ADP

Business Context and Reporting Period

Company: Automatic Data Processing, Inc. (ADP)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended June 30, 1998
Industry: Computing Services (Payroll, HR, Brokerage, Dealer, and Claims Services)

ADP is a global provider of computing services, processing data for over 425,000 clients. The company operates through four primary segments: Employer Services (payroll and HR), Brokerage Services (securities processing), Dealer Services (automotive dealership management), and Claims Services (insurance claims estimating). As of June 30, 1998, ADP employed approximately 34,000 people and held a leadership position in its major service offerings.

Key Financial Metrics

Note: Specific consolidated revenue, net income, cash flow, and debt figures are incorporated by reference to the 1998 Annual Report to Shareholders and are not explicitly stated in the provided text. The following metrics are derived from the available text.

• Systems Development & Programming: $375.2 million (Fiscal 1998), compared to $296.5 million (Fiscal 1997) and $249.6 million (Fiscal 1996).
• Market Capitalization (Non-Affiliates): Approximately $21.8 billion as of September 11, 1998.
• Shares Outstanding: 303,200,554 shares of Common Stock as of September 11, 1998.
• Client Base: Over 425,000 clients globally.
• International Revenue: Approximately 16% of fiscal 1998 revenue.
• Allowance for Doubtful Accounts: Total balance of $56.99 million ($42.56M current + $14.43M long-term) as of June 30, 1998.

Material Changes and Strategic Developments

Significant operational and strategic changes occurred during the fiscal year:

• Acquisitions:
  • Acquired the payroll services business of Royal Bank of Canada, becoming the largest payroll outsourcer in Canada.
  • Acquired a Brazilian computing services company to expand employer services in Brazil.
  • Acquired Audatex Holding A.G., the leading provider of automobile insurance claims estimating services outside North America.
  • Acquired the benefits administration business of William M. Mercer, Incorporated.
• Strategic Alliances:
  • Formed an alliance with Bridge Information Systems, Inc., selling market data assets (approx. $190M revenue) and acquiring a minority interest in Bridge.
  • Entered an exclusive marketing agreement with Comprehensive Software Systems (CSS) for the BrokerView product, acquiring a minority interest in CSS.
• Divestitures: Completed the divestiture of certain assets used to facilitate electronic commerce among automotive parts recyclers (formerly Parts Services unit, renamed ADP Hollander) following an FTC settlement.
• Transaction Volume: Brokerage Services processed over 15% of retail equity transactions in the U.S. and Canada, handling an average of over 620,000 trades per day, with a peak of over one million trades on October 28, 1997.

Outlook, Risks, and Management Commentary

Management Commentary: ADP emphasizes a "Payroll AnyWay" strategy to serve businesses of all sizes. The company views the increase in multinational companies as a global opportunity for payroll and HR services. Management notes that no single service or business unit is subject to unique market risk and that the company enjoys a leadership position in each major offering.

Risks and Contingencies:

• Competition: The industry is highly competitive based on service responsiveness, product quality, and price. Competitors include independent firms, diversified enterprises, banks, and in-house computing functions.
• Market Risk: The investment portfolio consists primarily of high-grade fixed income instruments maturing in less than 7 years, resulting in no material market risk exposure.
• Client Concentration: No single client accounts for more than approximately 1% of annual revenue. No single business group is material to overall revenue.
• Legal Proceedings: None reported.

Unusual Items: The filing notes the sale of market data assets to Bridge Information Systems, which generated approximately $190 million in revenue in fiscal 1998, representing a significant shift in the Brokerage Services segment's asset base.

Investor Verification Checklist

• Verify the exact consolidated revenue, net income, and cash flow figures in the 1998 Annual Report to Shareholders (incorporated by reference).
• Confirm the financial impact of the $190 million market data asset sale to Bridge Information Systems on future Brokerage Services revenue.
• Review the integration progress and financial performance of recent acquisitions (Royal Bank of Canada payroll, Audatex, Mercer benefits).
• Assess the impact of the divestiture of the automotive parts recycler assets on the Claims Services segment.
• Monitor the 16% international revenue exposure and the success of expansion efforts in Brazil and Europe.