UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
[ ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5397
AUTOMATIC DATA PROCESSING, INC.
(Exact name of registrant as specified in its charter)
Delaware
22-1467904
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
One ADP Boulevard, Roseland, New Jersey
(Address of principal executive offices)
07068
(Zip Code)
Registrant's telephone number, including area code: 973-974-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.10 Par Value
(voting)
Trading Symbol(s)
ADP
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [x] No [ ]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [x]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit such files). Yes [x] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [x]
Non-accelerated filer [ ]
Accelerated filer [ ]
Smaller reporting company [ ]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [x]
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of the last business day of
the Registrant’s most recently completed second fiscal quarter was approximately $56,967,135,372. On July 31, 2019 there were
433,942,837 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 2019 Annual Meeting of Stockholders.
Part III
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV.
Item 15.
Signatures
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters,
and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director
Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
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Item 1. Business
Part I
CORPORATE BACKGROUND
General
We were founded in 1949 on an innovative idea: to help business owners focus on core business activities by freeing them up from
certain non-core tasks such as payroll. Today we are one of the world’s leading providers of cloud-based human capital management
(HCM) solutions to employers, offering solutions to businesses of all sizes, whether they have simple or complex needs. We serve
over 810,000 clients in 140 countries and territories. Our common stock is listed on the NASDAQ Global Select Market® under
the symbol “ADP.”
When we refer to “we,” “us,” “our,” “ADP,” or the “Company” in this Annual Report on Form 10-K, we mean Automatic Data
Processing, Inc. and its consolidated subsidiaries.
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BUSINESS OVERVIEW
ADP’s Mission
As digital technology, globalization and new business models
reshape the way people work, our mission is to power
organizations with insightful solutions that meet the changing
needs of our clients and their employees. Our technology,
industry and compliance expertise and data insights deliver
results, peace-of-mind and an enabled,
measurable
technology and
leading
productive workforce. Our
commitment to service excellence is at the core of our
relationship with each one of our clients, whether it's a small,
mid-sized or large organization operating in one or multiple
countries around the world. We are constantly designing
better ways to work through cutting-edge products, premium
services and exceptional experiences that enable people to
reach their full potential.
ADP’s Strategy
Our Strategic Pillars. Our business strategy is based on
three strategic pillars, which are designed to position us as
the global market leader in HCM technology and services:
• Grow a complete suite of cloud-based HCM solutions
(HCM Solutions). We develop cloud-based software and
offer comprehensive solutions that assist employers of all
types and sizes in managing the entire worker spectrum and
employment cycle - from full-time to freelancer and from
hire to retire.
• Grow and scale our market-leading HR Outsourcing
solutions by leveraging our platforms and processes
(HRO Solutions). We offer comprehensive HRO solutions
in which we provide complete management solutions for HR
administration, payroll administration, talent management,
employee benefits, benefits administration, employer
liability management, and other HCM and employee benefits
functions.
• Leverage our global presence to offer clients HCM
solutions wherever they do business (Global Solutions).
We are expanding our international HCM and HRO
businesses, comprised of our established local, in-country
software solutions and our market-leading, cloud-based
multi-country solutions.
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With a large and growing addressable market, we are strongly
positioned to continue delivering sustainable long-term value
across our strategic pillars. We are doing this by successfully
executing on product and technology innovation, providing
industry-leading service and compliance expertise, and
enhancing our world-class distribution.
We are focused on, and investing in, our world-class and next-
gen platforms that are built for the future of work, and on
providing market-leading product and technology solutions
that solve the needs of our clients today, and anticipate the
needs of our clients tomorrow. Our world-class platforms and
multi-national
clients with
solutions provide our
comprehensive HR and payroll capabilities that drive
productivity and enable compliance globally. Our cloud-
based next-gen platforms are built to be person-centric, serve
all worker types and support flexible work and on-demand
pay, and to deliver seamless global capabilities to dynamic,
team-based organizations.
Digital technology is transforming today's workplace and
workforce. We are accelerating our own digital
transformation and leveraging digital technology to change
how we engage with our clients and how their workers engage
with us - and an important part of this includes delivering
solutions wherever they are, whether at work or on the go.
We offer the broadest suite of complete HRO solutions
coupled with dedicated and strategic HR services and deep
local expertise. These offerings can be tailored to meet the
increasingly complex and sophisticated needs of our clients
and their workers.
Our global footprint in the HCM industry is unmatched and,
together with world-class technology and deep in-country
compliance expertise, we are strongly positioned to continue
to drive growth by delivering solutions to clients of all sizes
wherever they do business.
offerings combine HR expertise and data transparency in a
way that connects HR to the bottom line.
Through our acquisition of WorkMarket, a cloud-based
workforce management solution, we became the first HCM
provider with robust freelancer management functionality
and reporting insights, enabling clients to manage their
extended workforce effectively.
Wisely by ADP® is our latest advancement in the future of
pay. Our innovative payment offerings support an employer’s
need for flexible payment solutions in order to meet the
individual needs of its workers. The Wisely Pay by ADP™
payroll card is a network-branded payroll card and digital
account that enables employers to pay their employees, and
enables employees to access their payroll funds immediately,
including via a network member bank or an ATM, make
purchases or pay bills, load additional funds onto the card,
such as tax refunds and military pensions, and transfer funds
to a bank account in the United States. We also launched
Wisely Direct by ADP®, a network-branded general purpose
reloadable card and digital account, which provides similar
features and functionality as Wisely Pay by ADP but is offered
directly to consumers. Our digital card offerings are true
banking alternatives that feature innovative services such as
savings, budgeting, digital wallet and other personal financial
management features. With Wisely by ADP, we received the
“Awesome New Tech” award at the 2018 HR Technology
Conference for a record-breaking fourth straight year.
In addition, our mobile apps simplify how work gets done by
enabling clients to process their payroll, and giving millions
of their employees convenient access to their payroll and HR
information around the world and in 29 languages. We have
also opened access for developers and system integrators to
some of our platforms’ application programming interface
libraries through ADP Marketplace. With ADP Marketplace,
clients can integrate employee data from our core services
across their other business systems or platforms. This access
enables the exchange of client data housed in our databases,
and creates a unified HCM ecosystem for clients informed
by a single, comprehensive repository of their workforce
data. Clients can choose from over 370 apps and integrations,
allowing them to choose solutions that are tailored to their
needs, industry requirements and preferences.
Innovation at ADP
Innovation is in our DNA. For 70 years, we have reimagined
the world of work by designing cutting-edge products, robust
services and exceptional experiences that touch millions of
people’s lives daily. We pioneered automation in HCM, HCM
in the cloud, mobile HCM and the establishment of an HCM
marketplace. As the business and digital technology
landscape rapidly evolves, what ‘work’ means, ‘how’ and
‘where’ it gets done, and ‘how’ workers are paid is changing
as well. We innovate by anticipating the future of work, the
future of HCM and the future of pay in order to meet the
evolving and unique needs of our clients and their workers.
Our next-gen platforms are built for the ever-changing world
of work. Designed from the ground up to be cloud-native,
global, scalable and secure, our next-generation platforms
provide our clients with the flexibility they need to address
today’s and tomorrow’s workplace challenges, regardless of
their size and complexity. Our next-generation HCM
platform enables our clients to personalize their experience
based on their needs. Built for dynamic teams, our next-gen
HCM platform provides our clients with visibility into where
work actually happens rather than into rigid organizational
hierarchies and worker types. With our “HR your way”
approach, clients can easily tailor the solution to their needs
by deploying low-code applications. Our next-generation
payroll solution supports workers of all types and enables
real-time, transparent, continuous payroll calculations. Our
next-gen payroll solution also unlocks flexible pay choices
for our clients so they can provide the best pay experience
for their workers. Compliance capabilities are built-in,
enabling our clients to focus on managing their business. Our
next-gen platforms are designed to meet the needs of our
clients in an ever-changing world of work.
Today, harnessing big data for use in artificial intelligence
(AI) is a real competitive advantage. That is why we are
accelerating the deployment of AI - driven by big data based
on our unmatched HCM dataset - into our solutions and into
the hands of our clients and their decision-makers. This is the
same HCM dataset that drives our renowned ADP National
Employment Report®. We are leading this innovation effort
with ADP® DataCloud, a workforce intelligence engine
which provides clients with in-depth workforce and business
insights driven by unmatched big data that enables critical
HR decisions. Powered by ADP Datacloud, ADP’s Executive
and Manager Insights solution continually sifts through
wage, time, location, industry and other client data, to spot
meaningful trends and patterns, such as which departments
have the highest overtime or the locations where turnover
might be spiking, and compares those trends and patterns to
those in the client's industry. ADP’s Pay Equity Explorer
combines analytics and benchmarking to help employers
better understand potential pay gaps and provide them with
real, up-to-date, aggregated and anonymized market data to
understand how their compensation for a particular job
compares to other similar employers. These innovative
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Reportable Segments
Our two reportable business segments are Employer Services and Professional Employer Organization (“PEO”). For financial
data by segment and by geographic area, see Note 16 to the “Consolidated Financial Statements” contained in this Annual Report
on Form 10-K.
Employer Services. Our Employer Services segment serves clients ranging from single-employee small businesses to large
enterprises with tens of thousands of employees around the world, offering a comprehensive range of technology-based HCM
solutions, including our strategic, cloud-based platforms, and HRO (other than PEO) solutions. These solutions address critical
client needs and include: Payroll Services, Benefits Administration, Talent Management, HR Management, Workforce
Management, Compliance Services, Insurance Services and Retirement Services.
Professional Employer Organization. Our PEO business, called ADP TotalSource®, provides clients with comprehensive
employment administration outsourcing solutions through a relationship in which employees who work for a client (referred to as
“worksite employees”) are co-employed by us and the client.
Our reportable segments are based on the way that management reviews the performance of, and makes decisions about, our
business. Our strategic pillars represent the strategic growth areas for our business. The results of our business related to products
and solutions within the HCM Solutions pillar, the HRO Solutions pillar (other than PEO products and solutions) and the Global
Solutions pillar are contained within our Employer Services segment. The results of our business within the HRO Solutions pillar
related to our PEO products and solutions are contained within our PEO Segment.
PRODUCTS AND SOLUTIONS
In order to serve the unique needs of diverse types of businesses and workforce models, we provide a range of solutions which
businesses of all types, sizes, and across geographies can use to recruit, pay, manage, and retain their workforce. We address these
broad market needs with our cloud-based strategic platforms: RUN Powered by ADP®, serving over 640,000 small businesses;
ADP Workforce Now®, serving over 70,000 mid-sized and large businesses across our strategic pillars; and ADP Vantage HCM®,
serving over 500 large enterprise businesses. All of these solutions can be combined with ADP SmartCompliance® to address the
increasingly broad and complex needs of employers. Outside the United States, we address the needs of approximately 65,000
clients with premier global solutions consisting of local in-country solutions and multinational offerings, including ADP
GlobalView®, ADP Celergo® and ADP Streamline®.
Strategic Cloud-based Products and Solutions Across Client Size and Geography
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HCM Solutions
Integrated HCM Solutions. Our premier suite of HCM
products offers complete solutions that assist employers of
all types and sizes in all stages of the employment cycle, from
recruitment to retirement.
Our suite of HCM solutions are powered by our strategic,
cloud-based, award-winning platforms:
• RUN Powered by ADP combines a software platform for
managing small business payroll, HR management and tax
compliance administration, with 24/7 service and support
from our team of small business experts. RUN Powered by
ADP also integrates with other ADP solutions, such as
workforce management, workers’ compensation insurance
premium payment plans, and retirement plan administration
systems.
• ADP Workforce Now is a flexible HCM solution used
across mid-sized and large businesses in North America to
manage
their employees. More businesses use ADP
Workforce Now in North America than any other HCM
solution designed for both mid-sized and large businesses.
• ADP Vantage HCM is a solution for large enterprises in
the United States. It offers a comprehensive set of HCM
capabilities within a single solution that unifies the five major
areas of HCM: HR management, benefits administration,
payroll services, time and attendance management, and talent
management.
journals,
supporting
summaries,
We pay approximately 26 million
Payroll Services.
(approximately 1 out of every 6) workers in the United States.
We provide flexible payroll services to employers of all sizes,
including the preparation of employee paychecks, pay
and
statements,
management reports. We provide employers with a wide
range of payroll options, including using mobile technology,
connecting their major enterprise resource planning (“ERP”)
applications with ADP’s payroll services or outsourcing their
entire payroll process to us. Employers can choose a variety
of payroll payment options including ADP’s electronic wage
payment and, in the United States, payroll card solutions and
digital accounts. On behalf of our clients in the United States,
we prepare and file federal, state and local payroll tax returns
and quarterly and annual Social Security, Medicare, and
federal, state and local income tax withholding reports.
Benefits Administration. In the United States, we provide
powerful and agile solutions for employee benefits
administration. These options include health and welfare
administration, leave administration services, insurance
carrier enrollment services, employee communication
services, and dependent verification services. In addition,
ADP benefits administration solutions offer employers a
simple and flexible cloud-based eligibility and enrollment
system
tools,
communications, and other resources they need to understand
their benefits options and make informed choices.
their employees with
that provides
Talent Management. ADP’s Talent Management solutions
simplify and improve the talent acquisition, management,
and activation process from recruitment to ongoing employee
engagement and development. Employers can also outsource
their internal recruitment function to ADP. Our solutions
provide performance, learning, succession and compensation
management tools that help employers align goals to
outcomes, and enable managers to identify and mitigate
potential retention risks. Our talent activation solutions
include ADP’s StandOut® and Compass® solutions, which
provide team leaders with data and insights to drive employee
engagement and leadership development, which in turn help
drive employee performance.
Workforce Management. ADP’s Workforce Management
offers a range of solutions to over 75,000 employers of all
sizes, including time and attendance, absence management
and scheduling tools. Time and attendance solutions include
time capture via online timesheets, timeclocks with badge
readers, biometrics and touch-screens, telephone/interactive
voice response, and mobile smartphones and tablets. These
tools automate the calculation and reporting of hours worked,
helping employers prepare payroll, control costs and
overtime, and manage compliance with wage and hour
regulations. Absence management tools include accrued time
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off, attendance policy and leave case modules. Our employee
scheduling tools simplify visibility, offer shift-swapping
capabilities and can assist managers with optimizing
schedules to boost productivity and minimize under- and
over-staffing. We also offer analytics and reporting tools that
provide clients with insights, benchmarks and performance
metrics so they can better manage their workforce. In
addition, industry-specific modules are available for labor
forecasting, budgeting, activity and task management, grant
and project tracking, and tips management.
Compliance Solutions.
ADP’s Compliance Solutions
provides industry-leading expertise in payment compliance
and employment-related tax matters that complement the
payroll, HR and ERP systems of its clients.
• ADP SmartCompliance. In the United States, ADP
SmartCompliance integrates client data delivered from our
integrated HCM platforms or third-party payroll, HR and
financial systems into a single, cloud-based solution. Our
specialized teams use the data to work with clients to help
them manage changing and complex regulatory landscapes
and improve business processes. ADP SmartCompliance
includes HCM-related compliance solutions such as
Employment Tax and Wage Payments, as well as Tax Credits,
Health Compliance, Wage Garnishments, Employment
Verifications, Unemployment Claims and W-2 Management.
• ADP SmartCompliance Employment Tax. As part of our
full service employment tax services in the United States, we
prepare and file employment tax returns on our clients’ behalf
and, in connection with these stand-alone services, collect
employment taxes from clients and remit these taxes to more
than 7,100 federal, state and local tax agencies. In our fiscal
year ended June 30, 2019, in the United States, we processed
and delivered approximately 67 million employee year-end
tax statements, and moved more than $2.1 trillion in client
funds to taxing and other agencies and to our clients’
employees and other payees.
• ADP SmartCompliance Wage Payments. In the United
States, we offer compliant pay solutions for today's
workforce, including electronic payroll disbursement options
such as payroll cards, digital accounts and direct deposit, as
well as traditional payroll checks, which can be integrated
with clients’ ERP and payroll systems.
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Human Resources Management. Commonly referred to as
Human Resource Information Systems, ADP’s Human
Resources Management Solutions provide employers with a
single system of record to support the entry, validation,
maintenance, and reporting of data required for effective HR
management, including employee names, addresses, job
types, salary grades, employment history, and educational
background.
Insurance Services. ADP’s Insurance Services business, in
conjunction with our licensed insurance agency, Automatic
Data Processing Insurance Agency, Inc., facilitates access in
the United States to workers’ compensation and group health
insurance for small and mid-sized clients through a variety
of insurance carriers. Our automated Pay-by-Pay® premium
payment program calculates and collects workers’
compensation premium payments each pay period,
simplifying this task for employers.
Retirement Services. ADP Retirement Services helps
employers in the United States administer various types of
retirement plans, such as traditional and Roth 401(k)s, profit
sharing (including new comparability), SIMPLE and SEP
IRAs, and executive deferred compensation plans. ADP
Retirement Services offers a full service 401(k) plan program
which provides recordkeeping and administrative services,
combined with an investment platform offered through ADP
Broker-Dealer, Inc. that gives our clients’ employees access
to a wide range of non-proprietary investment options and
online tools to monitor the performance of their investments.
In addition, ADP Retirement Services offers investment
management services to retirement plans through ADP
Strategic Plan Services, LLC, a registered investment adviser
under the Investment Advisers Act of 1940. ADP Retirement
Services also offers trustee services through a third party.
HRO Solutions
As a leader in the growing HR Outsourcing market, we partner with our clients to offer a full range of seamless technology and
service solutions for HR administration, workforce management, payroll services, benefits administration and talent management.
From small businesses to enterprises with thousands of employees, with HRO our clients gain proven technology and processes
and robust service and support. Whether a client chooses our PEO or other HR Outsourcing solutions, we offer solutions tailored
to a client’s specific needs and preferences - designed to meet the client’s needs today, and as its business and needs evolve.
Professional Employer Organization. ADP TotalSource,
our PEO business, offers small and mid-sized businesses a
comprehensive HR outsourcing solution through a co-
employment model. With a PEO, both ADP and the client
have a co-employment relationship with the client’s
employees. We assume certain employer responsibilities
such as payroll processing and tax filings, and the client
maintains control of its business and all management
responsibilities. ADP TotalSource clients are able to offer
their employees services and benefits on par with those of
much larger enterprises, without the need to staff an
enterprise-size HR department. With our cloud-based HCM
software at the core, we serve more than 12,500 clients and
approximately 562,000 worksite employees in all 50 U.S.
states. ADP TotalSource is the largest PEO certified by the
Internal Revenue Service as meeting the requirements to
operate as a Certified Professional Employer Organization
under the Internal Revenue Code. As a full-service PEO, ADP
TotalSource provides complete HR management and core
administrative services while the client continues to direct
the day-to-day job-related duties of the employees.
With constantly changing business regulations, global
economies and
technology, our clients benefit from
partnering with ADP TotalSource to help them protect their
business and drive growth and success. Some of the rich
offerings available through ADP TotalSource to address
today’s workplace challenges include:
• Better Benefits: Through our PEO, many of our clients
discover that they can offer a richer overall benefits package
than they could afford to offer on their own. We give clients
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access to a new patent-pending approach to help them target
the best benefit plan offerings for their employees. They can
compare plan options and make more educated decisions
about what plan offering is best for their company and budget.
In addition, ADP TotalSource integrates with our award-
winning ADP Marketplace to further tailor offerings, such as
helping employees pay off student loans with payroll
contributions and integrating a client’s U.S. PEO population
with its global workforce’s HR system of record.
• Protection and Compliance: ADP TotalSource HR experts
help clients manage the risks of being an employer by
advising how to handle properly a range of issues - from HR
and safety compliance to employee-relations. This includes
access to workers' compensation coverage and expertise
designed to help them handle both routine and unexpected
incidents, including discrimination and harassment claims.
• Talent Engagement: Featuring a talent blueprint, ADP
TotalSource HR experts work with clients to help them better
engage and retain their workforce through solutions that
support the core needs of an employee at work. In addition,
our full-service recruitment team is dedicated to helping our
clients find and hire new talent, while reducing the stress of
uncovering top talent.
• Expertise: Each client is assigned a designated HR
specialist for day-to-day and strategic guidance. Clients can
also access data-driven benchmarks in areas such as turnover
and overtime, staffing and understanding profit leaks, and
have their ADP HR expert help tailor recommendations to
continue to drive their business forward.
ADP Comprehensive Services. Leveraging our market-
leading ADP Workforce Now platform, ADP Comprehensive
Services partners with clients of all types and sizes to tackle
their HR, talent, benefits administration and pay challenges
with help from our proven expertise, deep experience and
best practices. ADP Comprehensive Services is flexible -
enabling clients to partner with us for managed services for
one, some or all areas across HR, talent, benefits
administration and pay. We provide outsourced execution
that combines processes, technology and a robust service and
support team that acts as an extension of our client’s in-house
resources - so their HCM and pay operations are executed
with confidence.
ADP Comprehensive Outsourcing Services (ADP COS).
Enabled by ADP Vantage HCM, ADP COS is designed for
large business outsourcing for payroll, HR administration,
workforce management, benefits administration and talent
management. With COS, the day-to-day payroll process
becomes our responsibility, freeing up clients to address
critical issues like employee engagement and retention. The
combination of technology, deep expertise and data-driven
insights that COS offers is transformative, allowing clients
to focus on strategy and results.
ADP Recruitment Process Outsourcing Services (ADP
RPO). ADP RPO provides deep talent insights to help drive
targeted recruitment strategies for attracting top talent. With
global, customizable recruitment services, ADP RPO enables
organizations to find and hire the best candidates for hourly,
professional or executive positions. In addition, we also
deliver market analytics, sourcing strategies, candidate
screening, selection and on-boarding solutions to help
organizations connect their talent strategy to their business's
priorities.
Global Solutions
Our premier global solutions consist of multi-country and
local in-country solutions for employers of any type or size.
We partner with clients to help them navigate the most
complex HR and payroll scenarios using tailored and scalable
technology supported by our deep compliance expertise.
ADP Global Payroll is a solution for multinational
organizations of all sizes. As a highly scalable and flexible
suite of products supported by a team of experts, ADP Global
Payroll allows small and mid-sized companies, as well as the
largest multinationals, to standardize their HCM strategies
globally (including payroll, HR, talent, time and labor, and
benefits management) and adapt to changing local needs,
while helping to drive overall organizational agility and
engagement.
We also offer comprehensive HCM solutions on local,
country-specific platforms. These suites of services offer
various combinations of payroll services, HR management,
time and attendance management, talent management and
benefits management, depending on the country in which the
solution is provided.
We pay approximately 15 million workers outside the United
States with our local in-country solutions and with ADP
GlobalView, ADP Celergo and ADP Streamline - our
simplified and intuitive multi-country payroll solutions. As
part of our global payroll services, we supply year-end
regulatory and legislative tax statements and other forms to
our clients’ employees. Our global talent management
solutions elevate the employee experience, from recruitment
to ongoing employee engagement and development. Our
comprehensive HR solutions combined with our deep
expertise make our clients’ global HR management strategies
a reality. Our configurable, automated time and attendance
tools help global clients understand the work being performed
and the resources being used, and ensure the right people are
in the right place at the right time.
MARKETS AND SALES
Our HCM solutions are offered in 140 countries and
territories across North America, Latin America, Europe,
Asia and Africa. The most material markets for HCM
Solutions, Global Solutions and HRO Solutions (other than
PEO) are the United States, Canada and Europe. In each
market, we have both country-specific solutions and multi-
country solutions, for employers of all sizes and complexities.
The major components of our offerings throughout these
geographies are payroll, HR outsourcing and time and
attendance management. In addition, we offer wage and tax
collection and remittance services in the United States,
Canada, the United Kingdom, the Netherlands, France,
Australia, India, and China. Our PEO business offers services
exclusively in the United States.
We market our solutions primarily through our direct sales
force. We also market HCM Solutions, Global Solutions and
HRO Solutions (other than PEO) through indirect sales
channels, such as marketing relationships with certified
public accountants and banks, among others. None of our
major business units has a single homogeneous client base
or market. While concentrations of clients exist in specific
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industries, no one client, industry or industry group is material
to our overall revenues. We are a leader in each of our major
service offerings and do not believe any of our major services
or business units is subject to unique market risk.
COMPETITION
The industries in which we operate are highly competitive.
We know of no reliable statistics by which we can determine
the number of our competitors, but we believe that we are
one of the largest providers of HCM solutions in the world.
HCM Solutions, Global Solutions and HRO Solutions (other
than PEO) compete with other business outsourcing
companies, companies providing ERP services, providers of
cloud-based HCM solutions and financial institutions. Our
PEO business competes with other PEOs providing similar
services, as well as business outsourcing companies,
companies providing ERP services and providers of cloud-
based HCM solutions. Other competitive factors include a
company’s in-house function, whereby a company installs
and operates its own HCM system.
Competition for business outsourcing solutions is primarily
based on product and service quality, reputation, ease of use
and accessibility of technology, breadth of offerings, and
price. We believe that we are competitive in each of these
areas and that our leading-edge technology, together with our
commitment to service excellence, distinguishes us from our
competitors.
INDUSTRY REGULATION
Our business is subject to a wide range of complex U.S. and
foreign laws and regulations. In addition, many of our
solutions are designed to assist clients with their compliance
with certain U.S. and foreign laws and regulations that apply
to them. We have, and continue to enhance, compliance
programs and policies to monitor and address the legal and
regulatory requirements applicable to our operations and
client solutions, including dedicated compliance personnel
and training programs.
11
As one of the world’s largest providers of HCM solutions,
our systems contain a significant amount of sensitive data
related to clients, employees of our clients, vendors and our
employees. We are, therefore, subject to compliance
obligations under federal, state and foreign privacy, data
protection and cybersecurity-related laws, including federal,
state and foreign security breach notification laws with
respect to both client employee data and our own employee
data. The changing nature of these laws in the United States,
Europe and elsewhere, including the European Union’s (the
“EU”) General Data Protection Regulation (the "GDPR") and
the California Consumer Privacy Act (the “CCPA”), will
impact our processing of personal information of our
employees and on behalf of our clients. The GDPR, which
became effective in May 2018, imposes stricter and more
comprehensive requirements on us as both a data controller
and a data processor. As part of our overall data protection
compliance program, including with respect to data
protection laws in the EU, we have implemented Binding
Corporate Rules (“BCRs”). Compliance with our BCRs
permits us to process and transfer personal data across borders
in accordance with the GDPR and other data protection laws
in the EU. The CCPA will become effective on January 1,
2020 and will require companies to provide new data
disclosure, access, deletion and opt-out rights to consumers
in California. In addition, in the United States, the Health
Insurance Portability and Accountability Act of 1996 applies
to our insurance services businesses and ADP TotalSource.
As part of our payroll and payroll tax management services,
we move client funds to taxing authorities, our clients’
employees, and other payees via electronic transfer, direct
deposit, prepaid access and ADPCheck. Some elements of
our U.S. money transmission activities, including our
electronic payment and prepaid access (payroll pay card)
offerings, are subject to certain licensing requirements. In
addition, our U.S. prepaid access offering is subject to the
anti-money laundering and reporting provisions of The Bank
Secrecy Act of 1970, as amended by the USA PATRIOT Act
of 2000 (the “BSA”). Elements of our money movement
activities outside of the United States are subject to similar
licensing and anti-money laundering and reporting laws and
requirements in the countries in which we provide such
services. Our employee screening and selection services
business offers background checking services that are subject
to the Fair Credit Reporting Act. ADP TotalSource is subject
to various state licensing requirements and maintains
certifications with the Internal Revenue Service. Because
ADP TotalSource is a co-employer with respect to its clients’
worksite employees, we may be subject to limited obligations
and responsibilities of an employer under federal and state
tax, insurance and employment laws. Our registered
investment adviser provides certain investment management
and advisory services to retirement plan administrators under
a heightened “fiduciary” standard and is regulated by the SEC
and the U.S. Department of Labor.
In addition, many of our businesses offer solutions that assist
our clients in complying with certain U.S. and foreign laws
and regulations that apply to them. Although these laws and
regulations apply to our clients and not to ADP, changes in
such laws or regulations may affect our operations, products
and services. For example, our payroll services are designed
to facilitate compliance with state laws and regulations
applicable to the payment of wages. In addition, our HCM
solutions help clients manage their compliance with certain
requirements of the Affordable Care Act in the United States.
Similarly, our Tax Credit Services business, which helps
clients in the United States take advantage of tax credit
opportunities in connection with the hiring of new employees
and certain other activities, is based on federal, state, or local
tax laws and regulations allowing for tax credits, which are
subject to renewal, amendment or rescission.
The foregoing description does not include an exhaustive list
of the laws and regulations governing or impacting our
business. See the discussion contained in the “Risk Factors”
section in Part I, Item 1A of this Annual Report on Form
10-K for information regarding changes in laws and
regulations that could have a materially adverse effect on our
reputation, results of operations or financial condition or have
other adverse consequences.
CLIENTS AND CLIENT CONTRACTS
We provide services to more than 810,000 clients. In fiscal
2019, no single client or group of affiliated clients accounted
for revenues in excess of 2% of our annual consolidated
revenues.
in
We are continuously
the process of performing
implementation services for new clients. Depending on the
service agreement and/or the size of the client, the installation
or conversion period for new clients can vary from a short
period of time for a small Employer Services client (as little
as 24 hours) to a longer period for a large Employer Services
client with multiple deliverables (generally six to nine
months). In some cases, the period may exceed two years for
a large, multi-country GlobalView client or other large, multi-
phase implementation. Although we monitor sales that have
not yet been installed, we do not view this metric as material
to an understanding of our overall business in light of the
recurring nature of our business. This metric is not a reported
number, but it is used by management as a planning tool to
allocate resources needed to install services, and as a means
of assessing our performance against the expectations of our
clients. In addition, some of our products and services are
sold under longer term contracts with initial terms ranging
from two to seven years. However, this anticipated future
revenue under contract is not a significant portion of our
expected future revenue, is not a meaningful indicator of our
future performance and is not material to management's
estimate of our future revenue.
Our business is typically characterized by long-term client
relationships that result in recurring revenue. Our services
are provided under written price quotations or service
12
agreements having varying terms and conditions. No one
price quotation or service agreement is material to us. Our
client retention is estimated at approximately 11 years in
Employer Services, and approximately 6 years in PEO, and
has not varied significantly from period to period.
PRODUCT DEVELOPMENT
We continually upgrade, enhance, and expand our solutions
and services. In general, new solutions and services
supplement rather than replace our existing solutions and
services and, given our recurring revenue model, do not have
a material and immediate effect on our revenues. We believe
that our strategic solutions and services have significant
remaining life cycles.
SYSTEMS DEVELOPMENT AND
PROGRAMMING
in
respectively,
During the fiscal years ended June 30, 2019, 2018 and 2017,
we invested approximately $911 million, $1 billion and $859
million,
systems development and
programming. These investments include expenses for
activities such as client migrations to our new strategic cloud-
based platforms, purchases of new software and software
licenses, additions to software resulting from business
combinations, as well as the development of new products
and maintenance expenses associated with our existing
technologies.
LICENSES
We are the licensee under a number of agreements for
computer programs and databases. Our business is not
dependent upon a single license or group of licenses. Third-
party licenses, patents, trademarks, and franchises are not
material to our business as a whole.
NUMBER OF EMPLOYEES
We employed approximately 58,000 persons as of June 30,
2019.
Available Information
Our corporate website, www.adp.com, provides materials for
investors and information about our solutions and services.
ADP’s Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, all amendments
to those reports, and the Proxy Statements for our Annual
Meetings of Stockholders are made available, free of charge,
on our corporate website as soon as reasonably practicable
after such reports have been filed with or furnished to the
Securities and Exchange Commission (“SEC”), and are also
available on the SEC’s website at www.sec.gov. The content
on any website referenced in this filing is not incorporated
by reference into this filing unless expressly noted otherwise.
Item 1A. Risk Factors
Our businesses routinely encounter and address risks, some
of which may cause our future results to be different than we
currently anticipate. The risk factors described below
represent our current view of some of the most important risks
facing our businesses and are important to understanding
our business. The following information should be read in
conjunction with Management’s Discussion and Analysis of
Financial Condition and Results of Operations, Quantitative
and Qualitative Disclosures About Market Risk and the
consolidated financial statements and related notes included
in this Annual Report on Form 10-K. This discussion includes
a number of forward-looking statements. You should refer to
the description of the qualifications and limitations on
forward-looking statements in the first paragraph under
Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in this Annual
Report on Form 10-K. The level of importance of each of the
following risks may vary from time to time, and any of these
risks may have a materially adverse effect on our business,
results of operations or financial condition.
Failure to comply with, or changes in, laws and regulations
applicable to our businesses could have a materially adverse
effect on our reputation, results of operations or financial
condition, or have other adverse consequences
Our business is subject to a wide range of complex U.S. and
foreign laws and regulations, including, but not limited to,
the laws and regulations described in the “Industry
Regulation” section in Part I, Item 1 of this Annual Report
on Form 10-K. Failure to comply with laws and regulations
applicable to our operations or client solutions and services
could result in the suspension or revocation of licenses or
registrations, the limitation, suspension or termination of
services, and the imposition of consent orders or civil and
criminal penalties, including fines, that could damage our
reputation and have a materially adverse effect on our results
of operation or financial condition.
In addition, changes in laws or regulations, or changes in the
interpretation of laws or regulations by a regulatory authority,
may decrease our revenues and earnings and may require us
to change the manner in which we conduct some aspects of
our business. For example, a change in regulations either
decreasing the amount of taxes to be withheld or allowing
less time to remit taxes to government authorities would
adversely impact average client balances and, thereby
adversely impact interest income from investing client funds
before such funds are remitted to the applicable taxing
authorities. Changes in taxation regulations could adversely
affect our effective tax rate and our net income. Changes in
laws that govern the co-employment arrangement between a
its worksite
professional employer organization and
employees may require us to change the manner in which we
conduct some aspects of our PEO business. Health care
reform under the Affordable Care Act, related state laws, and
the regulations thereunder, as well as the uncertainty
surrounding the Affordable Care Act, have the potential to
13
further impact the health insurance market for our PEO
business and the demand for our health care compliance
solutions. We are unable to determine the additional impact
that any of this will have on our PEO business, our ability to
attract and retain PEO clients or demand for our health care
compliance solutions.
Amendments to money transmitter statutes have required us
to obtain licenses in some jurisdictions. The adoption of new
money transmitter statutes in other jurisdictions, changes in
regulators’ interpretation of existing state and federal money
transmitter or money services business statutes or
regulations, or disagreement by a regulatory authority with
our interpretation of such statutes or regulations, could
require additional registration or licensing, limit certain of
our business activities until they are appropriately licensed,
and expose us to financial penalties. These occurrences could
also require changes to the manner in which we conduct some
aspects of our money movement business or client funds
investment strategy, which could adversely impact interest
income from investing client funds before such funds are
remitted.
to comply with anti-corruption
Failure
laws and
regulations, economic and trade sanctions, anti-money
laundering laws and regulations, and similar laws could
have a materially adverse effect on our reputation, results
of operations or financial condition, or have other adverse
consequences
Regulators worldwide are exercising heightened scrutiny
with respect to anti-corruption, economic and trade sanctions,
and anti-money laundering laws and regulations. Such
heightened scrutiny has resulted in more aggressive
investigations and enforcement of such laws and more
burdensome regulations, any of which could materially
adversely impact our business. We operate our business
around the world, including in numerous developing
economies where companies and government officials are
more likely to engage in business practices that are prohibited
by domestic and foreign laws and regulations, including the
United States Foreign Corrupt Practices Act and the U.K.
Bribery Act. Such laws generally prohibit improper payments
or offers of payments to foreign government officials and
leaders of political parties, and in some cases, to other
persons, for the purpose of obtaining or retaining business.
We are also subject to economic and trade sanctions
programs, including those administered by the U.S. Treasury
Department’s Office of Foreign Assets Control, which
prohibit or restrict transactions or dealings with specified
countries, their governments and, in certain circumstances,
their nationals, and with individuals and entities that are
specially designated, including narcotics traffickers and
terrorists or terrorist organizations, among others. In
addition, some of our businesses in the U.S. and a number of
countries in which we operate are subject to anti-money
laundering laws and regulations, including, for example, The
Bank Secrecy Act of 1970, as amended by the USA PATRIOT
Act of 2000 (the “BSA”). Among other things, the BSA
requires certain financial institutions, including banks and
money services businesses (such as money transmitters and
providers of prepaid access), to develop and implement risk-
based anti-money laundering programs, report large cash
transactions and suspicious activity, and maintain transaction
records. We have registered our payroll card business with
the Treasury Department’s Financial Crimes Enforcement
Network (“FinCEN”) as a provider of prepaid access
pursuant to a FinCEN regulation.
We have implemented policies and procedures to monitor and
address compliance with applicable anti-corruption,
economic and trade sanctions and anti-money laundering
laws and regulations, and we are continuously in the process
of reviewing, upgrading and enhancing certain of our policies
and procedures. However, there can be no assurance that our
employees, consultants or agents will not take actions in
violation of our policies for which we may be ultimately
responsible, or that our policies and procedures will be
adequate or will be determined to be adequate by regulators.
Any violations of applicable anti-corruption, economic and
trade sanctions or anti-money laundering laws or regulations
could limit certain of our business activities until they are
satisfactorily remediated and could result in civil and criminal
penalties, including fines, which could damage our reputation
and have a materially adverse effect on our results of
operation or financial condition. Further, bank regulators are
imposing additional and stricter requirements on banks to
ensure they are meeting their BSA obligations, and banks are
increasingly viewing money services businesses, as a class,
to be higher risk customers for money laundering. As a result,
our banking partners may limit the scope of services they
provide to us or may impose additional requirements on us.
These regulatory restrictions on banks and changes to banks’
internal risk-based policies and procedures may result in a
decrease in the number of banks that may do business with
us, may require us to change the manner in which we conduct
some aspects of our business, may decrease our revenues and
earnings and could have a materially adverse effect on our
results of operations or financial condition.
Failure to comply with privacy, data protection and cyber
security laws and regulations could have a materially
adverse effect on our reputation, results of operations or
financial condition, or have other adverse consequences
The collection, storage, hosting, transfer, processing,
disclosure, use, security and retention and destruction of
personal information required to provide our services is
subject to federal, state and foreign privacy, data protection
and cyber security laws. These laws, which are not uniform,
generally do one or more of the following: regulate the
collection, storage, hosting, transfer (including in some cases,
the transfer outside the country of collection), processing,
disclosure, use, security and retention and destruction of
personal information; require notice to individuals of privacy
practices; give individuals certain access and correction
rights with respect to their personal information; and regulate
the use or disclosure of personal information for secondary
purposes such as marketing. Under certain circumstances,
some of these laws require us to provide notification to
affected individuals, clients, data protection authorities and/
or other regulators in the event of a data breach. In many
cases, these laws apply not only to third-party transactions,
but also to transfers of information among the Company and
its subsidiaries. The European Union (the “EU”) General
Data Protection Regulation (the “GDPR”), which became
effective in May 2018 and the California Consumer
Protection Act (the “CCPA”), which will become effective
on January 1, 2020, are among the most comprehensive of
these laws. As part of our overall data protection compliance
program in connection with the GDPR, we implemented
Binding Corporate Rules (“BCRs”) as both a data processor
and data controller, which permits us to process and transfer
personal data across borders in compliance with EU data
protection
laws and
requirements, including the enhanced obligations imposed
by the GDPR, our BCRs and the CCPA, may result in
significant costs to our business and require us to amend
certain of our business practices. Further, enforcement
actions and investigations by regulatory authorities related
to data security incidents and privacy violations continue to
increase. The future enactment of more restrictive laws, rules
or regulations and/or future enforcement actions or
investigations could have a materially adverse impact on us
through increased costs or restrictions on our businesses and
noncompliance could result
in significant regulatory
penalties and legal liability and damage our reputation. In
addition, data security events and concerns about privacy
abuses by other companies are changing consumer and social
expectations for enhanced privacy and data protection. As a
result, even the perception of noncompliance, whether or not
valid, may damage our reputation.
laws. Complying with
these
Our businesses collect, host, store, transfer, process,
disclose, use, secure and dispose of personal and business
information, and collect, hold and transmit client funds,
and a security or privacy breach may damage or disrupt our
businesses, result
the disclosure of confidential
information, damage our reputation, increase our costs,
cause losses and adversely affect our results of operations
in
In connection with our business, we collect, host, store,
transfer, process, disclose, use, secure and dispose of large
amounts of personal and business information about our
clients, employees of our clients, our vendors and our
employees, contractors and temporary staff, including
payroll information, health care information, personal and
business financial data, social security numbers and their
foreign equivalents, bank account numbers, tax information
and other sensitive personal and business information. We
also collect and transmit significant amounts of funds from
the accounts of our clients to their employees, taxing
authorities and others.
We are focused on ensuring that we safeguard and protect
personal and business information and client funds, and we
devote significant resources to maintain and regularly update
14
our systems and processes. Nonetheless,
the global
environment grows increasingly hostile as attacks on
information technology systems continue to grow in
frequency, complexity and sophistication, and we are
regularly targeted by unauthorized parties using malicious
tactics, code and viruses. Certain of these malicious parties
may be state-sponsored and supported by significant
financial and technological resources. Although this is a
global problem, it may affect our businesses more than other
businesses because malevolent parties (including our
personnel) may focus on the amount and type of personal and
business information that our businesses collect, host, store,
transfer, process, disclose, use, secure and dispose of, and the
client funds that we collect and transmit.
We have programs and processes in place to prevent, detect
and respond to data or cyber security incidents. However,
because the techniques used to obtain unauthorized access,
disable or degrade service, or sabotage systems change
frequently, are increasingly more complex and sophisticated
and may be difficult to detect for long periods of time, we
may be unable or fail to anticipate these techniques or
implement adequate or timely preventive or responsive
measures. In addition, hardware, software or applications we
develop or procure from third parties may contain defects in
design or manufacture or other problems that could
compromise the confidentiality, integrity or availability of
data or our systems. Unauthorized parties also attempt to gain
access to our systems or facilities, or those of third parties
with whom we do business, through fraud, trickery, or other
methods of deceiving these third parties or our personnel,
including phishing and other social engineering techniques
whereby attackers use end-user behaviors to distribute
computer viruses and malware into our systems. As these
threats continue to evolve and increase, we may be required
to invest significant additional resources to modify and
enhance our information security and controls and to
investigate and remediate any security vulnerabilities. In
addition, while our operating environments are designed to
safeguard and protect personal and business information, we
do not have the ability to monitor the implementation or
effectiveness of any safeguards by our clients, vendors or
partners and, in any event, third parties may be able to
circumvent those security measures. Information obtained by
malevolent parties resulting from successful attacks against
our clients, vendors, partners or other third parties may, in
turn, be used to attack our information technology systems.
Any cyberattack, unauthorized intrusion, malicious software
infiltration, network disruption, denial of service, corruption
of data, theft of non-public or other sensitive information, or
similar act by a malevolent party (including our personnel),
or inadvertent acts or inactions by our vendors, partners or
personnel, could result in the disclosure or misuse of
confidential personal or business information or the theft of
client funds, and could have a materially adverse effect on
our business or results of operations or that of our clients,
result in liability, litigation, regulatory investigations and
sanctions or a loss of confidence in our ability to serve clients,
15
or cause current or potential clients to choose another service
provider. As the global environment grows increasingly
hostile, the security of our operating environment is ever
more important to our clients and potential clients. As a result,
the breach or perceived breach of our security systems could
result in a loss of confidence by our clients or potential clients
and cause them to choose another service provider, which
could have a materially adverse effect on our business.
Although we believe that we maintain a robust program of
information security and controls and none of the data or
cyber security incidents that we have encountered to date
have materially impacted us, a data or cyber security incident
could have a materially adverse effect on our business, results
of operations, financial condition and reputation. While ADP
maintains insurance coverage that, subject to policy terms
and conditions and a significant self-insured retention, is
designed to address losses or claims that may arise in
connection with certain aspects of data and cyber risks, such
insurance coverage may be insufficient to cover all losses or
all types of claims that may arise in the continually evolving
area of data and cyber risk.
Our systems, applications, solutions and services may be
subject to disruptions that could have a materially adverse
effect on our business and reputation
Many of our businesses are highly dependent on our ability
to process, on a daily basis, a large number of complicated
transactions. We rely heavily on our payroll, financial,
accounting, and other data processing systems. We need to
properly manage our systems, applications and solutions, and
any upgrades, enhancements and expansions we may
undertake from time to time, in order to ensure they properly
support our businesses. If any of these systems, applications
or solutions fails to operate properly or becomes disabled
even for a brief period of time, whether due to malevolent
acts, errors, defects or any other factor(s), we could suffer
financial loss, a disruption of our businesses, liability to
clients, loss of clients, regulatory intervention or damage to
our reputation, any of which could have a materially adverse
effect on our results of operation or financial condition. We
have disaster recovery, business continuity, and crisis
management plans and procedures designed to protect our
businesses against a multitude of events, including natural
terrorist actions, power or
disasters, military or
communication failures, or similar events. Despite our
preparations, our plans and procedures may not be successful
in preventing or mitigating the loss of client data, service
interruptions, disruptions to our operations, or damage to our
important facilities.
A disruption of our data centers could have a materially
adverse effect on our business
We host our applications and serve our clients from data
centers that we operate and from data centers operated by
third-party vendors. If any of our or our third-party vendors'
data centers fails, becomes disabled or is disrupted, even for
a limited period of time, our businesses could be disrupted
and we could suffer financial loss, liability to clients, loss of
clients, regulatory intervention, or damage to our reputation,
any of which could have a material adverse effect on our
results of operation or financial condition. In addition, our
third-party vendors may cease providing data center facilities
or services, elect to not renew their agreements with us on
commercially reasonable terms or at all, breach their
agreements with us or fail to satisfy our expectations, which
could disrupt our operations and require us to incur costs
which could materially adversely affect our results of
operation or financial condition.
If we fail to protect our intellectual property rights, it could
materially adversely affect our business and our brand
Our ability to compete and our success depend, in part, upon
our intellectual property. We rely on patent, copyright, trade
secret and trademark laws, and confidentiality or license
agreements with our employees, customers, vendors,
partners and others to protect our intellectual property rights.
We may need to devote significant resources, including
cybersecurity resources, to monitoring our intellectual
property rights. In addition, the steps we take to protect our
intellectual property rights may be inadequate or ineffective,
or may not provide us with a significant competitive
advantage. Our intellectual property could be wrongfully
acquired as a result of a cyber-attack or other wrongful
conduct by third parties or our personnel. Litigation brought
to protect and enforce our intellectual property rights could
be costly and time-consuming. Furthermore, our efforts to
enforce our intellectual property rights may be met with
defenses, counterclaims, and countersuits attacking the
validity and enforceability of our intellectual property rights,
which may be successful.
We may be sued by third parties for infringement of their
proprietary rights, which could have a materially adverse
effect on our business, financial condition or results of
operations
There is considerable intellectual property development
activity in our industry. Third parties, including our
competitors, may own or claim to own intellectual property
relating to our products or services and may claim that we
are infringing their intellectual property rights. We may be
found to be infringing upon such rights, even if we are
unaware of their intellectual property rights. Any claims or
litigation could cause us to incur significant expenses and, if
successfully asserted against us or if we decide to settle, could
require that we pay substantial damages or ongoing royalty
payments, obtain licenses, modify applications, prevent us
from offering our services, or require that we comply with
other unfavorable terms. We may also be obligated to
indemnify our customers, vendors or partners in connection
with any such claim or litigation. Even if we were to prevail
in such a dispute, any litigation regarding our intellectual
property could be costly and time-consuming.
If we fail to upgrade, enhance and expand our technology
and services to meet client needs and preferences, the
demand for our solutions and services may diminish
Our businesses operate in industries that are subject to rapid
technological advances and changing client needs and
preferences. In order to remain competitive and responsive
to client demands, we continually upgrade, enhance, and
expand our technology, solutions and services. If we fail to
respond successfully to technology challenges and client
needs and preferences, the demand for our solutions and
services may diminish. In addition, investment in product
development often involves a long return on investment
cycle. We have made and expect to continue to make
significant investments in product development. We must
continue to dedicate a significant amount of resources to our
development efforts before knowing to what extent our
investments will result in products the market will accept. In
addition, our business could be adversely affected in periods
surrounding our new product introductions if customers
delay purchasing decisions to evaluate the new product
offerings. Furthermore, we may not execute successfully on
our product development strategy, including because of
challenges with regard to product planning and timing and
technical hurdles that we fail to overcome in a timely fashion.
We may not realize or sustain the expected benefits from
our business transformation initiatives, and these efforts
could have a materially adverse effect on our business,
operations, financial condition, results of operations and
competitive position
We have been and will be undertaking certain transformation
initiatives, which are designed to streamline our organization,
extend our world-class distribution and strengthen our talent
and culture, while supporting our revenue growth, margin
improvement and productivity. If we do not successfully
manage and execute these initiatives, or if they are inadequate
or ineffective, we may fail to meet our financial goals and
achieve anticipated benefits, improvements may be delayed,
not sustained or not realized and our business, operations and
competitive position could be adversely affected. These
initiatives, or our failure to successfully manage them, could
result in unintended consequences or unforeseen costs,
including distraction of our management and employees,
attrition, inability to attract or retain key personnel, and
reduced employee productivity, which could adversely affect
our business, financial condition, and results of operations.
Political and economic factors may adversely affect our
business and financial results
Trade, monetary and fiscal policies, and political and
economic conditions may substantially change, and credit
markets may experience periods of constriction and volatility.
When there is a slowdown in the economy, employment
levels and interest rates may decrease with a corresponding
impact on our businesses. Clients may react to worsening
conditions by reducing their spending on HCM services or
16
renegotiating their contracts with us, which may adversely
affect our business and financial results.
that do not necessarily reflect the underlying fundamentals
and prospects of our business.
Change in our credit ratings could adversely impact our
operations and lower our profitability
The major credit rating agencies periodically evaluate our
creditworthiness and have given us very strong, investment-
grade long-term debt ratings and the highest commercial
paper ratings. Failure to maintain high credit ratings on long-
term and short-term debt could increase our cost of
borrowing, reduce our ability to obtain intra-day borrowing
required by our Employer Services business, and adversely
impact our results of operations.
We may be unable to attract and retain qualified personnel
Our ability to grow and provide our clients with competitive
services is partially dependent on our ability to attract and
retain highly motivated people with the skills to serve our
clients. Competition for skilled employees in the outsourcing
and other markets in which we operate is intense and, if we
are unable to attract and retain highly skilled and motivated
personnel, results of our operations may suffer.
We invest our client funds in liquid, investment-grade
marketable securities, money market securities, and other
cash equivalents. Nevertheless, our client fund assets are
subject to general market, interest rate, credit, and liquidity
risks. These risks may be exacerbated, individually or
together, during periods of unusual financial market
volatility. In addition, as part of our client funds investment
strategy, we extend the maturities of our investment portfolio
for client funds and utilize short-term financing arrangements
to satisfy our short-term funding requirements related to
client funds obligations. In order to satisfy these short-term
funding requirements, we maintain access to various sources
of liquidity, including borrowings under our commercial
paper program and our committed credit facilities, our ability
to execute reverse repurchase transactions and corporate cash
balances. A reduction in the availability of any such financing
during periods of disruption in the financial markets or
otherwise may require us to sell client fund assets to satisfy
our short-term funding requirements, which may result in the
recognition of losses and adversely impact our results of
operations, financial condition and cash flow.
We are dependent upon various large banks to execute
electronic payments and wire transfers as part of our client
payroll, tax and other money movement services. While we
have contingency plans in place for bank failures, a systemic
shutdown of the banking industry would impede our ability
to process funds on behalf of our payroll, tax and other money
movement services clients and could have an adverse impact
on our financial results and liquidity.
We derive a significant portion of our revenues and operating
income outside of the United States and, as a result, we are
exposed to market risk from changes in foreign currency
exchange rates that could impact our results of operations,
financial position and cash flows.
Our business could be negatively impacted as a result of
actions by activist stockholders or others
We may be subject to actions or proposals from activist
stockholders or others that may not align with our business
strategies or the interests of our other stockholders.
Responding to such actions could be costly and time-
consuming, disrupt our business and operations, and divert
the attention of our Board of Directors and senior
management from the pursuit of our business strategies.
Activist stockholders may create perceived uncertainties as
to the future direction of our business or strategy, which may
be exploited by our competitors and may make it more
difficult to attract and retain qualified personnel, potential
customers and business partners and may affect our
relationships with current customers, vendors, investors and
other third parties. In addition, actions of activist stockholders
may cause periods of fluctuation in our stock price based on
temporary or speculative market perceptions or other factors
17
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
ADP owns 7 of its processing/print centers, and 16 other operational offices, sales offices, and its corporate
headquarters in Roseland, New Jersey, which aggregate approximately 3,361,473 square feet. None of ADP's owned facilities
is subject to any material encumbrances. ADP leases space for some of its processing centers, other operational offices, and
sales offices. All of these leases, which aggregate approximately 6,205,945 square feet worldwide, expire at various times up to
the year 2029. ADP believes its facilities are currently adequate for their intended purposes and are adequately maintained.
Item 3. Legal Proceedings
In the normal course of business, ADP is subject to various claims and litigation. While the outcome of any litigation is
inherently unpredictable, ADP believes that it has valid defenses with respect to the legal matters pending against it and that the
ultimate resolution of these matters will not have a materially adverse impact on its financial condition, results of operations, or
cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
18
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market for Registrant's Common Equity
The principal market for the Company’s common stock is the NASDAQ Global Select Market under the symbol ADP. As of
June 30, 2019, there were 37,578 holders of record of the Company’s common stock. As of such date, 903,187 additional
holders held their common stock in “street name.”
Issuer Purchases of Equity Securities
Period
Total Number of
Shares Purchased (1)
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of the Publicly
Announced Common
Stock Repurchase
Plan (2)
Maximum Number of
Shares that may yet be
Purchased under the
Common Stock
Repurchase Plan (2)
April 1, 2019 to
April 30, 2019
May 1, 2019 to
May 31, 2019
June 1, 2019 to
June 30, 2019
Total
85,061
606,392
431,403
1,122,856
$160.17
$160.33
$164.45
84,184
605,059
429,683
1,118,926
10,987,717
10,382,658
9,952,975
(1)
(2)
Pursuant to the terms of the Company’s restricted stock program, the Company purchased 3,930 shares at the
then market value of the shares in connection with the exercise by employees of their option under such program
to satisfy certain tax withholding requirements through the delivery of shares to the Company instead of cash.
The Company received the Board of Directors' approval to repurchase shares of the Company's common stock as
follows:
Date of Approval
August 2015
Shares
25 million
There is no expiration date for the common stock repurchase plan.
For equity compensation plan information, please refer to Item 12 in Part III of this Annual Report or Form 10-K.
19
Performance Graph
The following graph compares the cumulative return on the Company’s common stock(a) for the most recent five years with the
cumulative return on the S&P 500 Index and the Peer Group Index,(b) assuming an initial investment of $100 on June 30, 2014,
with all dividends reinvested. The stock price performance shown on this graph may not be indicative of future performance.
(a)
(b)
On September 30, 2014, the Company completed the spinoff of its former Dealer Services business into an
independent publicly traded company called CDK Global, Inc. The cumulative returns of the Company’s common
stock have been adjusted to reflect the spinoff.
We use the S&P 500 Information Technology Index as our Peer Group Index. The S&P 500 Information Technology
Index is a broad index that includes the Company and several competitors.
20
Item 6. Selected Financial Data
The following selected financial data is derived from our Consolidated Financial Statements and should be read in conjunction
with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk
included in this Annual Report on Form 10-K. The Company uses certain non-GAAP financial measures that we believe better
reflect the underlying operations of our business model, allow investors to assess our performance in a manner similar to the
method used by management, and improve our ability to understand and assess our operating performance against prior
periods. Refer to note (A) below for additional information about our non-GAAP financial measures and our reconciliations to
reported results. Additionally, prior period amounts have been adjusted to exclude discontinued operations and were restated for
the adoption of Accounting Standards Update (“ASU”) 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Costs and Net Periodic Post-retirement Benefit Cost.”
(Dollars and shares in millions, except per share amounts)
Years ended June 30,
Total revenues
Total costs of revenues
2018
2017
2016
2015
2019
As Restated*
As Restated*
As Restated
As Restated
$ 14,175.2
$ 13,327.7
$ 12,372.0
$ 11,667.8
$ 10,938.5
$ 8,086.6
$ 7,810.9
$ 7,244.5
$ 6,876.1
$ 6,459.6
Earnings from continuing operations before income taxes
$ 3,005.6
$ 2,282.6
$ 2,616.9
$ 2,234.7
$ 2,070.7
Net earnings from continuing operations
$ 2,292.8
$ 1,884.9
$ 1,787.8
$ 1,493.4
$ 1,376.5
Adjusted earnings from continuing operations before interest and income taxes (A)
$ 3,155.7
$ 2,754.6
$ 2,533.4
$ 2,274.2
$ 2,061.5
Adjusted net earnings from continuing operations (A)
$ 2,384.3
$ 2,007.3
$ 1,719.4
$ 1,494.8
$ 1,376.5
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
Adjusted diluted earnings per share from continuing operations (A)
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
Cash dividends declared per share
$
$
$
5.27
5.24
5.45
435.0
437.6
$
$
$
4.28
4.25
4.53
440.6
443.3
$
$
$
3.99
3.97
3.82
447.8
450.3
$
$
$
3.27
3.25
3.26
457.0
459.1
$
$
$
2.91
2.89
2.89
472.6
475.8
$
3.06
$
2.52
$
2.24
$
2.08
$
1.95
At year end:
Cash, cash equivalents and marketable securities of continuing operations
$ 2,221.1
$ 2,180.5
$ 2,791.2
$ 3,222.4
$ 1,694.8
Total assets
$ 41,887.7
$ 38,849.1
$ 38,886.8
$ 43,670.0
$ 33,110.5
Obligations under reverse repurchase agreements
$
262.0
$
— $
— $
— $
$ 2,002.2
$ 2,002.4
$ 2,002.4
$ 2,007.7
$
$ 5,399.9
$ 4,735.9
$ 4,984.1
$ 4,481.6
$ 4,808.5
—
9.2
Long-term debt
Stockholders’ equity
*Note fiscal 2018 and 2017 were restated for the adoption of Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with
Customers.”
(A) Non-GAAP Financial Measures
In addition to our GAAP results, we use the adjusted results and other non-GAAP metrics set forth in the table below to
evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods:
Adjusted Financial Measures
U.S. GAAP Measures
Adjusted EBIT from continuing operations
Adjusted provision for income taxes
Adjusted net earnings from continuing operations
Adjusted diluted earnings per share from continuing
operations
Adjusted effective tax rate
Constant Currency Basis
Net earnings from continuing operations
Provision for income taxes
Net earnings from continuing operations
Diluted earnings per share from continuing operations
Effective tax rate
U.S. GAAP P&L line items
21
We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and
analyze results against our expectations, against prior period, and to plan for future periods by focusing on our underlying
operations. We believe 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 management and improves their ability to understand
and assess our operating performance. The nature of these exclusions is for specific items that are not fundamental to our
underlying business operations. Since these adjusted financial measures and other non-GAAP metrics are not measures of
performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or
superior to their U.S. GAAP measures, and they may not be comparable to similarly titled measures at other companies.
(Dollars and shares in millions, except per share amounts)
Years ended June 30,
2018
2017
2019
As
Restated*
As
Restated*
2016
As
Restated
2015
As
Restated
Net earnings from continuing operations
$
2,292.8
$
1,884.9
$
1,787.8
$
1,493.4
$
1,376.5
Adjustments:
Provision for income taxes
All other interest expense (a)
All other interest income (a)
Gain on sale of businesses
Gain on sale of assets
Transformation initiatives (b)
Proxy contest matters (c)
Adjusted EBIT from continuing operations
Net earnings from continuing operations
Adjustments:
Gain on sale of businesses
Provision for income taxes on gain on sale of businesses (d)
Gain on sale of assets
Provision for income taxes on gain on sale of assets (e)
Transformation initiatives (b)
Income tax benefit for transformation initiatives (e)
Proxy contest matters (c)
Income tax benefit for proxy contest matters (e)
Tax Cuts and Jobs Act (f)
Adjusted net earnings from continuing operations
Diluted earnings per share from continuing operations
Adjustments:
Gain on sale of businesses (d)
Gain on sale of assets (e)
Transformation initiatives (b) (e)
Proxy contest matters (c) (e)
Tax Cuts and Jobs Act (f)
712.8
59.9
(32.4)
—
(15.7)
138.3
—
$
$
3,155.7
2,292.8
$
$
—
—
(15.7)
3.9
138.3
(34.5)
—
—
397.7
59.4
(25.5)
—
—
404.8
33.3
2,754.6
1,884.9
—
—
—
—
404.8
(122.1)
33.3
(10.4)
(0.5)
(183.2)
829.1
59.3
(22.4)
(205.4)
—
85.0
—
741.3
47.9
(13.6)
(29.1)
(13.9)
48.2
—
694.2
1.5
(10.7)
—
—
—
—
$
$
2,533.4
1,787.8
$
$
2,274.2
1,493.4
$
$
2,061.5
1,376.5
(205.4)
84.0
—
—
85.0
(32.0)
—
—
—
(29.1)
7.3
(13.9)
5.3
48.2
(16.4)
—
—
—
—
—
—
—
—
—
—
—
—
$
$
2,384.3
$
2,007.3
$
1,719.4
$
1,494.8
$
1,376.5
5.24
$
4.25
$
3.97
$
3.25
$
2.89
—
(0.03)
0.24
—
—
—
—
0.64
0.05
(0.41)
(0.27)
—
0.12
—
—
(0.05)
(0.02)
0.07
—
—
—
—
—
—
—
Adjusted diluted earnings per share from continuing operations
$
5.45
$
4.53
$
3.82
$
3.26
$
2.89
*Note fiscal 2018 and 2017 were restated for the adoption of Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with
Customers.”
(a) We include the interest income earned on investments associated with our client funds extended investment strategy and
interest expense on borrowings related to our client funds extended investment strategy as we believe these amounts to be
fundamental to the underlying operations of our business model. The adjustments in the table above represent the interest
income and interest expense that is not related to our client funds extended investment strategy and are labeled as “All other
interest expense” and “All other interest income.”
22
(b) The charges within transformation initiatives are comprised of charges related to our Voluntary Early Retirement Program
(“VERP”), Service Alignment Initiative, Workforce Optimization and other transformation initiatives. Charges related to our
VERP in fiscal 2019 include $48.2 million for non-cash pension settlement charges and special termination benefits, and $23.6
million of expenses related to the continuing health coverage. We also recorded severance charges in accordance with ASC 712
totaling $33.6 million primarily relating to our Workforce Optimization initiative to reduce management layers and increase
spans of controls and $56.8 million related to our other transformation initiatives during fiscal 2019. These charges were
partially offset by net reversals of charges and gain on sale of assets related to our Service Alignment Initiative totaling $23.9
million for fiscal 2019. Unlike certain other severance charges in prior periods which are not included as an adjustment to get to
adjusted results, these specific charges relate to actions that are part of our broad-based, company-wide transformation
initiatives. Refer to Note 5 and 12 of the Consolidated Financial Statements for a description of charges associated with Service
Alignment Initiative and VERP.
(c) Represents non-operational costs relating to proxy contest matters.
(d) The taxes on the gains on the sale of the businesses were calculated based on the annualized marginal rate in effect during
the quarter of the adjustment. The tax amount was adjusted for a book vs. tax basis difference for the year ended June 30, 2017
due to the derecognition of goodwill upon the sale of the business and for the year ended June 30, 2016 due to a previously
recorded non tax-deductible goodwill impairment charge.
(e) The tax benefit/provision on the transformation initiatives, the gain on the sale of the assets, and non-operational charges
related to proxy contest matters was calculated based on the annualized marginal rate in effect during the quarter of the
adjustment.
(f) The net benefit for fiscal 2018 is comprised of the re-measurement of deferred tax balances resulting in a one-time benefit,
primarily as a result of ASC 606, using the lower tax rates enacted under the Tax Cuts and Jobs Act (“Act”), adjustments to the
one-time transition tax on the earnings and profits of our foreign subsidiaries, foreign withholding taxes, and a valuation
allowance against our foreign tax credits which may not be realized under the Act. Refer to Note 13 of our Consolidated
Financial Statements for additional detail.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This document and other written or oral statements made from time to time by ADP may contain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and
which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,”
“could” “is designed to” and other words of similar meaning, are forward-looking statements. These statements are based on
management’s expectations and assumptions and depend upon or refer to future events or conditions and are subject to risks and
uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to
differ materially from those contemplated by the forward-looking statements or that could contribute to such difference include:
ADP's success in obtaining, and retaining clients, and selling additional services to clients; the pricing of products and services;
the success of our new solutions; compliance with existing or new legislation or regulations; changes in, or interpretations of,
existing legislation or regulations; overall market, political and economic conditions, including interest rate and foreign
currency trends; competitive conditions; our ability to maintain our current credit ratings and the impact on our funding costs
and profitability; security or cyber breaches, fraudulent acts, and system interruptions and failures; employment and wage
levels; changes in technology; availability of skilled technical associates; the impact of new acquisitions and divestitures; and
the adequacy, effectiveness and success of our business transformation initiatives. ADP disclaims any obligation to update any
forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
These risks and uncertainties, along with the risk factors discussed under “Item 1A. Risk Factors,” and in other written or oral
statements made from time to time by ADP, should be considered in evaluating any forward-looking statements contained
herein.
EXECUTIVE OVERVIEW
We are a leading global provider of cloud-based Human Capital Management (“HCM”) technology solutions - including
payroll, talent management, Human Resources management, benefits administration, and workforce management - to
employers around the world. As a leader in this industry, we deliver on our global HCM strategy and invest in highly strategic
23
areas and technology in order to strengthen our underlying business model and prospects for continued growth.
Highlights from the year ended June 30, 2019 (“fiscal 2019”) include:
• Employer Services New Business Bookings increased 8%
• Average number of Worksite Employees increased 8% to 547,000
• Revenue increased 6%
• EBIT Margin improved 410 basis points to 21.2% and Adjusted EBIT Margin improved 160 basis points to 22.3%
• Diluted earnings per share (“EPS”) increased 23% to $5.24; adjusted diluted EPS increased 20% to $5.45
• Our shareholder friendly actions continued as we returned approximately $1.3 billion via dividends and approximately
$940 million via share repurchases
In fiscal 2019, we launched our new brand platform which represents an evolution in our journey to enhance the employee
experience through innovation and insights designed with the worker as a central theme. At ADP, we are always designing for
people and we continue to innovate by anticipating our clients' evolving needs as the world of work changes. We are reshaping
the HCM industry with leading innovations like our next gen platforms and driving growth through our strategic cloud-based
HCM solutions. We are further enabling these solutions through strategic acquisitions such as Global Cash Card, Work Market
and Celergo, which we supplement with organic, differentiated, investments such as the ADP Marketplace, ADP Datacloud, and
through our compliance expertise.
With these investments, we are enhancing our position as a leading global HCM provider that can help businesses address the
entire worker spectrum from full-time to freelancer through hire to retire. As the HCM market continues to evolve rapidly, we
remain focused on rethinking a better, more personalized world at work and helping our clients and their workers achieve their
full potential.
As we continue our transformation journey, our Voluntary Early Retirement Program (“VERP”) and Workforce Optimization
initiatives are yielding operating efficiencies in conjunction with our Service Alignment Initiatve, which is focused on changing
how we work. Through our transformation initiatives, we remain on track to continue to deliver balanced revenue growth, profit
growth and margin expansion, and ultimately drive long-term shareholder value.
We are pleased with our progress and execution on these initiatives while also delivering improvements in our client
satisfaction scores yielding an improvement in Employer Services revenue retention of 40 basis points to 90.8%. Also, our
Employer Services New Business Bookings increased 8% in fiscal 2019, as compared to fiscal 2018 and our PEO Services'
average number of Worksite Employees increased 8% to 547,000 in fiscal 2019, as compared to fiscal 2018.
We have a strong business model and operate in a growing global market. We continue to generate a high percentage of
recurring revenues, healthy and improving margins, and consistent strong cash flows. Our financial condition and balance sheet
remain solid at June 30, 2019. Through our investments in technology, service, and distribution, we are positioned to maintain
our positive momentum into fiscal 2020.
24
RESULTS OF OPERATIONS
ANALYSIS OF CONSOLIDATED OPERATIONS
Prior period amounts have been restated for the impact of certain accounting standards adopted (refer to Note 1 of our
Consolidated Financial Statements for additional information).
(In millions, except per share amounts)
Years Ended
June 30,
2018
*As
Restated
2019
% Change
2017
*As
Restated
2018
*As
Restated
2019
Constant Currency Basis
2018
*As
Restated
2019
Total revenues
$ 14,175.2
$ 13,327.7
$ 12,372.0
6%
8 %
7%
7 %
Costs of revenues:
Operating expenses
Systems development and
programming costs
Depreciation and amortization
7,145.9
6,901.0
6,386.2
636.3
304.4
635.4
274.5
632.1
226.2
Total costs of revenues
8,086.6
7,810.9
7,244.5
Selling, general and administrative
costs
Interest expense
Total expenses
3,064.2
129.9
2,959.4
102.7
2,773.8
80.0
11,280.7
10,873.0
10,098.3
4%
—%
11%
4%
4%
n/m
4%
8 %
1 %
21 %
8 %
7 %
n/m
8 %
5%
2%
12%
5%
4%
n/m
5%
7 %
(1)%
20 %
7 %
6 %
n/m
7 %
Other (income)/expense, net
(111.1)
172.1
(343.2)
n/m
n/m
n/m
n/m
Earnings before income taxes
$ 3,005.6
$ 2,282.6
$ 2,616.9
32%
(13)%
32%
(14)%
Margin
21.2%
17.1%
21.2%
Provision for income taxes
$
712.8
$
397.7
$
829.1
79%
(52)%
80%
(53)%
Effective tax rate
23.7%
17.4%
31.7%
Net earnings
$ 2,292.8
$ 1,884.9
$ 1,787.8
Diluted earnings per share
$
5.24
$
4.25
$
3.97
*See Note 1 of the Consolidated Financial Statements for a summary of adjustments.
n/m - not meaningful
22%
23%
5 %
7 %
22%
24%
4 %
6 %
25
Note 1. Non-GAAP measures
In addition to our GAAP results, we use the adjusted results and other non-GAAP metrics set forth in the table below to
evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods:
Adjusted Financial Measures
U.S. GAAP Measures
Adjusted EBIT
Net earnings
Adjusted provision for income taxes
Provision for income taxes
Adjusted net earnings
Adjusted diluted earnings per share
Adjusted effective tax rate
Constant Currency Basis
Net earnings
Diluted earnings per share
Effective tax rate
U.S. GAAP P&L line items
We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and
analyze results against our expectations and against prior period, and to plan for future periods by focusing on our underlying
operations. We believe 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 management and improves their ability to understand
and assess our operating performance. The nature of these exclusions are for specific items that are not fundamental to our
underlying business operations. Since these adjusted financial measures and other non-GAAP metrics are not measures of
performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or
superior to their corresponding U.S. GAAP measures, and they may not be comparable to similarly titled measures at other
companies.
26
Years Ended
June 30,
2018
*As
Restated
2019
% Change
2017
*As
Restated
2018
*As
Restated
2019
Constant Currency Basis
(h)
2018
*As
Restated
2019
$
2,292.8
$
1,884.9
$
1,787.8
22 %
5 %
22 %
4 %
712.8
59.9
(32.4)
—
(15.7)
138.3
—
397.7
59.4
(25.5)
—
—
404.8
33.3
829.1
59.3
(22.4)
(205.4)
—
85.0
—
$
3,155.7
$
2,754.6
$
2,533.4
15 %
9 %
15 %
7 %
22.3%
20.7%
20.5%
Net earnings
Adjustments:
Provision for income taxes
All other interest expense (a)
All other interest income (a)
Gain on sale of businesses
Gain on sale of assets
Transformation initiatives (b)
Proxy contest matters (c)
Adjusted EBIT
Adjusted EBIT Margin
Provision for income taxes
$
712.8
$
397.7
$
829.1
79 %
(52)%
80 %
(53)%
Adjustments:
Gain on sale of businesses (d)
Gain on sale of assets (e)
Transformation initiatives (e)
Proxy contest matters (e)
Tax Cuts and Jobs Act (f)
—
(3.9)
34.5
—
0.5
Adjusted provision for income taxes
$
743.9
$
—
—
122.1
10.4
183.2
713.4
(84.0)
—
32.0
—
—
$
777.1
4 %
(8)%
4 %
(9)%
Adjusted effective tax rate (g)
23.8%
26.2%
31.1%
Net earnings
Adjustments:
Gain on sale of businesses
Provision for income taxes on gain on
sale of businesses (d)
Gain on sale of assets
Provision for income taxes on gain on
sale of assets (e)
Transformation initiatives (b)
Income tax benefit for transformation
initiatives (e)
Proxy contest matters (c)
Income tax benefit for proxy contest
matters (e)
Tax Cuts and Jobs Act (f)
Adjusted net earnings
Diluted EPS
Adjustments:
Gain on sale of businesses (d)
Gain on sale of assets (e)
Transformation initiatives (b) (e)
Proxy contest matters (c) (e)
Tax Cuts and Jobs Act (f)
$
2,292.8
$
1,884.9
$
1,787.8
22 %
5 %
22 %
4 %
—
—
(15.7)
3.9
138.3
(34.5)
—
—
(0.5)
2,384.3
5.24
—
(0.03)
0.24
—
—
$
$
—
—
—
—
404.8
(122.1)
33.3
(10.4)
(183.2)
2,007.3
4.25
—
—
0.64
0.05
(0.41)
$
$
(205.4)
84.0
—
—
85.0
(32.0)
—
—
—
$
$
1,719.4
3.97
19 %
23 %
17 %
7 %
19 %
24 %
15 %
6 %
(0.27)
—
0.12
—
—
Adjusted diluted EPS
$
5.45
$
4.53
$
3.82
20 %
19 %
21 %
17 %
*See Note 1 of the Consolidated Financial Statements for a summary of adjustments.
(a) We include the interest income earned on investments associated with our client funds extended investment strategy and
interest expense on borrowings related to our client funds extended investment strategy as we believe these amounts to be
27
fundamental to the underlying operations of our business model. The adjustments in the table above represent the interest
income and interest expense that are not related to our client funds extended investment strategy and are labeled as “All other
interest expense” and “All other interest income.”
(b) The charges within transformation initiatives are comprised of charges related to our VERP, Service Alignment Initiative,
Workforce Optimization and other transformation initiatives. Charges related to our VERP in fiscal 2019 include $48.2 million
for non-cash pension settlement charges and special termination benefits, and $23.6 million of expenses related to the
continuing health coverage, respectively. We also recorded severance charges in accordance with ASC 712 totaling $33.6
million primarily relating to our Workforce Optimization initiative to reduce management layers and increase spans of controls
and $56.8 million related to our other transformation initiatives during fiscal 2019. These charges were partially offset by net
reversals of charges and gain on sale of assets related to our Service Alignment Initiative totaling $23.9 million for fiscal 2019.
Unlike certain other severance charges in prior periods which are not included as an adjustment to get to adjusted results, these
specific charges relate to actions that are part of our broad-based, company-wide transformation initiatives. Refer to Note 5 and
12 of the Consolidated Financial Statements for a description of charges associated with Service Alignment Initiative and
VERP.
(c) Represents non-operational costs relating to proxy contest matters.
(d) The taxes on the gains on the sale of the businesses were calculated based on the annualized marginal rate in effect during
the quarter of the adjustment. The tax amount was adjusted for a book vs. tax basis difference for the year ended June 30, 2017
due to the derecognition of goodwill upon the sale of the business.
(e) The tax benefit/provision on the transformation initiatives, gain on sale of asset, and non-operational charges related to
proxy contest matters was calculated based on the annualized marginal rate in effect during the quarter of the adjustment.
(f) The net benefit for fiscal 2018 is comprised of the re-measurement of deferred tax balances resulting in a one-time benefit,
primarily as a result of ASC 606, using the lower tax rates enacted under the Tax Cuts and Jobs Act (“Act”), adjustments to the
one-time transition tax on the earnings and profits of our foreign subsidiaries, foreign withholding taxes, and a valuation
allowance against our foreign tax credits which may not be realized under the Act. Refer to Note 13 of our Consolidated
Financial Statements for additional detail.
(g) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by our Adjusted net
earnings plus our Adjusted provision for income taxes.
(h) “Constant currency basis” provides information that isolates the actual growth of our operations. “Constant currency basis”
is determined by calculating the current year result using foreign exchange rates consistent with the prior year.
Fiscal 2019 Compared to Fiscal 2018
Total Revenues
Our revenues increased 6% in fiscal 2019, as compared to fiscal 2018. Our revenue growth includes one percentage point of
pressure from foreign currency partially offset by benefits from acquisitions. Revenues in fiscal 2019 increased primarily due to
new business started from Employer Services New Business Bookings and continued strong retention. Refer to “Analysis of
Reportable Segments” for additional discussion of the increases in revenue for both of our reportable segments, Employer
Services and Professional Employer Organization (“PEO”) Services.
Total revenues in fiscal 2019 include interest on funds held for clients of $561.9 million, as compared to $466.5 million in fiscal
2018. The increase in the consolidated interest earned on funds held for clients resulted from the increase in our average interest
rate earned to 2.2% in fiscal 2019, as compared to 1.9% in fiscal 2018, coupled with the increase in our average client funds
balances of 4.6% to $25.5 billion in fiscal 2019 as compared to fiscal 2018.
28
Total Expenses
Our total expenses increased 4% in fiscal 2019, as compared to fiscal 2018. The increase is primarily due to an increase in PEO
Services zero-margin benefits pass-through costs, costs related to our acquisitions, increased selling and marketing expenses
related to our brand efforts and the impact of net charges related to our transformation initiatives. The increase was partially
offset by the impact of foreign currency, operating efficiencies as a result of our continued successful execution on our broader
transformation initiatives, and costs related to proxy contest matters in fiscal 2018.
Operating expenses increased 4% in fiscal 2019, as compared to fiscal 2018. PEO Services zero-margin benefits pass-through
costs were $2,712.5 million for fiscal 2019 and $2,463.1 million for fiscal 2018. Additionally, operating expenses increased
due to costs related to our acquisitions partially offset by the impact of foreign currency and operating efficiencies as a result of
our continued successful execution on our broader transformation initiatives.
Systems development and programming costs were flat for fiscal 2019, as compared to fiscal 2018, due to the impact of foreign
currency translation and reduced costs as a result of our transformation initiatives offset by increased investments in product
innovation, primarily in our next gen platforms.
Selling, general and administrative expenses increased 4% in fiscal 2019, as compared to fiscal 2018. The increase was
primarily due to increased selling and marketing expenses related to our brand efforts and increased costs related to our
transformation initiatives and acquisitions. These increases were partially offset by efficiencies as a result of our transformation
initiatives, the impact of foreign currency translation in fiscal 2019 and costs related to proxy contest matters in fiscal 2018.
Other (Income)/Expense, net
(In millions)
Years ended June 30,
Interest income on corporate funds
Realized gains on available-for-sale securities
Realized losses on available-for-sale securities
Impairment of intangible assets
Gain on sale of assets
Gain on sale of investment
Non-service components of pension expense, net
Other (income)/expense, net
2019
2018
$ Change
$
$
(97.6) $
(1.8)
2.7
12.1
(4.1)
(15.7)
(6.7)
(111.1) $
(83.5) $
(2.0)
4.5
—
(0.7)
—
253.8
172.1
$
14.1
(0.2)
1.8
(12.1)
3.4
15.7
260.5
283.2
During fiscal 2019, we retrospectively adopted Accounting Standards Update (“ASU”) 2017-07 and as a result we reclassified
the non-service cost components of the net periodic benefit cost from within the respective line items of our Statement of
Consolidated Earnings to Other (income)/expense, net. During fiscal 2019, non-service components of pension expense
included $48.2 million of non-cash settlement charges and special termination benefits, partially offset by $54.9 million related
to other components of net periodic pension cost. See Note 1 and Note 12 of our Consolidated Financial Statements for
additional details.
Other (income)/expense, net, increased $283.2 million in fiscal 2019, as compared to fiscal 2018. The increase was primarily
due to the charges within non-service components of pension expense in fiscal 2018 noted in the table above and the gain on
sale of assets of $4.1 million in relation to the Service Alignment Initiative and the gain on sale of investment of $15.7 million
in relation to the sale of an investment held at cost acquired in prior years and subsequently sold in fiscal 2019. These are
partially offset by the write down of $12.1 million related to internally developed software which was determined to have no
future use due to redundant software identified as part of a recent acquisition in fiscal 2019.
29
Earnings before Income Taxes
Earnings before income taxes increased 32% in fiscal 2019 primarily due to increases in revenues partially offset by increases
in expenses discussed above.
Overall margin increased from 17.1% in fiscal 2018 to 21.2% in fiscal 2019 primarily due to operating efficiencies and aided by
an increase in interest earned on funds held for clients, a decrease in charges of $266.5 million related to our transformation
initiatives and the impact of costs related to proxy contest matters in fiscal 2018, partially offset by costs related to our
acquisitions and incremental pressure from growth in our zero-margin benefits pass-throughs in fiscal 2019. The efficiencies
driving margin performance are the result of our continued successful execution of our broader transformation initiatives,
including VERP and improvements in our systems infrastructure spend and automation efforts.
Adjusted EBIT
In fiscal 2019, adjusted EBIT increased 15% due to increases in revenues offset by the increases in expenses discussed above.
Overall adjusted EBIT margin increased due to continued execution of transformation initiatives discussed above and aided by
an increase in interest earned on funds held for clients, partially offset by incremental pressure from growth in our zero-margin
benefits pass-throughs and costs related to our acquisitions.
Provision for Income Taxes
The effective tax rate in fiscal 2019 and 2018 was 23.7% and 17.4%, respectively. The increase in the effective tax rate is
primarily due to the one-time benefit recognized on the re-measurement of deferred tax balances, primarily as a result of ASC
606, using the lower tax rates enacted under the Act, the release of reserves for uncertain tax positions during fiscal 2018 and
the loss of qualified production activities tax deductions as a result of the Act during fiscal 2019. This is partially offset by
reduction in the federal corporate statutory tax rate to 21% from our blended rate for fiscal 2018 of 28.1% as a result of the Act.
Refer to Note 13, Income Taxes, within the Notes to the Consolidated Financial Statements for further discussion.
Adjusted Provision for Income Taxes
The adjusted effective tax rate in fiscal 2019 and 2018 was 23.8% and 26.2%, respectively. The decrease in the adjusted
effective tax rate is primarily due to the reduction in the federal corporate statutory tax rate to 21% from our blended rate for
fiscal 2018 of 28.1%, partially offset by the loss of qualified production activities tax deductions as a result of the Act in fiscal
2019, the release of reserves for uncertain tax positions and the benefit of a tax accounting method change filed with the IRS in
fiscal 2018.
Net Earnings and Diluted Earnings per Share
Net earnings increased 22% in fiscal 2019 when compared to fiscal 2018 due to an increase in earnings before income taxes
described above partially offset by an increase in our effective tax rate.
Diluted earnings per share increased 23% in fiscal 2019 as a result of an increase in net earnings and the impact of fewer shares
outstanding, resulting from the repurchase of approximately 6.5 million shares in fiscal 2019 and 8.5 million shares in fiscal
2018, partially offset by the issuances of shares under our employee benefit plans.
Adjusted Net Earnings and Adjusted Diluted Earnings per Share
Adjusted net earnings increased 19% in fiscal 2019, when compared to fiscal 2018, due to the increase in adjusted EBIT
combined with the reduction in our adjusted effective tax rate described above.
For fiscal 2019, our adjusted diluted EPS increased 20% and reflects the changes described above in our net earnings and shares
outstanding.
30
Fiscal 2018 Compared to Fiscal 2017
Total Revenues
Our revenues increased 8% in fiscal 2018, as compared to fiscal 2017. Our revenue growth includes two percentage points of
combined benefit from foreign currency and acquisitions, partially offset by the impact of the disposition of our COBRA and
CHSA businesses in fiscal 2017. Revenues in fiscal 2018 increased primarily due to new business started from Employer
Services New Business Bookings. Refer to “Analysis of Reportable Segments” for additional discussion of the increases in
revenue for both of our reportable segments, Employer Services and PEO Services.
Total revenues in fiscal 2018 include interest on funds held for clients of $466.5 million, as compared to $397.4 million in fiscal
2017. The increase in the consolidated interest earned on funds held for clients resulted from the increase in our average
interest rate earned to 1.9% in fiscal 2018, as compared to 1.7% in fiscal 2017, coupled with the increase in our average client
funds balances of 5.7% to $24.3 billion in fiscal 2018 as compared to fiscal 2017.
Total Expenses
Our total expenses increased 8% in fiscal 2018, as compared to fiscal 2017. The increase is primarily due to an increase in PEO
Services zero-margin benefits pass-through costs, increased costs to service our client base in support of our growing revenue,
and increases in selling expense. Total expenses also increased due to costs related to acquisitions, the impact of foreign
currency, and costs related to proxy contest matters in fiscal 2018.
Operating expenses increased 8% in fiscal 2018, as compared to fiscal 2017. PEO Services zero-margin benefits pass-through
costs were $2,463.1 million for fiscal 2018 and $2,173.9 million for fiscal 2017. Additionally, operating expenses increased
due to costs related to acquisitions, higher costs to service our client base in support of our growing revenue as well as the
impact of foreign currency.
Systems development and programming costs increased 1% in fiscal 2018, as compared to fiscal 2017, due to increased
investments in product innovation and costs to develop, support, and maintain our products, impact of foreign currency
translation, partially offset by a higher proportion of capitalized costs of our strategic projects.
Selling, general and administrative expenses increased 7% in fiscal 2018, as compared to fiscal 2017. The increase was
primarily due to increases in selling expense to support our 8% new business bookings growth, charges related to our
transformation initiatives, costs related to acquisitions, costs related to proxy contest matters, and the impact of foreign
currency translation.
Other Expense/(Income), net
(In millions)
Years ended June 30,
Interest income on corporate funds
Realized gains on available-for-sale securities
Realized losses on available-for-sale securities
Gain on sale of businesses (see Note 4 of the Consolidated Financial Statements)
Gain on sale of assets
Non-service components of pension expense, net
Other expense/(income), net
*Restated for impact of ASU 2017-07.
2018*
2017*
$ Change
$
(83.5) $
(2.0)
4.5
—
(0.7)
253.8
$
172.1
$
(76.7) $
(5.3)
3.1
(205.4)
—
(58.9)
(343.2) $
6.8
(3.3)
(1.4)
(205.4)
0.7
(312.7)
(515.3)
During fiscal 2018, non-service components of pension expense included $319.6 million of special termination benefits related
to our VERP, partially offset by $65.8 million related to other components of net periodic pension cost. See Note 1 and Note 12
of our Consolidated Financial Statements for additional details.
31
Other expense/(income), net, decreased $515.3 million in fiscal 2018, as compared to fiscal 2017. The decrease was primarily
due to the charges within non-service components of pension expense discussed above in fiscal 2018 and the gain on sale of the
CHSA and COBRA businesses of $205.4 million in fiscal 2017.
Earnings before Income Taxes
Earnings before income taxes decreased 13% primary due to $319.6 million related to the special termination benefit charges
and $17.5 million of other charges related to our VERP in fiscal 2018 and the gain on the sale of the CHSA and COBRA
businesses in fiscal 2017 offset by the increases in revenues and increases in expenses discussed above.
Overall margin decreased from 21.2% in fiscal 2017 to 17.1% in fiscal 2018 primarily due to $319.6 million related to the
special termination benefit charges and $17.5 million of other charges related to our VERP in fiscal 2018, the gain on the sale of
the CHSA and COBRA businesses in fiscal 2017, costs related to acquisitions and incremental pressure from growth in our
zero-margin benefits pass-through revenues in fiscal 2018. These drivers were partially offset by operating and selling
efficiencies in fiscal 2018.
Adjusted EBIT
In fiscal 2018, adjusted EBIT increased 9% due to the increases in revenues offset by the increases in expenses discussed
above. Overall adjusted EBIT margin increased slightly due to operating and selling efficiencies offset by pressure from fiscal
2018 acquisitions and incremental pressure from growth in our zero-margin benefits pass-through revenues.
Provision for Income Taxes
The effective tax rate in fiscal 2018 and 2017 was 17.4% and 31.7%, respectively. The decrease in the effective tax rate is due
to the one-time benefit recognized on the re-measurement of deferred tax balances, primarily as a result of ASC 606, using the
lower tax rates enacted under the Act, the reduction in the federal corporate statutory tax rate to 28.1% from 35% as a result of
the Act and the release of reserves for uncertain tax positions, partially offset by the impact in the prior period of the sale of the
CHSA and COBRA businesses and the impact of the benefit due to tax incentives associated with the domestic production
activity deduction and research tax credit in fiscal 2017. Refer to Note 13, Income Taxes, within the Notes to the Consolidated
Financial Statements for further discussion.
Adjusted Provision for Income Taxes
The adjusted effective tax rate in fiscal 2018 and 2017 was 26.2% and 31.1%, respectively. The decrease in the adjusted
effective tax rate is due to the reduction in the blended federal corporate statutory tax rate to 28.1% from 35% as a result of the
Act and the release of reserves for uncertain tax positions in fiscal 2018, partially offset by the impact of a benefit due to tax
incentives associated with the domestic production activity deduction and research tax credit in fiscal 2017.
Net Earnings and Diluted Earnings per Share
Net earnings increased 5% in fiscal 2018 due to the reduction in our effective tax rate described above, offset by $319.6 million
related to the special termination benefit charges and $17.5 million of other charges related to our VERP in fiscal 2018 and the
gain on the sale of the CHSA and COBRA businesses in fiscal 2017.
Diluted earnings per share increased 7% as a result of an increase in net earnings and the impact of fewer shares outstanding,
resulting from the repurchase of approximately 8.5 million shares in fiscal 2018 and 13.5 million shares in fiscal 2017, partially
offset by the issuances of shares under our employee benefit plans.
Adjusted Net Earnings and Adjusted Diluted Earnings per Share
Adjusted net earnings increased 17% in fiscal 2018 due to the increase in adjusted EBIT combined with the reduction in our
adjusted effective tax rate described above when compared to fiscal 2017.
For fiscal 2018, our adjusted diluted EPS increased 19% and reflects the changes described above in our adjusted net earnings
and shares outstanding.
32
ANALYSIS OF REPORTABLE SEGMENTS
In the first quarter of fiscal 2019, our chief operating decision maker (“CODM”) began reviewing segment results reported at
actual interest rates and the results of the PEO segment inclusive of the results of ADP Indemnity. Additionally, the CODM
reviews results with the effects of changes to certain corporate allocations. These changes represent a change in the measure of
segment performance. Effective July 1, 2018, we adopted ASC 606 (see Note 1 of the Consolidated Financial Statements). The
segment results in the table below reflect the impacts of the adoption of ASC 606, the inclusion of client funds interest in our
segments at actual interest rates, the inclusion of ADP Indemnity in the PEO segment, and changes to certain corporate
allocations. We reflected these new segment measures beginning in fiscal 2019 and prior period segment results are restated for
comparability.
Revenues
(In millions)
Employer Services
PEO Services
Other
Earnings before Income Taxes
(In millions)
Years Ended
% Change
2019
June 30,
2018
As Reported
Constant Currency
Basis
2017
2019
2018
2019
2018
$ 9,942.8
4,242.7
(10.3)
$ 14,175.2
$ 9,454.8
3,882.3
(9.4)
$ 13,327.7
$ 8,914.2
3,468.4
(10.6)
$ 12,372.0
5%
9%
n/m
6%
6%
12%
n/m
8%
6%
9%
n/m
7%
5%
12%
n/m
7%
Years Ended
% Change
2019
June 30,
2018
As Reported
Constant Currency
Basis
2017
2019
2018
2019
2018
Employer Services
PEO Services
Other
$ 2,957.0
620.1
(571.5)
$ 3,005.6
$ 2,598.1
544.6
(860.1)
$ 2,282.6
$ 2,396.8
463.4
(243.3)
$ 2,616.9
14%
14%
n/m
32%
8 %
18 %
n/m
(13)%
14%
14%
n/m
32%
7 %
18 %
n/m
(14)%
Employer Services
Fiscal 2019 Compared to Fiscal 2018
Revenues
Employer Services' revenues increased 5% in fiscal 2019, as compared to fiscal 2018. Revenues increased primarily due to new
business started from New Business Bookings and continued strong retention. Our revenue growth includes one percentage
point of pressure from foreign currency offset by benefits from acquisitions. Our revenues also increased due to the interest
earned on funds held for clients, which benefited from improvement in the average yield earned on our client funds investments
and growth in average client funds balances, and an increase in the number of employees on our clients' payrolls as our pays per
control increased 2.7% in fiscal 2019, as compared to fiscal 2018. Our pays per control metric measures the number of
employees on our clients' payrolls as measured on a same-store-sales basis utilizing a representative subset of payrolls ranging
from small to large businesses that are reflective of a broad range of U.S. geographic regions. In addition, the Employer
Services client revenue retention rate for fiscal 2019 improved 40 basis points to 90.8% as compared to our rate for fiscal 2018.
This improvement was driven by higher retention across our cloud-based solutions and our focus on improving the client
experience.
33
Earnings before Income Taxes
Employer Services’ earnings before income taxes increased 14% in fiscal 2019, as compared to fiscal 2018. The increase was
due to increased revenues discussed above and partially offset by increases in expenses of $129.1 million, which were primarily
due to increased selling and marketing expenses, costs related to acquisitions offset by operating efficiencies and impact from
foreign currency.
Employer Services' overall margin increased from 27.5% to 29.7% for fiscal 2019, as compared to fiscal 2018. This increase is
primarily due to operating efficiencies and aided by an increase in interest earned on funds held for clients, partially offset by
increased costs related to our acquisitions. The efficiencies driving margin performance are the result of our continued
successful execution of our broader transformation initiatives, including VERP and improvements in our systems infrastructure
spend and automation efforts.
Fiscal 2018 Compared to Fiscal 2017
Revenues
Employer Services' revenues increased 6% in fiscal 2018, as compared to fiscal 2017. Revenues increased primarily due to new
business started from new business bookings. Our revenue growth includes two percentage points of combined benefit from
foreign currency and acquisitions, partially offset by the impact of the disposition of our COBRA and CHSA businesses in
fiscal 2017. Our revenues also benefited from the impact of an increase in the number of employees on our clients’ payrolls as
our pays per control increased 2.7% in fiscal 2018 as compared to fiscal 2017. Employer Services client revenue retention rate
for fiscal 2018 improved 50 basis points to 90.4% as compared to our rate for fiscal 2017. This improvement was driven by
higher retention across our cloud-based solutions, our focus on improving the client experience, and the loss of a large client
within our former CHSA business in fiscal 2017.
Earnings before Income Taxes
Employer Services’ earnings before income taxes increased 8% in fiscal 2018, as compared to fiscal 2017. The increase was
due to increased revenues discussed above, which was partially offset by an increase in expenses of $339.3 million, primarily
due to investments in operational resources to support our revenue growth coupled with increased selling expenses in fiscal
2018.
Employer Services' overall margin increased from 26.9% to 27.5% for fiscal 2018, as compared to fiscal 2017. This 60 basis
point increase was driven by operating efficiencies in fiscal 2018 partially offset by the impact of costs related to acquisitions.
PEO Services
Fiscal 2019 Compared to Fiscal 2018
Revenues
PEO Services' revenues increased 9% in fiscal 2019, as compared to fiscal 2018. PEO Services' revenues, excluding zero-
margin benefits pass-through costs, increased from $1,419.2 million to $1,530.2 million for fiscal 2019. The increase was due
to an 8% increase in the average number of Worksite Employees in fiscal 2019 driven by an increase in the number of new PEO
Services clients and growth in our existing clients.
PEO Services' revenues includes zero-margin benefits pass-through costs associated with benefits coverage, which increased to
$2,712.5 million in fiscal 2019 from $2,463.1 million in fiscal 2018.
Earnings before Income Taxes
PEO Services’ earnings before income taxes increased 14% in fiscal 2019, as compared to fiscal 2018. The increase was due to
the increased revenues discussed above offset by an increase in expenses of $284.9 million. This increase in expenses was
primarily related to an increase in zero-margin benefits pass-through costs of $249.4 million described above.
34
PEO Services' overall margin increased from 14.0% to 14.6% for fiscal 2019, as compared to fiscal 2018, due to operating
efficiencies partially offset by increases in selling expenses and changes in our estimated incurred losses related to ADP
Indemnity in fiscal 2019 as compared to fiscal 2018.
ADP Indemnity provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for
PEO Services’ worksite employees up to $1 million per occurrence. PEO Services has secured a workers’ compensation and
employer’s liability insurance policy that has a $1 million per occurrence retention and, in fiscal years 2012 and prior, aggregate
stop loss insurance that covers any aggregate losses within the $1 million retention that collectively exceed a certain level, from
an admitted and licensed insurance company of AIG. The Company has obtained approximately $242 million of irrevocable
standby letters of credit in favor of licensed insurance companies of AIG to secure TotalSource workers’ compensation
obligations if ADP were to fail to reimburse AIG for workers’ compensation payments. The Company had no drawdowns
during June 30, 2019 and 2018 under the letters of credit. We utilize historical loss experience and actuarial judgment to
determine the estimated claim liability, and changes in estimated ultimate incurred losses are included in the PEO segment.
ADP Indemnity recorded a pre-tax benefit of approximately $39 million in fiscal 2019, $40 million in fiscal 2018 and $20
million in fiscal 2017, which is primarily a result of changes in our estimated incurred losses. For the fiscal years 2013 to 2019,
ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-
owned subsidiary of Chubb Limited, to cover substantially all losses incurred by ADP Indemnity during these policy years.
Each of these reinsurance arrangements limits our overall exposure incurred up to a certain limit. We believe the likelihood of
ultimate losses exceeding this limit is remote. During fiscal 2019, ADP Indemnity paid a premium of $218.0 million to enter
into a reinsurance arrangement with Chubb Limited to cover substantially all losses incurred by ADP Indemnity for the fiscal
2019 policy year to $1 million per occurrence related to the workers' compensation and employer's liability deductible
reimbursement insurance protection for PEO Services' worksite employees. ADP Indemnity paid a premium of $215.0 million
in July 2019 to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for
fiscal 2020 policy year on terms substantially similar to the fiscal 2019 reinsurance policy.
Fiscal 2018 Compared to Fiscal 2017
Revenues
PEO Services' revenues increased 12% in fiscal 2018, as compared to fiscal 2017. PEO Services' revenues excluding zero-
margin benefits pass-through costs increased from $1,294.5 million to $1,419.2 million for fiscal 2018. The increase in
revenues was due to a 9% increase in the average number of Worksite Employees, driven by an increase in the number of new
PEO Services clients.
PEO Services' revenues includes zero-margin benefits pass-through costs associated with benefits coverage, which increased to
$2,463.1 million in fiscal 2018 from $2,173.9 million in fiscal 2017.
Earnings before Income Taxes
PEO Services’ earnings before income taxes increased 18% in fiscal 2018, as compared to fiscal 2017. The increase was due to
the increased revenues discussed above, which was partially offset by an increase in expenses of $332.7 million. This increase
in expenses was primarily related to an increase in zero-margin benefits pass-through costs of $289.2 million.
PEO Services' overall margin increased from 13.4% to 14.0% for fiscal 2018, as compared to fiscal 2017, due to reductions in
selling expenses and changes in our estimated incurred losses related to ADP Indemnity in fiscal 2018 as compared to fiscal
2017, partially offset by pressure from growth in our zero-margin benefits pass-through revenues.
For impact of ADP Indemnity to PEO services, refer to discussion above.
Other
The primary components of “Other” are certain corporate overhead charges and expenses that have not been allocated to the
reportable segments, including corporate functions, costs related to our transformation office, non-recurring gains and losses,
the elimination of intercompany transactions, and other interest expense.
35
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For corporate liquidity, we expect existing cash, cash equivalents, short-term marketable securities, long-term marketable
securities, cash flow from operations together with our $10.3 billion of committed credit facilities and our ability to access both
long-term and short-term debt financing from the capital markets will be adequate to meet our operating, investing, and
financing activities such as regular quarterly dividends, share repurchases, and capital expenditures.
For client funds liquidity, we have the ability to borrow through our financing arrangements under our U.S. short-term
commercial paper program and our U.S., Canadian and United Kingdom short-term reverse repurchase agreements, together
with our $10.3 billion of committed credit facilities and our ability to use corporate liquidity when necessary to meet short-term
funding requirements related to client funds obligations. Please see Quantitative and Qualitative Disclosures about Market Risk
for a further discussion of the risks of our client funds investment strategy. See Note 10 of our Consolidated Financial
Statements for a description of our short-term financing including commercial paper.
As of June 30, 2019, cash and cash equivalents were $1.9 billion, which were primarily invested in time deposits and money
market funds.
Operating, Investing and Financing Cash Flows
Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows
for the years ended 2019, 2018, and 2017, are summarized as follows:
(In millions)
Years ended June 30,
$ Change
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash,
cash equivalents, restricted cash, and
restricted cash equivalents
Net change in cash, cash equivalents,
restricted cash, and restricted cash
equivalents
Fiscal 2019 Compared to Fiscal 2018
2019
2018
2017
2019
2018
$
2,688.3
$
(2,197.7)
(207.7)
$
2,515.2
(2,504.6)
(1,655.9)
2,125.9
(1,113.2)
(8,281.7)
$
173.1
$
306.9
1,448.2
389.3
(1,391.4)
6,625.8
(28.8)
5.8
(8.0)
(34.6)
13.8
$
254.1
$
(1,639.5) $
(7,277.0) $
1,893.6
$
5,637.5
Net cash flows provided by operating activities in fiscal 2019 and fiscal 2018 include cash payments for reinsurance
agreements of $218.0 million and $235.0 million, respectively, which represent the policy premium for the entire fiscal year.
The increase in operating cash provided is primarily due to growth in our business offset by a net decrease in the components of
working capital as compared to fiscal 2018.
Net cash flows from investing activities changed due to lower payments made related to acquisitions, the timing of proceeds
offset by purchases of corporate and client funds marketable securities of $91.8 million, and reduced capital expenditures,
partially offset by the payments made related to acquisitions of intangible assets in fiscal 2019.
Net cash flows from financing activities changed primarily due to a net increase in the cash flow from client funds obligations
of $1,355.6 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other
payees, more cash returned to shareholders via dividends in fiscal 2019, partially offset by an increase in net proceeds from
reverse repurchase agreements and less cash paid for share repurchases.
We purchased approximately 6.5 million shares of our common stock at an average price per share of $143.02 during fiscal
2019, as compared to purchases of 8.5 million shares at an average price per share of $116.07 during fiscal 2018. From time to
time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company
36
considers several factors in determining when to execute share repurchases, including, among other things, actual and potential
acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.
Fiscal 2018 Compared to Fiscal 2017
Net cash flows provided by operating activities in fiscal 2018 increased primarily due to growth in our underlying business (net
income adjusted for non-cash adjustments such as the VERP in fiscal 2018 and the gain on the sale of COBRA and CHSA in
fiscal 2017).
Net cash flows from investing activities changed due to the timing of proceeds offset by purchases of corporate and client funds
marketable securities of $632.6 million, payments made related to acquisitions in fiscal 2018 and proceeds from the sale of the
CHSA and COBRA businesses of $234.0 million in fiscal 2017.
Net cash flows from financing activities changed due to net increase in the cash flow from client funds obligations of $6,461.0
million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees and
less cash paid for share repurchases.
We purchased approximately 8.5 million shares of our common stock at an average price per share of $116.07 during fiscal
2018 as compared to purchases of 13.5 million shares at an average price per share of $94.42 during fiscal 2017. The increased
cash flow from client fund obligations and reduced share repurchases were partially offset by cash returned to shareholders via
dividends, which increased by $68.5 million from fiscal 2017.
Capital Resources and Client Fund Obligations
We have $2.0 billion of senior unsecured notes with maturity dates in 2020 and 2025. We may from time to time revisit the
long-term debt market to refinance existing debt, finance investments including acquisitions for our growth, and maintain the
appropriate capital structure. However, there can be no assurance that volatility in the global capital and credit markets would
not impair our ability to access these markets on terms acceptable to us, or at all. See Note 11 of our Consolidated Financial
Statements for a description of our long-term financing.
Our U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through the
issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in
available-for-sale securities. In June 2019, the Company increased its U.S. short-term commercial paper program to provide for
the issuance of up to $10.3 billion from $9.8 billion in aggregate maturity value. Our commercial paper program is rated A-1+
by Standard and Poor’s and Prime-1 (“P-1”) by Moody’s. These ratings denote the highest quality commercial paper securities.
Maturities of commercial paper can range from overnight to up to 364 days. In fiscal 2019 and 2018, our average daily
borrowings were $2.8 billion at a weighted average interest rate of 2.2% and 1.4%, respectively. The weighted average maturity
of our commercial paper during fiscal 2019 and 2018 was approximately two days. At June 30, 2019 and 2018, we had no
outstanding obligations under our short-term commercial paper program.
Our U.S., Canadian, and United Kingdom short-term funding requirements related to client funds obligations are sometimes
obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by
government and government agency securities, rather than liquidating previously-collected client funds that have already been
invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to five business
days. We have successfully borrowed through the use of reverse repurchase agreements on an as needed basis to meet short-
term funding requirements related to client funds obligations. At June 30, 2019, the Company had $262.0 million of outstanding
obligations related to the reverse repurchase agreements. All outstanding reverse repurchase obligations matured and were fully
paid in early July 2019. At June 30, 2018, there were no outstanding obligations related to the reverse repurchase agreements.
For fiscal 2019 and 2018, we had average outstanding balances under reverse repurchase agreements of $316.7 million and
$374.4 million, respectively, at weighted average interest rates of 1.9% and 1.3%, respectively. See the Consolidated Balance
Sheets of our Consolidated Financial Statements for client fund investments used as collateral for reverse repurchase
agreements.
We vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility. We have a $3.8 billion,
364-day credit agreement that matures in June 2020 with a one year term-out option. In addition, we have a five-year $3.75
billion credit facility and a five-year $2.75 billion credit facility maturing in June 2023 and June 2024, respectively, each with
an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability of
additional commitments. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and
37
funding for general corporate purposes, if necessary. We had no borrowings through June 30, 2019 under the credit facilities.
We believe that we currently meet all conditions set forth in the revolving credit agreements to borrow thereunder, and we are
not aware of any conditions that would prevent us from borrowing part or all of the $10.3 billion available to us under the
revolving credit agreements. See Note 10 of our Consolidated Financial Statements for a description of our short-term financing
including credit facilities.
Our investment portfolio does not contain any asset-backed securities with underlying collateral of sub-prime mortgages,
alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized
loan obligations, credit default swaps, derivatives, auction rate securities, structured investment vehicles or non-investment
grade fixed-income securities. We own AAA rated senior tranches of fixed rate auto loan, credit card, equipment lease, and rate
reduction receivables, secured predominantly by prime collateral. All collateral on asset-backed securities is performing as
expected. In addition, we own senior debt directly issued by Federal Home Loan Banks and Federal Farm Credit Banks. Our
client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the
maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long
portfolio). This investment strategy is supported by our short-term financing arrangements necessary to satisfy short-term
funding requirements relating to client funds obligations. See Note 7 of our Consolidated Financial Statements for a description
of our corporate investments and funds held for clients.
Capital expenditures for fiscal 2019 were $162.7 million, as compared to $191.9 million for fiscal 2018. We expect capital
expenditures in fiscal 2020 to be about $175 million.
Contractual Obligations
The following table provides a summary of our contractual obligations at June 30, 2019:
(In millions)
Contractual Obligations
Less than
1 year
1-3
years
Payments due by period
More than
3-5
5 years
years
Unknown
Total
Debt Obligations (1)
Operating Lease Obligations (2)
Purchase Obligations (3)
Obligations Related to Unrecognized
Tax Benefits (4)
Other Long-Term Liabilities Reflected
on our Consolidated Balance Sheets:
Compensation and Benefits (5)
Total
$
$
$
$
$
$
58.4
147.9
354.7
$ 1,081.5
$ 196.8
$ 118.9
$
69.5
$ 117.7
9.8
$
$
$
$
1,054.6
134.0
0.2
$
$
$
— $ 2,264.0
596.4
— $
483.6
— $
9.6
$
— $
— $
— $
44.6
$
54.2
47.5
618.1
83.0
$
$ 1,480.2
47.7
$
$ 244.7
$
$
177.2
1,366.0
$
$
109.0
153.6
464.4
$
$ 3,862.6
(1) These amounts represent the principal and interest payments of our debt.
(2)
Included in these amounts are various facilities and equipment leases. We enter into operating leases in the normal course of business relating to
facilities and equipment. The majority of our lease agreements have fixed payment terms based on the passage of time. Certain facility and
equipment leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price
indices. Our future operating lease obligations could change if we exit certain contracts or if we enter into additional operating lease agreements.
(3) Purchase obligations are comprised of a $215.0 million reinsurance premium with Chubb for the fiscal 2020 policy year, as well as obligations
related to software subscription licenses and purchase and maintenance agreements on our software, equipment, and other assets.
(4) Based on current estimates, we expect to make cash payments up to $9.6 million in the next twelve months for obligations related to unrecognized
tax benefits across various jurisdictions and tax periods. For $44.6 million of obligations related to unrecognized tax benefits we are unable to make
reasonably reliable estimates as to the period in which cash payments are expected to be paid.
(5) Compensation and benefits primarily relates to amounts associated with our employee benefit plans and other compensation arrangements. These
amounts exclude the estimated contributions to our defined benefit plans, which are expected to be $9.3 million in fiscal 2020.
In addition to the obligations quantified in the table above, we had obligations for the remittance of funds relating to our payroll
and payroll tax filing services. As of June 30, 2019, the obligations relating to these matters, which are expected to be paid in
fiscal 2020, total $29,144.5 million and were recorded in client funds obligations on our Consolidated Balance Sheets. We had
38
$29,434.2 million of cash and cash equivalents and marketable securities that were impounded from our clients to satisfy such
obligations recorded in funds held for clients on our Consolidated Balance Sheets as of June 30, 2019.
Separately, ADP Indemnity paid a premium of $215.0 million in July 2019 to enter into a reinsurance agreement with Chubb to
cover substantially all losses incurred by ADP Indemnity for the fiscal 2020 policy year. At June 30, 2019, ADP Indemnity had
total assets of $575.8 million to satisfy the actuarially estimated unpaid losses of $448.1 million for the policy years since July
1, 2003. ADP Indemnity paid claims of $4.0 million and $4.6 million, net of insurance recoveries, in fiscal 2019 and 2018,
respectively. Refer to the "Analysis of Reportable Segments - PEO Services" above for additional information regarding ADP
Indemnity.
In the normal course of business, we also enter into contracts in which we make representations and warranties that relate to the
performance of our services and products. We do not expect any material losses related to such representations and warranties.
Quantitative and Qualitative Disclosures about Market Risk
Our overall investment portfolio is comprised of corporate investments (cash and cash equivalents, short-term and long-term
marketable securities) and client funds assets (funds that have been collected from clients but not yet remitted to the applicable
tax authorities or client employees).
Our corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable
securities. These assets are available for repurchases of common stock for treasury and/or acquisitions, as well as other
corporate operating purposes. All of our short-term and long-term fixed-income securities are classified as available-for-sale
securities.
Our client funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives. Consistent
with those objectives, we also seek to maximize interest income and to minimize the volatility of interest income. Client funds
assets are invested in highly liquid, investment-grade marketable securities, with a maximum maturity of 10 years at the time of
purchase, and money market securities and other cash equivalents.
We utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-
term financing arrangements to satisfy our short-term funding requirements related to client funds obligations. Our client funds
investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our
investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). As
part of our client funds investment strategy, we use the daily collection of funds from our clients to satisfy other unrelated client
funds obligations, rather than liquidating previously-collected client funds that have already been invested in available-for-sale
securities. We minimize the risk of not having funds collected from a client available at the time such client’s obligation
becomes due by impounding, in virtually all instances, the client’s funds in advance of the timing of payment of such client’s
obligation. As a result of this practice, we have consistently maintained the required level of client funds assets to satisfy all of
our obligations.
There are inherent risks and uncertainties involving our investment strategy relating to our client funds assets. Such risks
include liquidity risk, including the risk associated with our ability to liquidate, if necessary, our available-for-sale securities in
a timely manner in order to satisfy our client funds obligations. However, our investments are made with the safety of principal,
liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our client
funds obligations. We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client
funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances,
available borrowings under our $10.3 billion commercial paper program (rated A-1+ by Standard and Poor’s and P-1 by
Moody’s, the highest possible short-term credit ratings), our ability to engage in reverse repurchase transactions and available
borrowings under our $10.3 billion committed credit facilities. The reduced availability of financing during periods of
economic turmoil, even to borrowers with the highest credit ratings, may limit our ability to access short-term debt markets to
meet the liquidity needs of our business. In addition to liquidity risk, our investments are subject to interest rate risk and credit
risk, as discussed below.
We have established credit quality, maturity, and exposure limits for our investments. The minimum allowed credit rating for
corporate, Canadian government agency and Canadian provincial bonds is BBB, for asset-backed securities is AAA, and for
municipal bonds is A. The maximum maturity at time of purchase for BBB-rated securities is 5 years, for single A rated
securities is 7 years, and for AA-rated and AAA-rated securities is 10 years. Time deposits and commercial paper must be rated
A-1 and/or P-1. Money market funds must be rated AAA/Aaa-mf.
39
Details regarding our overall investment portfolio are as follows:
(In millions)
Years ended June 30,
Average investment balances at cost:
Corporate investments
Funds held for clients
Total
Average interest rates earned exclusive of realized
(gains)/losses on:
Corporate investments
Funds held for clients
Total
2019
2018
2017
$ 4,817.3
$ 5,112.4
$ 6,143.3
25,458.5
24,332.6
23,023.5
$ 30,275.8
$ 29,445.0
$ 29,166.8
2.0%
2.2%
2.2%
1.6%
1.9%
1.9%
1.2%
1.7%
1.6%
(5.3)
3.1
(2.2)
Realized gains on available-for-sale securities
Realized losses on available-for-sale securities
Net realized losses/(gains) on available-for-sale securities
$
$
(1.8)
2.7
0.9
$
$
(2.0)
4.5
2.5
$
$
As of June 30:
Net unrealized pre-tax gains/(losses) on available-for-sale securities
$
287.5
$
(355.7) $
102.5
Total available-for-sale securities at fair value
$ 24,859.1
$ 22,776.2
$ 21,901.1
We are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are
reinvested. Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested
funds and the overall portfolio mix between short-term and long-term investments. This mix varies during the fiscal year and is
impacted by daily interest rate changes. The annualized interest rate earned on our entire portfolio increased from 1.9% for
fiscal 2018 to 2.2% for fiscal 2019. A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the
federal funds rate) and intermediate-term interest rates of 25 basis points applied to the estimated average investment balances
and any related short-term borrowings would result in approximately a $13 million impact to earnings before income taxes over
the ensuing twelve-month period ending June 30, 2020. A hypothetical change in only short-term interest rates of 25 basis
points applied to the estimated average short-term investment balances and any related short-term borrowings would result in
approximately a $5 million impact to earnings before income taxes over the ensuing twelve-month period ending June 30,
2020.
We are exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers
to meet the terms of the securities. We limit credit risk by investing in investment-grade securities, primarily AAA and AA-
rated securities, as rated by Moody’s, Standard & Poor’s, DBRS for Canadian dollar denominated securities, and Fitch for
asset-backed and commercial-mortgage-backed securities. Approximately 79% of our available-for-sale securities held a AAA
or AA rating at June 30, 2019. In addition, we limit amounts that can be invested in any security other than U.S. government
and government agency, Canadian government and United Kingdom Gilt securities.
We operate and transact business in various foreign jurisdictions and are therefore exposed to market risk from changes in
foreign currency exchange rates that could impact our consolidated results of operations, financial position, or cash flows. We
manage our exposure to these market risks through our regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments. We may use derivative financial instruments as risk
management tools and not for trading purposes. We had no derivative financial instruments outstanding at June 30, 2019 or
2018.
40
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 1, Recently Issued Accounting Pronouncements, of Notes to the Consolidated Financial Statements for a discussion of
recent accounting pronouncements.
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements and accompanying notes have been prepared in accordance with U.S. GAAP. The
preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect
reported amounts of assets, liabilities, revenues, expenses and other comprehensive income. We continually evaluate the
accounting policies and estimates used to prepare the Consolidated Financial Statements. The estimates are based on historical
experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could
differ from these estimates made by management. Certain accounting policies that require significant management estimates
and are deemed critical to our results of operations or financial position are Revenue Recognition (including Deferred Costs),
Goodwill and Income Taxes. Refer to Note 1, Summary of Significant Accounting Policies, of Notes to the Consolidated
Financial Statements for discussion of our policies.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is provided under the caption “Quantitative and Qualitative Disclosures About Market
Risk” under “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation.”
41
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Automatic Data Processing, Inc.
Roseland, New Jersey
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Automatic Data Processing, Inc. and subsidiaries (the "Company")
as of June 30, 2019 and 2018, and the related consolidated statements of earnings, comprehensive income, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 2019, and the related notes and the schedule listed in the Index at
Item 15(a) 2 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 2019, in conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of June 30, 2019, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated August 9, 2019, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, effective July 1, 2018, the Company adopted FASB Accounting Standards Update
2014-09, Revenue from Contracts with Customers (ASC 606), on a retrospective basis.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risk of material misstatements of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
42
Goodwill - Employer Services Reportable Segment - Refer to Notes 1 and 9 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying
value. The Company uses the discounted cash flow model to estimate fair value, which requires management to make significant
estimates and assumptions related to forecasts of future revenue and operating margins. Changes in these assumptions could have a
significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The Company's new next-gen
platform for which there is limited historical data and for which the forecasted future revenue and operating margin contribute
significantly to the fair value of a reporting unit with approximately $678 million of goodwill within the Employer Services
reportable segment as of June 30, 2019.
Given the significant judgments made by management to estimate the fair value contributed by the next-gen platform for which there
is limited historical data, including management’s judgments in selecting significant business assumptions to forecast future revenue
and operating margin for the next-gen platform, performing audit procedures to evaluate the reasonableness of management’s
estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve
our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of forecasts of future revenue and operating margin used by management to estimate
the fair value contributed by the next-gen platform included the following, among others:
• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the
determination of the fair value of the reporting units within the Employer Services reportable segment, such as controls related to
management’s determination of forecasts of future revenue and operating margin.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology, including testing
the mathematical accuracy of the calculation.
• We evaluated management’s ability to accurately forecast future revenue and operating margin by comparing actual results to
management’s historical forecasts. Due to the limited historical data for the next-gen platform, we evaluated the reasonableness of
management’s revenue and operating margin forecasts by comparing the forecasts to (1) the historical operating results of the
Company’s similar existing platforms, (2) the limited operating results to date of the next-gen platform, (3) internal
communications to management and the board of directors, (4) external communications made by management to analysts and
investors, and (5) industry reports containing analyses of the Company’s and its competitor’s platforms.
Client Fund Obligations - Refer to Note 7 to the financial statements
Critical Audit Matter Description
The liability for client funds obligations represents the Company’s contractual obligations primarily to remit funds to satisfy clients'
payroll and tax payment obligations and are recorded at the time the Company impounds funds from clients (i.e., money movement).
This money movement activity involves significant amounts of client funds being impounded and remitted to third parties and results
in a high volume of transactions and a current liability of $29,144.5 million as of June 30, 2019. The Company performs complex
data extracts in order to reconcile the client funds obligations to funds held for clients and records a high volume of material manual
adjustments in order to properly reflect the client funds obligations’ as of period end.
Given the significant volume of data extraction required, complexity of the reconciliation process, and the process used by
management to extract the relevant data, auditing the client funds obligations is complex and requires the involvement of data
specialists to independently reperform the reconciliation and test the completeness and accuracy of the manual adjustments recorded
by management.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company's client funds obligations included the following, among others:
• We tested the effectiveness of general information technology controls over the applications relevant to the money movement
reconciliation process.
• We tested the effectiveness of (1) management's controls over the client funds obligation data reconciliation and (2) management's
control to reconcile the consolidated client funds obligations to the corresponding consolidated funds held for clients balance.
• We involved data specialists to (1) independently reperform management's client funds obligation reconciliation and (2) perform
data analyses to identify and evaluate recurring and new adjustments in the current period as well as significant fluctuations from
prior periods.
For a selection of client funds obligations transactions, we evaluated whether the funds were impounded prior to June 30, 2019,
agreed the liability to the corresponding asset balance, and evaluated whether the funds were properly included or excluded from
the client funds obligations.
•
• We made a selection of manual adjustments recorded by management to properly reflect the client funds obligations balance and
tested the accuracy of the selected adjustments.
43
• We made a selection of disbursements to third-parties subsequent to the balance sheet date to evaluate whether they were properly
included or excluded from client funds obligations.
• We tested the Company’s reconciliation of the consolidated client funds obligations to funds held for clients.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
August 9, 2019
We have served as the Company’s auditor since 1968.
44
Statements of Consolidated Earnings
(In millions, except per share amounts)
Years ended June 30,
REVENUES:
Revenues, other than interest on funds held
for clients and PEO revenues
Interest on funds held for clients
PEO revenues (A)
TOTAL REVENUES
EXPENSES:
Costs of revenues:
Operating expenses
Systems development and programming costs
Depreciation and amortization
TOTAL COSTS OF REVENUES
Selling, general, and administrative expenses
Interest expense
TOTAL EXPENSES
Other (income)/expense, net
2018
2017
2019
*As Restated
*As Restated
$
9,375.8
$
8,983.4
$
561.9
4,237.5
14,175.2
466.5
3,877.8
13,327.7
7,145.9
636.3
304.4
8,086.6
3,064.2
129.9
11,280.7
6,901.0
635.4
274.5
7,810.9
2,959.4
102.7
10,873.0
8,510.1
397.4
3,464.5
12,372.0
6,386.2
632.1
226.2
7,244.5
2,773.8
80.0
10,098.3
(111.1)
172.1
(343.2)
EARNINGS BEFORE INCOME TAXES
3,005.6
2,282.6
2,616.9
Provision for income taxes
NET EARNINGS
BASIC EARNINGS PER SHARE
DILUTED EARNINGS PER SHARE
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
*See Note 1 for a summary of adjustments.
712.8
397.7
829.1
$
$
$
$
$
$
2,292.8
5.27
5.24
435.0
437.6
$
$
$
1,884.9
4.28
4.25
440.6
443.3
1,787.8
3.99
3.97
447.8
450.3
(A) For the years ended June 30, 2019 ("fiscal 2019"), June 30, 2018 ("fiscal 2018"), and June 30, 2017 ("fiscal 2017"), Professional Employer Organization ("PEO")
revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes, of $42,688.8 million, $39,140.9 million, and $34,567.4 million,
respectively.
See notes to the Consolidated Financial Statements.
45
Statements of Consolidated Comprehensive Income
(In millions)
Years ended June 30,
2018
2017
2019
*As Restated
*As Restated
Net earnings
$
2,292.8
$
1,884.9
$
1,787.8
Other comprehensive income/loss:
Currency translation adjustments
Unrealized net gains/(losses) on available-for-sale securities
Tax effect
Reclassification of net losses/(gains) on available-for-sale securities to net earnings
Tax effect
Pension net (losses)/gains arising during the year
Tax effect
Reclassification of pension liability adjustment to net earnings
Tax effect
Other comprehensive income/(loss), net of tax
Comprehensive income
*See Note 1 for a summary of adjustments.
(42.2)
7.8
19.0
642.4
(144.4)
0.9
(0.3)
(84.7)
20.0
40.3
(9.5)
(460.7)
123.4
2.7
(0.6)
87.0
(18.7)
9.3
(4.5)
(405.7)
141.6
(2.2)
0.8
109.6
(43.6)
20.6
(8.2)
422.5
(254.3)
(168.1)
$
2,715.3
$
1,630.6
$
1,619.7
See notes to the Consolidated Financial Statements.
46
Consolidated Balance Sheets
(In millions, except per share amounts)
June 30,
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $54.9 and $51.3, respectively
Other current assets
Total current assets before funds held for clients
Funds held for clients
Total current assets
Long-term receivables, net of allowance for doubtful accounts of $0.4 and $0.5, respectively
Property, plant and equipment, net
Deferred contract costs
Other assets
Goodwill
Intangible assets, net
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Accrued payroll and payroll-related expenses
Dividends payable
Short-term deferred revenues
Obligations under reverse repurchase agreements (A)
Income taxes payable
Total current liabilities before client funds obligations
Client funds obligations
Total current liabilities
Long-term debt
Other liabilities
Deferred income taxes
Long-term deferred revenues
Total liabilities
Commitments and Contingencies (Note 14)
Stockholders' equity:
Preferred stock, $1.00 par value: Authorized, 0.3 shares; issued, none
Common stock, $0.10 par value: authorized, 1,000.0 shares; issued, 638.7 shares at June 30, 2019 and June 30, 2018;
outstanding, 434.2 and 438.8 shares at June 30, 2019 and June 30, 2018, respectively
Capital in excess of par value
Retained earnings
Treasury stock - at cost: 204.5 and 199.9 shares at June 30, 2019 and June 30, 2018, respectively
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
*See Note 1 for a summary of adjustments.
2018
2019
*As Restated
$
1,949.2
$
2,439.3
519.6
4,908.1
29,434.2
34,342.3
23.8
764.2
2,428.5
934.4
2,323.0
1,071.5
2,170.0
1,984.2
531.3
4,685.5
27,137.8
31,823.3
25.5
793.7
2,377.4
699.3
2,243.5
886.4
$
41,887.7
$
38,849.1
$
125.5
$
1,759.0
721.1
340.1
220.7
262.0
54.8
3,483.2
29,144.5
32,627.7
2,002.2
798.7
659.9
399.3
135.4
1,547.6
667.7
298.9
225.7
—
43.9
2,919.2
27,493.5
30,412.7
2,002.4
728.0
522.0
448.1
36,487.8
34,113.2
—
63.9
1,183.2
17,500.6
—
63.9
1,014.8
16,546.6
(13,090.5)
(12,209.6)
(257.3)
5,399.9
(679.8)
4,735.9
$
41,887.7
$
38,849.1
(A) As of June 30, 2019, $261.4 million of long-term marketable securities and $0.6 million of cash and cash equivalents have been pledged as collateral under the
Company's reverse repurchase agreements (see Note 10).
See notes to the Consolidated Financial Statements.
47
Statements of Consolidated Stockholders' Equity
(In millions, except per share amounts)
Common Stock
Shares
Amount
Capital in Excess
of Par Value
Retained
Earnings
*As Restated
Treasury Stock
Accumulated
Other
Comprehensive
Income/(Loss)
*As Restated
638.7
$
63.9
$
768.1
$
14,960.1
$
(10,138.6) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
115.5
(15.8)
—
—
1,787.8
—
—
—
—
(1,008.5)
—
—
—
169.2
(1,334.3)
—
638.7
$
63.9
$
867.8
$
15,739.4
$
(11,303.7) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
145.3
1.7
—
—
—
1,884.9
—
—
—
—
42.3
(1,120.0)
—
—
—
144.5
(1,050.4)
—
—
638.7
$
63.9
$
1,014.8
$
16,546.6
$
(12,209.6) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
144.2
24.2
—
—
2,292.8
—
—
—
—
(1,338.8)
—
—
—
124.1
(1,005.0)
—
(215.1)
—
(168.1)
—
—
—
—
(383.2)
—
(254.3)
—
—
—
(42.3)
—
(679.8)
—
422.5
—
—
—
—
638.7
$
63.9
$
1,183.2
$
17,500.6
$
(13,090.5) $
(257.3)
Balance at June 30, 2016
Net earnings
Other comprehensive income
Stock-based compensation expense
Issuances relating to stock compensation plans
Treasury stock acquired (13.5 shares)
Dividends ($2.24 per share)
Balance at June 30, 2017
Net earnings
Other comprehensive loss
Stock-based compensation expense
Issuances relating to stock compensation plans
Treasury stock acquired (8.5 shares)
Other (see Note 1)
Dividends ($2.52 per share)
Balance at June 30, 2018
Net earnings
Other comprehensive income
Stock-based compensation expense
Issuances relating to stock compensation plans
Treasury stock acquired (6.5 shares)
Dividends ($3.06 per share)
Balance at June 30, 2019
*See Note 1 for a summary of adjustments.
See notes to the Consolidated Financial Statements.
48
Statements of Consolidated Cash Flows
(In millions)
Years ended June 30,
Cash Flows from Operating Activities:
Net earnings
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Depreciation and amortization
Amortization of deferred contract costs
Deferred income taxes
Stock-based compensation expense
Net pension expense
Net amortization of premiums and accretion of discounts on available-for-sale securities
Impairment of intangible assets
Gain on sale of assets
Gain on sale of divested businesses, net of tax
Other
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses:
(Increase)/decrease in accounts receivable
Increase in other assets
Decrease in accounts payable
Increase in accrued expenses and other liabilities
Net cash flows provided by operating activities
Cash Flows from Investing Activities:
Purchases of corporate and client funds marketable securities
Proceeds from the sales and maturities of corporate and client funds marketable securities
Capital expenditures
Additions to intangibles
Acquisitions of businesses, net of cash acquired
Proceeds from the sale of property, plant, and equipment and other assets
Proceeds from the sale of divested businesses
Net cash flows used in investing activities
Cash Flows from Financing Activities:
Net increase/(decrease) in client funds obligations
Payments of debt
Repurchases of common stock
Net proceeds from stock purchase plan and stock-based compensation plans
Dividends paid
Net proceeds from reverse repurchase agreements
Other
Net cash flows used in financing activities
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents
2019
2018
*As Restated
2017
*As Restated
$
2,292.8
$
1,884.9
$
1,787.8
409.0
874.0
9.3
167.3
55.4
50.1
12.1
(19.8)
—
43.9
(473.9)
(987.2)
(10.7)
266.0
2,688.3
(4,422.6)
2,909.0
(162.0)
(404.5)
(125.5)
7.9
—
377.6
837.4
(152.0)
175.4
330.4
71.5
—
(0.7)
—
32.2
(291.8)
(858.3)
(1.9)
110.5
2,515.2
(4,876.8)
3,455.0
(206.1)
(264.7)
(612.4)
0.4
—
(2,197.7)
(2,504.6)
1,696.0
(2.1)
(937.7)
72.9
340.4
(7.3)
(989.3)
69.3
(1,293.0)
(1,063.7)
—
(5.3)
(1,655.9)
262.0
(5.8)
(207.7)
(28.8)
254.1
316.1
787.9
41.3
138.9
24.2
85.9
—
—
(121.4)
37.1
23.4
(1,139.4)
(11.6)
155.7
2,125.9
(4,382.8)
3,593.6
(240.2)
(230.4)
(87.4)
—
234.0
(1,113.2)
(6,120.6)
(2.0)
(1,259.6)
95.7
(995.2)
—
—
(8,281.7)
5.8
(8.0)
(1,639.5)
(7,277.0)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of year
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of year
6,542.1
8,181.6
15,458.6
$
6,796.2
$
6,542.1
$
8,181.6
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated
Balance Sheets
Cash and cash equivalents
Restricted cash and restricted cash equivalents included in funds held for clients (A)
Total cash, cash equivalents, restricted cash, and restricted cash equivalents
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes, net of income tax refunds
*See Note 1 for a summary of adjustments.
$
$
$
$
1,949.2
4,847.0
6,796.2
127.5
633.8
$
$
$
$
2,170.0
4,372.1
6,542.1
100.5
529.7
$
$
$
$
2,780.4
5,401.2
8,181.6
78.1
817.1
(A) See Note 7 for a reconciliation of restricted cash and restricted cash equivalents in funds held for clients on the Consolidated Balance Sheets.
49
Notes to Consolidated Financial Statements
(Tabular dollars in millions, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Preparation. The accompanying Consolidated Financial Statements and footnotes thereto of Automatic Data
Processing, Inc.its subsidiaries and variable interest entity (“ADP” or the “Company”) have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”). Intercompany balances and
transactions have been eliminated in consolidation.
The Company has a grantor trust, which holds the majority of the funds provided by its clients pending remittance to employees
of those clients, tax authorities, and other payees. The Company is the sole beneficial owner of the trust. The trust meets the
criteria in Accounting Standards Codification (“ASC”) 810, “Consolidation” to be characterized as a variable interest entity
(“VIE”). The Company has determined that it has a controlling financial interest in the trust because it has both (1) the power to
direct the activities that most significantly impact the economic performance of the trust (including the power to make all
investment decisions for the trust) and (2) the right to receive benefits that could potentially be significant to the trust (in the
form of investment returns) and therefore, consolidates the trust. Further information on these funds and the Company’s
obligations to remit to its clients’ employees, tax authorities, and other payees is provided in Note 7, “Corporate Investments
and Funds Held for Clients.”
Restatements
Effective July 1, 2018, certain prior period amounts have been restated to conform to the current period presentation in
connection with the adoption of Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers
(ASC 606)” and ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Post-retirement Benefit Cost.” Also, in the first quarter of the fiscal year ending June 30, 2019
(“fiscal 2019”), the Company's chief operating decision maker (“CODM”) began reviewing segment results reported at actual
interest rates and the results of the PEO segment inclusive of the results of ADP Indemnity. Additionally, the CODM reviews
results with changes to certain corporate allocations. These changes represent a change in the measure of segment performance.
We reflected these new segment measures in fiscal 2019 and prior period segment results are restated for comparability.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the assets, liabilities, revenues, expenses, and other comprehensive income that are reported in the
Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates.
Certain amounts from the prior year's financial statements have been reclassified in order to conform to the current year's
presentation.
B. Description of Business. The Company is a provider of cloud-based Human Capital Management (“HCM”) solutions. The
Company classifies its operations into the following two reportable segments: Employer Services and Professional Employer
Organization (“PEO”) Services. The primary components of the “Other” segment are certain corporate overhead charges and
expenses that have not been allocated to the reportable segments, including corporate functions, costs related to our
transformation office, non-recurring gains and losses, the elimination of intercompany transactions, and interest expense.
C. Revenue Recognition. Revenues are primarily attributable to fees for providing services (e.g., Employer Services' payroll
processing fees), investment income on payroll funds, payroll tax filing funds, other Employer Services' client-related funds,
and fees charged to implement clients on the Company's solutions. The Company enters into agreements for a fixed fee per
transaction (e.g., number of payees or number of payrolls processed).
The Company enters into service agreements with clients that include anywhere from one service to a full suite of services. The
Company’s agreements vary in duration having a legally enforceable term of 30 days to 5 years. The performance obligations
in the agreements are generally combined into one performance obligation, as they are considered a series of distinct services,
and are satisfied over time because the client simultaneously receives and consumes the benefits provided as the Company
performs the services. The Company uses the output method based on a fixed fee per employee serviced to recognize revenue,
as the value to the client of the goods or services transferred to date (e.g. number of payees or number of payrolls processed)
appropriately depicts our performance towards complete satisfaction of the performance obligation. The fees are typically billed
in the period in which services are performed.
50
PEO, a component of the HR Outsourcing (“HRO”) strategic pillar, provides a comprehensive human resources outsourcing
solution, including offering benefits, providing workers’ compensation insurance, and administering state unemployment
insurance, among other human resources functions. Amounts collected from PEO worksite employers include payroll, fees for
benefits, and an administrative fee that also includes payroll taxes, fees for workers’ compensation and state unemployment
taxes.
The payroll and payroll taxes collected from the worksite employers are presented in revenue net, as the Company does not
retain risk and acts as an agent with respect to this aspect of the PEO arrangement. With respect to the payroll and payroll taxes,
the worksite employer is the primarily responsible for providing the service and has discretion in establishing wages.
The fees collected from the worksite employers for benefits (i.e. PEO zero-margin benefits pass-throughs), workers’
compensation and state unemployment taxes are presented in revenues and the associated costs of benefits, workers’
compensation and state unemployment taxes are included in operating expenses, as the Company does retain risk and acts as a
principal with respect to this aspect of the arrangement. With respect to these fees, the Company is primarily responsible for
fulfilling the service and has discretion in establishing price.
We recognize client fund interest income on collected but not yet remitted funds held for clients in revenues as earned, as the
collection, holding and remittance of these funds are critical components of providing these services.
Set up fees received from certain clients to implement the Company's solutions are considered a material right. Therefore, the
Company defers revenue associated with these set up fees and records them over the period in which such clients are expected
to benefit from the material right, which is approximately five to seven years.
Collection of consideration the Company expects to receive typically occurs within 30 to 60 days of billing. We assess the
collectability of revenues based primarily on the creditworthiness of the customer as determined by credit checks and analysis,
as well as the customer's payment history and their intention to pay the consideration.
D. Deferred Costs.
Incremental Costs of Obtaining a Contract
Incremental costs of obtaining a contract (e.g., sales commissions) that are expected to be recovered are capitalized and
amortized on a straight-line basis over a period of three to eight years, depending on the Company's business unit. Expected
renewal periods are only included in the expected client relationship period if commission amounts paid upon renewal are not
commensurate with amounts paid on the initial contract. Incremental costs of obtaining a contract include only those costs the
Company incurs to obtain a contract that it would not have incurred if the contract had not been obtained. These costs are
included in selling, general and administrative expenses.
Costs to fulfill a Contract
The Company capitalizes costs incurred to fulfill its contracts that i) relate directly to the contract ii) are expected to generate
resources that will be used to satisfy the Company's performance obligations under the contract and iii) are expected to be
recovered through revenue generated under the contract. Costs incurred to implement clients on our solutions (e.g. direct labor)
are capitalized and amortized on a straight-line basis over the expected client relationship period if the Company expects to
recover those costs. The expected client relationship period ranges from three to eight years. These costs are included in
operating expenses.
The Company has estimated the amortization periods for the deferred costs by using its historical retention by business units to
estimate the pattern during which the service transfers.
E. Cash and Cash Equivalents. Highly liquid investment securities with a maturity of ninety days or less at the time of
purchase are considered cash equivalents. The fair value of our cash and cash equivalents approximates carrying value.
F. Corporate Investments and Funds Held for Clients. All of the Company's marketable securities are considered to be
“available-for-sale” and, accordingly, are carried on the Consolidated Balance Sheets at fair value. Unrealized gains and losses,
net of the related tax effect, are excluded from earnings and are reported as a separate component of accumulated other
comprehensive income (loss) on the Consolidated Balance Sheets until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on an aggregate approach basis and are included in other (income)/expense, net on
the Statements of Consolidated Earnings.
51
If the fair value of an available-for-sale debt security is below its amortized cost, the Company assesses whether it intends to
sell the security or if it is more likely than not the Company will be required to sell the security before recovery. If either of
those two conditions is met, the Company would recognize a charge in earnings equal to the entire difference between the
security's amortized cost basis and its fair value. If the Company does not intend to sell a security or it is not more likely than
not that it will be required to sell the security before recovery, the unrealized loss is separated into an amount representing the
credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in accumulated
other comprehensive income (loss).
Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield
using the effective-interest method. Dividend and interest income are recognized when earned.
G. Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability (an exit price) in an orderly transaction between market participants at the measurement date and is based upon the
Company’s principal, or most advantageous, market for a specific asset or liability.
U.S. GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:
Level 1 Fair value is determined based upon quoted prices for identical assets or liabilities that are traded in active markets.
Level 2 Fair value is determined based upon inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:
· quoted prices for similar assets or liabilities in active markets;
· quoted prices for identical or similar assets or liabilities in markets that are not active;
· inputs other than quoted prices that are observable for the asset or liability; or
· inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Fair value is determined based upon inputs that are unobservable and reflect the Company’s own assumptions about
the assumptions that market participants would use in pricing the asset or liability based upon the best information
available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected
cash flows).
The Company's corporate investments and funds held for clients (see Note 7) are measured at fair value on a recurring basis as
described below. Over 99% of the Company's available-for-sale securities included in Level 2 are valued based on prices
obtained from an independent pricing service. To determine the fair value of the Company's Level 2 investments, the
independent pricing service uses various pricing models for each asset class that are consistent with what other market
participants would use, including the market approach. Inputs and assumptions to the pricing model of the independent pricing
service are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer
spreads, benchmark securities, bids, offers and other market-related data. Since many fixed income securities do not trade on a
daily basis, the independent pricing service applies available information, as applicable, through processes such as benchmark
curves, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. For the purposes of valuing
the Company’s asset-backed securities, as well as the mortgage-backed securities that are included within Other securities in
Note 7, the independent pricing service includes additional inputs to the model such as monthly payment information, new
issue data, and collateral performance. For the purposes of valuing the Company’s Municipal bonds, the independent pricing
service includes Municipal Market Data benchmark yield curves as additional inputs to the model. While the Company is not
provided access to the proprietary models of the third party pricing service, each quarterly reporting period, the Company
reviews the inputs utilized by the independent pricing service and compares the valuations received from the independent
pricing service to valuations from at least one other observable source for reasonableness. The Company has not adjusted the
prices obtained from the independent pricing service and the Company believes the prices received from the independent
pricing service are representative of the prices that would be received to sell the assets at the measurement date (exit price). The
Company has no available-for-sale securities included in Level 1 and Level 3.
In fiscal 2016, the Company issued fixed-rate notes with 5-year and 10-year maturities for an aggregate principal amount of
$2.0 billion (collectively the "Notes"). The fair value of the Notes are estimated in Note 11 utilizing a variety of inputs obtained
from an independent pricing service, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer
spreads, two-sided markets, benchmark securities, bids, offers, and reference data. The Company reviews the values generated
by the independent pricing service for reasonableness by comparing the valuations received from the independent pricing
service to valuations from at least one other observable source. The Company has not adjusted the prices obtained from the
independent pricing service.
52
The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may
affect the classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to measure
fair value may meet the definition of more than one level of the fair value hierarchy. The significant input with the lowest level
priority is used to determine the applicable level in the fair value hierarchy.
H. Property, Plant and Equipment. Property, plant and equipment is stated at cost less accumulated depreciation on the
Consolidated Balance Sheets. Depreciation is recognized over the estimated useful lives of the assets using the straight-line
method. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the
improvements. The estimated useful lives of assets are primarily as follows:
Data processing equipment
Buildings
Furniture and fixtures
3 to 10 years
20 to 40 years
4 to 7 years
The Company has obligations under various facilities and equipment leases. The Company assesses whether these
arrangements meet the criteria for capital leases by determining whether the agreement transfers ownership of the asset,
whether the lease includes a bargain purchase option, whether the lease term is for greater than 75% of the asset's useful life, or
whether the minimum lease payments exceed 90% of the leased equipment's fair market value. All of the Company's leases are
classified as operating leases. Total expense under these operating lease agreements was approximately $270.1 million, $234.9
million, and $234.5 million in fiscal 2019, 2018, and 2017, respectively.
I. Goodwill. Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable
intangible assets of businesses acquired. Goodwill is tested annually for impairment or more frequently when an event or
circumstance indicates that goodwill might be impaired.
The Company’s annual goodwill impairment assessment as of June 30, 2019 was performed for all reporting units using a
quantitative approach by comparing the fair value of each reporting unit to its carrying value. We estimated the fair value of
each reporting unit using, as appropriate, the income approach, which is derived using the present value of future cash flows
discounted at a risk-adjusted weighted-average cost of capital, and the market approach, which is based upon using market
multiples of companies in similar lines of business. Significant assumptions used in determining the fair value of our reporting
units include projected revenue growth rates, profitability projections, working capital assumptions, the weighted average cost
of capital, the determination of appropriate market comparison companies, and terminal growth rates. Several of these
assumptions including projected revenue growth rates and profitability projections are dependent on our ability to upgrade,
enhance, and expand our technology and services to meet client needs and preferences. As such, the determination of fair value
requires management to make significant estimates and assumptions related to forecasts of future revenue and operating
margins. Based upon the quantitative assessment, the Company has concluded that goodwill is not impaired.
J. Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to
be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
K. Foreign Currency. The net assets of the Company's foreign subsidiaries are translated into U.S. dollars based on exchange
rates in effect for each period, and revenues and expenses are translated at average exchange rates in the periods. Gains or
losses from balance sheet translation are included in accumulated other comprehensive income (loss) on the Consolidated
Balance Sheets. Currency transaction gains or losses, which are included in the results of operations, are not significant for all
periods presented.
L. Foreign Currency Risk Management Programs and Derivative Financial Instruments. The Company transacts
business in various foreign jurisdictions and is therefore exposed to market risk from changes in foreign currency exchange
rates that could impact its consolidated results of operations, financial position, or cash flows. The Company manages its
exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the
use of derivative financial instruments. The Company does not use derivative financial instruments for trading purposes.
53
M. Earnings per Share (“EPS”). The Company computes EPS in accordance with ASC 260.
The calculations of basic and diluted EPS are as follows:
Years ended June 30,
2019
Net earnings
Weighted average shares (in millions)
EPS
2018
Net earnings
Weighted average shares (in millions)
EPS
2017
Net earnings
Weighted average shares (in millions)
EPS
Effect of
Employee
Stock Option
Shares
Effect of
Employee
Restricted
Stock
Shares
Diluted
1.0
1.1
0.9
$
2,292.8
1.6
$
437.6
5.24
$
1,884.9
1.6
$
443.3
4.25
$
1,787.8
1.6
$
450.3
3.97
Basic
2,292.8
435.0
5.27
1,884.9
440.6
4.28
1,787.8
447.8
3.99
$
$
$
$
$
$
Options to purchase 0.7 million, 0.9 million, and 1.0 million shares of common stock for fiscal 2019, 2018, and 2017,
respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-
dilutive.
N. Stock-Based Compensation. The Company recognizes stock-based compensation expense in net earnings based on the fair
value of the award on the date of the grant, and in the case of international units settled in cash, adjusts this fair value based on
changes in the Company's stock price during the vesting period. The Company determines the fair value of stock options issued
using a binomial option-pricing model. The binomial option-pricing model considers a range of assumptions related to
volatility, dividend yield, risk-free interest rate, and employee exercise behavior. Expected volatilities utilized in the binomial
option-pricing model are based on a combination of implied market volatilities, historical volatility of the Company's stock
price, and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-
free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial option-pricing model also
incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of a stock option
grant is derived from the output of the binomial model and represents the period of time that options granted are expected to be
outstanding. Restricted stock units and restricted stock awards are valued based on the closing price of the Company's common
stock on the date of the grant and, in the case of performance based restricted stock units and restricted stock, are adjusted for
changes to probabilities of achieving performance targets. International restricted stock units are settled in cash and are
marked-to-market based on changes in the Company's stock price. See Note 12 for additional information on the Company's
stock-based compensation programs.
O. Internal Use Software. Expenditures for major software purchases and software developed or obtained for internal use are
capitalized and amortized generally over a three to five-year period on a straight-line basis. The Company begins to capitalize
costs incurred for computer software developed for internal use when the preliminary development efforts are successfully
completed, management has authorized and committed to funding the project, and it is probable that the project will be
completed and the software will be used as intended. Capitalization ceases when a computer software project is substantially
complete and ready for its intended use.
The Company's policy provides for the capitalization of external direct costs of materials and services associated with
developing or obtaining internal use computer software. In addition, the Company also capitalizes certain payroll and payroll-
related costs for employees who are directly associated with internal use computer software projects. The amount of
capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs
associated with preliminary project stage activities, training, maintenance, and all other post-implementation stage activities are
54
expensed as incurred. The Company also expenses internal costs related to minor upgrades and enhancements, as it is
impractical to separate these costs from normal maintenance activities.
P. Acquisitions. Assets acquired and liabilities assumed in business combinations are recorded on the Company’s Consolidated
Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of
operations of businesses acquired by the Company are included in the Statements of Consolidated Earnings since their
respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired
and liabilities assumed is allocated to goodwill. In certain circumstances, the allocations of the excess purchase price are based
upon preliminary estimates and assumptions and subject to revision when the Company receives final information, including
appraisals and other analysis. Accordingly, the measurement period for such purchase price allocations will end when the
information, or the facts and circumstances, becomes available, but will not exceed twelve months.
Q. Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable
for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in
an entity's financial statements or tax returns. Judgment is required in addressing the future tax consequences of events that
have been recognized in our Consolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in
tax laws or interpretations thereof). The Company is subject to the continuous examination of our income tax returns by the
Internal Revenue Service (“IRS”) and other tax authorities. A change in the assessment of the outcomes of such matters could
materially impact our Consolidated Financial Statements.
There is a financial statement recognition threshold and measurement attribute for tax positions taken or expected to be taken in
a tax return. Specifically, the likelihood of an entity's tax benefits being sustained must be “more likely than not,” assuming
that these positions will be examined by taxing authorities with full knowledge of all relevant information prior to recording the
related tax benefit in the financial statements. If a tax position drops below the “more likely than not” standard, the benefit can
no longer be recognized. Assumptions, judgment, and the use of estimates are required in determining if the “more likely than
not” standard has been met when developing the provision for income taxes. As of June 30, 2019 and 2018, the Company's
liabilities for unrecognized tax benefits, which include interest and penalties, were $54.2 million and $45.2 million,
respectively.
If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase
or decrease for all open tax years and jurisdictions. Based on current estimates, favorable settlements related to various
jurisdictions and tax periods could increase earnings by up to $3 million and expected cash payments could be up to $10 million
in the next twelve months. The liability related to cash payments expected to be paid within the next 12 months has been
reclassified from other liabilities to current liabilities on the Consolidated Balance Sheets. Audit outcomes and the timing of
audit settlements are subject to significant uncertainty. We continually assess the likelihood and amount of potential adjustments
and adjust the income tax provision, the current tax liability, and deferred taxes in the period in which the facts that give rise to
a revision become known.
R. Workers' Compensation Costs. The Company employs a third-party actuary to assist in determining the estimated claim
liability related to workers' compensation and employer's liability coverage for PEO Services worksite employees. In estimating
ultimate loss rates, we utilize historical loss experience, exposure data, and actuarial judgment, together with a range of inputs
which are primarily based upon the worksite employee's job responsibilities, their location, the historical frequency and severity
of workers' compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial
assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers'
compensation claims cost estimates. PEO Services has secured a workers’ compensation and employer’s liability insurance
policy that has a $1 million per occurrence retention and, in fiscal years 2012 and prior, aggregate stop loss insurance that
covers any aggregate losses within the $1 million retention that collectively exceed a certain level, from an admitted and
licensed insurance company of AIG. The Company has obtained approximately $242 million of irrevocable standby letters of
credit in favor of licensed insurance companies of AIG to secure TotalSource workers’ compensation obligations if ADP were to
fail to reimburse AIG for workers’ compensation payments. The Company had no drawdowns during June 30, 2019 and 2018
under the letters of credit. For the fiscal years 2013 to 2018, as well as in July 2018 for the year ended June 30, 2019 (“fiscal
2019”), ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a
wholly-owned subsidiary of Chubb Limited ("Chubb"), to cover substantially all losses incurred by ADP Indemnity during
these policy years. Each of these reinsurance arrangements limit our overall exposure incurred up to a certain limit. The
Company believes the likelihood of ultimate losses exceeding this limit is remote. ADP Indemnity paid a premium of $215
million in July 2019 to enter into a reinsurance arrangement to cover substantially all losses for the fiscal 2020 policy year on
terms substantially similar to the fiscal 2019 policy.
55
S. Recently Issued Accounting Pronouncements.
Recently Adopted Accounting Pronouncements
Effective July 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (ASC 606)” on a
retrospective basis. ASU 2014-09 requires an entity to recognize revenue depicting the transfer of goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. ASU 2014-09 resulted in enhanced revenue-related disclosures. The standard primarily impacted the manner in which
we treat certain costs to fulfill contracts (i.e., implementation costs) and costs to acquire new contracts (i.e., selling costs). The
new standard requires the Company to capitalize and amortize additional implementation costs than those capitalized and
amortized under previous U.S. GAAP. Under previous U.S. GAAP, the Company immediately expensed all selling expenses.
The adoption of the new standard did not materially impact the timing or amount of revenue the Company recognized and did
not result in significant changes in its business processes or systems. Refer to Note 2 for further details. Refer to the table below
for a summary of the restatements required, as a result of this change, on the Company's statements of consolidated earnings,
consolidated balance sheets, and consolidated cash flows for fiscal 2018 and fiscal 2017.
Effective July 1, 2018, the Company adopted ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost.” ASU 2017-07 requires reporting the
service cost component in the same line item or items as other compensation costs arising during the period in the Statements of
Consolidated Earnings. The other components of net periodic pension cost are required to be presented in the Statements of
Consolidated Earnings separately from the service cost component. The Company retrospectively adopted the new standard,
and as a result reclassified the non-service cost components of the net periodic benefit cost from within the respective line items
of our Statements of Consolidated Earnings to Other (income)/expense, net. Refer to the table below for a summary of the
reclassification required, as a result of this change, on the Company's consolidated results of operations for fiscal 2018 and
fiscal 2017. The adoption of the new accounting rules only impacted the classification of expenses on the Statements of
Consolidated Earnings and did not impact the Company’s consolidated earnings, balance sheets, or cash flows.
Adoption of ASC 606 and ASU 2017-07 impacted the Company's prior period Statements of Consolidated Earnings,
Consolidated Balance Sheets, and Consolidated Cash Flows as follows:
Statement of Consolidated Earnings
Revenues, other than interest on funds held for clients and PEO revenues
$
8,985.2
$
(1.8)
$
— $
8,983.4
Year Ended
June 30, 2018
As reported
Adjustments
ASC 606
Adjustments
ASU 2017-07
As adjusted
Interest on funds held for clients
PEO revenues
TOTAL REVENUES
Operating expenses
Systems development and programming costs
Depreciation and amortization
Selling, general, and administrative expenses
Interest expense
Total Expenses
Other expense/(income), net
EARNINGS BEFORE INCOME TAXES
Provision for income taxes
NET EARNINGS
466.5
3,874.1
13,325.8
6,937.9
630.2
274.5
2,971.5
102.7
10,916.8
237.9
2,171.1
550.3
—
3.7
1.9
(74.0)
—
—
(35.6)
—
(109.6)
—
111.5
(152.6)
—
—
—
37.1
5.2
—
23.5
—
65.8
(65.8)
—
—
466.5
3,877.8
13,327.7
6,901.0
635.4
274.5
2,959.4
102.7
10,873.0
172.1
2,282.6
397.7
$
1,620.8
$
264.1
$
— $
1,884.9
56
Revenues, other than interest on funds held for clients and PEO revenues
$
8,518.1
$
(8.0)
$
— $
8,510.1
Year Ended
June 30, 2017
As reported
Adjustments
ASC 606
Adjustments
ASU 2017-07
As adjusted
Interest on funds held for clients
PEO revenues
TOTAL REVENUES
Operating expenses
Systems development and programming costs
Depreciation and amortization
Selling, general, and administrative expenses
Interest expense
Total Expenses
Other (income), net
EARNINGS BEFORE INCOME TAXES
Provision for income taxes
NET EARNINGS
Consolidated Balance Sheets
Assets
Current assets:
Other current assets
Total current assets
Deferred contract costs
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Short-term deferred revenues
Total current liabilities
Deferred income taxes
Long-term deferred revenues
Total liabilities
Stockholders' equity:
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
397.4
3,464.3
12,379.8
6,416.1
627.5
226.2
2,783.2
80.0
10,133.0
(284.3)
2,531.1
797.7
$
1,733.4
$
—
0.2
(7.8)
(63.6)
—
—
(30.0)
—
(93.6)
—
85.8
31.4
54.4
—
—
—
33.7
4.6
—
20.6
—
58.9
(58.9)
—
—
397.4
3,464.5
12,372.0
6,386.2
632.1
226.2
2,773.8
80.0
10,098.3
(343.2)
2,616.9
829.1
$
— $
1,787.8
June 30,
2018
As reported
Adjustments
ASC 606
June 30,
2018
As restated
$
$
758.0
$
(226.7) $
32,050.0
—
1,089.6
(226.7)
2,377.4
(390.3)
531.3
31,823.3
2,377.4
699.3
37,088.7
$
1,760.4
$
38,849.1
226.5
30,413.6
107.3
377.8
33,629.1
(0.8)
(0.8)
414.7
70.2
484.1
15,271.3
3,459.6
1,275.3
1,276.3
$
37,088.7
$
1,760.4
$
225.7
30,412.7
522.0
448.1
34,113.2
16,546.6
4,735.9
38,849.1
57
Statements of Consolidated Cash Flows
Cash Flows from Operating Activities:
Net earnings
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Amortization of deferred contract costs
Deferred income taxes
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease/(increase) in other assets
Increase in accrued expenses and other liabilities
Year Ended
June 30,
Adjustments
ASC 606
2018
As restated
2018
As reported
$
1,620.8
$
264.1
$
1,884.9
—
0.5
93.5
107.7
837.4
(152.5)
(951.8)
2.8
837.4
(152.0)
(858.3)
110.5
Net cash flows provided by operating activities
$
2,515.2
$
— $
2,515.2
Cash Flows from Operating Activities:
Net earnings
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Amortization of deferred contract costs
Deferred income taxes
Changes in operating assets and liabilities, net of effects from acquisitions:
Increase in other assets
Increase in accrued expenses and other liabilities
Year Ended
June 30,
Adjustments
ASC 606
2017
As restated
2017
As reported
$
1,733.4
$
54.4
$
1,787.8
—
10.0
(269.1)
159.0
787.9
31.3
(870.3)
(3.3)
787.9
41.3
(1,139.4)
155.7
Net cash flows provided by operating activities
$
2,125.9
$
— $
2,125.9
Effective October 1, 2018, the Company prospectively adopted ASU 2018-15, “Intangibles - Goodwill and Other-Internal-Use
Software.” ASU 2018-15 clarifies and aligns the accounting and capitalization of implementation costs in cloud computing
arrangements that are service arrangements with the accounting for implementation costs incurred to develop or obtain internal-
use software under ASC 350-40. The adoption of ASU 2018-15 did not have an impact on the Company’s consolidated results
of operations, financial condition, or cash flows.
In March 2018, the Company adopted ASU 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows companies to
reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Act”) from accumulated other comprehensive
(loss)/income to retained earnings. The June 30, 2018 Consolidated Balance Sheets reflect the reclassification out of
accumulated other comprehensive income and into retained earnings of $42.3 million. The Company's policy for releasing
disproportionate income tax effects from AOCI utilizes the aggregate approach. Refer to Note 15 for additional detail regarding
the components of the reclassification. The adoption of ASU 2018-02 did not have an impact on the Company's consolidated
results of operations or cash flows.
Recently Issued Accounting Pronouncements
The following table summarizes recent ASU's issued by the Financial Accounting Standards Board ("FASB"):
58
Effective Date
July 1, 2021
(“Fiscal 2022”)
Effect on Financial Statements or Other
Significant Matters
The adoption of this guidance will modify
disclosures but will not have an impact on the
Company's consolidated results of operations,
financial condition, or cash flows.
Standard
ASU 2018-14
Compensation-
Retirement
Benefits-
Defined
Benefit Plans
Description
This update modifies the disclosure
requirements for employers that
sponsor defined benefit pension or
other post-retirement plans by
removing and adding certain
disclosures for these plans. The
eliminated disclosures include (a) the
amounts in accumulated other
comprehensive income expected to
be recognized in net periodic benefit
costs over the next fiscal year, and
(b) the effects of a one percentage
point change in assumed health care
cost trend rates on the net periodic
benefit costs and the benefit
obligation for post-retirement health
care benefits. Additional disclosures
include descriptions of significant
gains and losses affecting the benefit
obligation for the period. The
amendments in ASU 2018-14 would
need to be applied on a retrospective
basis.
ASU 2018-13
Fair Value
Measurement
This update modifies the disclosure
requirements on fair value
measurements. Certain disclosures
in ASU 2018-13 would need to be
applied on a retrospective basis and
others on a prospective basis.
July 1, 2020
(“Fiscal 2021”)
The adoption of this guidance will modify
disclosures but will not have an impact on the
Company's consolidated results of operations,
financial condition, or cash flows.
July 1, 2020
(“Fiscal 2021”)
The adoption of this guidance will not have a
material impact on its consolidated results of
operations, financial condition, or cash flows.
ASU 2016-13
Financial
Instruments -
Credit Losses
(Topic 326):
Measurement
of Credit
Losses on
Financial
Instruments
This update introduces the current
expected credit loss (CECL) model,
which will require an entity to
measure credit losses for certain
financial instruments and financial
assets, including trade receivables.
Under this update, on initial
recognition and at each reporting
period, an entity will be required to
recognize an allowance that reflects
the entity’s current estimate of credit
losses expected to be incurred over
the life of the financial instrument. In
addition, this update modifies the
impairment model for available-for-
sale debt securities and provides for a
simplified accounting model for
purchased financial assets with credit
deterioration since their origination.
59
Effective Date
July 1, 2019
(“Fiscal 2020”)
Standard
ASU 2016-02
Leases (Topic
842)
Description
This update amends the existing
accounting standards for lease
accounting and requires lessees to
recognize most lease assets and lease
liabilities on the balance sheet and to
disclose key information about
leasing arrangements. In July 2018,
the FASB issued Accounting
Standards Update 2018-10-
Codification Improvements to Topic
842 (Leases), and Accounting
Standards Update 2018-11-Leases
(Topic 842)-Targeted Improvements,
which (i) narrow amendments to
clarify how to apply certain aspects
of the new lease standard, (ii)
provide entities with an additional
transition method to adopt the new
standard, and (iii) provide lessors
with a practical expedient for
separating components of a contract.
In March 2019, the FASB issued
ASU 2019-01, Leases (Topic 842) to
be more general and/or to correct
unintended application of guidance.
Effect on Financial Statements or Other
Significant Matters
The Company has finalized the assessment of the
impacts of the new standard. The Company will use
the optional transition method with a cumulative
adjustment to retained earnings. There is no
adjustment to retained earnings. The Company has
reached a decision as to the systems it will use to
manage the accounting for leases, determined the
contracts that are considered leases under the new
guidance and is currently in the process of
implementing the systems and establishing the
appropriate controls and procedures. The Company
will utilize the transition package of practical
expedients permitted within the new guidance
which, among other things, will allow the Company
to carry forward the historical lease classification.
Upon adoption, the Company anticipates a material
impact to its Consolidated Balance Sheets but
expects no impact to the Statements of Consolidated
Earnings or Statements of Consolidated Cash Flows.
The most significant impact will be the recognition
of the right-of-use (“ROU”) assets and lease
liabilities for operating leases. We estimate the
adoption of the guidance will result in the
recognition and presentation of total operating lease
ROU assets to be approximately $600 million to
$700 million and total operating lease liabilities to
be approximately $500 million to $600 million, upon
the adoption date.
NOTE 2. REVENUE
Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three strategic
pillars: HCM (“HCM”), HR Outsourcing (“HRO”), and Global Solutions with separate disaggregation for PEO zero-margin
benefits pass-through revenues and client fund interest revenues. The Company believes these revenue categories depict how
the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.
HCM provides a suite of product offerings that assist employers of all types and sizes in all stages of the employment cycle,
from recruitment to retirement. Global is generally consistent with the types of services provided within HCM but represent
geographies outside of the United States and includes our multinational offerings. HCM and Global revenues are primarily
attributable to fees for providing solutions for payroll, benefits, talent, retirement services and HR processing and fees charged
to implement the Company's solutions for clients.
HRO provides a comprehensive human resources outsourcing solution, including offering benefits, providing workers’
compensation insurance, and administering state unemployment insurance, among other human resources functions. This
revenue is primarily driven by the Professional Employer Organization Services (“PEO”). The Company has further
disaggregated HRO to separate out its PEO zero-margin benefits pass-through revenues.
The Company recognizes client fund interest revenues on collected but not yet remitted funds held for clients in revenues as
earned, as the collection, holding and remittance of these funds are critical components of providing these services.
The following tables provide details of revenue by our strategic pillars with disaggregation for PEO zero-margin benefits pass-
throughs and client fund interest, and includes a reconciliation to the Company’s reportable segments (in millions):
60
Types of Revenues
HCM
HRO, excluding PEO zero-margin benefits pass-throughs
PEO zero-margin benefits pass-throughs
Global
Interest on funds held for clients
Total Revenues
$
$
2019
6,441.8
2,444.4
2,712.5
2,014.6
561.9
14,175.2
$
$
Years Ended
June 30,
2018
6,204.9
2,261.9
2,463.1
1,931.3
466.5
13,327.7
$
$
2017
6,020.5
2,068.8
2,173.9
1,711.4
397.4
12,372.0
Reconciliation of disaggregated revenue to our reportable segments for the fiscal year ended June 30, 2019:
Types of Revenues
HCM
HRO, excluding PEO zero-margin benefits pass-throughs
PEO zero-margin benefits pass-throughs
Global
Interest on funds held for clients
Total Segment Revenues
Employer
Services
PEO
Other
Total
$
6,447.5
$
— $
924.0
—
2,014.6
556.7
1,525.0
2,712.5
—
5.2
$
9,942.8
$
4,242.7
$
(5.7) $
(4.6)
—
—
—
(10.3) $
6,441.8
2,444.4
2,712.5
2,014.6
561.9
14,175.2
Reconciliation of disaggregated revenue to our reportable segments for the fiscal year ended June 30, 2018:
Types of Revenues
HCM
HRO, excluding PEO zero-margin benefits pass-throughs
PEO zero-margin benefits pass-throughs
Global
Interest on funds held for clients
Total Segment Revenues
Employer
Services
PEO
Other
Total
$
6,210.2
$
— $
851.3
—
1,931.3
462.0
1,414.7
2,463.1
—
4.5
$
9,454.8
$
3,882.3
$
(5.3) $
(4.1)
—
—
—
(9.4) $
6,204.9
2,261.9
2,463.1
1,931.3
466.5
13,327.7
Reconciliation of disaggregated revenue to our reportable segments for the fiscal year ended June 30, 2017:
Types of Revenues
HCM
HRO, excluding PEO zero-margin benefits pass-throughs
PEO zero-margin benefits pass-throughs
Global
Interest on funds held for clients
Total Segment Revenues
Contract Balances
Employer
Services
PEO
Other
Total
$
6,026.7
$
— $
782.6
—
1,711.4
393.5
1,290.6
2,173.9
—
3.9
$
8,914.2
$
3,468.4
$
(6.2) $
(4.4)
—
—
—
(10.6) $
6,020.5
2,068.8
2,173.9
1,711.4
397.4
12,372.0
The timing of revenue recognition for our HCM, HRO and Global Solutions is consistent with the invoicing of clients, as invoicing
occurs in the period the services are provided. Therefore, the Company does not recognize a contract asset or liability resulting
from the timing of revenue recognition and invoicing.
61
Changes in deferred revenue related to set up fees for the twelve months ended June 30, 2019 were as follows:
Contract Liability
Contract liability, July 1, 2018
Recognition of revenue included in beginning of year contract liability
Contract liability, net of revenue recognized on contracts during the period
Currency adjustments
Contract liability, June 30, 2019
Deferred costs
$
$
607.5
(177.9)
148.5
(14.7)
563.4
Deferred costs are periodically reviewed for impairment. There were no impairment losses incurred during the period.
The balance is as follows:
Deferred costs to obtain a contract
Deferred costs to fulfill a contract
Total deferred contract costs (1)
June 30,
2019
$
$
992.3
1,436.2
2,428.5
(1) The amount of total deferred costs amortized during the twelve months ended June 30, 2019, June 30, 2018, and
June 30, 2017 were $874.0 million, $837.4 million, and $787.9 million, respectively.
NOTE 3. ACQUISITIONS
In October 2017, the Company acquired 100% of the outstanding shares of Global Cash Card, Inc. (“GCC”), a leader in digital
payments, including paycards and other electronic accounts, for approximately $490 million in cash, net of cash acquired. The
acquisition of GCC makes ADP the only human capital management provider with a proprietary digital payments processing
platform. The results of GCC are reported within the Company’s Employer Services segment.
The final purchase price allocation for GCC is as follows:
Goodwill
Identifiable intangible assets
Other assets
Total assets acquired
Total liabilities assumed
$
$
$
406.1
132.5
0.8
539.4
48.4
The Company determined the purchase price allocations for this acquisition based on estimates of the fair value of tangible and
intangible assets acquired and liabilities assumed, utilizing recognized valuation techniques, including the income and market
approaches. The goodwill recorded as a result of the GCC transaction represents future economic benefits we expect to achieve
as a result of the acquisition and expected cost synergies. None of the goodwill resulting from the acquisition is tax deductible.
Intangible assets for GCC, which totaled $132.5 million, included technology and software, and customer contracts and lists
which are being amortized over a weighted average life of approximately 8 years.
In January 2018, the Company acquired 100% of the outstanding shares of Work Market, Inc. ("WorkMarket"), a leading
provider of cloud-based freelance management solutions, for approximately $125 million in cash.
In July 2018, the Company acquired 100% of outstanding shares of Celergo Holdings, Inc. (“Celergo”), a leading provider of
multi-country payroll management services.
62
These acquisitions, individually or in aggregate, were not material to the Company's results of operations, financial position, or
cash flows and, therefore, the pro forma impact of these acquisitions is not presented. The results of these acquisitions are
reported within the Company’s Employer Services segment.
NOTE 4. DIVESTITURES
On November 28, 2016, the Company completed the sale of its Consumer Health Spending Account ("CHSA") and
Consolidated Omnibus Reconciliation Act ("COBRA") businesses for a pre-tax gain of $205.4 million, and recorded such gain
within Other (income)/expense, net on the Statements of Consolidated Earnings in fiscal 2017. The historical results of
operations of these businesses are included in the Employer Services segment.
The Company determined that the CHSA and COBRA divestitures did not meet the criteria for reporting discontinued
operations under ASU 2014-08 as the disposition of these businesses does not represent a strategic shift that has a major effect
on the Company's operations or financial results.
NOTE 5. SERVICE ALIGNMENT INITIATIVE
On July 28, 2016, the Company announced a Service Alignment Initiative that simplified the Company's service organization
by aligning the Company's service operations to its strategic platforms and locations. In fiscal 2016, the Company entered into
leases in Norfolk, Virginia and Maitland, Florida, and in fiscal 2017, the Company entered into a lease in Tempe, Arizona as
part of this effort. The Company began incurring charges during the first quarter of fiscal 2017. The charges primarily relate to
employee separation benefits recognized under ASC 712, and also include charges for the relocation of certain current
Company employees, lease termination costs, and accelerated depreciation of fixed assets. The Company does not expect to
recognize any additional material pre-tax restructuring charges related to the Service Alignment Initiative.
The table below summarizes the composition of the Company's Service Alignment Initiative (reversals)/charges:
Employee separation benefits (a)
Other initiative costs (b)
Gain on sale of assets (c)
Total (d)
Year Ended
June 30,
2018
2017
2019
Cumulative amount
from inception through
June 30,
2019
$
$
(22.5) $
2.7
(4.1)
(23.9) $
15.4
5.1
—
20.5
$
$
84.1
5.9
—
90.0
$
$
77.0
13.7
(4.1)
86.6
(a) - Net (reversals)/ charges are recorded in selling, general and administrative expenses on the Statements of Consolidated
Earnings.
(b) - Other initiative costs include costs to relocate certain current Company employees to new locations, lease termination
charges (both included within selling, general and administrative expenses on the Statements of Consolidated Earnings), and
accelerated depreciation on fixed assets (included within depreciation and amortization on the Statements of Consolidated
Earnings).
(c) - In fiscal 2019, the Company sold assets related to the Service Alignment Initiative, and as a result recorded a gain of $4.1
million in Other (income)/expense, net, on the Statement of Consolidated Earnings. Refer to Note 6.
(d) - All charges are included within the Other segment.
63
Activity for the Service Alignment Initiative liability for fiscal 2019 and fiscal 2018 was as follows:
Balance at June 30, 2017
Charged to expense
Reversals
Cash payments
Non-cash utilization
Balance at June 30, 2018
Charged to expense
Reversals
Cash payments
Balance at June 30, 2019
NOTE 6. OTHER (INCOME)/EXPENSE, NET
Other (income)/expense, net consists of the following:
Years ended June 30,
Interest income on corporate funds
Realized gains on available-for-sale securities
Realized losses on available-for-sale securities
Impairment of intangible assets
Gain on sale of assets
Gain on sale of investment
Gain on sale of business
Non-service components of pension expense, net
Other (income)/expense, net
Employee
separation
benefits
Other
initiative
costs
Total
$
$
$
73.9
$
38.8
(23.4)
(35.3)
—
54.0
$
4.1
(26.6)
(19.9)
11.6
$
0.5
5.1
—
(4.4)
(0.7)
0.5
2.7
—
(2.8)
0.4
$
$
$
74.4
43.9
(23.4)
(39.7)
(0.7)
54.5
6.8
(26.6)
(22.7)
12.0
2019
2018
2017
$
$
(97.6) $
(1.8)
2.7
12.1
(4.1)
(15.7)
—
(6.7)
(111.1) $
(83.5) $
(2.0)
4.5
—
(0.7)
—
—
253.8
172.1
$
(76.7)
(5.3)
3.1
—
—
—
(205.4)
(58.9)
(343.2)
The charges within non-service components of pension expense, net include $48.2 million of non-cash settlement charges and
of special termination benefits related to the Voluntary Early Retirement Program (“VERP”), for the twelve months ended
June 30, 2019, offset by $54.9 million related to other components of net periodic pension cost for the twelve months ended
June 30, 2019. Refer to Note 1 and Note 12 for further information.
In fiscal 2019, the Company wrote down $12.1 million of internally developed software which was determined to have no
future use due to redundant software identified as part of a recent acquisition.
Additionally in fiscal 2019, the Company recognized a gain of $4.1 million for the sale of assets in relation to the Service
Alignment Initiative, and a gain $15.7 million in relation to the sale of investment held at cost acquired in prior years and
subsequently sold, in Other (income)/expense, net, on the Statement of Consolidated Earnings.
64
NOTE 7. CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS
Corporate investments and funds held for clients at June 30, 2019 and 2018 were as follows:
Type of issue:
Money market securities, cash and other cash equivalents
Available-for-sale securities:
Corporate bonds
Asset-backed securities
U.S. Treasury securities
U.S. government agency securities
Canadian government obligations and
Canadian government agency obligations
Canadian provincial bonds
Municipal bonds
Other securities
June 30, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(A)
$
6,796.2
$
— $
— $
6,796.2
10,691.8
182.8
4,658.3
2,933.0
2,612.0
1,164.1
800.2
596.1
1,116.1
37.8
23.8
17.7
7.0
14.5
16.4
20.6
(6.7)
(5.4)
(8.0)
(5.8)
(6.0)
(0.5)
(0.1)
(0.6)
10,867.9
4,690.7
2,948.8
2,623.9
1,165.1
814.2
612.4
1,136.1
Total available-for-sale securities
24,571.6
320.6
(33.1)
24,859.1
Total corporate investments and funds held for clients
$ 31,367.8
$
320.6
$
(33.1) $ 31,655.3
(A) Included within available-for-sale securities are corporate investments with fair values of $271.9 million and funds held for
clients with fair values of $24,587.2 million. All available-for-sale securities are included in Level 2 of the fair value hierarchy.
Type of issue:
Money market securities, cash and other cash equivalents
Available-for-sale securities:
Corporate bonds
Asset-backed securities
U.S. Treasury securities
U.S. government agency securities
Canadian government obligations and
Canadian government agency obligations
Canadian provincial bonds
Municipal bonds
Other securities
June 30, 2018
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(B)
$
6,542.1
$
— $
— $
6,542.1
9,819.4
4,555.5
2,678.9
2,787.0
1,109.0
724.5
584.6
873.0
20.3
0.3
0.4
4.0
0.4
5.1
3.2
3.0
(160.9)
(64.1)
(76.9)
(47.7)
(20.6)
(7.4)
(4.3)
(10.5)
9,678.8
4,491.7
2,602.4
2,743.3
1,088.8
722.2
583.5
865.5
Total available-for-sale securities
23,131.9
36.7
(392.4)
22,776.2
Total corporate investments and funds held for clients
$ 29,674.0
$
36.7
$
(392.4) $ 29,318.3
(B) Included within available-for-sale securities are corporate investments with fair values of $10.5 million and funds held for
clients with fair values of $22,765.7 million. All available-for-sale securities were included in Level 2 of the fair value
hierarchy.
65
For a description of the fair value hierarchy and the Company's fair value methodologies, including the use of an independent
third-party pricing service, see Note 1 “Summary of Significant Accounting Policies.” The Company did not transfer any assets
between Levels during fiscal 2019 or 2018. In addition, the Company concurred with and did not adjust the prices obtained
from the independent pricing service. The Company has no available-for-sale securities included in Level 1 or Level 3 as of
June 30, 2019.
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of
less than and greater than 12 months as of June 30, 2019, are as follows:
June 30, 2019
Securities in unrealized
loss position less than
12 months
Securities in unrealized
loss position greater than
12 months
Total
Gross
Unrealized
Losses
Fair Market
Value
Gross
Unrealized
Losses
Fair Market
Value
Gross
Unrealized
Losses
Fair
Market
Value
Corporate bonds
Asset-backed securities
U.S. Treasury securities
U.S. government agency securities
Canadian government obligations and
Canadian government agency
obligations
Canadian provincial bonds
Municipal bonds
Other securities
$
(0.6) $
151.9
$
(0.2)
171.9
—
—
(6.0)
(0.3)
—
(0.1)
1.8
—
662.7
81.5
1.5
36.4
$
(7.2) $
1,107.7
$
(6.1) $
(5.2)
(8.0)
(5.8)
2,055.6
$
2,083.5
1,159.4
1,671.4
—
(0.2)
(0.1)
(0.5)
(25.9) $
1.1
50.1
23.3
148.1
7,192.5
$
(6.7) $ 2,207.5
(5.4)
2,255.4
(8.0)
(5.8)
1,671.4
1,161.2
663.8
131.6
(6.0)
(0.5)
(0.1)
(0.6)
184.5
(33.1) $ 8,300.2
24.8
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of
less than and greater than 12 months as of June 30, 2018 are as follows:
June 30, 2018
Securities in unrealized
loss position less than
12 months
Securities in unrealized
loss position greater than
12 months
Total
Gross
Unrealized
Losses
Fair
Market
Value
Gross
Unrealized
Losses
Fair
Market
Value
Gross
Unrealized
Losses
Fair
Market
Value
Corporate bonds
Asset-backed securities
U.S. Treasury securities
U.S. government agency securities
Canadian government obligations and
Canadian government agency obligations
Canadian provincial bonds
Municipal bonds
Other securities
$
(118.2) $
7,132.9
$
(47.4)
(46.9)
(31.2)
3,515.9
1,676.8
2,013.8
(20.6)
1,020.3
(6.3)
(3.6)
(9.2)
387.7
285.8
573.3
$
(283.4) $ 16,606.5
$
(42.7) $
(16.7)
(30.0)
(16.5)
—
(1.1)
(0.7)
(1.3)
(109.0) $
994.2
$
867.7
864.0
431.1
—
50.4
16.0
33.4
3,256.8
$
(160.9) $ 8,127.1
(64.1)
4,383.6
(76.9)
(47.7)
2,540.8
2,444.9
438.1
1,020.3
(20.6)
(7.4)
(4.3)
(10.5)
606.7
(392.4) $ 19,863.3
301.8
At June 30, 2019, Corporate bonds include investment-grade debt securities, with a wide variety of issuers, industries, and
sectors, primarily carry credit ratings of A and above, and have maturities ranging from July 2019 through July 2029.
66
At June 30, 2019, asset-backed securities include AAA rated senior tranches of securities with predominately prime collateral of
fixed-rate auto loan, credit card, equipment lease and rate reduction receivables with fair values of $2,073.2 million, $1,960.1
million, $495.1 million, and $162.3 million, respectively. These securities are collateralized by the cash flows of the underlying
pools of receivables. The primary risk associated with these securities is the collection risk of the underlying receivables. All
collateral on such asset-backed securities has performed as expected through June 30, 2019.
At June 30, 2019, U.S. government agency securities primarily include debt directly issued by Federal Home Loan Banks and
Federal Farm Credit Banks with fair values of $1,759.6 million and $655.0 million, respectively. U.S. government agency
securities represent senior, unsecured, non-callable debt that primarily carry ratings of Aaa by Moody's and AA+ by Standard &
Poor's with maturities ranging from August 2019 through January 2029.
At June 30, 2019, other securities and their fair value primarily include U.S. government agency commercial mortgage-backed
securities of $615.6 million issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association,
Aa2 rated United Kingdom Gilt securities of $193.8 million, AAA and AA rated supranational bonds of $119.0 million, and
AAA and AA rated sovereign bonds of $90.0 million.
Classification of corporate investments on the Consolidated Balance Sheets is as follows:
June 30,
Corporate investments:
Cash and cash equivalents
Short-term marketable securities (a)
Long-term marketable securities (b)
Total corporate investments
2019
2018
$
$
1,949.2
10.5
261.4
2,221.1
$
$
2,170.0
3.3
7.2
2,180.5
(a) - Short-term marketable securities are included within Other current assets on the Consolidated Balance Sheets.
(b) - Long-term marketable securities are included within Other assets on the Consolidated Balance Sheets.
Funds held for clients represent assets that, based upon the Company's intent, are restricted for use solely for the purposes of
satisfying the obligations to remit funds relating to the Company’s payroll and payroll tax filing services, which are classified as
client funds obligations on our Consolidated Balance Sheets.
Funds held for clients have been invested in the following categories:
June 30,
Funds held for clients:
Restricted cash and cash equivalents held to satisfy client funds obligations
Restricted short-term marketable securities held to satisfy client funds obligations
Restricted long-term marketable securities held to satisfy client funds obligations
Total funds held for clients
2019
2018
$
$
4,847.0
5,013.9
19,573.3
29,434.2
$
$
4,372.1
2,521.4
20,244.3
27,137.8
Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll, tax and other
payee payment obligations are recorded on the Consolidated Balance Sheets at the time that the Company impounds funds from
clients. The client funds obligations represent liabilities that will be repaid within one year of the balance sheet date. The
Company has reported client funds obligations as a current liability on the Consolidated Balance Sheets totaling $29,144.5
million and $27,493.5 million as of June 30, 2019 and 2018, respectively. The Company has classified funds held for clients as
a current asset since these funds are held solely for the purposes of satisfying the client funds obligations. Of the Company’s
funds held for clients at June 30, 2019, $26,648.0 million are held in the grantor trust. The liabilities held within the trust are
intercompany liabilities to other Company subsidiaries and eliminate in consolidation.
The Company has reported the cash flows related to the purchases of corporate and client funds marketable securities and
related to the proceeds from the sales and maturities of corporate and client funds marketable securities on a gross basis in the
investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash and cash equivalents
related to client funds investments with original maturities of ninety days or less, within the beginning and ending balances of
cash, cash equivalents, restricted cash, and restricted cash equivalents. These amounts have been reconciled to the Consolidated
Balance Sheets on the Statements of Consolidated Cash Flows. The Company has reported the cash flows related to the cash
67
received from and paid on behalf of clients on a net basis within net increase in client funds obligations in the financing
activities section of the Statements of Consolidated Cash Flows.
Approximately 79% of the available-for-sale securities held a AAA or AA rating at June 30, 2019, as rated by Moody's,
Standard & Poor's, DBRS for Canadian dollar denominated securities, and Fitch for asset-backed and commercial mortgage
backed securities. All available-for-sale securities were rated as investment grade at June 30, 2019.
Expected maturities of available-for-sale securities at June 30, 2019 are as follows:
One year or less
One year to two years
Two years to three years
Three years to four years
After four years
Total available-for-sale securities
$
$
5,024.4
5,726.8
4,362.6
4,518.4
5,226.9
24,859.1
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost and accumulated depreciation at June 30, 2019 and 2018 are as follows:
June 30,
Property, plant and equipment:
Land and buildings
Data processing equipment
Furniture, leaseholds and other
Less: accumulated depreciation
Property, plant and equipment, net
2019
2018
$
$
781.2
$
749.0
651.6
2,181.8
(1,417.6)
764.2
$
791.8
707.4
637.1
2,136.3
(1,342.6)
793.7
Depreciation of property, plant and equipment was $180.6 million, $173.1 million, and $147.3 million for fiscal 2019, 2018 and
2017, respectively.
NOTE 9. GOODWILL AND INTANGIBLE ASSETS, NET
Changes in goodwill for the fiscal years ended June 30, 2019 and 2018 are as follows:
PEO
Services
4.8
$
—
—
4.8
—
—
4.8
$
$
Total
$ 1,741.0
494.9
7.6
$ 2,243.5
94.3
(14.8)
$ 2,323.0
Balance at June 30, 2017
Additions and other adjustments
Currency translation adjustments
Balance at June 30, 2018
Additions and other adjustments
Currency translation adjustments
Balance at June 30, 2019
Employer
Services
$ 1,736.2
494.9
7.6
$ 2,238.7
94.3
(14.8)
$ 2,318.2
68
Components of intangible assets, net, are as follows:
June 30,
Intangible assets:
Software and software licenses
Customer contracts and lists
Other intangibles
Less accumulated amortization:
Software and software licenses
Customer contracts and lists
Other intangibles
Intangible assets, net
2019
2018
$
$
2,519.3
860.7
237.9
3,617.9
(1,762.3)
(566.4)
(217.7)
(2,546.4)
1,071.5
$
$
2,292.9
708.6
236.5
3,238.0
(1,606.6)
(533.4)
(211.6)
(2,351.6)
886.4
Other intangibles consist primarily of purchased rights, purchased content, trademarks and trade names (acquired directly or
through acquisitions). All intangible assets have finite lives and, as such, are subject to amortization. The weighted average
remaining useful life of the intangible assets is 6 years (5 years for software and software licenses, 6 years for customer
contracts and lists, and 5 years for other intangibles). Amortization of intangible assets was $228.4 million, $204.5 million, and
$168.8 million for fiscal 2019, 2018, and 2017, respectively.
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
Twelve months ending June 30, 2020
Twelve months ending June 30, 2021
Twelve months ending June 30, 2022
Twelve months ending June 30, 2023
Twelve months ending June 30, 2024
NOTE 10. SHORT TERM FINANCING
Amount
275.9
220.1
173.5
139.4
110.2
$
$
$
$
$
The Company has a $3.8 billion, 364-day credit agreement that matures in June 2020 with a one year term-out option. The
Company also has a $2.75 billion five-year credit facility that matures in June 2024 that also contains an accordion feature
under which the aggregate commitment can be increased by $500 million, subject to the availability of additional commitments.
In addition, the Company has a five-year $3.75 billion credit facility maturing in June 2023 that contains an accordion feature
under which the aggregate commitment can be increased by $500 million, subject to the availability of additional
commitments. The interest rate applicable to committed borrowings is tied to LIBOR, the effective federal funds rate, or the
prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to
borrowing. The Company is also required to pay facility fees on the credit agreements. The primary uses of the credit facilities
are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. The
Company had no borrowings through June 30, 2019 and 2018 under the credit agreements.
The Company's U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis
through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been
invested in available-for-sale securities. The Company increased its U.S. short-term commercial paper program to provide for
the issuance of up to $10.3 billion from $9.8 billion in aggregate maturity value in June 2019. The Company’s commercial
paper program is rated A-1+ by Standard & Poor’s and Prime-1 by Moody’s. These ratings denote the highest quality
commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At June 30, 2019 and
2018, the Company had no commercial paper borrowing outstanding. In fiscal 2019 and 2018, the Company's average daily
borrowings were $2.8 billion at a weighted average interest rate of 2.2% and 1.4%, respectively. The weighted average maturity
of the Company’s commercial paper in fiscal 2019 and 2018 was approximately two days.
The Company’s U.S., Canadian and United Kingdom short-term funding requirements related to client funds obligations are
sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally
69
by government and government agency securities, rather than liquidating previously-collected client funds that have already
been invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to five
business days. At June 30, 2019 , the Company had $262.0 million of outstanding obligations related to the reverse repurchase
agreements. All outstanding reverse repurchase obligations matured and were fully paid in early July 2019. At June 30, 2018,
there were no outstanding obligations related to the reverse repurchase agreements. In fiscal 2019 and 2018, the Company had
average outstanding balances under reverse repurchase agreements of $316.7 million and $374.4 million, respectively, at
weighted average interest rates of 1.9% and 1.3%, respectively.
NOTE 11. LONG TERM DEBT
The Company has fixed-rate notes with 5-year and 10-year maturities for an aggregate principal amount of $2.0 billion
(collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, semi-annually.
The principal amounts and associated effective interest rates of the Notes and other debt as of June 30, 2019 and 2018 are as
follows:
Debt instrument
Fixed-rate 2.25% notes due September 15, 2020
Fixed-rate 3.375% notes due September 15, 2025
Other
Less: current portion
Less: unamortized discount and debt issuance costs
Total long-term debt
Effective
Interest Rate
June 30,
2019
June 30,
2018
2.37%
3.47%
$
1,000.0
$
1,000.0
10.9
2,010.9
(2.5)
(6.2)
2,002.2
$
$
1,000.0
1,000.0
13.0
2,013.0
(2.5)
(8.1)
2,002.4
The effective interest rates for the Notes include the interest on the Notes and amortization of the discount and debt issuance
costs.
As of June 30, 2019, the fair value of the Notes, based on Level 2 inputs, was $2,059.4 million. For a description of the fair
value hierarchy and the Company's fair value methodologies, including the use of an independent third-party pricing service,
see Note 1 “Summary of Significant Accounting Policies.”
NOTE 12. EMPLOYEE BENEFIT PLANS
A. Stock-based Compensation Plans. Stock-based compensation consists of the following:
•
Stock Options. Stock options are granted to employees at exercise prices equal to the fair market value of the
Company's common stock on the dates of grant. Stock options generally vest ratably over 4 years and have a term of
10 years. Compensation expense is measured based on the fair value of the stock option on the grant date and
recognized on a straight-line basis over the vesting period. Stock options are forfeited if the employee ceases to be
employed by the Company prior to vesting.
• Restricted Stock.
• Time-Based Restricted Stock and Time-Based Restricted Stock Units. Time-based restricted stock and
time-based restricted stock units granted September 1, 2018 and after generally vest ratably over 3 years.
Time-based restricted stock and time-based restricted stock units granted prior to September 1, 2018 are
generally subject to a vesting period of 2 years. Awards are forfeited if the employee ceases to be employed
by the Company prior to vesting.
Time-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to
the issuance of time-based restricted stock is measured based on the fair value of the award on the grant date
and recognized on a straight-line basis over the vesting period. Dividends are paid on shares awarded under
the time-based restricted stock program.
70
Time-based restricted stock units are settled in cash and cannot be transferred during the vesting period.
Compensation expense relating to the issuance of time-based restricted stock units is recorded over the
vesting period and is initially based on the fair value of the award on the grant date and is subsequently
remeasured at each reporting date during the vesting period based on the change in the ADP stock price. No
dividend equivalents are paid on units awarded under the time-based restricted stock unit program.
• Performance-Based Restricted Stock and Performance-Based Restricted Stock Units. Performance-
based restricted stock and performance-based restricted stock units generally vest over a one to three year
performance period and a subsequent service period of up to 38 months. Under these programs, the Company
communicates “target awards” at the beginning of the performance period with possible payouts at the end of
the performance period ranging from 0% to 150% of the “target awards.” Awards are generally forfeited if the
employee ceases to be employed by the Company prior to vesting.
Performance-based restricted stock cannot be transferred during the vesting period. Compensation expense
relating to the issuance of performance-based restricted stock is recognized over the vesting period based on
the fair value of the award on the grant date with subsequent adjustments to the number of shares awarded
during the performance period based on probable and actual performance against targets. After the
performance period, if the performance targets are achieved, employees are eligible to receive dividends
during the remaining vesting period on shares awarded under the performance-based restricted stock program.
Performance-based restricted stock units cannot be transferred and are settled in either cash or stock,
depending on the employee's home country. Compensation expense relating to the issuance of performance-
based restricted stock units settled in cash is recognized over the vesting period initially based on the fair
value of the award on the grant date with subsequent adjustments to the number of units awarded during the
performance period based on probable and actual performance against targets. In addition, compensation
expense is remeasured at each reporting period during the vesting period based on the change in the ADP
stock price. Compensation expense relating to the issuance of performance-based restricted stock units
settled in stock is recorded over the vesting period based on the fair value of the award on the grant date with
subsequent adjustments to the number of units awarded based on the probable and actual performance against
targets. Dividend equivalents are paid on awards under the performance-based restricted stock unit program.
• Employee Stock Purchase Plan. The Company offers an employee stock purchase plan that allows eligible
employees to purchase shares of common stock at a price equal to 95% of the market value for the Company's
common stock on the last day of the offering period. This plan has been deemed non-compensatory and, therefore,
no compensation expense has been recorded.
The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock
purchase plan, and restricted stock awards. From time to time, the Company may repurchase shares of its common stock under
its authorized share repurchase programs. The Company repurchased 6.5 million shares in fiscal 2019 as compared to 8.5
million shares repurchased in fiscal 2018. The Company considers several factors in determining when to execute share
repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances
due to employee benefit plan activity, and market conditions. Cash payments related to the settlement of vested time-based
restricted stock units and performance-based restricted stock units were approximately $26.6 million, $27.1 million, and $24.5
million during fiscal years 2019, 2018, and 2017, respectively.
The following table represents stock-based compensation expense and related income tax benefits in each of fiscal 2019, 2018,
and 2017, respectively:
Years ended June 30,
Operating expenses
Selling, general and administrative expenses
System development and programming costs
Total pretax stock-based compensation expense
Income tax benefit
2019
2018
2017
$
$
$
16.9
131.2
19.2
167.3
41.6
$
$
$
22.9
128.7
23.8
175.4
44.1
$
$
$
21.5
99.2
18.2
138.9
49.9
71
As of June 30, 2019, the total remaining unrecognized compensation cost related to non-vested stock options, restricted stock
units, and restricted stock awards amounted to $15.3 million, $51.4 million, and $75.9 million, respectively, which will be
amortized over the weighted-average remaining requisite service periods of 2.4 years, 1.6 years, and 1.9 years, respectively.
In fiscal 2019, the following activity occurred under the Company’s existing plans.
Stock Options:
Options outstanding at July 1, 2018
Options granted
Options exercised
Options forfeited/cancelled
Options outstanding at June 30, 2019
Options exercisable at June 30, 2019
Shares available for future grants, end of year
Shares reserved for issuance under stock option plans, end of year
Time-Based Restricted Stock and Time-Based Restricted Stock Units:
Restricted shares/units outstanding at July 1, 2018
Restricted shares/units granted
Restricted shares/units vested
Restricted shares/units forfeited
Restricted shares/units outstanding at June 30, 2019
Performance-Based Restricted Stock and Performance-Based Restricted Stock Units:
Restricted shares/units outstanding at July 1, 2018
Restricted shares/units granted
Restricted shares/units vested
Restricted shares/units forfeited
Restricted shares/units outstanding at June 30, 2019
Number
of Options
(in thousands)
Weighted
Average
Price
(in dollars)
87
147
78
103
103
81
3,983
$
836
$
(1,126) $
(85) $
$
3,608
1,207
$
26,529
30,137
Number of
Shares
(in thousands)
Number of
Units
(in thousands)
1,598
630
(863)
(93)
1,272
345
145
(169)
(31)
290
Number of
Shares
(in thousands)
302
123
(156)
(19)
250
Number of
Units
(in thousands)
789
379
(283)
(18)
867
The aggregate intrinsic value of outstanding stock options and exercisable stock options as of June 30, 2019 was $225.2 million
and $101.7 million, respectively, which have a remaining life of 7 years and 6 years, respectively. The aggregate intrinsic value
for stock options exercised in fiscal 2019, 2018, and 2017 was $78.2 million, $60.0 million, and $70.9 million, respectively.
72
The fair value for stock options granted was estimated at the date of grant using the following assumptions:
Risk-free interest rate
Dividend yield
Weighted average volatility factor
Weighted average expected life (in years)
Weighted average fair value (in dollars)
2019
2018
2017
2.7%
1.9%
20.9%
5.4
26.60
$
1.8%
2.1%
21.7%
5.4
17.50
$
1.2%
2.3%
23.2%
5.4
14.36
$
The weighted average fair values of shares granted were as follows:
Year ended June 30,
2019
2018
2017
Performance-based restricted stock
Time-based restricted stock
B. Pension Plans
$
$
146.93
146.80
$
$
107.43
108.10
$
$
90.63
90.99
The Company has a defined benefit cash balance pension plan under which employees are credited with a percentage of base
pay plus interest. Effective January 1, 2015, associates hired on or after this date are not eligible to participate in this pension
plan. In addition, associates rehired on or after January 1, 2015 will no longer be eligible to earn additional contributions but
will continue to earn interest on any balance that remains in the pension plan. The plan interest credit rate varies from year-to-
year based on the ten-year U.S. Treasury rate. Employees are fully vested upon completion of three years of service. The
Company's policy is to make contributions within the range determined by generally accepted actuarial principles.
In fiscal 2018, the Company offered a voluntary early retirement program to certain eligible U.S.-based associates aged 55 or
above with at least 10 years of service. The early retirement offer was extended to about 3,500 eligible associates, or
approximately 6 percent of the Company’s workforce, with approximately 2,200 ADP associates opting to participate. The
Company also extended to all employees participating in the VERP the opportunity to continue health care coverage at active
employee contribution rates for up to 24 months following retirement. In fiscal 2019, the Company recorded $23.6 million of
expenses within selling, general, and administrative expenses related to the continuing health coverage for VERP participants
who have exited the Company as of June 30, 2019.
In addition, during fiscal 2019, the Company recorded $48.2 million of non-cash settlement charges and special termination
benefits, and during fiscal 2018, the Company recorded $319.6 million of special termination benefits within Other (income)/
expense, net on the Statement of Consolidated Earnings.
The Company also has various retirement plans for its non-U.S. employees and maintains a Supplemental Officers Retirement
Plan (“SORP”). The SORP is a defined benefit plan pursuant to which the Company pays supplemental pension benefits to
certain corporate officers upon retirement based upon the officers' years of service and compensation. The SORP, which is
currently closed to new entrants, will be frozen effective July 1, 2019 with no future accruals due to pay and/or service.
A June 30 measurement date was used in determining the Company's benefit obligations and fair value of plan assets.
The Company is required to (a) recognize in its Consolidated Balance Sheets an asset for a plan's net overfunded status or a
liability for a plan's net underfunded status, (b) measure a plan's assets and its obligations that determine its funded status as of
the end of the employer's fiscal year, and (c) recognize changes in the funded status of a defined benefit plan in the year in
which the changes occur in accumulated other comprehensive (loss)/income.
73
The Company's pension plans' funded status as of June 30, 2019 and 2018 is as follows:
June 30,
2019
2018
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Currency translation adjustments
Benefits paid
Fair value of plan assets at end of year
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss/(gain)
Currency translation adjustments
Plan changes
Curtailments and special termination benefits
Benefits paid
Projected benefit obligation at end of year
Funded status - plan assets less benefit obligations
$
2,178.1
$
2,138.4
142.0
10.0
(7.0)
(412.6)
1,910.5
$
148.5
10.9
5.0
(124.7)
2,178.1
$
$
2,135.3
$
1,866.7
59.8
78.6
95.8
(8.7)
0.8
74.6
65.4
(73.7)
7.5
—
2.2
(412.6)
1,951.2
$
319.5
(124.7)
2,135.3
(40.7) $
42.8
$
$
The amounts recognized on the Consolidated Balance Sheets as of June 30, 2019 and 2018 consisted of:
June 30,
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount recognized
2019
2018
$
$
$
108.0
(5.9)
(142.8)
(40.7) $
180.8
(5.3)
(132.7)
42.8
The accumulated benefit obligation for all defined benefit pension plans was $1,938.0 million and $2,121.1 million at June 30,
2019 and 2018, respectively.
The Company's pension plans with accumulated benefit obligations in excess of plan assets as of June 30, 2019 and 2018 had
the following projected benefit obligation, accumulated benefit obligation, and fair value of plan assets:
June 30,
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2019
2018
$
$
$
162.4
149.9
13.8
$
$
$
151.3
138.1
13.3
74
The components of net pension expense were as follows:
Service cost – benefits earned during the period
$
59.8
$
74.6
$
Interest cost on projected benefits
Expected return on plan assets
Net amortization and deferral
Special termination benefits and plan curtailments
Net pension expense
78.6
(131.8)
0.1
48.7
55.4
$
65.4
(137.5)
8.4
319.5
$
330.4
$
80.8
60.0
(135.8)
19.1
0.1
24.2
2019
2018
2017
The net actuarial loss and prior service credit for the defined benefit pension plans that are included in accumulated other
comprehensive income (loss) that have not yet been recognized as components of net periodic benefit cost are $281.9 million
and $16.1 million, respectively, at June 30, 2019. There is no remaining transition obligation for the defined benefit pension
plans included in accumulated other comprehensive income. The estimated net actuarial loss and prior service credit for the
defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic
pension cost in fiscal 2020 are $8.0 million and $2.2 million, respectively.
Assumptions used to determine the actuarial present value of benefit obligations were:
Years ended June 30,
Discount rate
Increase in compensation levels
Assumptions used to determine the net pension expense generally were:
Years ended June 30,
Discount rate
Expected long-term rate of return on assets
Increase in compensation levels
2019
2018
3.40%
4.00%
4.10%
4.00%
2019
2018
2017
4.10%
6.75%
4.00%
3.70%
6.75%
4.00%
3.40%
7.00%
4.00%
The discount rate is based upon published rates for high-quality fixed-income investments that produce cash flows that
approximate the timing and amount of expected future benefit payments.
The expected long-term rate of return on assets is determined based on historical and expected future rates of return on plan
assets considering the target asset mix and the long-term investment strategy.
Plan Assets
The Company's pension plans' asset allocations at June 30, 2019 and 2018 by asset category were as follows:
Cash and cash equivalents
Fixed income securities
U.S. equity securities
International equity securities
Global equity securities
2019
2018
1%
44%
17%
13%
25%
100%
1%
52%
14%
12%
22%
100%
75
The Company's pension plans' asset investment strategy is designed to ensure prudent management of assets, consistent with
long-term return objectives and the prompt fulfillment of all pension plan obligations. The investment strategy and asset mix
were developed in coordination with an asset liability study conducted by external consultants to maximize the funded ratio
with the least amount of volatility.
The pension plans' assets are currently invested in various asset classes with differing expected rates of return, correlations, and
volatilities, including large capitalization and small capitalization U.S. equities, international equities, U.S. fixed income
securities, and cash.
The target asset allocation ranges for the U.S. plan are generally as follows:
U.S. fixed income securities
U.S. equity securities
International equity securities
Global equity securities
35% - 45%
14% - 24%
11% - 21%
20% - 30%
The U.S. pension plan's fixed income asset allocation for fiscal 2018 was outside of the target range due to the previously
mentioned VERP in order to meet anticipated lump sum payments to participants. As of June 30, 2019, the U.S. pension plan
asset allocation is within the target ranges.
The pension plans' fixed income portfolio is designed to match the duration and liquidity characteristics of the pension plans'
liabilities. In addition, the pension plans invest only in investment-grade debt securities to ensure preservation of capital. The
pension plans' equity portfolios are subject to diversification guidelines to reduce the impact of losses in single investments.
Investment managers are prohibited from buying or selling commodities and from the short selling of securities.
None of the pension plans' assets are directly invested in the Company's stock, although the pension plans may hold a minimal
amount of Company stock to the extent of the Company's participation in equity indices.
The pension plans' investments included in Level 1 are valued using closing prices for identical instruments that are traded on
active exchanges. The pension plans' investments included in Level 2 are valued utilizing inputs obtained from an independent
pricing service, which are reviewed by the Company for reasonableness. To determine the fair value of our Level 2 plan assets,
a variety of inputs are utilized, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads,
two-sided markets, benchmark securities, bids, offers, reference data, new issue data, and monthly payment information. The
pension plans have no Level 3 investments at June 30, 2019.
The following table presents the investments of the pension plans measured at fair value at June 30, 2019:
Commingled trusts
Government securities
Mutual funds
Corporate and municipal bonds
Mortgage-backed security bonds
Total pension asset investments
Level 1
Level 2
Level 3
Total
$
$
— $
—
$
1,046.6
417.9
6.5
—
—
—
394.3
30.2
— $
—
—
—
—
1,046.6
417.9
6.5
394.3
30.2
6.5
$
1,889.0
$
— $
1,895.5
In addition to the investments in the above table, the pension plans also held cash and cash equivalents of $15.0 million as of
June 30, 2019, which have been classified as Level 1 in the fair value hierarchy.
76
The following table presents the investments of the pension plans measured at fair value at June 30, 2018:
Commingled trusts
U.S. government securities
Mutual funds
Corporate and municipal bonds
Mortgage-backed security bonds
Total pension asset investments
Level 1
Level 2
Level 3
Total
$
$
— $
1,036.7
$
— $
1,036.7
—
5.5
—
—
507.7
—
586.8
28.2
—
—
—
—
507.7
5.5
586.8
28.2
5.5
$
2,159.4
$
— $
2,164.9
In addition to the investments in the above table, the pension plans also held cash and cash equivalents of $13.2 million as of
June 30, 2018, which have been classified as Level 1 in the fair value hierarchy.
Contributions
During fiscal 2019, the Company contributed $10.0 million to the pension plans. The Company expects to contribute $9.3
million to the pension plans during fiscal 2020.
Estimated Future Benefit Payments
The benefits expected to be paid in each year from fiscal 2020 to the year ended June 30, 2024 are $134.9 million, $87.8
million, $95.9 million, $103.7 million, and $112.4 million, respectively. The aggregate benefits expected to be paid in the five
fiscal years from the year ended June 30, 2025 to the year ended June 30, 2029 are $707.3 million. The expected benefits to be
paid are based on the same assumptions used to measure the Company's pension plans' benefit obligations at June 30, 2019 and
includes estimated future employee service.
C. Retirement and Savings Plan. The Company has a 401(k) retirement and savings plan, which allows eligible employees to
contribute up to 50% of their compensation annually and allows highly compensated employees to contribute up to 12% of their
compensation annually. The Company matches a portion of employee contributions, which amounted to approximately $110.9
million, $100.6 million, and $87.9 million for the calendar years ended December 31, 2018, 2017, and 2016, respectively.
NOTE 13. INCOME TAXES
Earnings before income taxes shown below are based on the geographic location to which such earnings are attributable.
Years ended June 30,
2019
2018
2017
Earnings before income taxes:
United States
Foreign
$
$
2,584.6
421.0
3,005.6
$
$
1,937.2
345.4
2,282.6
$
$
2,305.8
311.1
2,616.9
77
The provision (benefit) for income taxes consists of the following components:
Years ended June 30,
2019
2018
2017
Current:
Federal
Foreign
State
Total current
Deferred:
Federal
Foreign
State
Total deferred
$
464.3
$
366.6
$
615.3
129.1
110.1
703.5
7.9
12.8
(11.4)
9.3
105.5
77.6
549.7
(193.0)
26.1
14.9
(152.0)
397.7
91.6
82.7
789.6
30.5
10.8
(1.8)
39.5
$
829.1
Total provision for income taxes
$
712.8
$
A reconciliation between the Company's effective tax rate and the U.S. federal statutory rate is as follows:
Years ended June 30,
2019
%
2018
%
2017
%
Provision for taxes at U.S. statutory rate
$
631.2
21.0
$
640.5
28.1
$
915.9
35.0
Increase/(decrease) in provision from:
State taxes, net of federal tax benefit
U.S. tax on foreign income
Utilization of foreign tax credits
Tax settlements
Re-measurement of deferred tax balances
Section 199 - Qualified production activities and
research tax credit refund claim - net of reserves
Resolution of tax matters - Section 199 Qualified
production activities and research tax credit
refund claim
Foreign rate differential
Excess tax benefit - Stock-based compensation
Other
80.7
—
—
—
—
—
—
46.9
(29.8)
(16.2)
$
712.8
2.7
—
—
—
—
—
—
1.6
(1.0)
(0.6)
23.7
58.1
12.0
(19.6)
(31.9)
(253.3)
2.5
0.5
(0.9)
(1.4)
(11.1)
54.4
66.1
(76.0)
(33.2)
—
—
—
(51.8)
(33.3)
—
(26.7)
51.9
(1.5)
—
(1.2)
2.4
$
397.7
17.4
$
—
—
(32.1)
(14.2)
829.1
2.1
2.5
(2.9)
(1.3)
—
(2.0)
—
—
(1.2)
(0.5)
31.7
The effective tax rate for fiscal 2019 and 2018 was 23.7% and 17.4%, respectively. The increase in the effective tax rate is
primarily due to the one-time benefit recognized on the re-measurement of deferred tax balances, primarily as a result of ASC
606, using the lower tax rates enacted under the Act, the release of reserves for uncertain tax positions during fiscal 2018 and
the loss of the qualified production activities tax deduction as a result of the Act during fiscal 2019. This is partially offset by
the reduction in the federal corporate statutory tax rate to 21% from our blended rate for fiscal 2018 of 28.1% as a result of the
Act.
The Act reduced the U.S. federal corporate income tax rate from 35% to 21%. In accordance with ASC 740, companies re-
measured deferred tax balances using the new enacted tax rates. The Act required the Company to pay a one-time transition tax
on earnings of the Company's foreign subsidiaries that were previously tax deferred for U.S. income taxes and created new
taxes on the Company's foreign sourced earnings.
78
At December 31, 2018, the Company completed its accounting for all of the income tax effects of the Act. The adjustments
were as follows:
The Act’s foreign tax credit provisions may limit the Company’s ability to utilize existing foreign tax credits in future periods,
accordingly we have estimated that approximately $19.2 million could expire unutilized. During fiscal 2018, the Company
recorded $28.3 million related to foreign withholding taxes on future distributions of earnings and profits ("E&P") that may not
be utilizable as foreign tax credits.
During fiscal 2018, the Company recorded a benefit of $253.3 million (restated for ASC 606) to account for the effects of the
rate change on deferred tax balances.
The one-time transition tax is based on the total post-1986 E&P that was previously deferred from US income taxes. During
fiscal 2018, the Company recorded an amount for the one-time transition tax liability of $22.9 million for the Company's
foreign subsidiaries.
Since June 30, 2018, the Company made no significant adjustments to the amounts recorded during the measurement period.
The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:
Years ended June 30,
Deferred tax assets:
Accrued expenses not currently deductible
Stock-based compensation expense
Foreign tax credits
Net operating losses
Unrealized investment losses, net
Retirement Benefits
Other
Less: valuation allowances
Deferred tax assets, net
Deferred tax liabilities:
Prepaid retirement benefits
Deferred revenue
Fixed and intangible assets
Prepaid expenses
Unrealized investment gains, net
Tax on unrepatriated earnings
Other
Deferred tax liabilities
Net deferred tax liabilities
2019
2018
$
228.9
$
178.3
45.3
25.1
54.0
—
5.6
20.2
379.1
(31.6)
347.5
$
— $
475.9
279.5
86.2
63.0
31.6
7.2
943.4
$
$
$
595.9
$
49.6
40.0
44.6
83.6
—
20.4
416.5
(46.0)
370.5
19.3
452.4
242.4
71.8
—
28.3
9.4
823.6
453.1
There are $64.0 million and $68.9 million of long-term deferred tax assets included in other assets on the Consolidated Balance
Sheets at June 30, 2019 and 2018, respectively.
Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of
approximately $278.6 million as the Company considers such earnings to be permanently reinvested outside of the United
States. As of June 30, 2019, it is not practicable to estimate the unrecognized tax liability that would occur upon distribution.
The Company has estimated foreign net operating loss carry-forwards of approximately $54.1 million as of June 30, 2019, of
which $1.9 million expire through June 2027 and $52.2 million have an indefinite utilization period. As of June 30, 2019, the
79
Company has approximately $70.3 million of federal net operating loss carry-forwards from acquired companies. The net
operating losses have an annual utilization limitation pursuant to section 382 of the Internal Revenue Code and expire through
June 2036.
The Company has state net operating loss carry-forwards of approximately $372.0 million as of June 30, 2019, which expire
through June 2038. The Company has recorded valuation allowances of $31.6 million and $46.0 million at June 30, 2019 and
2018, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized.
Income tax payments were approximately $633.8 million, $529.7 million, and $817.1 million for fiscal 2019, 2018, and 2017,
respectively.
As of June 30, 2019, 2018, and 2017 the Company's liabilities for unrecognized tax benefits, which include interest and
penalties, were $54.2 million, $45.2 million, and $74.6 million respectively. The amount that, if recognized, would impact the
effective tax rate is $43.3 million, $36.1 million, and $61.0 million, respectively. The remainder, if recognized, would
principally impact deferred taxes.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
2019
2018
2017
Unrecognized tax benefits at beginning of the year
$
45.2
$
74.6
$
Additions for tax positions
Additions for tax positions of prior periods
Reductions for tax positions of prior periods
Settlement with tax authorities
Expiration of the statute of limitations
Impact of foreign exchange rate fluctuations
Unrecognized tax benefit at end of year
9.5
18.3
(7.7)
(10.3)
(0.6)
(0.2)
54.2
$
4.0
19.8
(40.5)
(11.7)
(1.0)
—
$
45.2
$
27.4
7.5
41.9
(0.5)
(0.9)
(0.9)
0.1
74.6
Interest expense and penalties associated with uncertain tax positions have been recorded in the provision for income taxes on
the Statements of Consolidated Earnings. During the fiscal years 2019, 2018, and 2017, the Company recorded interest expense
of $1.9 million, $3.2 million, and $3.0 million, respectively. Penalties incurred during fiscal years 2019, 2018, and 2017 were
not significant.
At June 30, 2019, the Company had accrued interest of $9.3 million recorded on the Consolidated Balance Sheets, of which
$4.3 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30,
2018, the Company had accrued interest of $7.9 million recorded on the Consolidated Balance Sheets, of which $4.8 million
was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2019, the
Company had accrued penalties of $0.3 million recorded on the Consolidated Balance Sheets within other liabilities. At
June 30, 2018, the Company had accrued penalties of $0.3 million recorded on the Consolidated Balance Sheets within other
liabilities.
The Company is routinely examined by the IRS and tax authorities in foreign countries in which it conducts business, as well as
tax authorities in states in which it has significant business operations. The tax years currently under examination vary by
jurisdiction. Examinations in progress in which the Company has significant business operations are as follows:
Taxing Jurisdiction
Fiscal Years under Examination
U.S. (IRS)
Wisconsin
Michigan
India
2018-2019
2011-2014
2012-2014
2003-2007, 2008-2010,
2013-2015
80
The Company regularly considers the likelihood of assessments resulting from examinations in each of the jurisdictions. The
resolution of tax matters is not expected to have a material effect on the consolidated financial condition of the Company,
although a resolution could have a material impact on the Company's Statements of Consolidated Earnings for a particular
future period and on the Company's effective tax rate.
If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase
or decrease for all open tax years and jurisdictions. Based on current estimates, settlements related to various jurisdictions and
tax periods could increase earnings up to $3 million and expected cash payments could be up to $10 million in the next twelve
months. The liability related to cash payments expected to be paid within the next 12 months has been reclassified from other
liabilities to current liabilities on the Consolidated Balance Sheets. Audit outcomes and the timing of audit settlements are
subject to significant uncertainty. We continually assess the likelihood and amount of potential adjustments and adjust the
income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision
become known.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Company has obligations under various facilities and equipment leases. Minimum commitments under these obligations
with a future life of greater than one year at June 30, 2019 are as follows:
Years ending June 30,
2020
2021
2022
2023
2024
Thereafter
$
$
147.9
109.4
87.4
67.6
50.1
134.0
596.4
In addition to fixed rentals, certain leases require payment of maintenance and real estate taxes and contain escalation
provisions based on future adjustments in price indices.
As of June 30, 2019, the Company has purchase commitments of approximately $483.6 million, including a reinsurance
premium with Chubb for the fiscal 2020 policy year, as well as obligations related to software license agreements and purchase
and maintenance agreements on our software, equipment, and other assets, of which $354.7 million relates to fiscal 2020,
$102.1 million relates to the fiscal year ending June 30, 2021, and the remaining relates to fiscal years ending June 30, 2022
through fiscal 2024.
In June 2018, a potential class action complaint was filed against the Company in the Circuit Court of Cook County,
Illinois. The complaint asserts that the Company violated the Illinois Biometric Privacy Act, was negligent and unjustly
enriched itself in connection with its collection, use and storage of biometric data of employees of its clients who are residents
of Illinois in connection with certain services provided by the Company to clients in Illinois. The complaint seeks statutory and
other unspecified monetary damages, injunctive relief and attorney’s fees. In addition, similar potential class action complaints
have been filed in Illinois state courts against the Company and/or certain of its clients with respect to the collection, use and
storage of biometric data of the employees of these clients. All of these claims are still in their earliest stages and the Company
is unable to estimate any reasonably possible loss, or range of loss, with respect to these matters. The Company intends to
vigorously defend against these lawsuits.
The Company is subject to various claims, litigation, and regulatory compliance matters in the normal course of business. When
a loss is considered probable and reasonably estimable, the Company records a liability in the amount of its best estimate for
the ultimate loss. Management currently believes that the resolution of these claims, litigation and regulatory compliance
matters against us, individually or in the aggregate, will not have a material adverse impact on our consolidated results of
operations, financial condition or cash flows. These matters are subject to inherent uncertainties and management's view of
these matters may change in the future.
81
It is not the Company’s business practice to enter into off-balance sheet arrangements. In the normal course of business, the
Company may enter into contracts in which it makes representations and warranties that relate to the performance of the
Company’s services and products. The Company does not expect any material losses related to such representations and
warranties.
NOTE 15. RECLASSIFICATION OUT OF ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME
Comprehensive income is a measure of income that includes both net earnings and other comprehensive income (loss). Other
comprehensive income/(loss) results from items deferred on the Consolidated Balance Sheets in stockholders' equity. Other
comprehensive income/(loss) was $422.5 million, ($254.3) million, and ($168.1) million in fiscal 2019, 2018, and 2017,
respectively. Changes in Accumulated Other Comprehensive (Loss)/Income (“AOCI”) by component are as follows:
Currency
Translation
Adjustment
Net Gains on
Available-
for-sale
Securities
Pension
Liability
Accumulated
Other
Comprehensive
(Loss) / Income
Balance at June 30, 2016
$
(253.8)
$
333.8
$
(295.1)
$
(215.1)
Other comprehensive income/(loss) before
reclassification adjustments
Tax effect
Reclassification adjustments to
net earnings
Tax effect
19.0
—
—
—
(405.7)
141.6
(2.2) (A)
0.8
Balance at June 30, 2017
$
(234.8)
$
68.3
$
Other comprehensive income/(loss) before
reclassification adjustments
Tax effect
Reclassification adjustments to net
earnings
Tax effect
Reclassification to retained earnings (C)
7.8
—
—
—
—
(460.7)
123.4
2.7 (A)
(0.6)
(7.1) (C)
Balance at June 30, 2018
$
(227.0)
$
(274.0)
$
109.6
(43.6)
20.6 (B)
(8.2)
(216.7)
$
87.0
(18.7)
9.3 (B)
(4.5)
(35.2) (C)
(178.8)
$
Other comprehensive (loss)/income before
reclassification adjustments
Tax effect
Reclassification adjustments to
net earnings
Tax effect
(42.2)
—
—
—
Balance at June 30, 2019
$
(269.2)
$
642.4
(144.4)
(84.7)
20.0
0.9 (A)
(0.3)
224.6
$
40.3 (B)
(9.5)
(212.7)
$
(277.1)
98.0
18.4
(7.4)
(383.2)
(365.9)
104.7
12.0
(5.1)
(42.3)
(679.8)
515.5
(124.4)
41.2
(9.8)
(257.3)
(A) Reclassification adjustments out of AOCI are included within Other (income)/expense, net, on the Statements of
Consolidated Earnings.
(B) Reclassification adjustments out of AOCI are included in net pension expense (see Note 12).
(C) During fiscal 2018, the Company adopted ASU 2018-02 and reclassified stranded tax effects attributable to the Act from
AOCI to retained earnings. The fiscal 2018 Consolidated Balance Sheets reflect the reclassification out of accumulated other
comprehensive (loss)/income into retained earnings (see Note 1).
82
NOTE 16. FINANCIAL DATA BY SEGMENT AND GEOGRAPHIC AREA
Based upon similar economic and operational characteristics, the Company’s strategic business units have been aggregated into
the following two reportable segments: Employer Services and PEO Services. The primary components of the “Other” segment
are certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including
corporate functions, costs related to our transformation office, non-recurring gains and losses, the elimination of intercompany
transactions, and interest expense. Certain revenues and expenses are charged to the reportable segments at a standard rate for
management reasons. Other costs are recorded based on management responsibility. In the first quarter of fiscal 2019, the
Company's CODM began reviewing segment results reported at actual interest rates and the results of the PEO segment
inclusive of the results of ADP Indemnity. Additionally, the CODM reviews results with changes to certain corporate
allocations. These changes represent a change in the measure of segment performance. Effective July 1, 2018, the Company
adopted ASC 606 (see Note 1). The segment results in the table below reflect the impacts of adoption of ASC 606, the inclusion
of client funds interest in the segments at actual interest rates, the inclusion of ADP Indemnity in the PEO segment, and changes
to certain corporate allocations. The Company reflects these new segment measures beginning in the first quarter of fiscal 2019
and prior period segment results are restated for comparability.
Year ended June 30, 2019
Revenues
Earnings before income taxes
Assets
Capital expenditures
Depreciation and amortization
Year ended June 30, 2018
Revenues
Earnings before income taxes
Assets
Capital expenditures
Depreciation and amortization
Year ended June 30, 2017
Revenues
Earnings before income taxes
Assets
Capital expenditures
Depreciation and amortization
Employer
Services
PEO
Services
Other
Total
$ 9,942.8
$ 4,242.7
$
2,957.0
34,606.3
98.2
321.0
620.1
1,584.1
—
3.5
(10.3) $ 14,175.2
(571.5)
3,005.6
5,697.3
41,887.7
64.5
84.5
162.7
409.0
$ 9,454.8
$ 3,882.3
$
2,598.1
31,984.2
113.9
291.9
544.6
1,329.8
—
3.0
(860.1)
5,535.1
78.0
82.7
(9.4) $ 13,327.7
2,282.6
38,849.1
191.9
377.6
$ 8,914.2
$ 3,468.4
$
2,396.8
31,724.3
83.0
247.3
463.4
1,160.4
0.2
1.3
(10.6) $ 12,372.0
(243.3)
2,616.9
6,002.2
38,886.9
165.8
67.5
249.0
316.1
83
Year ended June 30, 2019
Revenues
Assets
Year ended June 30, 2018
Revenues
Assets
Year ended June 30, 2017
Revenues
Assets
United States
Europe
Canada
Other
Total
$
$
$
$
$
$
12,327.6
36,508.3
11,493.3
33,586.6
10,753.4
33,752.7
$
$
$
$
$
$
1,236.8
2,807.9
1,242.2
2,608.6
1,086.4
2,510.5
$
$
$
$
$
$
326.6
1,950.5
321.6
2,073.1
290.9
2,068.6
$
$
$
$
$
$
284.2
$ 14,175.2
621.0
$ 41,887.7
270.6
$ 13,327.7
580.8
$ 38,849.1
241.3
$ 12,372.0
555.1
$ 38,886.9
NOTE 17. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Summarized quarterly results of our operations for the fiscal years ended June 30, 2019 and June 30, 2018 are as follows:
Year ended June 30, 2019
Revenues
Costs of revenues
Gross profit
Earnings before income taxes
Net earnings
Basic per common share amounts:
Basic earnings per share
Diluted per common share amounts:
Diluted earnings per share
Year ended June 30, 2018
Revenues
Costs of revenues
Gross profit
Earnings before income taxes
Net earnings
Basic per common share amounts:
Basic earnings per share
Diluted per common share amounts:
Diluted earnings per share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,323.2
1,940.5
1,382.7
646.8
505.4
1.16
1.15
First
Quarter
3,077.2
1,851.5
1,225.7
564.9
412.6
0.93
0.93
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,505.9
2,013.7
1,492.2
741.0
558.2
1.28
1.27
Second
Quarter
3,238.3
1,937.9
1,300.4
587.5
670.4
1.52
1.51
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,847.4
2,111.8
1,735.6
984.5
753.7
1.74
1.73
Third
Quarter
3,696.0
2,079.3
1,616.7
875.2
661.0
1.50
1.49
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,498.7
2,020.5
1,478.2
633.3
475.5
1.10
1.09
Fourth
Quarter
3,316.2
1,942.4
1,373.8
254.9
140.9
0.32
0.32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
84
Attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K are certifications of ADP's Chief Executive Officer and
Chief Financial Officer, which are required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). This “Controls and Procedures” section should be read in conjunction with the report of Deloitte & Touche
LLP that appears in this Annual Report on Form 10-K and is hereby incorporated herein by reference.
Management's Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation (the “evaluation”), under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were
effective as of June 30, 2019 in ensuring that (i) information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) such information
is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
Management's Report on Internal Control over Financial Reporting
It is the responsibility of Automatic Data Processing, Inc.'s (“ADP”) management to establish and maintain effective internal
control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting
is designed to provide reasonable assurance to ADP's management and board of directors regarding the preparation of reliable
financial statements for external purposes in accordance with generally accepted accounting principles.
ADP's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of ADP; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of ADP are being made only in accordance
with authorizations of management and directors of ADP; and (iii) provide reasonable assurance regarding the prevention or
timely detection of unauthorized acquisition, use or disposition of ADP's assets that could have a material effect on the financial
statements of ADP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management has performed an assessment of the effectiveness of ADP’s internal control over financial reporting as of June 30,
2019 based upon criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management determined that ADP’s internal control
over financial reporting was effective as of June 30, 2019.
Deloitte & Touche LLP, the independent registered public accounting firm that audited and reported on the consolidated
financial statements of ADP included in this Annual Report on Form 10-K, has issued an attestation report on the operating
effectiveness of ADP's internal control over financial reporting. The Deloitte & Touche LLP attestation report is set forth below.
/s/ Carlos A. Rodriguez
Carlos A. Rodriguez
President and Chief Executive Officer
/s/ Kathleen A. Winters
Kathleen A. Winters
Chief Financial Officer
Roseland, New Jersey
August 9, 2019
85
Changes in Internal Control over Financial Reporting
There were no changes in ADP's internal control over financial reporting that occurred during the quarter ended June 30, 2019
that have materially affected, or are reasonably likely to materially affect, ADP's internal control over financial reporting.
86
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Automatic Data Processing, Inc.
Roseland, New Jersey
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Automatic Data Processing, Inc. and subsidiaries (the
“Company”) as of June 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of June 30, 2019, based on criteria established in Internal
Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended June 30, 2019, of the Company and our report
dated August 9, 2019, expressed an unqualified opinion on those financial statements and included an explanatory paragraph
regarding the Company’s adoption of a new accounting standard.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
August 9, 2019
87
Item 9B. Other Information
None.
88
Item 10. Directors, Executive Officers and Corporate Governance
Part III
The executive officers of the Company, their ages, positions, and the period during which they have been employed by ADP are
as follows:
Name
Brock Albinson
John Ayala
Maria Black
Michael A. Bonarti
Deborah L. Dyson
Michael C. Eberhard
Sreeni Kutam
Matthew Levin
Don McGuire
Dermot J. O'Brien
Thomas Perrotti
Douglas Politi
Carlos A. Rodriguez
Stuart Sackman
Donald Weinstein
Kathleen A. Winters
Age
Position
Employed by
ADP Since
44
52
45
53
53
57
49
46
59
53
50
57
55
58
50
51
Corporate Controller and Principal Accounting Officer
President, Major Account Services and ADP Canada
President, Small Business Solutions and Human Resources
Outsourcing
Corporate Vice President, General Counsel and Secretary
President, National Accounts Services
Vice President and Treasurer
Chief Human Resources Officer
Chief Strategy Officer
President, Employer Services International
Chief Transformation Officer
President, Worldwide Sales and Marketing
President, Compliance Solutions
President and Chief Executive Officer
Corporate Vice President, Global Shared Services
Corporate Vice President, Global Product and Technology
Chief Financial Officer
2007
2002
1996
1997
1988
1998
2014
2018
1998
2012
1993
1992
1999
1992
2006
2019
Brock Albinson joined ADP in 2007. Prior to his appointment as Corporate Controller and Principal Accounting
Officer in March 2015, he served as Assistant Corporate Controller from December 2011 to February 2015, as Vice President,
Corporate Finance from January 2011 to December 2011, and as Vice President, Financial Policy from March 2007 to
January 2011.
John Ayala joined ADP in 2002. Prior to his appointment as President, Major Account Services and ADP Canada in
January 2017, he served as President, Small Business Services, Retirement Services and Insurance Services from July 2014 to
December 2016, as Vice President, Client Experience and Continuous Improvement from November 2012 to June 2014, as
Senior Vice President, Services and Operations - Small Business Services from February 2012 to October 2012, as President,
TotalSource from July 2011 to January 2012, and as Senior Vice President, Service and Operations, TotalSource from June
2008 to June 2011.
Maria Black joined ADP in 1996. Prior to her appointment as President, Small Business Solutions and Human
Resources Outsourcing in January 2017, she served as President, ADP TotalSource from July 2014 to December 2016, as
General Manager, ADP United Kingdom from April 2013 to June 2014, and as General Manager, Employer Services -
TotalSource Western Central Region from January 2008 to March 2013.
Michael A. Bonarti joined ADP in 1997. He has served as Corporate Vice President, General Counsel and Secretary
since July 2010.
Deborah L. Dyson joined ADP in 1988. Prior to her appointment as President, National Accounts Services in August
2017, she served as Corporate Vice President, Client Experience and Continuous Improvement from July 2014 to June 2018, as
Division Vice President / General Manager, Employer Services - Major Account Services South Service Center from July 2012
to June 2014, and as Division Vice President / General Manager, Employer Services - Major Account Services Northwest
Service Center from July 2006 to June 2012.
Michael C. Eberhard joined ADP in 1998. He has served as Vice President and Treasurer since November 2009.
89
Sreeni Kutam joined ADP in 2014. Prior to his appointment as Chief Human Resources Officer in June 2018, he
served as Interim Chief Human Resources Officer from January 2018 to June 2018, as Division Vice President, Human
Resources, Major Account Services from May 2016 to January 2018, and as Vice President, HR Strategy and Planning from
January 2014 to April 2016. Prior to joining ADP, he was an HR consultant.
Matthew Levin joined ADP in November 2018 as Chief Strategy Officer. Prior to joining ADP, he was a Managing
Partner of Psilos Group Managers from January 2017 to October 2018. Prior to joining Psilos Group Managers, he was
Executive Vice President and Head of Global Strategy of Aon plc from August 2011 to December 2016.
Don McGuire joined ADP in 1998. Prior to his appointment as President, Employer Services International in June
2018, he served as President, Global Enterprise Solutions EMEA/Streamline from July 2016 to June 2018, as Senior Vice
President, General Manager, Asia Pacific Region from December 2012 to June 2016, and as General Manager, ADP United
Kingdom/Ireland from September 2007 to December 2012.
Dermot J. O’Brien joined ADP in 2012. Prior to his appointment as Chief Transformation Officer in January 2018, he
served as Chief Human Resources Officer from April 2012 to January 2018.
Thomas Perrotti joined ADP in 1993. Prior to his appointment as President, Worldwide Sales and Marketing in
January 2017, he served as President, Major Account Services and ADP Canada from July 2015 to December 2016, as
Corporate Vice President and Senior Vice President, Service and Operations, Major Account Services from July 2014 to June
2015, as Senior Vice President, Service & Operations, Small Business Services from April 2013 to June 2014, as Senior Vice
President, Sales, Small Business Services from April 2011 to March 2013, and as Division Vice President, Global Sales
Operations, Employer Services from November 2009 to March 2011.
Douglas Politi joined ADP in 1992. Prior to his appointment as President, Compliance Solutions in February 2013, he
served as Senior Vice President, CFO Suite (AVS) from October 2011 to January 2013, and as Senior Vice President,
Retirement Services from September 2006 to September 2011.
Carlos A. Rodriguez joined ADP in 1999. Prior to his appointment in November 2011 to President and Chief
Executive Officer, he served as President and Chief Operating Officer from May 2011 to November 2011, and as President,
Employer Services International - National Account Services, ADP Canada, and GlobalView and Employer Services
International, from March 2010 to May 2011.
Stuart Sackman joined ADP in 1992. Prior to his appointment as Corporate Vice President, Global Shared Services in
July 2018, he served as Corporate Vice President, Global Product and Technology from March 2015 to June 2018, as Corporate
Vice President and General Manager of Multinational Corporations Services from June 2012 to February 2015, and as Division
Vice President and General Manager of the National Account Services’ East National Service Center from February 2008 to
May 2012.
Donald Weinstein joined ADP in 2006. Prior to his appointment as Corporate Vice President, Global Product and
Technology in July 2018, he served as Chief Strategy Officer from December 2015 to June 2018, as Senior Vice President,
Product Management from October 2010 to November 2015, and as Division Vice President, Strategy & Marketing from
September 2007 to September 2010.
Kathleen A. Winters joined ADP in April 2019 as Chief Financial Officer. Prior to joining ADP, she was Chief
Financial Officer and Treasurer of MSCI Inc. from May 2016 to March 2019. Prior to joining MSCI Inc., she served in various
positions of increasing responsibility at Honeywell International, Inc. from 2002 to 2016, most recently as Vice President and
Chief Financial Officer of the Performance Materials and Technologies operating segment.
Directors
See “Election of Directors” in the Proxy Statement for the Company’s 2019 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
Code of Ethics
ADP has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal
accounting officer and persons performing similar functions. The code of ethics may be viewed online on ADP’s website at
90
www.adp.com under “Investor Relations” in the “Corporate Governance” section. Any amendment to or waivers from the code
of ethics will be disclosed on our website within four business days following the date of the amendment or waiver.
Audit Committee; Audit Committee Financial Expert
See “Corporate Governance - Committees of the Board of Directors” and “Audit Committee Report” in the Proxy
Statement for the Company’s 2019 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Item 11. Executive Compensation
See “Corporate Governance,” “Compensation Discussion and Analysis,” “Compensation Committee Report,”
“Compensation of Executive Officers” and “Compensation of Non-Employee Directors” in the Proxy Statement for the
Company’s 2019 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
See “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan
Information” in the Proxy Statement for the Company’s 2019 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
See “Election of Directors” and “Corporate Governance” in the Proxy Statement for the Company’s 2019 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
See “Independent Registered Public Accounting Firm's Fees” in the Proxy Statement for the Company's 2019 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements
Part IV
The following report and Consolidated Financial Statements of the Company are contained in Part II, Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Statements of Consolidated Earnings - years ended June 30, 2019, 2018 and 2017
Statements of Consolidated Comprehensive Income - years ended June 30, 2019, 2018 and 2017
Consolidated Balance Sheets - June 30, 2019 and 2018
Statements of Consolidated Stockholders' Equity - years ended June 30, 2019, 2018 and 2017
Statements of Consolidated Cash Flows - years ended June 30, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Page in Form 10-K
95
All other Schedules have been omitted because they are inapplicable, are not required or the information is included
elsewhere in the financial statements or notes thereto.
(b) Exhibits
The following exhibits are filed with this Annual Report on Form 10-K or incorporated herein by reference to the
document set forth next to the exhibit in the list below:
3.1
Amended and Restated Certificate of Incorporation dated November 11, 1998 - incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement No. 333-72023 on Form S-4 filed
with the Commission on February 9, 1999
91
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Amended and Restated By-laws of the Company - incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K dated August 3, 2016
Form of Indenture between the Company and Wells Fargo Bank, National Association, as trustee -
incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-3 (No.
333-206631), filed on August 28, 2015
Form of First Supplemental Indenture between Automatic Data Processing, Inc. and Wells Fargo
Bank, National Association, as trustee - incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated September 15, 2015
Form of 2.250% Senior Note due 2020 - incorporated by reference to Exhibit A to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated September 15, 2015
Form of 3.375% Senior Note due 2025 - incorporated by reference to Exhibit B to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated September 15, 2015
364-Day Credit Agreement, dated as of June 12, 2019, among Automatic Data Processing, Inc., the
Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America,
N.A., BNP Paribas, Wells Fargo Bank, N.A., Citibank, N.A., MUFG Bank, Ltd. and Deutsche Bank
Securities Inc., as Syndication Agents, and Barclays Bank PLC, as Documentation Agent -
incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
June 12, 2019
Five-Year Credit Agreement, dated as of June 12, 2019, among Automatic Data Processing, Inc., the
Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America,
N.A., BNP Paribas, Wells Fargo Bank, N.A., Citibank, N.A., MUFG Bank, Ltd. and Deutsche Bank
Securities Inc., as Syndication Agents, and Barclays Bank PLC, as Documentation Agent -
incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated June
12, 2019
Five-Year Credit Agreement, dated as of June 13, 2018, among Automatic Data Processing, Inc., the
Lenders Party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America,
N.A., BNP Paribas, Wells Fargo Bank, N.A., Citibank, N.A. and MUFG Bank, Ltd., as Syndication
Agents, and Deutsche Bank Securities Inc. and Barclays Bank PLC, as Documentation Agents -
incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated
June 13, 2018
Amended and Restated Supplemental Officers Retirement Plan - incorporated by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017
(Management Compensatory Plan)
Automatic Data Processing, Inc. Deferred Compensation Plan, as Amended and Restated Effective
September 15, 2016 - incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 2016 (Management Compensatory Plan)
Automatic Data Processing, Inc. Change in Control Severance Plan for Corporate Officers, as
amended - incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K
for the fiscal year ended June 30, 2014 (Management Compensatory Plan)
Automatic Data Processing, Inc. Amended and Restated Employees’ Savings-Stock Purchase Plan -
incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2014 (Management Compensatory Plan)
Automatic Data Processing, Inc. Executive Retirement Plan - incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2015 (Management Compensatory Plan)
Automatic Data Processing, Inc. Retirement and Savings Restoration Plan - incorporated by reference
to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2015 (Management Compensatory Plan)
Automatic Data Processing, Inc. Corporate Officer Severance Plan - incorporated by reference to
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2015 (Management Compensatory Plan)
Automatic Data Processing, Inc. Change in Control Severance Plan for Corporate Officers (as
amended) (Management Compensatory Plan) - incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K dated November 6, 2018 (Management Compensatory Plan)
Automatic Data Processing, Inc. Amended and Restated 2008 Omnibus Award Plan (the "2008
Omnibus Award Plan") - incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2018 (Management Compensatory Plan)
French Sub Plan under the 2008 Omnibus Award Plan effective as of January 26, 2012 - incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2012 (Management Compensatory Plan)
92
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
Amended French Sub Plan under the 2008 Omnibus Award Plan effective as of April 6, 2016
(Management Compensatory Plan) - incorporated by reference to Exhibit 10.22 to the Company’s
Annual Report on Form 10-K for the fiscal year ended June 30, 2016 (Management Compensatory
Plan)
Form of Deferred Stock Unit Award Agreement under the 2008 Omnibus Award Plan - incorporated
by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the fiscal year
ended June 30, 2012 (Management Compensatory Plan)
Form of Stock Option Grant Agreement under the 2008 Omnibus Award Plan (Form for Employees) -
incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2014 (Management Compensatory Plan)
Form of Restricted Stock Award Agreement under the 2008 Omnibus Award Plan (Form for
Corporate Officers) - incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 2015 (Management Compensatory Plan)
Form of Stock Option Grant under the 2008 Omnibus Award Plan (Form for Corporate Officers) -
incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2015 (Management Compensatory Plan)
Form of Performance Stock Unit Award Agreement under the 2008 Omnibus Award Plan (Form for
Corporate Officers) - incorporated by reference to Exhibit 10.33 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2016 (Management Compensatory Plan)
Form of Stock Option Grant Agreement under the 2008 Omnibus Award Plan (Form for Corporate
Officers) - incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 2016 (Management Compensatory Plan)
Form of Performance Stock Unit Award Agreement under the 2008 Omnibus Award Plan for grants
beginning September 1, 2017 (Management Compensatory Plan) - incorporated by reference to
Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017
(Management Compensatory Plan)
Form of Stock Option Grant Agreement under the 2008 Omnibus Award Plan for grants beginning
September 1, 2017 (Management Compensatory Plan) - incorporated by reference to Exhibit 10.34 to
the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017 (Management
Compensatory Plan)
Form of Restricted Stock and Restricted Stock Unit Award Agreement under the 2008 Omnibus
Award Plan for grants beginning September 1, 2017 (Management Compensatory Plan) -
incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2017 (Management Compensatory Plan)
Form of Restricted Stock and Restricted Stock Unit Award Agreement under the 2008 Omnibus
Award Plan for grants beginning September 1, 2018 (Management Compensatory Plan) -
incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2018 (Management Compensatory Plan)
Separation Agreement and Release, dated June 13, 2018, by and between Ed Flynn and Automatic
Data Processing, Inc. - incorporated by reference to Exhibit 10.31 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2018
Automatic Data Processing, Inc. 2018 Omnibus Award Plan (the "2018 Omnibus Award Plan") -
incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Form
Schedule 14A dated September 20, 2018 (Management Compensatory Plan)
Form of Stock Option Grant Agreement under the 2018 Omnibus Award Plan (Management
Compensatory Plan) - incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K dated November 6, 2018 (Management Compensatory Plan)
Form of Restricted Stock and Restricted Stock Unit Award Agreement under the 2018 Omnibus
Award Plan (Management Compensatory Plan) - incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K dated November 6, 2018 (Management Compensatory Plan)
Form of Performance Stock Unit Award Agreement under the 2018 Omnibus Award Plan
(Management Compensatory Plan) - incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K dated November 6, 2018 (Management Compensatory Plan)
French Sub Plan under the 2018 Omnibus Award Plan (Adopted January 15, 2019) (Management
Compensatory Plan) - incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended December 31, 2018 (Management Compensatory Plan)
Offer Letter, dated as of March 1, 2019, between Automatic Data Processing, Inc. and Kathleen
Winters - incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 2019
93
10.32
21
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
Separation Agreement and Release, dated April 29, 2019, by and between Jan Siegmund and
Automatic Data Processing, Inc. - incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm
Certification by Carlos A. Rodriguez pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934
Certification by Kathleen A. Winters pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934
Certification by Carlos A. Rodriguez pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification by Kathleen A. Winters pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
XBRL instance document
XBRL taxonomy extension schema document
XBRL taxonomy extension calculation linkbase document
XBRL taxonomy label linkbase document
XBRL taxonomy extension presentation linkbase document
XBRL taxonomy extension definition linkbase document
94
AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A
Column B
(In thousands)
Column C
Additions
Column D
Column E
Balance at
beginning
of period
(1)
Charged to
costs and
expenses
(2)
Charged to
other accounts
(A)
Deductions
Balance at
end of
period
Year ended June 30, 2019:
Allowance for doubtful accounts:
Current
Long-term
Deferred tax valuation allowance
Year ended June 30, 2018:
Allowance for doubtful accounts:
Current
Long-term
Deferred tax valuation allowance
Year ended June 30, 2017:
Allowance for doubtful accounts:
Current
Long-term
Deferred tax valuation allowance
$
$
$
$
$
$
$
$
$
51,342
510
46,006
49,561
803
9,406
38,111
547
15,369
$
$
$
$
$
$
$
$
$
28,177
$
— $
7,171
$
5,165
$
(5) $
(20,685) $
(29,834) (B)
— (B)
(865)
21,443
$
— $
38,937
$
$
5,546
(293) $
(325) $
(25,208) (B)
— (B)
(2,013)
27,660
260
892
$
$
$
1,692
$
$
89
(1,754) $
(17,901) (B)
(93) (B)
(5,101)
$
$
$
$
$
$
$
$
$
54,850
505
31,627
51,342
510
46,006
49,561
803
9,406
(A) Includes amounts related to foreign exchange fluctuation.
(B) Doubtful accounts written off, less recoveries on accounts previously written off.
95
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
August 9, 2019
AUTOMATIC DATA PROCESSING, INC.
(Registrant)
By /s/ Carlos A. Rodriguez
Carlos A. Rodriguez
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Carlos A. Rodriguez
President and Chief Executive
August 9, 2019
(Carlos A. Rodriguez)
Officer, Director
(Principal Executive Officer)
/s/ Kathleen A. Winters
Chief Financial Officer
August 9, 2019
(Kathleen A. Winters)
(Principal Financial Officer)
/s/ Brock Albinson
(Brock Albinson)
Corporate Controller
(Principal Accounting Officer)
/s/ Peter Bisson
(Peter Bisson)
/s/ Richard T. Clark
(Richard T. Clark)
/s/ Eric C. Fast
(Eric C. Fast)
/s/ Linda R. Gooden
(Linda R. Gooden)
/s/ Michael P. Gregoire
(Michael P. Gregoire)
Director
Director
Director
Director
Director
August 9, 2019
August 9, 2019
August 9, 2019
August 9, 2019
August 9, 2019
August 9, 2019
96
/s/ R. Glenn Hubbard
(R. Glenn Hubbard)
/s/ John P. Jones
(John P. Jones)
Director
Director
August 9, 2019
August 9, 2019
/s/ Francine S. Katsoudas
Director
August 9, 2019
(Francine S. Katsoudas)
/s/ Thomas J. Lynch
(Thomas J. Lynch)
/s/ Scott F. Powers
(Scott F. Powers)
/s/ William J. Ready
(William J. Ready)
/s/ Sandra S. Wijnberg
(Sandra S. Wijnberg)
Director
Director
Director
Director
August 9, 2019
August 9, 2019
August 9, 2019
August 9, 2019
97
Name of Subsidiary
ADP Atlantic, LLC
ADP Benefit Services KY, Inc.
ADP Brasil Ltda
ADP Broker-Dealer, Inc.
ADP Canada Co.
ADP Employer Services GmbH
ADP Europe, S.A.S.
ADP France SAS
ADP GlobalView B.V.
ADP GSI France SAS
ADP Indemnity, Inc.
ADP International Services B.V.
ADP, LLC
ADP MasterTax, Inc.
ADP Pacific, Inc.
ADP Payroll Services, Inc.
ADP Screening and Selection Services, Inc.
ADP Tax Services, Inc.
ADP Technology Services, Inc.
ADP TotalSource I, Inc.
ADP TotalSource CO XXI, Inc.
ADP TotalSource CO XXII, Inc.
ADP TotalSource of CO XXIII, Inc.
ADP TotalSource DE IV, Inc.
ADP TotalSource FL XVI, Inc.
ADP TotalSource FL XVII, Inc.
ADP TotalSource FL XIX, Inc.
ADP TotalSource FL XXIX, Inc.
ADP TotalSource Group, Inc.
ADP TotalSource NH XXVIII, Inc.
Automatic Data Processing Insurance Agency, Inc.
Automatic Data Processing Limited
Automatic Data Processing Limited
EXHIBIT 21
Jurisdiction of
Incorporation
Delaware
Kentucky
Brazil
New Jersey
Canada
Germany
France
France
Netherlands
France
Vermont
Netherlands
Delaware
Arizona
Delaware
Delaware
Colorado
Delaware
Delaware
Florida
Colorado
Colorado
Colorado
Delaware
Florida
Florida
Florida
Florida
Florida
New Hampshire
New Jersey
Australia
United Kingdom
In accordance with Item 601(b)(21) of Regulation S-K, the Company has omitted the names of particular
subsidiaries because the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would
not have constituted a significant subsidiary as of June 30, 2019.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 33-46168,
333-10281, 333-10277, 333-110393, 333-147377, 333-169110, 333-170506, and 333-228204 on
Form S-8, and Registration Statement No. 333-226705 on Form S-3 of our reports dated
August 9, 2019, relating to the consolidated financial statements and financial statement
schedule of Automatic Data Processing, Inc. and subsidiaries (the “Company”), and the
effectiveness of the Company’s internal control over financial reporting appearing in the
Annual Report on Form 10-K of Automatic Data Processing, Inc. for the year ended June
30, 2019.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
August 9, 2019
EXHIBIT 31.1
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Carlos A. Rodriguez, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Automatic Data Processing, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: August 9, 2019
/s/ Carlos A. Rodriguez
Carlos A. Rodriguez
President and Chief Executive Officer
EXHIBIT 31.2
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Kathleen A. Winters, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Automatic Data Processing, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: August 9, 2019
/s/ Kathleen A. Winters
Kathleen A. Winters
Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Automatic Data Processing, Inc. (the "Company") on Form 10-K for the fiscal year
ending June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Carlos A.
Rodriguez, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
Date: August 9, 2019
/s/ Carlos A. Rodriguez
Carlos A. Rodriguez
President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Automatic Data Processing, Inc. (the "Company") on Form 10-K for the fiscal year
ending June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kathleen A.
Winters, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
Date: August 9, 2019
/s/ Kathleen A. Winters
Kathleen A. Winters
Chief Financial Officer