What is the impact of the new accounting standard for stock-based compensation (SFAS No. 123R) on ADP's reported results?

Effective July 1, 2005, ADP adopted SFAS No. 123R, which requires companies to recognize stock-based compensation expense based on the fair value of awards. This adoption led to an increase in reported operating, SG&A, and systems development expenses, impacting net earnings and EPS compared to prior periods which followed APB No. 25. To aid comparability, ADP provided 'as adjusted' figures for the prior year, showing that underlying operational performance (excluding the impact of the new accounting standard) was stronger than reported GAAP figures suggest.

How did ADP's key business segments perform during this quarter?

Employer Services, ADP's largest segment, demonstrated robust growth with revenues up 10% year-over-year, driven by new business, client retention, and increased client funds balances. Brokerage Services saw an 8% revenue increase, fueled by investor communication activities, while Dealer Services revenue grew by 10%, boosted by system enhancements and a recent acquisition. Securities Clearing and Outsourcing Services showed significant revenue growth of 29%, though it reported a loss from continuing operations.

What is the company's financial position and liquidity as of December 31, 2005?

ADP maintains a strong financial position. As of December 31, 2005, the company had $1.9 billion in cash and marketable securities and stockholders' equity of $5.86 billion. The long-term debt-to-equity ratio was a very low 1.3%. Working capital was $1.63 billion. The company has significant credit facilities available and relies primarily on operating cash flows for liquidity, indicating a stable financial outlook.

Did ADP make any acquisitions or divestitures during this period?

Yes, ADP acquired three businesses during the six months ended December 31, 2005, for approximately $287.5 million, resulting in $181.3 million of goodwill. Additionally, the company finalized plans to dispose of its Brokerage Services' financial print business, recording an impairment charge and subsequently selling the business in January 2006. The results of this business were classified as discontinued operations.

ADP 10-Q Quarterly Report Q2 FY2006 — Revenue, Net Income, EPS

Summary

Automatic Data Processing, Inc. (ADP) reported solid financial results for the quarter and six months ended December 31, 2005. Total revenues increased by 9% for the quarter and 10% for the six-month period, driven by growth across its key segments, particularly Employer Services. Net earnings from continuing operations saw a 9% increase for the quarter and an 8% increase for the six-month period, with diluted EPS from continuing operations growing to $0.47 and $0.85, respectively. The company also successfully integrated recent acquisitions and is demonstrating strong operational performance. A significant accounting change impacting comparability is the adoption of SFAS No. 123R for stock-based compensation, effective July 1, 2005. While this increased reported expenses, the company also provided "as adjusted" figures to allow for a clearer year-over-year comparison, showing a more substantial increase in earnings when normalizing for this accounting change. ADP continues to focus on enhancing its services and expanding its market reach, as evidenced by strategic acquisitions and consistent revenue growth.

Key Highlights

1Total revenues grew by 9% to $2.15 billion for the three months and 10% to $4.18 billion for the six months ended December 31, 2005, compared to the prior year.
2Net earnings from continuing operations increased by 9% to $273.1 million for the quarter and 8% to $494.4 million for the six months.
3Diluted Earnings Per Share (EPS) from continuing operations rose to $0.47 for the quarter and $0.85 for the six months, up from $0.42 and $0.78 respectively in the prior year.
4Employer Services, the largest segment, showed strong revenue growth of 10% for the quarter and 9% for the six months, driven by new business, client retention, and increased client funds balances.
5The company adopted SFAS No. 123R for stock-based compensation starting July 1, 2005, which resulted in increased reported expenses but is presented with 'as adjusted' figures for comparability.
6ADP repurchased approximately 2.3 million shares during the quarter and 7.3 million shares year-to-date, contributing to a reduction in outstanding shares.
7The company maintained a strong balance sheet with $1.9 billion in cash and marketable securities and a low long-term debt-to-equity ratio of 1.3% as of December 31, 2005.

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q2 Ended Dec 31, 2005

Summary

Key Highlights

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