ADP 2005 Annual Report Download - page 24

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investor communications, we were able to leverage our expense
structure to improve our margins associated with such services.
In addition, earnings before income taxes were favorably
impacted by an increase in our services to consolidate or elec-
tronically deliver proxies, which is a higher margin service. The
margin on our back-office services improved due to the contin-
ued alignment of our operating expenses to the lower back-
office revenues. Earnings before income taxes also increased
approximately $9.7 million during fiscal 2005 as a result of the
elimination of unprofitable business lines and alignment of our
cost structure in our underperforming businesses that occurred
during fiscal 2004.
Fiscal 2004 Compared to Fiscal 2003
Revenues
Brokerage Services’ revenues increased 3% for fiscal 2004 as
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 $82.9
million, or 7%, to $1,210.6 million in fiscal 2004 primarily due to
increases in the volume 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 interim communications pieces delivered increased
15%, from 755 million in fiscal 2003 to 865 million in fiscal 2004,
stemming from more holders of equities and incremental activ-
ity from recent mutual fund industry regulatory activity. Stock
record growth increased 4% in fiscal 2004. Our distribution serv-
ices’ revenue increased $39.1 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
$12.4 million, to $343.1 million, in fiscal 2004 primarily due to
an 11% decline in the average revenue per trade. The average
revenue per trade was primarily impacted by industry consolida-
tions, our client mix, and volume processed under tiered pricing
agreements. The decline in the average revenue per trade was
partially offset by an increase in average trades per day of 6%,
from 1.3 million in fiscal 2003 to 1.4 million in fiscal 2004,
primarily due to net new business sales and growth in our exist-
ing client base.
Earnings Before Income Taxes
Earnings before income taxes increased 5% in fiscal 2004
primarily due to our cost containment efforts in our underper-
forming businesses and increased revenues in our investor
communications activities. Our ability to eliminate unprofitable
business lines and properly align our cost structure with the
slower growth levels of our underperforming businesses con-
tributed approximately $19.4 million to earnings before income
taxes. These increases were offset by the decline in earnings
before income taxes from our trade processing services, prima-
rily due to industry consolidations. In addition, our earnings
before income taxes were negatively impacted by our incremen-
tal investments in our products and services and Employer of
Choice initiatives that totaled approximately $14.0 million during
fiscal 2004.
Dealer Services
Fiscal 2005 Compared to Fiscal 2004
Revenues
Dealer Services’ revenues increased 10% for fiscal 2005 as
compared to fiscal 2004. Internal revenue growth was approxi-
mately 6% for fiscal 2005. Revenues increased for our dealer
business systems in North America by $93.2 million, to
$811.0 million, for fiscal 2005 primarily due to growth in our
key products and the effect of acquisitions. The growth in our
key products was primarily driven by the increased users
for Application Service Provider (“ASP”) managed services,
increased Credit Check installations, new network installations
and increased market penetration of our Customer Relationship
Management (“CRM”) product. In addition, our revenue growth
was impacted by our continued strong client retention.
Earnings Before Income Taxes
Earnings before income taxes decreased slightly from $143.4 mil-
lion in fiscal 2004 to $142.8 million in fiscal 2005 primarily due to
the additional sales expenses relating to headcount additions to
generate the current revenue growth and additional implementa-
tion expenses to support the new sales contracts awarded during
fiscal 2005 for two of the largest dealership groups in the United
States. In addition, earnings before income taxes were negatively
impacted by the integration costs of acquisitions that occurred
during the fourth quarter of fiscal 2004.
Fiscal 2004 Compared to Fiscal 2003
Revenues
Dealer Services’ revenues increased 9% in fiscal 2004 as com-
pared to fiscal 2003. Internal revenue growth was approximately
8% for fiscal 2004. Revenues increased 8% for our dealer
business systems in North America, to $717.8 million, due to
new product growth in our traditional core businesses. The new
product growth accounted for approximately 60% of the increase
in revenue for fiscal 2004 and is primarily driven by increased
users for ASP managed services, new network installations, and
strong market acceptance of our CRM product.
Earnings Before Income Taxes
Earnings before income taxes grew 6% in fiscal 2004 primarily
due to the increase in revenues of our traditional core business,
which contributed approximately 15% to earnings before income
taxes. These increases were partially offset by our incremental
investments in our products and services and Employer of
Choice initiatives which totaled approximately $10.0 million dur-
ing fiscal 2004.
Securities Clearing and Outsourcing Services
Fiscal 2005 Compared to Fiscal 2004
Revenues
On November 1, 2004, the Company formed the Securities
Clearing and Outsourcing Services segment upon the acquisition
of the U.S. Clearing and BrokerDealer Business. Revenues for
Securities Clearing and Outsourcing Services were $61.5 million
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
AUTOMATIC DATA PROCESSING, INC. AND SUBSIDIARIES