ADP 1999 Annual Report Download - page 6

We are players in the Internet world and we will play on an even wider
scale in the future.
(2) The primary differentiator for service organizations in the future
will increasingly be the quality of the service being offered. We have
focused and invested heavily over the last 2+ years to move to our
World Class Service goal. We have invested in tools, processes, training
and staffing levels, and we are seeing results across all of our businesses.
Nevertheless, our overall client retention rates have not yet sufficiently
reflected the quality increase. They will. We will continue to intensify
the focus and investment in World Class Service, as we strongly believe
it is a fundamental foundation for ADP’s long-term success.
(3) We realized a year ago that one of the most rapid changes
starting to take place now — and one we expect to continue through
the next decade — is the shortage of qualified candidates entering
the workforce who meet ADP’s needs. We have introduced an Employer
of Choice initiative to improve ADP’s ability to attract and retain associ-
ates who will provide the expertise and commitment to quality service
that will make us succeed.
Are these enough for ADP to succeed?
If our culture remains sufficiently adaptive to change; if we take advan-
tage of our expert knowledge of the markets in which we compete; if we
utilize our #1 market positions to out invest our competition in new and
add-on products; if we utilize our strong financial position intelligently;
and if we create the environment our 37,000 associates are proud to be
part of...the answer is absolutely yes. The ingredients for success are clearly
here. Our challenge—one we are confident we are up to—is to deliver.
Y2K
ADP has had a corporate Y2K office in place for multiple years. It has
conducted ongoing reviews and audits on every existing ADP business
and each new acquisition for Y2K compliance.
Collectively, ADP has over 120 million lines of computer code that
have been reviewed, remediated and tested for Y2K compliance.
Additionally, we have been in live production on our primary payroll
engine (AutoPay®) since April 1998 and we have conducted extensive
testing with both the banking community and tax authorities. We also
served as a lead participant and the primary provider, along with the
Securities Industry Association, of the database test bed for brokerage
industry-wide testing supervised by the Depository Trust Company (DTC).
We have no known Y2K compliance issues at this time except final
clean up and testing with a few recent acquisitions. Nonetheless, we will
continue to inspect what we expect with internal audits and ongoing
partner testing over the remaining months in 1999.
Acquisitions and Dispositions
ADP supplements its internal growth with strategic acquisitions that
extend our markets or add applications to our product sets. In ‘99 we
acquired 12 businesses with approximately $245 million in revenues.
Our largest acquisition was The Vincam Group, a leading PEO, with
revenues of approximately $125 million. Vincam provides a suite of
human resource functions to small- and medium-sized employers on
an outsourced basis. Employer Services also acquired the benefits admin-
istration business of J&H/KVI, expanding our presence in that market.
With the acquisition of OMR Systems, Brokerage Services increased
its global processing capabilities for a wide range of non-securitized
financial instruments. An important acquisition for Dealer Services was
Dealer Solutions, a developer of client/server dealer management systems.
We also review each business and product line and dispose of those
that are no longer strategically relevant. In ‘98, we sold businesses with
$95 million of annual revenues, and in ‘99 we stepped up the level of
dispositions of businesses with $270 million of annual revenues. These
two years represent a catch-up. We expect the level of dispositions to be
lower in the future.
Importance of People
ADP’s greatest strength is our team of 37,000 associates whose commit-
ment to achieving World Class Service makes our service superior.
Fortunately, we attract and retain extremely motivated, talented associates
who really care about our clients and our company. They share our
vision and help us win in the marketplace. Our Corporate Philosophy
statement says it best: “Outstanding associates are the key to our success.”
In ‘99, Richard Douville joined ADP as Vice President Finance and
Steve Anenen, Russ DeLoach and Karen Dykstra were promoted to
Corporate Vice President in recognition of their significant contributions
to ADP’s success and their responsibilities.
Forecast
For the reasons we have expressed, we remain very confident in ADP’s
long-term prospects. In fiscal ‘00, we expect another year of double-digit
EPS growth, while we manage through the Y2K changes and make
significant investments in the future. Revenues will grow about 10%
despite the impact of ’99 dispositions of businesses.
We hope you share our excitement and enthusiasm.
Arthur F. Weinbach Gary C. Butler
Chairman & CEO President & COO
August 10, 1999
4