ADP 2004 Annual Report Download - page 25

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Automatic Data Processing, Inc. and Subsidiaries
balance was $11.1 billion during fiscal 2004, representing an
increase of 24%, of which about one-half was related to the June
2003 acquisition of ProBusiness Services, Inc. Revenues from
our “beyond payroll” products continued to grow at a faster rate
than the traditional payroll and payroll tax revenues. Our
Professional Employer Organization (PEO) revenues grew 28% to
$467 million primarily due to 10% growth in the number of PEO
worksite employees and additional pass-through benefit and
workers’ compensation costs. In addition, “beyond payroll”
revenues increased due to increased number of clients
utilizing services, such as Time and Labor Management and
TotalPay Services.
Earnings Before Income Taxes
Earnings before income taxes in Employer Services decreased
7% for the fiscal year due primarily to our investment spending
relating to our employer of choice initiatives, investments in our
salesforce and costs to maintain our products and services totaling
approximately $138 million. In addition, earnings before income
taxes declined approximately 3% as a result of the integration of
certain fiscal 2003 acquisitions. These decreases were offset by
the increase in earnings before income taxes of approximately
9% as a result of revenue growth and operating efficiencies.
Fiscal 2003 Compared to Fiscal 2002
Revenues
Employer Services’ revenues grew 5% in fiscal 2003 when com-
pared to fiscal 2002. Despite the negative impacts of the weak
economy in fiscal 2003, Employer Services grew primarily due
to the increases in our U.S. payroll and payroll tax businesses,
as well as strong growth in our “beyond payroll” products,
including our PEO business. Internal revenue growth was approx-
imately 5% for the fiscal year. Client retention improved 1%
from the prior year; however, pays per control decreased 1% for
the year. New business sales, which represent the annualized
recurring revenues anticipated from sales orders to new and
existing clients, decreased 2% to approximately $710 million in
fiscal 2003. Interest income is credited to Employer Services at
a standard rate of 4.5%. The average client funds balance was
$8.9 billion during fiscal 2003, representing an increase of 7%.
Our “beyond payroll” revenues increased due to the growth in
our PEO revenues of 37% to $366 million primarily due to the
13% growth in the number of PEO worksite employees and addi-
tional pass-through benefit and workers’ compensation costs.
Earnings Before Income Taxes
Earnings before income taxes grew 8% as a result of the 5%
increase in revenues and our cost containment efforts of reduc-
ing headcount to properly align our cost structure with our exist-
ing businesses, which contributed approximately 3% to the
increase.
On June 20, 2003, we acquired all of the outstanding
shares of ProBusiness Services, Inc. for cash of approximately
$517 million, net of cash acquired.
Brokerage Services
Fiscal 2004 Compared to Fiscal 2003
Revenues
Brokerage Services’ revenues increased 3% for fiscal 2004 when
compared to fiscal 2003 primarily due to an increase in certain
investor communications activity offset by continued industry
consolidations which reduced our trade processing revenues.
Revenues from investor communications increased by $83 mil-
lion, or 7%, to $1.2 billion primarily due to increases in the vol-
ume of our proxy and interim communications services, as well
as our distribution services for confirmations, statements, and
pre- and post-sale mutual fund documents. Our proxy and inter-
im communication pieces delivered increased 15%, from 755
million to 865 million, stemming from more holders of equities
and incremental activity from recent mutual fund industry regu-
latory activity. Stock record growth, which is a measure of how
many stockholders own a security compared with the prior year
and a key factor in the number of pieces delivered, increased
4% in fiscal 2004 as compared to a 1% decline in
fiscal 2003. Our distribution services’ revenue increased $35
million primarily due to the increase in the amount of pre- and
post-sale mutual fund pieces delivered. Our back-office trade
processing revenues declined by $12 million to $343 million
primarily due to an 11% decline in the average revenue per
trade. The average revenue per trade was primarily impacted by
industry consolidations, our client mix, and volume processed
under tier pricing agreements. The decline in the average rev-
enue per trade was partially offset by an increase in average
trades per day of 6%, from 1.32 million to 1.39 million, prima-
rily due to net new business sales and internal growth.