Josh S. Weston , Chairman and Chief Executive Officer (above left).

Arthur F. Weinbach, President and Chief Operating Officer (above right).

To Our Shareholders

In fiscal ’95, ADP achieved its forty-sixth consecutive growth year in revenue and earnings. Our 17% growth in both revenue and earnings per share was our best in many years.

Our success was the direct result of:

• very strong leadership positions in each of our businesses;
• accelerated growth in Employer and Dealer Services from increased market penetration, an expanded product array, improved client retention, and several small but strategic acquisitions; and
• productivity gains from automation.

Financial Review

Net earnings grew 18% to approximately $395 million on $2,894 million of revenue. Earnings per share increased to $2.77 as we completed our 136th consecutive quarter of “double-digit” growth in earnings per share. In recognition of these strong operating results, our Board declared its twenty-first consecutive annual dividend increase, from $.60 to $.70 per share, effective July 1, 1995.

ADP continues to operate from a position of significant financial strength and liquidity. Cash flow from operations exceeded $478 million and year-end cash equivalents and marketable securities approximated $1.3 billion after spending $121 million to acquire businesses and shares. We purchased 219,000 ADP shares on the open market to partially service employee equity plans.

Our shareholders’ equity now exceeds $2 billion. Debt-to-equity is a comfortable .19 to 1 and return on average shareholders’ equity continues to be a very healthy 21%.

Capital expenditures for the year were $118 million compared to $111 million last year.

Strategies

ADP’s growth strategies continue to focus primarily on expanding the leadership positions of our core businesses, where we have lots of remaining opportunities. Our major priorities are:

• deliver superior client service to enhance value and increase client retention;
• increase market penetration by broadening product lines and expanding distribution channels;
• provide ancillary products and services that create incremental value for existing clients;
• expand existing businesses internationally; and
• enter new markets which complement and leverage our core competencies and businesses.

New Products

In fiscal ’95, we substantially increased investments in new product initiatives. Systems and programming expenditures increased by 20% last year. For many years we have increased those developmental expenditures faster than revenue, in order to assure an adequate flow of new offerings.

In the businesses section of this report, we discuss many of our new products, including the following:

• Total Time is Employer Services new automated time and attendance system. It seamlessly integrates client timeclocks directly to ADP’s payroll computers in 39 centers. Over 1,600 clients now use Total Time to eliminate clerical processes, costs and errors by electronically entering attendance data into a payroll system.
• Brokerage Services introduced Power Partner, the state-of-the-art “object linking and embedding” (OLE) technology for broker’s workstations. It enables clients to more easily build applications and to seamlessly integrate separate data and applications.
• Dealer Services introduced a Document Storage and Data Archiving product that creates a paperless business office for auto dealerships. This product uses optical scanning and disk technologies to electronically store and retrieve orders, invoices, checks and other documents.
• Claims Services introduced Pen Pro, the first pen-based, mobile, auto claims estimating system. It’s CD-ROM also compresses 1.1 billion bytes onto a single disk for easy portability and access.

Client Service

ADP’s primary success criterion is outstanding client service. We are committed to continual service improvement. Last year, we automated more functions, including a new AutoPay Document Storage. It offers large clients a paperless CD-ROM alternative to large volumes of paper — saving paper, space, time, shipping costs and clerical labor. We also made major investments in laptops for all field associates to improve client service quality.

Acquisitions

We continue to supplement internal growth through selective strategic acquisitions. These acquisitions typically expand our client base, add new products or present a new market opportunity. In fiscal ’95, we completed several acquisitions which are discussed in the businesses section.

Employer Services enhanced its benefits services capabilities by acquiring WTR, a leading benefits consulting and actuarial firm. Brokerage Services strengthened its international presence and capabilities by acquiring Wilco International which provides global multi-currency clearance and settlement services for international securities. Brokerage also enhanced its institutional presence by acquiring Shark Information Services which provides real-time market information and sophisticated analytics to 5,000 institutional users. Dealer Services continued its global expansion by acquiring Turbodata’s 3,000 auto dealer clients in Benelux, France and Germany.

Board and Executive Appointments

In January 1995, George H. Heilmeier, president and chief executive officer of Bellcore (Bell Communications Research), was elected a director. Dr. Heilmeier also serves on a number of corporate and technology advisory boards. He has also received numerous awards for his many contributions to the advancement of electronics and com- puter technology. After 22 years of valuable service, Edwin D. Etherington has decided not to stand for reelection in November.

Mike Martone, Tim Lamb, Michael Holmes, John Hogan, Dante Terzo and Harry Durity were named Corporate Vice President in recognition of their important contributions and responsibilities.

Outlook

ADP will continue to grow by providing new products and outstanding service to clients, while making selective acquisitions that expand market share or present new opportunities. We expect to achieve revenue and earnings per share growth of about 15% in fiscal ’96.

The most critical element in our continued growth is our team of 25,000 associates who make ADP’s client service unique. We have been fortunate in attracting and retaining exceptionally motivated, talented people who share our vision of high quality service. We thank our ADP team, and we are particularly pleased that 15,000 associates are also ADP shareholders.

Josh S. Weston

Chairman and Chief Executive Officer (above left).

Arthur F. Weinbach

President and Chief Operating Officer (above right).

August 11, 1995