ADP 1998 Annual Report Download - page 19

In 98 the ES operating margin was 21% compared to
22% in 97 and 96. Investments associated with new prod-
ucts and acquisitions, and increased investments in sales
force, market penetration and client service contributed
to the decrease.
ES revenue shown above includes the pretax equivalent
of interest earned on funds collected from clients as part
of the Companys integrated payroll and payroll tax filing
services. The pretax equivalent has been calculated at a
standard rate of 6%.
BROKERAGE SERVICES
Brokerage Services revenue grew by 23% aided by record
back-office trading volumes and new clients in Investor
Communications Services. In the absence of acquisitions,
revenue growth would have been about 22%, up from 12%
in 97 and 96.
The Brokerage Services operating margin was 15% in
98 compared to 14% in 97 (prior to non-recurring items)
and 13% in 96. The improved operating margin results
from improved operating efficiencies.
In 97, the Company recorded a non-taxable $19 million
gain related to the return of a front-office client deposit.
The Company also recorded a provision in 97 of $31 million
($19 million after tax) to restructure its front-office business.
The Company has reached an agreement, subject to
regulatory approvals, to divest the $190 million revenue
front-office business. As part of the agreement, the Company
will take a minority investment in the acquiring entity.
DEALER SERVICES
Dealer Services revenue grew 7% in 98, compared to 17%
in 97 and 26% in 96. In the absence of acquisitions and
dispositions, 98 revenue growth would have been 8%, up
from 6% in 97. Dealer Services margins decreased to 14%
in fiscal 98 from 17% in 97 and 18% in 96 as a result
of investments in new product architecture, higher cost to
support an increasingly complex product set, and changes
and uncertainties in the industrys distribution channels.
OTHER
The primary components of Other revenue are claims
services, interest income, foreign exchange differences,
and miscellaneous processing services. In addition, Other
revenue has been reduced to adjust for the difference
between actual interest income earned on invested tax
filing funds and income credited to Employer Services at
a standard rate of 6%.
During 97, the Company recorded $29.3 million of
non-recurring pretax charges. Included in the non-recurring
pretax charges was a $17.8 million charge reflecting the
Companys settlement with the Federal Trade Commission,
under which the Company agreed to divest certain non-
material assets. That divestiture was completed during 98.
OPERATING RESULTS
Revenue and earnings reached record levels during each of
the past three fiscal years. During fiscal 98, revenue increased
17% to $4.8 billion. Prior to minor non-recurring charges in
97, pretax earnings increased 17% and basic earnings per
share increased 13% to $2.04. In 97, the Company recorded
a fourth quarter non-recurring charge of $0.04 for the
divestiture of certain assets as required by the Federal Trade
Commission and certain charges related to the front-office
operation of Brokerage Services. Fiscal 98 was ADPs 37th
consecutive year of double-digit earnings per share growth
since becoming a public company in 1961.
Revenue and revenue growth by ADPs major business
units are shown below:
Revenue Revenue Growth
Years Ended June 30, Years Ended June 30,
(In Millions) 1998 1997 1996 1998 1997 1996
Employer Services $2,747 $2,275 $1,911 21% 19% 19%
Brokerage Services 1,100 892 787 23 13 20
Dealer Services 698 651 555 7 17 26
Other 253 294 314 (14) (6) 70
Consolidated $4,798 $4,112 $3,567 17% 15% 23%
Consolidated revenue grew 17% in fiscal 98 primarily
from increased market penetration, from an expanded array
of products and services, and from acquisitions, with relatively
minor contributions from price increases. Prior to acquisitions
and dispositions, revenue increased approximately 14%.
The consolidated pretax margin was 18.4% in 98, 18.3%
in 97 (prior to non-recurring charges), and 17.8% in 96.
Pretax margin improved over the previous year as continued
automation and operating efficiencies enabled the Company
to offset start-up costs associated with new products and
acquisitions along with continued increases in spending on
systems development and programming.
The Company does not prepare its financial statements
in a manner that generates the true stand-alone profitability
for each unit, and profitability measurements are not main-
tained in a consistent manner among the Companys major
business units. Certain revenues and expenses are charged
to business units at a standard rate for management and
motivation reasons. Other costs are recorded based on
management responsibility. As a result, various income and
expense items are recorded at the corporate level and certain
shared costs are not allocated. Consequently, comparisons
of specific margins between units are not meaningful,
although trend information within a business unit is a useful
directional indicator.
EMPLOYER SERVICES
Employer Services (ES) revenue grew 21% in fiscal 98, and
in the absence of acquisitions revenue growth would have
been about 14%, up from 11% in 97 and 10% in 96.
MANAGEMENTS DISCUSSION AND ANALYSIS
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