposits and short sale securities transactions, and payables to brokers, dealers and clearing organizations as a result of the securities clearing transactions. Securities Clearing and Outsourcing Payables also includes payables to brokers and dealers for the cash that has been received for securities that have been loaned.

Components of Other Income, net: ------------------- Interest income on corporate funds $ (26,114)$ (23,642)$ (51,984)$ (45,742) Interest expense 10,799 5,351 18,907 10,001 Realized losses on available-for-sale securities, net 3,966 4,224 9,147 3,082 ---------- ---------- ---------- ----------- Total other income, net $ (11,349)$ (14,067)$ (23,930)$ (32,659) ========== ========== ========== =========== Earnings per share information: ------------------ Net earnings $ 250,103 $ 228,580 $ 458,264 $ 423,430 Average shares outstanding 583,230 591,685 583,389 593,264 Basic earnings per share $ 0.43 $ 0.39 $ 0.79 $ 0.71 Diluted net earnings $ 250,367 $ 229,071 $ 458,793 $ 424,247 Diluted shares outstanding 591,086 597,624 590,473 599,242 Diluted earnings per share $ 0.42 $ 0.38 $ 0.78 $ 0.71

Automatic Data Processing, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands) December 31, June 30, 2004 2004 ------------- -------------- (Unaudited) Assets ------ Cash and cash equivalents/ Short-term marketable securities $ 1,556,471 $ 1,129,075 Securities clearing and outsourcing receivables 947,011 - Other current assets 1,690,391 1,632,514 ------------- -------------- Total current assets 4,193,873 2,761,589

Long-term marketable securities 442,991 963,501 Property, plant and equipment, net 650,058 642,353 Other non-current assets 4,126,626 3,849,584 Funds held for clients 18,775,831 12,903,532 ============= ============== Total assets $ 28,189,379 $ 21,120,559 ============= ============== Liabilities and Stockholders' Equity ------------------------------------- Securities clearing and outsourcing payables $ 769,965 $ - Other current liabilities 1,830,675 1,768,424 ------------- -------------- Total current liabilities 2,600,640 1,768,424 ============= ==============

Long-term debt 75,926 76,200 Other non-current liabilities 1,146,089 1,018,040 Client funds obligations 18,710,201 12,840,225 ------------- -------------- Total liabilities 22,532,856 15,702,889

Total stockholders' equity 5,656,523 5,417,670 ------------- -------------- Total liabilities and stockholders' equity $ 28,189,379 $ 21,120,559 ============= ==============

    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 and employee benefits; 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.

--30--JM/ny*

CONTACT: ADP Investor Relations Elena Charles, 973-974-4077 or Debbie Morris, 973-974-7821

KEYWORD: NEW JERSEY INDUSTRY KEYWORD: HARDWARE SOFTWARE NETWORKING INTERNET E-COMMERCE EARNINGS CONFERENCE CALLS SOURCE: Automatic Data Processing, Inc.

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