10-KPeriod: FY2006

AUTOMATIC DATA PROCESSING INC Annual Report, Year Ended Jun 30, 2006

Filed August 30, 2006For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported strong financial performance for the fiscal year ended June 30, 2006, with consolidated revenues growing 11% to $8.88 billion. This growth was primarily driven by its Employer Services segment, which saw a 10% increase in revenue, bolstered by strong new business sales and improved client retention. The company also successfully divested its Claims Services business for $975 million, generating a significant gain and strengthening its cash position. Looking ahead, ADP announced a plan to spin off its Brokerage Services Group into a separate, publicly traded company, aiming to streamline operations and allow each entity to focus on its respective markets. The company's outlook for fiscal year 2007 projects continued revenue growth of approximately 10% and earnings per share growth of 17-20%, reflecting confidence in its core businesses and strategic initiatives.

Key Highlights

  • 1Consolidated revenues increased 11% to $8.88 billion in fiscal 2006.
  • 2Employer Services revenue grew 10%, with new business sales up 13% and client retention improving.
  • 3The company divested its Claims Services business for $975 million, realizing a significant gain.
  • 4ADP announced plans to spin off its Brokerage Services Group into an independent entity.
  • 5Diluted earnings per share from continuing operations grew 9% to $1.85, or 25% on a comparable pro forma basis.
  • 6The company accelerated share buyback programs, repurchasing over 29 million shares.
  • 7Strong cash flow generation and a solid balance sheet with $2.6 billion in cash and marketable securities.

Frequently Asked Questions

ADP's revenue growth in fiscal year 2006 was primarily driven by its Employer Services segment, which experienced a 10% increase in revenue. This was fueled by new business sales, an increase in the number of employees on client payrolls, price increases, strong growth in 'beyond payroll' products, and improved client retention. The Brokerage Services and Dealer Services segments also contributed to the overall revenue growth.

The most significant strategic events were the divestiture of the Claims Services business for $975 million in cash, which resulted in a substantial gain, and the announcement of a plan to spin off the Brokerage Services Group into an independent publicly traded company. The company also accelerated its share repurchase program.

The adoption of SFAS No. 123R, effective July 1, 2005, required the expensing of stock-based compensation. This resulted in a significant increase in reported expenses and a lower 'as reported' earnings per share compared to a pro forma adjusted basis that included comparable stock compensation expense in the prior year. On a comparable basis, earnings growth was much stronger.

For fiscal year 2007, ADP projected revenue growth of approximately 10% and earnings per share growth of 17% to 20%. This outlook was supported by anticipated strong momentum in Employer Services, continued improvement in client retention, and expected revenue growth in Brokerage Services and Dealer Services. Interest income on client funds was also expected to grow.