ADP 1999 Annual Report Download - page 5

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Letter to Shareholders
50th Anniversary
1999 is the 50th Anniversary of a 21-year-old New Jersey accountant,
Henry Taub, starting a business by manually preparing payrolls for
companies. That was the start of ADP...and what a fabulous 50 years it
has been for the Company. We’ve grown to over $5 billion in revenues
and we did it with style. ADP has a unique record of continuous,
consistent growth — 152 consecutive quarters of record revenues and
earnings per share growth, and 38 consecutive years of double-digit
increases in EPS. The records are probably even longer, but the historical
records prior to ADP going public in 1961 (when annual revenues were
$400,000) aren’t well preserved. During these 50 years, there have been
only three predecessors as CEO and each of them had a remarkable track
record. Our thanks to Henry Taub, Frank Lautenberg and Josh Weston
for their vision and leadership in helping create the terrific company
ADP has become today.
Fiscal ’99
Fiscal ‘99 was an excellent year for ADP. We had strong internal revenue
growth especially in Employer Services and Brokerage Services, our
two largest businesses, which combined, account for over 75% of ADP’s
revenues. This growth was fueled by an exceptional 20% sales growth in
Employer Services and over 30% growth in brokerage trades processed
for our Brokerage Services clients.
We overcame federal funds interest rate decreases aggregating
75 basis points. Since the average daily balances we invest are about
$6 billion, we are not immune to interest rate fluctuations. Nevertheless,
the positive momentum of our core businesses and excellent expense
control enabled us to achieve our forecasted growth.
For ‘99, consolidated revenues grew 12% to $5.5 billion. Prior to
the impact of several non-recurring items related to acquisitions and
dispositions, pretax earnings increased 20%, net earnings were up 17%
and EPS increased 15% to $1.13 from $.98 last year.
In recognition of these strong operating results, our Board declared
a two-for-one stock split and our 25th consecutive annual dividend
increase, to $.305 per share, per year, effective January 1, 1999.
ADP has significant financial strength and liquidity. Cash flow from
operations exceeded $853 million, and year-end cash and marketable
securities approximated $2.2 billion, after spending of $193 million
in ‘99 to acquire businesses and ADP shares. We purchased 2.6 million
ADP shares on the open market to fund employee equity plans.
Shareholders’ equity exceeds $4 billion and our long-term debt to
equity ratio is 4%. Our return on shareholders’ equity is a healthy 19%.
Capital expenditures for the year were $178 million, about 3% of
revenues. This compared to $202 million last year.
The Future
While we occasionally look back with pride at ADP’s accomplishments,
we spend virtually all of our time looking to the future, where all the
uncertainty, ambiguity, fun and successes reside.
Despite the accelerating pace of change — which has been discussed
so often it has become a cliché — and the resultant uncertainties, we
know strategically where we are heading, we have the adaptability to
adjust, if necessary, and we are excellent at day-to-day tactical execution.
Strategy
Where we are heading is very exciting. We have excellent growth in our
core markets. This growth is fueled by additional market penetration
— getting and keeping more clients — and by adding value-added
services to our offerings, which increases our revenues per client,
enhances new sales opportunities and improves client retention.
Our current internal revenue growth is 13 to 14%. Historically we have
supplemented our internal growth with strategic acquisitions that have
added, on average, 2 to 4%. The opportunities for ADP to acquire related
products that we can market to our over 450,000 clients remain excellent.
We are also focused on entering new business opportunities that
extend our core markets while taking advantage of synergies with our
existing business. We are especially excited about our recent entry into
the professional employer organization (PEO) marketplace, benefits
administration outsourcing, workers’ compensation claims management,
and the global brokerage market through our integration of U.S. and
international equity and fixed income systems.
Opportunities
The Internet, delivering World Class Service, and continuing to acquire
and retain associates with the right skills are challenges and opportunities
for us in the years ahead.
(1) The Internet will play an increasing role in ADP’s success. Today
it is an integral part of our strategy in every business. In the brokerage
industry, where the fastest growth is coming from on-line trading, we
are the leading service provider to the industry. In Employer Services,
we recently introduced an Internet payroll and human resource product
for small employers and the early response has been very positive. In
Dealer Services, our joint venture with Cox Communications has created
the largest used car database Web site (AutoConnectSM) on the Internet.