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

Business Wire, Jan 25, 2006

ROSELAND, N.J. -- 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.