Automatic Data Processing, Inc. (Nasdaq:ADP) reported 9.5% revenue
growth to $2.18 billion for the first fiscal quarter ended
September 30, 2008, Gary C. Butler, president and chief executive
officer, announced today. Revenue growth benefited over 1% from
favorable foreign exchange rates during the quarter. Pretax and net
earnings from continuing operations each grew nearly 16%, and
diluted earnings per share from continuing operations increased 20%
to $0.54 from $0.45 a year ago on fewer shares outstanding. Fiscal
year-to-date, ADP acquired nearly 6.6 million shares of its stock
for treasury at a cost of over $280 million. At September 30, 2008,
cash and marketable securities balances included fixed income
securities related to an overnight commercial paper borrowing of
$1.4 billion, which was repaid on October 1, 2008. Cash and
marketable securities at September 30, 2008 were $3.0 billion, or
$1.7 billion excluding the assets related to the commercial paper
borrowing. Commenting on the results, Mr. Butler said, �Despite the
challenging economy, ADP�s first quarter revenue growth, pretax
margin improvement and growth in diluted earnings per share from
continuing operations were all solid. The turmoil in the financial
sector and resulting volatility in the markets have, however,
considerably weakened the selling environment in Employer Services
and PEO Services. As a result, we are behind our expectations for
new business sales growth. The market turmoil has also negatively
impacted the North American automobile market and as a result,
Dealer Services� revenue growth has slowed. Notwithstanding these
stronger economic headwinds, we continue to invest in client-facing
resources to continue to drive our strategic growth program.
Additionally, we are further tightening our expense control
measures in areas of discretionary spending.� Employer Services
�Employer Services� revenues increased 8% for the first quarter
compared with the same period last year. In the United States,
revenues from our traditional payroll and payroll tax filing
business grew a solid 5%, and I am also pleased with 13% growth in
our beyond payroll revenues. The number of employees on our
clients' payrolls in the United States increased 0.4%, as measured
on a same-store-sales basis for clients on our AutoPay platform. In
the first quarter, worldwide client retention continued at
excellent levels, although declining 0.3 percentage points over the
prior year�s first quarter. Combined new business sales for
Employer Services and PEO Services declined 8% worldwide due to
stronger than expected economic headwinds; new business sales
represent the anticipated annualized dollar value of future
recurring revenues from such sales. Employer Services� pretax
margin improved 150 basis points due to operating leverage,
continued expense controls, and lower selling expenses from lower
new business sales.� PEO Services �PEO Services� revenues increased
over 18% for the first quarter compared with the same period last
year. PEO Services pretax margin declined about 40 basis points due
to higher pass through costs. Average worksite employees paid by
PEO Services increased 25,000 to approximately 190,000, or 15.5%,
compared with the first quarter of fiscal 2008.� Dealer Services
�Dealer Services� revenues increased 2% for the first quarter
compared with the same period last year. Pretax margin expanded
nearly 10 basis points. Difficulties in the North American auto
markets, where new car sales have drastically declined, have
resulted in increased dealership consolidations and closings
putting pressure on dealers to reduce costs, which is having a
direct impact on our results. However, given the current
environment, I am pleased with the execution on new business sales
where our win rates remain strong against the competition.�
Interest on Funds Held for Clients, Interest Income on Corporate
Funds, and Interest Expense "As a reminder, the safety and
liquidity of our clients� funds are the foremost objectives of our
investment strategy. Client funds are invested in accordance with
ADP�s prudent and conservative investment guidelines and the
overall credit quality of the investment portfolio is AAA/AA.� �Our
investment portfolio strategy is to ladder and extend maturities
relating to our client funds. As a direct result of this strategy
on approximately 200 days a year client cash inflows and maturing
investments are lower than client obligations. We have chosen to
employ short-term financing to satisfy client funds obligations.
This extended investment strategy allows us to temper the effects
of interest rate fluctuations and average our way through an
interest rate cycle. It is important to note that ADP has had full
access to the U.S. commercial paper market to fund client
obligations throughout the credit market turbulence. During the
first quarter of fiscal 2009, our average�commercial paper
borrowing was $2.4 billion at an average rate of 2.2%.� �For the
first quarter, interest on funds held for clients of $151.9 million
declined $2.6 million, or 1.7%, due to a decline of 25 basis points
in the average interest yield to 4.3%, partially offset by growth
of 4.2% in average client funds balances to $14.0 billion.�
�Interest expense of $19.2 million declined $10.2 million, or
34.7%, primarily from lower interest expense on our short-term
financing related to the extended investment strategy due to a 300
basis point decline in average commercial paper borrowing rates to
2.2%.� Fiscal 2009 forecast �The economic environment has worsened
since the beginning of the fiscal year. As a result of these
headwinds, we are reducing our revenue forecasts as discussed
below. However, by stepping up our cost containment measures during
this challenging period, and through the inherent leverage in our
business model, we expect to continue to expand pretax margins in
each of our business segments. �For Employer Services, we
anticipate revenue growth of about 5% compared with our previous
forecast of 6% to 7% growth. We continue to anticipate at least 50
basis points of pretax margin expansion in Employer Services. We
anticipate 14% to 16% revenue growth for PEO Services compared with
our previous forecast of 16% to 17% growth. We anticipate up to 50
basis points of pretax margin expansion in PEO Services. We
anticipate a decline of about 10% in worldwide new business sales
for Employer Services and PEO Services on a combined basis from
about $1.15 billion in new business sales last fiscal year. This
sales forecast is lower than our previous forecast of mid
single-digit growth due to the considerable stress in the economy.
For Dealer Services, we anticipate revenues will be about flat with
a year ago compared with our previous forecast of 6% to 8% growth.
We anticipate up to 50 basis points of pretax margin expansion in
Dealer Services. This lower forecast for Dealer Services is being
driven by the significant challenges facing the auto industry.� �We
have also updated our client funds portfolio forecast. The interest
assumptions in our current forecast are based on Fed Funds futures
contracts and forward yield curves as of October 31, 2008, which
anticipate a decrease of 25 basis points in the Fed Funds rate to
0.75% before the end of 2008, and then an increase of 25 basis
points in the spring of 2009, exiting the fiscal year with a Fed
Funds rate of 1.00%.� �Interest on funds held for clients is
expected to decline $60 to $65 million, or 9% to 10%, from $684.5
million in fiscal 2008 based on an approximate 40 basis point
decline in the average interest yield to about 4.0%, and flat to
slightly down average client funds balances. We anticipate
unfavorable Canadian foreign exchange rates will reduce balance
growth over 1 percentage point; additionally, we are forecasting
fewer employees on our clients� payrolls, slower than anticipated
new business sales growth, and lower wage growth, including lower
bonuses. This forecast is about $35 million lower than our previous
estimate of a $25 to $30 million decline in interest on funds held
for clients, which was based on an average interest yield of nearly
4.2% on expected growth of 1% to 2% in average client funds
balances.� �Interest expense is expected to decline $35 to $40
million from $80.5 million in fiscal 2008, primarily from lower
interest expense on our short-term financing related to the
extended investment strategy due to an approximate 260 basis point
decline in average commercial paper borrowing rates.� �As a result
of the preceding changes, we currently anticipate total revenue
growth of 2% to 3% for fiscal 2009, compared with our previous
forecast of 7% to 8% revenue growth. Over 2 percentage points of
the 4 to 6 percentage point reduction is attributable to the
anticipated continuation of unfavorable foreign exchange rates due
to the strengthening dollar. The reduction in our business segment
forecasts noted above reduced our total revenue forecast about 3
percentage points. However, by remaining focused on our strategy to
expand pretax margins, along with continued tightening of cost
containment measures, we continue to be confident in our ability to
achieve our 10% to 14% forecasted growth in diluted earnings per
share from continuing operations, up from $2.18 in fiscal 2008
(which excludes the net one-time gain of $0.02 per share recorded
in the fourth quarter of fiscal 2008).� �ADP is a strong brand with
an excellent business model - about 90% of the revenues generated
by our businesses are recurring revenues; our clients stay with us,
on average, about 10 years; we have excellent margins; we have
healthy, reliable and consistent cash flows and low capital
expenditure requirements; we are proud to be a AAA credit rated
company; and the markets we serve are under-penetrated. As such, we
continue to remain optimistic about ADP�s long-term opportunities
for growth,� Mr. Butler concluded. Website Schedules The schedules
of quarterly and full-year revenue and pretax earnings by
reportable segment for fiscal years 2007 and 2008 and the first
quarter of fiscal 2009 have been updated to reflect fiscal 2009
budgeted foreign exchange rates, and are posted to the Investor
Relations home page (http://www.investquest.com/iq/a/adp/index.htm)
of our website www.adp.com under Financial Data along with the
quarterly and full-year statements of earnings for fiscal 2007 and
fiscal 2008. An analyst conference call will be held today, Monday,
November 3 at 4:45 p.m. EST. A live webcast of the call will be
available to the public on a listen-only basis. To listen to the
webcast and view the slide presentation, go to ADP�s home page,
www.adp.com, or ADP�s Investor Relations home page,
http://www.investquest.com/InvestQuest/a/adp/, and click on the
webcast icon. The presentation will be available to download and
print approximately 40 minutes before the webcast at the ADP
Investor Relations home page at
http://www.investquest.com/iq/a/adp/index.htm. ADP�s news releases,
current financial information, SEC filings and Investor Relations
presentations are accessible at the same Web site. About ADP
Automatic Data Processing, Inc. (Nasdaq: ADP), with nearly $9
billion in revenues and over 585,000 clients, is one of the world's
largest providers of business outsourcing solutions. Leveraging
nearly 60 years of experience, ADP offers a wide range of HR,
payroll, tax and benefits administration solutions from a single
source. ADP's easy-to-use, cost-effective solutions for employers
provide superior value to companies of all types and sizes. ADP is
also a leading provider of integrated computing solutions to auto,
truck, motorcycle, marine and recreational vehicle dealers
throughout the world. For more information about ADP or to contact
a local ADP sales office, reach us at 1.800.225.5237 or visit the
company's Web site at www.ADP.com. Automatic Data Processing, Inc.
and Subsidiaries Condensed Consolidated Balance Sheets (In
millions) (Unaudited) � September 30, � June 30, 2008 2008 Assets
Cash and cash equivalents/Short-term marketable securities (A) $
2,919.1 $ 1,583.8 Other current assets � 1,671.0 � 1,806.2 Total
current assets before funds held for clients 4,590.1 3,390.0 Funds
held for clients � 14,759.1 � 15,418.9 Total current assets
19,349.2 18,808.9 � Long-term marketable securities (B) 66.1 76.5
Property, plant and equipment, net 730.8 742.9 Other non-current
assets � 4,030.8 � 4,106.1 Total assets $ 24,176.9 $ 23,734.4 �
Liabilities and Stockholders' Equity Obligation under commercial
paper borrowing $ 1,362.9 $ ����� - Other current liabilities
1,902.7 2,046.9 Client funds obligations � 14,814.8 � 15,294.7
Total current liabilities 18,080.4 17,341.6 � Long-term debt 39.2
52.1 Other non-current liabilities � 1,196.0 � 1,253.5 Total
liabilities 19,315.6 18,647.2 � Total stockholders' equity �
4,861.3 � 5,087.2 Total liabilities and stockholders' equity $
24,176.9 $ 23,734.4 � (A) As of September 30, 2008, cash and cash
equivalents / short-term marketable securities include short-term
marketable securities related to a commercial paper borrowing of
$1.4 billion, which was repaid on October 1, 2008. � (B) As of June
30, 2008, long-term marketable securities include $11.7 million of
securities that have been pledged as collateral under the Company's
reverse repurchase agreement. Automatic Data Processing, Inc. and
Subsidiaries Consolidated Statements of Earnings (In millions,
except per share amounts) (Unaudited) � � Three Months Ended
September 30, 2008 2007 REVENUES: Revenues, other than interest on
funds held for clients and PEO revenues $ 1,752.5 $ 1,603.5
Interest on funds held for clients 151.9 154.5 PEO revenues (A)
277.1 234.0 Total revenues 2,181.5 1,992.0 � EXPENSES: Costs of
revenues: Operating expenses 1,046.9 908.3 Systems development and
programming costs 130.4 124.4 Depreciation and amortization 59.4
59.4 Total costs of revenues 1,236.7 1,092.1 � Selling, general and
administrative expenses 526.7 533.6 Interest expense 19.2 29.4
Total expenses 1,782.6 1,655.1 � Other income, net (42.4) (44.6) �
Earnings from continuing operations before income taxes 441.3 381.5
� Provision for income taxes 163.3 141.1 � � Net earnings from
continuing operations $ 278.0 $ 240.4 � (Loss) / earnings from
discontinued operations, net of provision for income taxes of $1.1
and $31.2 for the three months ended September 30, 2008 and 2007,
respectively. (1.1) 57.0 � � Net earnings $ 276.9 $ 297.4 � Basic
earnings per share from continuing operations $ 0.55 $ 0.45 Basic
earnings per share from discontinued operations (B) 0.00 0.11 Basic
earnings per share $ 0.55 $ 0.56 � Diluted earnings per share from
continuing operations $ 0.54 $ 0.45 Diluted earnings per share from
discontinued operations (B) 0.00 0.11 Diluted earnings per share $
0.54 $ 0.55 � Dividends per common share $ 0.2900 $ 0.2300 � � (A)
Professional Employer Organization ("PEO") revenues are net of
direct pass-through costs, primarily consisting of payroll wages
and payroll taxes, of $2,798.6 and $2,404.2 for the three months
ended September 30, 2008 and 2007, respectively. � (B) The $0.11 in
basic and diluted EPS for the three months ended September 30, 2007
relates to the gain on the sale of the Travel Clearing business.
Automatic Data Processing, Inc. and Subsidiaries Other Selected
Financial Data (Dollars in millions, except per share amounts)
(Unaudited) � � � � Three Months Ended September 30, � 2008 � �
2007 � Change % Change Revenues (A) Employer Services $ 1,566.4 $
1,447.7 $ 118.7 8 % PEO Services 279.2 235.7 43.5 18 % Dealer
Services 338.9 331.7 7.2 2 % Other � (3.0 ) � (23.1 ) � 20.1 � 87 %
$ 2,181.5 � $ 1,992.0 � $ 189.5 � 10 % Pre-tax earnings from
continuing operations (A) Employer Services $ 369.4 $ 320.3 $ 49.1
15 % PEO Services 28.4 25.0 3.4 13 % Dealer Services 51.9 50.5 1.4
3 % Other � (8.4 ) � (14.3 ) � 5.9 � 41 % $ 441.3 � $ 381.5 � $
59.8 � 16 % Pre-tax margin (A) Employer Services 23.6 % 22.1 % 1.5
% PEO Services 10.2 % 10.6 % (0.4 )% Dealer Services 15.3 % 15.2 %
0.1 % Other � n/m � � n/m � � n/m � � 20.2 % � 19.2 % � 1.0 % � (A)
Prior year's segment results were adjusted to reflect fiscal year
2009 budgeted foreign exchange rates. � n/m - not meaningful � � �
� � � � � � Three Months Ended September 30, � 2008 � � 2007 �
Change Components of other income, net: Interest income on
corporate funds $ (46.0 ) $ (44.0 ) $ (2.0 ) Realized gains on
available-for-sale securities (1.1 ) (4.6 ) 3.5 Realized losses on
available-for-sale securities 1.9 4.6 (2.7 ) Other � 2.8 � � (0.6 )
� 3.4 � Total other income, net $ (42.4 ) $ (44.6 ) $ 2.2 � � � � �
� � � � � � Three Months Ended September 30, � 2008 � � 2007 �
Change % Change Earnings per share information: Net earnings from
continuing operations $ 278.0 $ 240.4 $ 37.6 16 % Net earnings $
276.9 $ 297.4 $ (20.5 ) (7 )% Basic weighted average shares
outstanding 507.5 529.3 (21.8 ) (4 )% Basic earnings per share from
continuing operations $ 0.55 $ 0.45 $ 0.10 22 % Basic earnings per
share $ 0.55 $ 0.56 $ (0.01 ) (2 )% � Diluted net earnings from
continuing operations $ 278.0 $ 240.4 $ 37.6 16 % Diluted net
earnings $ 276.9 $ 297.4 $ (20.5 ) (7 )% Diluted weighted average
shares outstanding 513.5 536.2 (22.7 ) (4 )% Diluted earnings per
share from continuing operations $ 0.54 $ 0.45 $ 0.09 20 % Diluted
earnings per share $ 0.54 $ 0.55 $ (0.01 ) (2 )% � � � � � � � � �
� Three Months Ended September 30, � 2008 � � 2007 � Key
Statistics: Internal revenue growth: Employer Services 8 % 9 % PEO
Services 18 % 21 % Dealer Services 1 % 7 % � Employer Services:
Change in pays per control - AutoPay product 0.4 % 1.6 % Change in
client revenue retention percentage - worldwide (0.3) pts 0.5 pts
Employer Services/PEO new business sales growth - worldwide (8 )%
11 % � PEO Services: Paid PEO worksite employees at end of period
193,000 167,000 Average paid PEO worksite employees during the
period 190,000 165,000 � � Automatic Data Processing, Inc. and
Subsidiaries Other Selected Financial Data, Continued (Dollars in
millions, except per share amounts or where otherwise stated)
(Unaudited) Three Months Ended September 30, � 2008 � � 2007 �
Change % Change Average investment balances at cost (in billions):
Corporate, other than corporate extended $ 1.5 $ 1.7 $ (0.2 ) (9.4
)% Corporate extended � 2.9 � � 2.1 � � 0.8 � 38.6 % Total
corporate 4.5 3.8 0.7 17.4 % Funds held for clients � 14.0 � � 13.5
� � 0.6 � 4.2 % Total $ 18.5 � $ 17.3 � $ 1.2 � 7.1 % � Average
interest rates earned exclusive of realized losses (gains) on:
Corporate, other than corporate extended 3.7 % 4.9 % Corporate
extended � 4.4 % � 4.4 % Total corporate 4.1 % 4.6 % Funds held for
clients � 4.3 % � 4.6 % Total � 4.3 % � 4.6 % � Net unrealized gain
(loss) position at end of period $ (41.8 ) $ (15.8 ) � Average
short-term financing (in billions): U.S. commercial paper
borrowings $ 2.4 $ 1.8 U.S. & Canadian reverse repurchase
agreement borrowings � 0.5 � � 0.3 � $ 2.9 � $ 2.1 � � Average
interest rates paid on: U.S. commercial paper borrowings 2.2 % 5.2
% U.S. & Canadian reverse repurchase agreement borrowings 2.5 %
4.5 % � � Interest on funds held for clients $ 151.9 $ 154.5 $ (2.6
) (1.7 )% Corporate extended interest income (B) 32.0 23.3 8.7 37.3
% Corporate interest expense-short-term financing (B) � (17.2 ) �
(27.5 ) � 10.3 � 37.5 % $ 166.7 � $ 150.3 � $ 16.4 � � � (B) While
�Corporate extended interest income� and �Corporate interest
expense -short-term financing� are non-GAAP disclosures, management
believes this information is beneficial to reviewing the financial
statements of ADP. Management believes this information is
beneficial as it allows the reader to understand the extended
investment strategy for ADP's client funds assets, corporate
investments and short-term borrowings. A reconciliation of the
non-GAAP measures to GAAP measures is as follows: � Three Months
Ended September 30, � 2008 � � 2007 � � Corporate extended interest
income $ 32.0 $ 23.3 All other interest income � 14.0 � � 20.7 �
Total interest income on corporate funds $ 46.0 � $ 44.0 � �
Corporate interest expense - short-term financing $ 17.2 $ 27.5 All
other interest expense � 2.0 � � 1.9 � Total interest expense $
19.2 � $ 29.4 � This document 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; 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. These risks and uncertainties, along
with the risk factors discussed under "Item 1A. - Risk Factors" in
our Annual Report on Form 10-K for the fiscal year ended June 30,
2008, should be considered in evaluating any forward-looking
statements contained herein.
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