The purpose of this Change in Control Severance Plan for Corporate Officers (the "Plan") is to enable Automatic Data Processing, Inc., a Delaware corporation (the "Company"), to offer a form of income protection to "Participants" (as defined in Section 7.5 below) in the event their employment with the Company terminates under certain circumstances due to a "Change in Control" (as defined in Section 7.2 below).
1.1 Eligibility for Benefits; Benefits; Payment; and Rights of Participants.
(a) If a Change in Control occurs prior to the date a Participant's employment with the Company terminates, then upon the termination of the Participant's employment by the Company without "Cause" (as defined in Section 7.1 below) or by the Participant for "Good Reason" (as defined in Section 7.4 below) (individually, a "Qualifying Termination"), such Participant shall be paid the applicable "Severance Benefit" (as defined below) and shall receive the additional benefits described in this Article I. The term "Severance Benefit" shall mean:
(i) if the Qualifying Termination occurs during the two year period following the Change in Control, an amount equal to 150% of the Participant's "Current Total Annual Compensation" (as defined in Section 7.3 below); and
(ii) if the Qualifying Termination occurs during the third year after the Change in Control, an amount equal to 100% of the Participant's Current Total Annual Compensation.
(b) Any Participant entitled to a Severance Benefit (in accordance with Section 1.1(a) above) shall receive his Severance Benefit in the form of a lump-sum payment within 30 business days, or at such earlier time as required by applicable law, after his employment with the Company terminates.
1.2 Additional Benefits. A Participant entitled to receive a Severance Benefit shall also receive the following additional benefits:
(a) The Company shall cause options to purchase Company stock ("Stock Options") held by a Participant that are not fully vested and exercisable on the date of the Qualifying Termination to:
(i) where the Qualifying Termination occurs during the two year period following the Change in Control, become fully vested and exercisable as of the date of such Qualifying Termination; and
(ii) where the Qualifying Termination occurs during the third year after the Change in Control, become fully vested and exercisable as of the date of such Qualifying Termination as to those Stock Options that would otherwise have vested within one year after the Qualifying Termination.
(b) The Company shall cause unvested restricted shares of Company stock (the "Restricted Shares") held by a Participant on the date of the Qualifying Termination to:
(i) where the Qualifying Termination occurs during the two year period following the Change in Control, become fully vested as of the date of such Qualifying Termination as to those Restricted Shares for which the vesting restrictions would otherwise have lapsed within two years after the Qualifying Termination; and
(ii) where the Qualifying Termination occurs during the third year after the Change in Control, become fully vested as of the date of such Qualifying Termination as to those Restricted Shares for which the vesting restrictions otherwise would have lapsed within one year after the Qualifying Termination.
1.3 Reduction of Payments. If a Participant determines that his receipt of any payment and/or non-monetary benefit under this Plan (including, without limitation, the accelerated vesting of Stock Options and/or Restricted Shares) (collectively, the "Payments") would cause him to become subject to the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall, as and only as instructed by such Participant in writing prior to the date of his Qualifying Termination, reduce his Payments in the manner and in the amounts determined by the Participant to be necessary to avoid the application of such excise tax. If requested by a Participant, the Company shall, at the Company's expense, determine and advise the Participant prior to his Qualifying Termination of the amount by which the Company would report to the Internal Revenue Service that the Payments to the Participant constitute "excess parachute payments," as defined in Section 280G of the Code if the Participant does not elect to reduce the Payments as described in this Section 1.3.
1.4 Rights of Participants. Nothing contained herein shall be held or construed to create any liability or obligation on the Company to retain any Participant in its service or in a corporate officer position. All Participants shall remain subject to discharge or discipline to the same extent as if the Plan did not exist.
2.1 Funding. The Plan shall be funded out of the general assets of the Company as and when benefits are payable under the Plan. All Participants shall be solely general creditors of the Company.
3.1 Plan Administrator. The general administration of the Plan shall be placed with the Compensation Committee of the Board or an administrative committee appointed by the Board (the "Committee").
3.2 Reimbursement of Expenses of Committee. The Company shall pay or reimburse the members of the Committee for all reasonable expenses incurred in connection with their duties hereunder.
3.3 Action by the Plan Committee. Decisions of the Committee shall be made by a majority of its members attending a meeting at which a quorum is present (which meeting may be held telephonically), or by written action in accordance with applicable law. No member of the Committee may act with respect to a matter which involves only that member.
3.4 Delegation of Authority. The Committee may delegate any and all of its powers and responsibilities hereunder to other persons by formal resolution filed with and accepted by the Board. Any such delegation shall not be effective until it is accepted by the Board and the persons designated and may be rescinded at any time by written notice from the Committee to the person to whom the delegation is made.
3.5 Retention of Professional Assistance. The Committee may employ such legal counsel, accountants and other persons as may be required in carrying out its work in connection with the Plan, and the Company shall pay the fees and expenses of such persons.
3.6 Accounts and Records. The Committee shall maintain such accounts and records regarding the fiscal and other transactions of the Plan, and such other data as may be required to carry out its functions under the Plan and to comply with all applicable laws.
3.7 Compliance with Applicable Law. The Company shall be deemed the administrator of the Plan for the purposes of any applicable law and shall be responsible for the preparation and filing of any required returns, reports, statements or other filings with appropriate governmental agencies. The Company shall also be responsible for the preparation and delivery of information to persons entitled to such information under any applicable law.
3.8 Reimbursement of Expenses. If any contest or dispute shall arise under this Plan involving termination of a Participant's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall, immediately after the date a court issues a final order from which no appeal can be taken, or with respect to which the time period to appeal has expired, reimburse such Participant for all reasonable legal fees and expenses, if any, paid by the Participant in connection with such contest or dispute (together with interest in an amount equal to the Chase Manhattan Bank prime rate from time to time in effect, such interest to begin to accrue on the dates Participant actually paid such fees and expenses through the date of payment thereof); provided, however, the Participant shall not be entitled to any reimbursement for his legal fees and expenses if a court has made a final determination that the Participant's position was without merit.
4.1 Amendment and Termination. The Company reserves the right to amend or terminate, in whole or in part, any or all of the provisions of this Plan by action of the Board at any time; provided, that, following a Change in Control, the Company shall no longer have the power to amend or terminate the Plan, except for amendments to comply with changes in applicable law which do not reduce the benefits and payments due hereunder in the event of a Qualifying Termination; provided, further, that, in no event shall any amendment reducing the benefits provided hereunder or any Plan termination be effective until at least six months after the date of the applicable action by the Board.
5.1 Successors. The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Company, expressly and unconditionally to assume and agree to perform the Company's obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. In such event, the term "Company", as used in this Plan, shall mean the Company, as applicable, as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Plan.
6.1 No Duty to Mitigate/Set-off. No Participant entitled to receive a Severance Benefit shall be required to seek other employment or to attempt in any way to reduce any amounts payable to him pursuant to this Plan. The Severance Benefit payable hereunder shall not be reduced by any compensation earned by the Participant as a result of employment by another employer or otherwise. The Company's obligations to pay the Severance Benefits and to perform its obligations hereunder shall not be affected by any circumstances including without limitation, any set off, counterclaim, recoupment, defense or other right which the Company may have against the Participant.
6.2 Headings. The headings of the Plan are inserted for convenience of reference only and shall have no effect upon the meaning of the provisions hereof.
6.3 Use of Words. Whenever used in this instrument, a masculine pronoun shall be deemed to include the masculine and feminine gender, and a singular word shall be deemed to include the singular and plural, in all cases where the context so requires.
6.4 Controlling Law. The construction and administration of the Plan shall be governed the laws of the State of New York (without reference to rules relating to conflicts of law).
6.5 Withholding. The Company shall have the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it reasonably believes it may have to withhold federal, state or local income or other taxes incurred by reason of payments pursuant to this Plan.
6.6 Severability. Should any provision of the Plan be deemed or held to be unlawful or invalid for any reason, such fact shall not adversely affect the other provisions of the Plan unless such determination shall render impossible or impracticable the functioning of the Plan, and in such case, an appropriate provision or provisions shall be adopted so that the Plan may continue to function properly.
6.7 Rights Under Other Plans, Policies, Practices and Agreements.
(a) Other than as expressly provided herein, the Plan does not supersede any other plans, policies, and/or practices of the Company.
(b) The Plan supersedes any other change in control severance plans, policies and/or practices of the Company as to the Participants; provided, that, the Plan shall not supersede any individual executed agreement or arrangement between a single Participant and the Company in effect on March 21, 2001 or thereafter, which agreement specifically addresses payments or benefits made or provided upon termination of employment or in connection with a Change in Control including, but not limited to, the agreements set out on Appendix "A" hereto (an "Additional Agreement"). If a Participant is due benefits or payments under both an Additional Agreement and the Plan and/or where the Plan and the applicable Additional Agreement have inconsistent or conflicting terms and conditions, the Participant shall receive the greater of the benefits and payments, and the more favorable terms and conditions to him, under the Additional Agreement and the Plan, determined on an item-by-item basis.
6.8 Insurance. The Company shall continue to cover the Participants, or cause the Participants to be covered, under any director and officer insurance maintained after a Change in Control for directors and officers of the Company or its successor (whether by the Company or another entity) at no less of a level as that maintained by the Company or its successor for its directors and officers. Such coverage shall continue for any period during which the Participant may have any liability for his actions or omissions. Following a Change in Control and in addition to any rights under any other indemnification agreement, the Company or its successor shall indemnify the Participant to the fullest extent permitted by law against any claims, suits, judgments, expenses arising from, out of, or in connection with the Participant's services as an officer or director of the Company, or as a fiduciary of any benefit plan of the Company.
7.1 "Cause" shall mean: (A) gross negligence or willful misconduct by a Participant which is materially injurious to the Company, monetarily or otherwise; (B) misappropriation or fraud with regard to the Company or its assets; or (C) conviction of, or the pleading of guilty or nolo contendere to, a felony involving the assets or business of the Company. For purpose of the preceding sentence, no act or failure to act by a Participant shall be considered "willful" unless done or omitted to be done by such Participant in bad faith and without reasonable belief that the Participant's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, or based upon the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Company.
7.2 "Change in Control" shall mean the occurrence of any of the following: (A) any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the Company, any subsidiary of the Company, or any employee benefit plan sponsored or maintained by the Company (including any trustee of any such plan acting in his capacity as trustee), becoming the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing 35% or more of the total combined voting power of the Company's then outstanding securities; (B) the merger, consolidation or other business combination of the Company (a "Transaction"), other than a Transaction immediately following which the stockholders of the Company immediately prior to the Transaction continue to be the beneficial owners of securities of the resulting entity representing more than 65% of the voting power in the resulting entity, in substantially the same proportions as their ownership of Company voting securities immediately prior to the Transaction; or (C) the sale of all or substantially all of the Company's assets, other than a sale immediately following which the stockholders of the Company immediately prior to the sale are the beneficial owners of securities of the purchasing entity representing more than 65% of the voting power in the purchasing entity, in substantially the same proportions as their ownership of Company voting securities immediately prior to the Transaction.
7.3 "Current Total Annual Compensation" shall be the sum of the following amounts: (A) the greater of a Participant's highest rate of annual salary during the calendar year in which his employment terminates or such Participant's highest rate of annual salary during the calendar year immediately prior to the year of such termination; and (B) the average of a Participant's annual bonus compensation (prior to any bonus deferral election) earned in respect of the two most recent calendar years immediately preceding the calendar year in which the Participant's employment terminated.
7.4 "Good Reason" shall mean the occurrence of any of the following events after a Change in Control without the Participant's express written consent: (A) material diminution in the value and importance of a Participant's position, duties, responsibilities or authority as of the date immediately prior to the Change in Control; or (B) a reduction in a Participant's aggregate compensation or benefits; or (C) a failure of any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) of the Company to assume in writing the obligations hereunder. A termination for Good Reason shall mean a termination by a Participant effected by written notice given by the Participant to the Company within 30 days after the occurrence of the Good Reason event, unless the Company shall, within 15 days after receiving such notice, take such action as is necessary to fully remedy such Good Reason event in which case the Good Reason event shall be deemed to have not occurred.
7.5 "Participant" shall mean an employee who is a corporate officer of the Company on the date of a Change in Control as a result of his election by the Board. Notwithstanding the foregoing, if an employee who is not a corporate officer on the date of a Change in Control reasonably demonstrates that, in contemplation of the Change in Control or at the request of a party which subsequently causes a Change in Control, the Company removed him from such office, such employee shall also be a Participant.
As authorized by the Compensation Committee
of the Board of Directors of Automatic Data
Processing, Inc. on January 23, 2001, and as
ratified and adopted by the Board of Directors
of Automatic Data Processing, Inc. on
March 21, 2001.
By: /s/ James B. Benson
--------------------------------
James B. Benson, General Counsel,
Corporate Vice President & Secretary
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Appendix "A"
1. Agreement between Automatic Data Processing, Inc. and Arthur F. Weinbach, dated August 1, 1996.
2. Agreement between Automatic Data Processing, Inc. and Gary C. Butler, dated September 14, 1998.
For Quarter Ended March 31, 2001 Commission File Number 1-5397
Delaware 22-1467904
-------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One ADP Boulevard, Roseland, New Jersey 07068
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (973) 974-5000
----------------------------
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No change Former name, former address & former fiscal year, if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all annual, quarterly and other reports required to be filed with the commission and (2) has been subject to the filing requirements for at least the past 90 days.
X Yes No
As of April 30, 2001, there were 624,237,994 shares outstanding.
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues, other than
interest on funds held for
clients and PEO revenues $1,690,804 $1,563,477 $4,600,486 $4,177,956
Interest on funds held for
clients 143,326 101,902 388,883 239,086
PEO revenues (net of pass-
through costs of $596,333,
$567,387, $1,839,731 and
$1,550,005, respectively) 60,190 54,351 175,113 146,269
---------- ---------- ---------- ----------
Total revenues 1,894,320 1,719,730 5,164,482 4,563,311
---------- ---------- ---------- ----------
Operating expenses 754,300 661,935 2,091,360 1,826,802
General, administrative and
selling expenses 418,101 425,078 1,264,162 1,225,291
Systems development and
programming costs 126,564 119,747 373,141 332,627
Depreciation and amortization 79,914 72,851 239,982 206,032
Interest Expense 2,438 2,816 9,085 9,993
(Gains)/losses on
investments 37,603 21,853 81,842 21,726
---------- ---------- ---------- ----------
1,418,920 1,304,280 4,059,572 3,622,471
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 475,400 415,450 1,104,910 940,840
Provision for income taxes 186,520 144,140 435,190 323,830
---------- ----------- ---------- ----------
NET EARNINGS $ 288,880 $ 271,310 $ 669,720 $ 617,010
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ .46 $ .43 $ 1.06 $ .99
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ .45 $ .42 $ 1.04 $ .96
========== ========== ========== ==========
Dividends per share $ .1025 $ .0875 $ .2925 $ .25125
========== ========== ========== ==========
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See notes to the consolidated financial statements.
(UNAUDITED)
March 31, June 30,
Assets 2001 2000
------ ----------- -----------
Cash and cash equivalents $ 1,165,744 $ 1,227,637
Short-term marketable securities 467,281 596,792
Accounts receivable 962,191 899,314
Other current assets 346,090 340,709
----------- -----------
Total current assets 2,941,306 3,064,452
Long-term marketable securities 841,702 628,120
Long-term receivables 226,310 245,249
Land and buildings 453,385 439,022
Data processing equipment 642,998 612,608
Furniture, leaseholds and other 517,416 498,354
----------- -----------
1,613,799 1,549,984
Less accumulated depreciation (1,008,808) (952,715)
----------- -----------
604,991 597,269
Other assets 206,203 271,136
Intangibles 1,602,310 1,623,701
----------- -----------
Total assets before funds held for clients 6,422,822 6,429,927
Funds held for clients 13,418,361 10,420,889
----------- -----------
Total assets $19,841,183 $16,850,816
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Notes payable $ - $ 21,523
Accounts payable 134,076 129,436
Accrued expenses & other current
liabilities 1,039,914 1,044,002
Income taxes 137,457 101,707
----------- -----------
Total current liabilities 1,311,447 1,296,668
Long-term debt 113,136 132,017
Other liabilities 183,189 171,843
Deferred income taxes 210,666 151,337
Deferred revenue 93,099 95,361
----------- -----------
Total liabilities before clients funds
Obligations 1,911,537 1,847,226
Client funds obligations 13,295,197 10,420,772
----------- -----------
Total liabilities 15,206,734 12,267,998
Shareholders' equity:
Common stock 63,881 63,144
Capital in excess of par value 596,063 402,767
Retained earnings 4,962,435 4,477,141
Treasury stock (795,052) (130,800)
Accumulated other comprehensive income (192,878) (229,434)
----------- -----------
Total shareholders' equity 4,634,449 4,582,818
----------- -----------
Total liabilities and shareholders' equity $19,841,183 $16,850,816
=========== ===========
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Nine Months Ended
March 31,
2001 2000
---------- ----------
Cash Flows From Operating Activities:
-------------------------------------
Net earnings $ 669,720 $ 617,010
Expenses not requiring outlay of cash 340,804 230,512
Changes in operating net assets 10,796 42,162
---------- ----------
Net cash flows provided by operating
activities 1,021,320 889,684
---------- ----------
Cash Flows From Investing Activities:
-------------------------------------
Purchase of marketable securities (5,533,512) (7,421,679)
Proceeds from sale of marketable securities 2,619,521 2,618,565
Net change in client funds obligations 2,874,425 4,962,768
Capital expenditures (129,356) (116,306)
Additions to intangibles (62,753) (55,553)
Acquisitions of businesses (51,693) (41,546)
Dispositions of businesses - 10,943
Other (11,858) (12,675)
---------- ----------
Net cash flows used in investing activities (295,226) (55,483)
---------- ----------
Cash Flows From Financing Activities:
-------------------------------------
Proceeds from issuance of notes 26,348 10,547
Repayments of debt (48,381) (35,979)
Proceeds from issuance of common stock 207,240 117,148
Repurchases of common stock (788,767) (201,007)
Dividends paid (184,427) (157,572)
---------- ----------
Net cash flows used in financing activities (787,987) (266,863)
---------- ----------
Net change in cash and cash equivalents (61,893) 567,338
Cash and cash equivalents, at beginning of
period 1,227,637 861,280
---------- ----------
Cash and cash equivalents, at end of
period $1,165,744 $1,428,618
========== ==========
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See notes to the consolidated financial statements.
The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. Adjustments are of a normal recurring nature. These statements should be read in conjunction with the annual financial statements and related notes for the year ended June 30, 2000.
Note A - The results of operations for the nine months ended March 31, 2001 may not be indicative of the results to be expected for the year ending June 30, 2001.
Note B - The calculation of basic and diluted earnings per share ("EPS") is as follows:
(In thousands, except EPS)
Periods ended March 31, 2001
---------------------------------------------------
Three month period Nine month period
------------------------- -----------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $288,880 629,905 $ 0.46 $669,720 630,669 $ 1.06
Effect of zero coupon
subordinated notes 536 3,183 1,850 3,692
Effect of stock
options - 12,586 - 14,426
Diluted $289,416 645,674 $ 0.45 $671,570 648,787 $ 1.04
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Periods ended March 31, 2000
----------------------------------------------------
Three month period Nine month period
-------------------------- -----------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic $271,310 629,144 $0.43 $617,010 626,401 $0.99
Effect of zero coupon
subordinated notes 718 4,416 2,208 4,582
Effect of stock
options - 14,199 - 14,324
Diluted $272,028 647,759 $0.42 $619,218 645,307 $0.96
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Note C - Comprehensive income for the three and nine months ended March 31, 2001 and 2000 is as follows:
(In thousands)
Three months ended Nine months ended
March 31 March 31
2001 2000 2001 2000
---- ---- ---- ----
Net earnings $288,880 $271,310 $669,720 $617,010
Other comprehensive income:
Foreign currency
translation adjustments (11,609) (28,614) (56,008) (84,741)
Unrealized gains (losses)
on securities 37,620 1,061 92,564 (3,733)
-------- -------- -------- --------
Comprehensive income $314,891 $243,757 $706,276 $528,536
======== ======== ======== ========
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Note D - Interim financial data by segment:
ADP evaluates performance of its business units based on recurring operating results before interest on corporate funds, foreign currency gains and losses and income taxes. Certain revenues and expenses are charged to business units at a standard rate for management and motivation reasons. Other costs are recorded based on management responsibility. As a result, various income and expense items, including certain non-recurring gains and losses, are recorded at the corporate level and certain shared costs are not allocated. Goodwill amortization is charged to business units at an accelerated rate to act as a surrogate for the cost of capital for acquisitions. Interest on invested funds held for clients are recorded in Employer Services' revenues at a standard rate of 6%, with the adjustment to actual revenues included in "other". Prior year's business unit revenues and pre-tax earnings have been restated to reflect the current year's budgeted foreign exchange rates.
Results of the Company's three largest business units, Employer Services, Brokerage Services and Dealer Services are shown below.
Three months ended March 31,
----------------------------------------
(In millions) Employer Brokerage Dealer
Services Services Services
---------- ------------ -----------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Revenues $1,141 $ 1,025 $ 446 $ 401 $ 177 $ 181
Pretax earnings $ 340 $ 295 $ 80 $ 99 $ 27 $ 29
Nine months ended March 31,
-----------------------------------------
Employer Brokerage Dealer
Services Services Services
------------ ------------ -----------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Revenues $3,037 $2,688 $1,178 $ 972 $ 515 $ 553
Pretax earnings $ 741 $ 624 $ 206 $ 216 $ 75 $ 90
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Note E - In fiscal 1999, the Company divested its Brokerage front-office business to Bridge Information Systems, Inc. ("Bridge"). As part of the proceeds the Company received $90 million of convertible preferred stock. As previously reported, Bridge has experienced continued operating and financial difficulties and has filed for bankruptcy-law protection. Accordingly, in both the quarter ended December 31, 2000 and the quarter ended March 31, 2001 the Company recorded a $45 million ($27 million net of tax) write-down of its investment in Bridge, which is reflected in "(gains)losses on investments". The Company has no remaining investment in Bridge.
Note F - Certain reclassifications and restatements, including the inclusion of funds held for clients and client funds obligations on the Consolidated Balance Sheets, have been made to prior period's financial statements to conform to current presentation.
OPERATING RESULTS
Revenues and earnings again reached record levels during the quarter ended March 31, 2001.
Revenues and revenue growth by ADP's major business units for the three months and nine months ended March 31, 2001 and 2000 are shown below:
Revenues
------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
2001 2000 2001 2000
------ ------ ------ ------
($ in millions)
Employer Services $1,141 $1,025 $3,037 $2,688
Brokerage Services 446 401 1,178 972
Dealer Services 177 181 515 553
Other 130 113 434 350
------ ------ ------ ------
$1,894 $1,720 $5,164 $4,563
====== ====== ====== ======
Revenue Growth
------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
2001 2000 2001 2000
----- ----- ----- -----
Employer Services 11% 9% 13% 10%
Brokerage Services 11 40 21 28
Dealer Services (2) 1 (7) 3
Other 15 9 24 4
----- ----- ----- ------
10% 14% 13% 12%
===== ===== ===== =====
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Consolidated revenues for the quarter of approximately $1.9 billion were up 10% from last year. Revenue growth in Employer Services was 11%. Client retention for the quarter continued at record levels, although new business sales were slower than expected. Brokerage revenue growth was 11%, as a result of the recent Cunningham Graphics acquisition, although trades processed per day were lower than the very high activity of last year's third quarter.
The primary components of "other" revenues are Claims Services, foreign exchange differences, and miscellaneous processing services. "Other" also includes interest income on corporate investments of $43 million and $31 million for the three months ended March 31, 2001 and March 31, 2000, respectively. In addition, "other" revenues have been adjusted for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services at a standard rate of 6%. The prior year's business unit revenues and pre-tax earnings have been restated to reflect the current year's budgeted foreign exchange rates.
Pre-tax earnings for the quarter increased 14% to $475 million. In the quarter ended March 31, 2001, the Company recorded a $45 million write-down ($27 million after-tax) of its remaining investment in Bridge. This write-down was recorded as a loss on investment in the "other" segment. Prior to this non-cash, non-operating write-down, pre-tax earnings for the quarter increased 25% to $520 million.
Form 10Q
Excluding the Bridge write-down, consolidated pre-tax margins increased primarily from improved margins in Employer Services and the transition of a portion of corporate and client fund investments from tax-exempt to taxable investments in order to increase liquidity of the overall portfolio. This transition of investments from tax exempt to taxable instruments gave rise to a $22 million loss on the sale of investments in the quarter ended March 31, 2000. Systems development and programming investments increased to accelerate automation, migrate to new computing technologies, and develop new products.
Net earnings for the quarter, after a higher effective tax rate, increased 7% to $289 million. Excluding the Bridge write-down, net earnings increased 16% to $316 million. The effective tax rate of 39.2% increased from 34.7% in the comparable quarter last year, impacted by the previously discussed change in the investment mix from tax-exempt to taxable investments.
Diluted earnings per share, increased 7% to $0.45 from $0.42 last year. Prior to the Bridge write-down, diluted earnings per share increased 17% to $0.49.
We expect revenue growth of about 12% and prior to considering the non-cash charge to write-down the Bridge investment we expect diluted earnings per share growth of about 16% to 17% for the full year.
FINANCIAL CONDITION
The Company's financial condition and balance sheet remain exceptionally strong, and operations continue to generate a strong cash flow. At March 31, 2001, the Company had cash and marketable securities of $2.5 billion. Shareholders' equity was $4.6 billion and the ratio of long-term debt to equity was 2%.
Capital expenditures for fiscal 2001 are expected to approximate $210 million, compared to $166 million in fiscal 2000.
During the third quarter, the Company purchased approximately 13.7 million shares of common stock for treasury at an average price per share of approximately $57. As of March 31, 2001 the Company has remaining Board authorization to purchase up to 56 million additional shares to fund equity related employee benefit plans.
Approximately forty percent of the Company's overall investment portfolio is invested in overnight interest-bearing instruments, which are therefore impacted immediately by changes in interest rates. The other sixty percent of the Company's investment portfolio is invested in fixed-income securities, with maturities up to five and a half years, which are also subject to interest rate risk, including reinvestment risk. The Company has historically had the ability to hold these investments until maturity, and therefore this has not had an adverse impact on income or cash flows.
Certain member countries of the European Union have agreed to transition to the Euro as a new common legal currency. The costs of this transition are not expected to have a material effect on ADP.
In fiscal 1999, the Company divested its Brokerage front-office business to Bridge Information Systems, Inc. ("Bridge"). As part of the proceeds the Company received $90 million of convertible preferred stock. As previously reported, Bridge has experienced continued operating and financial difficulties and has filed for bankruptcy-law protection. Accordingly, in both the quarter ended December 31, 2000 and the quarter ended March 31, 2001 the Company recorded a $45 million ($27 million net of tax) write-down of its investment in Bridge, which is reflected in "(gains)losses on investments". The Company has no remaining investment in Bridge.
This report contains "forward-looking statements" based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ from those expressed.
Factors that could cause differences include: ADP's success in obtaining, retaining and selling additional services to clients; the pricing of products and services; changes in laws regulating payroll taxes and employee benefits; overall economic trends, including interest rate and foreign currency trends; stock market activity; auto sales and related industry changes; employment levels; changes in technology; availability of skilled technical associates and the impact of new acquisitions. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Except as noted below, all other items are inapplicable or would result in negative responses and, therefore, have been omitted.
Item 6. Exhibits and Reports on Form 10Q.
(a) Exhibits
Exhibit
Number Exhibit
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10.3 Change in Control Severance Plan for Corporate Officers
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 4, 2001 /s/ Richard J. Haviland
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Richard J. Haviland
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