ADP 1998 Annual Report Download - page 20

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In addition, in 97 the Company recorded net pretax charges
of approximately $11.5 million related to the front-office
business as discussed previously under Brokerage Services.
In each of the past three years, investments in systems
development and programming have increased at a greater
rate than the Companys overall growth rate. Investments
have increased to accelerate automation, migrate to new
computing technologies, address Year 2000 compliance, and
develop new products.
The majority of the Companys services involve computer
processing and, as such, the Year 2000 could have a signifi-
cant impact on the Companys products and services. As a
result, the Company has worked for several years addressing
both internal and third-party Year 2000 compliance issues.
The Year 2000 remediation is not expected to have a
material adverse effect on the Companys overall results, as
these costs are not expected to be substantially different
from normal recurring costs that are incurred for systems
development and implementation. The Company expects to
have all of its projects complete by the year 2000 or earlier.
In 98, the Companys effective tax rate was approximately
31.5%, up from 29.1% in 97 and 28.4% in 96. The increasing
rate is primarily a result of the greater weighting of taxable
versus non-taxable earnings.
For 99, ADP is planning another record year with double-
digit growth in revenue, and basic and diluted earnings per
share growth in the range of 13% to 16%.
Additional comments and operating results are included
in the Letters to Shareholders on pages 2 through 4 and in
the business descriptions presented on pages 5 through 15.
FINANCIAL CONDITION
ADPs financial condition and balance sheet remains
exceptionally strong. At June 30, 1998, cash and marketable
securities approximated $1.7 billion. Shareholders equity
exceeded $3.4 billion, and return on average equity for the
year was 20.1%. The ratio of long-term debt to equity at
June 30, 1998 was 6%.
Cash flow from operating activities exceeded $850 million
in 98. We expect another excellent cash-flow year in 99.
In 98, 896,000 shares of common stock were purchased
at an average price of approximately $46 as part of an
ongoing program to fund equity-related employee benefits.
The Board of Directors has authorized the purchase of up
to 8.5 million additional shares.
In 98, zero coupon convertible subordinated notes were
converted to about 6 million shares of common stock.
During 98, the Company purchased several businesses
for approximately $338 million in cash and $13 million in
common stock. The cost of acquisitions in 97 and 96
aggregated $122 million and $551 million, respectively.
The Company acquired several businesses in the years
ended 1997 and 1996 in pooling of interest transactions in
exchange for 3 and 1 million shares of common stock,
respectively. The Companys historical financial statements
were not restated because, in the aggregate, these pooling
transactions were not material.
Capital expenditures during 98 were approximately $199
million following investments of $175 million in 97 and
$164 million in 96. Capital spending in fiscal 99 should
approximate $200 million and remains at a very comfortable
level at about 4% of revenues.
The Companys investment portfolio for corporate and
client funds consists primarily of fixed income securities
subject to interest rate risk, including reinvestment risk.
The Company has historically had the ability to hold these
investments until maturity, and therefore this has not had
an adverse impact on income or cash flows.
MARKET PRICE, DIVIDEND DATA AND OTHER
The market price of the Companys common stock (symbol:
AUD) based on New York Stock Exchange composite
transactions and cash dividends per share declared during
the past two years have been:
Price Per Share Dividends
Fiscal 1998 quarter ended High Low Per Share
June 30 $72 7/8$61 5/8$.1325
March 31 70 11/16 57 9/16 .1325
December 31 62 11/16 47 3/8.1325
September 30 50 7/16 44 3/8.115
Fiscal 1997 quarter ended
June 30 $50 1/8$40 5/8$.115
March 31 45 1/839 1/2.115
December 31 44 3/440 1/2.115
September 30 45 3/435 5/8.10
As of June 30, 1998 there were approximately 30,000
holders of record of the Companys common stock.
Approximately 150,000 additional holders have their stock
in street name.
This report contains forward-looking statements based
on managements expectations and assumptions and are
subject to risks and uncertainties that may cause actual results
to differ from those expressed. Factors that could cause
differences include: ADPs success in obtaining, retaining
and selling additional services to clients; the pricing of
products and services; overall economic trends, including
interest rate and foreign currency trends; impact of Year 2000;
stock market activity; auto sales and related industry changes;
employment levels; changes in technology; availability of
skilled technical associates; and the impact of new acquisitions.