To Our Shareholders

Letter From The Chairman

In this 35th annual report to our shareholders, I am pleased to formally congratulate Arthur Weinbach who, on August 1, 1996, assumed my responsibilities as chief executive officer (CEO). Art will continue to serve as president, and I will remain chairman of the board. Art has the qualities of leadership, integrity, intelligence, dedication, candor, and experience to serve ADP well, as we move toward the 21st century.






ADP's first CEO, Henry Taub, founded ADP in 1949. He was succeeded by my predecessor Frank Lautenberg in 1975. Frank's election to the U.S. Senate in 1982 occasioned my becoming ADP's third CEO.

Since joining ADP in 1970, I had the good fortune to participate with many excellent colleagues in the remarkable acceleration of computer technologies as tools that facilitated our unusual growth in annual revenue from $400,000 in'61 to $40 million in '70, to the current $3.5 billion.

Ever since ADP became publicly owned in '61, every one of the ensuing 35 years witnessed double-digit growth in earnings per share, a record unmatched by any of our country's 9,500 publicly owned companies. In fact, only one other company has done so for even 15 years. It's been an absolutely amazing and gratifying experience for those of us who were "early birds" with ADP.

As important as technology may have been, our many successful outcomes were far more caused by ADP associates, who now number 29,000. (Along the way, we were also aided by lucky events that were totally unplanned and unexpected.)

Currently, over 20,000 associates own ADP stock. I am most pleased by the fact that over the years our associates have shared in over one billion dollars of stock appreciation... as well it should be, for their having created over ten billion dollars of market appreciation for our external shareholders. ADP was begun by people and succeeds only because of people.

I have worked with Art Weinbach for over 16 years, and am confident that he will be ADP's fourth very successful CEO. Art has many capable colleagues to help assure continued growth, because no one person can manage our complexities and progress.

I thank my ADP friends for having helped so much for so many years. I especially cite Gary Butler, Group President of Employer Services, and recently elected board member. He brings 20 years of experience and accomplishments to leading our most important $2 billion business unit.

I thank our shareholders for their support during my fourteen years as CEO, and look forward to serving in my new part-time and much less demanding ADP role, as I become ever more engaged in pro bono activities.

As a board member and chairman, l shall maintain my interest in ADP, and will give counsel, but only when asked. A company can have only one CEO at a time. Good luck, Art! I know you'll do well.

Josh S. Weston
Chairman

August 14, 1996

Letter From The Chief Executive Officer

This is my first letter to you as ADP's newly appointed Chief Executive Officer. Having participated in ADP's outstanding results for over 16 years, l am very appreciative of my new opportunity. l am both optimistic and enthusiastic about ADP's future.

We would not be positioned so well if it weren't for the extraordinary contribution of Josh Weston, ADP's CEO since 1982. We owe Josh a tremendous debt for leading ADP to our position as one of the country's most respected and most valuable companies.

Fiscal 1996

In fiscal '96 ADP continued its unequaled growth record by reporting its 140th consecutive quarter of record revenues and earnings per share (EPS) and its 35th consecutive year of double-digit increases in EPS.

We are especially pleased with our acquisition of GSI, a leading European information services company and provider of payroll and human resource information services. This was ADP's largest acquisition ever. It gave us an important European presence and positions us well for further growth.

Aided by the GSI acquisition, revenue grew 23% to over $3.5 billion. Net earnings grew 15% and EPS increased 14% to $1.57.

In recognition of these strong operating results, our Board declared a two-for-one stock split and our 22nd consecutive annual dividend increase, to $.40 per share, effective January 1, 1996.

ADP continues to operate from a position of significant financial strength and liquidity. Cash flow from operations exceeded $644 million and year-end cash and marketable securities approximated $1.1 billion, after spending $718 million in '96 to acquire businesses and ADP shares. We purchased 6.6 million ADP shares on the open market to fund employee equity plans.

Shareholders' equity exceeds $2.3 billion. The ratio of long-term debt to equity is a comfortable .17 to 1, and return on average shareholders' equity is a very healthy 20%.

Capital expenditures for the year were $164 million, about 5% of revenue. This compared to $118 million last year.

Values

At the root of our business success is a set of core values that guide our day-to-day activities. I'd like to share some of those values with you.

Integrity & Ethics

Integrity and ethics are important... to each ADP associate and to ADP. We have a strong Code of Corporate Responsibility. We conduct our affairs with uncompromising honesty and integrity. It is a leadership requirement for every ADP supervisor to set a high standard of integrity and ethics in his or her own personal performance. This is more than words. This is an attitude that conveys our priorities and values. It leads us to treat everyone... associates, clients, prospects, and competitors... with respect. We will continue to spread this message throughout ADP in '97.

Results Orientation

ADP's excellent operating results over the past 47 years did not happen by accident. Those results are a direct outcome of our commitment to increasing shareholder value through consistent revenue and earnings growth, with a high return on equity... all measured by conservative accounting methods.

Good leaders in a good environment will win over time. Yes, there may be short-term events that create anomalies. However, over the longer term it is results that matter. We measure performance by overall return to shareholders. We believe that our values, excellent people and markets, solid strategies and excellent service will lead to superior results.

Client Service

Above all, ADP is a service company... striving to provide world-class service. We define service broadly, from initial contact with a prospect, to product quality, to client responsiveness. Our ability to consistently bring added-value to clients differentiates us from our competition. We are committed to continual improvement in product and service.

Importance of People

The most critical element in our success is our team of 29,000 associates who make ADP's service superior. Fortunately, we attract and retain exceptionally motivated, talented people with can-do attitudes. They share our vision and help us win in the marketplace. Each person counts, each client counts, and each contact between a client and associate counts.

During '96 Gary Butler, Group President of Employer Services, our largest business unit, was appointed to our Board. Richard Haviland was promoted to Corporate Vice President, Finance. Philippe Gluntz, Ray l Marlinga, Mike Rooney and Tom Tremba were named Corporate Vice Presidents, all in recognition of their important contributions and responsibilities.

After 29 years of service as Legal Counsel and Corporate Secretary, Fred Lafer retired in '96. Special thanks to Fred for his valuable contributions.

Growth Strategies

ADP's growth strategies continue to focus primarily on expanding leadership positions in our core businesses, where we already have #1 market positions and lots of remaining opportunities. Our major priorities are:

Forecast

I am confident about ADP's long-term prospects for internal growth and selective acquisitions. We have the businesses, core competencies, and people to continue our remarkable record. In '97 we expect double- digit revenue growth and earnings per share growth of about 15%.

I am enthusiastic about our future success and want to particularly thank the 29,000 ADP associates, whose daily efforts make it all possible.

Arthur F. Weinbach
President and Chief Executive Officer

August 14, 1996