ADP 2010 Annual Report Download - page 22

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Other income, net, decreased $6.8 million in fiscal 2010 as compared to fiscal 2009 due to a $35.4 million decrease in interest income
on corporate funds, a $14.4 million impairment loss on available
-
for
-
sale securities recorded during fiscal 2010 and a $2.3 million net
loss on sales of buildings in fiscal 2010 as compared to a $2.2 million net gain on sales of buildings in fiscal 2009. Interest income on
corporate funds decreased as a result of lower average interest rates, partially offset by higher average daily balances. Average
interest rates decreased from 3.6% in fiscal 2009 to 2.6% in fiscal 2010. Average daily balances increased from $3.7 billion in fiscal
2009 to $3.8 billion in fiscal 2010. These decreases in other income were partially offset by a gain on the investment in Reserve Fund
of $15.2 million in fiscal 2010 as compared to a loss on the investment in the Reserve Fund of $18.3 million in fiscal 2009, as well as a
$14.0 million increase in net realized gains on available
-
for
-
sale securities.
Earnings from Continuing Operations before Income Taxes
Earnings from continuing operations before income taxes decreased $36.9 million, or 2%, from $1,900.1 million in fiscal 2009 to
$1,863.2 million in fiscal 2010 because the increase in revenues was more than offset by the increase in expenses and decrease in
other income, net discussed above. Overall margin decreased 60 basis points in fiscal 2010.
Provision for Income Taxes
The effective tax rate in fiscal 2010 and 2009 was 35.2% and 30.3%, respectively. For fiscal 2010, the effective tax rate includes a
reduction in the provision for income taxes of $12.2 million related to the resolution of certain tax matters, which decreased the
effective tax rate by 0.7 percentage points. For fiscal 2009, the effective tax rate includes a reduction in the provision for income taxes
of $120.0 million related to an Internal Revenue Service (“
IRS
”
)
audit settlement and the settlement of a state tax matter, which
decreased the effective tax rate by 6.3 percentage points.
Net Earnings from Continuing Operations and Diluted Earnings per Share from Continuing Operations
Net earnings from continuing operations decreased $117.8 million to $1,207.3 million in fiscal 2010, from $1,325.1 million in fiscal 2009,
and diluted earnings per share from continuing operations decreased 8%, to $2.40. The decrease in net earnings from continuing
operations in fiscal 2010 reflects the decrease in earnings from continuing operations before income taxes and the impact of the tax
matters discussed above. The decrease in diluted earnings per share from continuing operations in fiscal 2010 reflects the decrease
in earnings from continuing operations and the impact of the tax matters discussed above partially offset by the impact of fewer
shares outstanding due to the repurchase of 18.2 million shares in fiscal 2010 and 13.8 million shares in fiscal 2009.
The following table reconciles the Company
’
s results for fiscal 2010 and fiscal 2009 to adjusted results that exclude the impact of
favorable tax items. The Company uses certain adjusted results, among other measures, to evaluate the Company
’
s operating
performance in the absence of certain items and for planning and forecasting of future periods. The Company believes that the
adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner
similar to the method used by the Company
’
s management and improves their ability to understand the Company
’
s operating
performance. Since adjusted earnings from continuing operations and adjusted diluted EPS are not measures of performance
calculated in accordance with accounting principles generally accepted in the United States of America (“
U.S. GAAP
”
),
they should
not be considered in isolation from, or as a substitute for, earnings from continuing operations and diluted EPS from continuing
operations, respectively, and they may not be comparable to similarly titled measures employed by other companies.
19