Letter from the Chief Executive Officer

We have just finished my first year as ADP's chief executive officer. I am happy to tell you that we had an excellent year. Fiscal 1997 Results In fiscal '97, ADP continued its unequaled growth record by reporting its 144th consecutive quarter of record revenues and earnings per share (EPS) and its 36th consecutive year of double- digit increases in EPS. Following last year's acquisition of GSI, we continued our international expansion with additional acquisitions in '97. We have now achieved the #1 European market share position in both Employer and Dealer Services.

With this expansion, revenue increased 15% to over $4.1 billion. Prior to minor non-recurring items, pretax earnings increased 19%, net earnings advanced 16% and earnings per share increased 15% to $1.80 from $1.57 last year. Non-recurring items in the fourth quarter included an anticipated loss related to the previously announced disposition of our Autolnfo business and reduced EPS by $.04.

In recognition of these strong operating results, our Board declared its twenty-third consecutive annual dividend increase, from $.40 to $.46 per share, effective January 1, 1997.

ADP continues to operate from a position of significant strength and liquidity. Cash flow from operations exceeded $700 million and year-end cash and marketable securities approximated $1.5 billion, after spending of $243 million in '97 to acquire businesses and ADP shares. We purchased 3.2 million ADP shares on the open market to fund employee equity plans.

Shareholders' equity exceeds $2.6 billion. The ratio of long-term debt to equity is a comfortable .15 to 1 and return on average shareholders' equity is a very healthy 21%. Capital expenditures for the year were $175 million, about 5% of revenue. This compared to $164 million last year.

Look Ahead

As we look to the future, we expect to capitalize on our strengths which include (1) the good fortune of being in a growth industry, computing information services; (2) leading market share positions in each of our four core businesses: Employer, Brokerage, Dealer and Claims Services; (3) a strong client service orientation; (4) a superb direct sales capability; (5) a powerful financial position from which to compete; and (6) a trained, dedicated associate team committed to our objectives.

As we leverage these strengths into our strategies over the next few years, we expect our primary growth to be internally generated from our current core businesses. This growth will come from further penetration of our markets, extending our market opportunities through broader product offerings and through additional international expansion. We also intend to supplement this internal growth in our core markets with acquisitions which will further these strategies.

In addition, we continue to look for an entry into an additional computing information services market which complements our core businesses and leverages our existing strengths.

Commitment to World Class Service

Among ADP's strengths is a strong client service orientation. Our service levels are very good today in each ADP business. But we are committed to achieving world class service levels where we delight our clients and exceed our clients' expectations. We define service broadly, from initial contact with a prospect, to product quality, to client responsiveness and happiness. We clearly see world class service as a journey where, whenever we get close to the destination, we move it out farther. This year, we are investing more than ever before in our associates, tools and processes to raise service quality levels. We believe these investments will improve client retention, enhance sales and improve associate retention. It is good for all of our stakeholders (clients, associates and shareholders.)

Current Optimism

At ADP, there are always many exciting opportunities. It is one of our strengths. Here are three perspectives to think about.

First, our internal growth rate C excluding acquisitions and dispositions -- in Employer Services, ADP's largest business, expanded for the 4th year in a row and we expect that trend to continue through '98 and beyond.

Second, we have more significant new client opportunities in our back office Brokerage Services than we have had in over a decade. We are installing Legg Mason now and we are getting close with additional prospects.

Third, our European expansion opportunities in both Dealer Services and Employer Services are better than ever. While we already are the number one European market share services leader in both of these businesses, we have significant room for further penetration and acquisition of competitors ... and we just entered South America with the acquisition of an Employer Services business in Brazil.

Importance of People

The most critical element in our success is our team of 30,000 associates who continually strive to provide world class service to our more than 400,000 clients. Fortunately, we attract exceptionally dedicated and motivated people with a strong results orientation. 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.

In '97, Russell Fradin joined ADP as Senior Vice President, Richard Haviland was promoted to Chief Financial Officer, and Howard Koenig, Gordon Mettam and Raymond Colotti were promoted to Corporate Vice President in recognition of their important contributions and responsibilities.

After 10 years of valuable service, Charles Lazarus has decided not to stand for re-election to our Board and after 9 years as Group President of our Brokerage Services business, Robert Casale will be retiring shortly. We will miss their contributions.

On a much sadder note, Joseph Pirret, our Treasurer and a 23 year ADP associate, died suddenly in June. Joe's contributions over the years were immense, and we will miss him greatly.

Forecast

I am very confident that ADP is well positioned for long-term growth and profitability. In '98, we expect both double-digit revenue and earnings per share growth while we make significant investments in our future.

I hope you share my excitement, enthusiasm and optimism. I want to especially tell our 30,000 ADP associates how much I appreciate their efforts and results. Without them, none of this is possible.


Arthur F. Weinbach
President & Chief Executive Officer

August 13, 1997