UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-K
_________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended June 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number 1-5397
AUTOMATIC DATA PROCESSING, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
Delaware
22-1467904
One ADP Boulevard
Roseland, NJ
(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 ý 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 ý
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 ý 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 ý 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
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
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 $103,548,812,666. On July 29, 2022 there were
415,516,984 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 2022 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.
Item 9C.
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
In 1949, our founders established ADP to shape the world of work with a simple, innovative idea: help clients focus on their
business by solving their payroll challenges. Today, we are one of the world’s leading global technology companies providing
comprehensive cloud-based human capital management (HCM) solutions that unite HR, payroll, talent, time, tax and benefits
administration. Our unmatched experience, expertise, insights and cutting-edge technology have transformed HCM from an
administrative challenge to a strategic business advantage. Tailored to meet the needs of businesses of all sizes, we help them
work smarter today so they can have more success tomorrow. We serve over 990,000 clients and pay over 39 million workers
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.
3
BUSINESS OVERVIEW
ADP’s Mission
is
As data, digital technology, globalization, new business
models and other significant events and disruptions reshape
to power
the way people work, our mission
organizations with insightful solutions that meet the
changing needs of our clients and their workers. Our HCM
technology, industry and compliance expertise and data
insights deliver measurable results and peace-of-mind, and
contribute to an engaged, productive workforce. Our
leading technology and commitment to service excellence
are 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 always 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 design 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 (HRO Solutions). We offer comprehensive
HRO solutions in which we provide complete management
solutions for HR administration, payroll administration,
talent management,
benefits
employee
administration, employer liability management, and other
HCM and employee benefits functions.
benefits,
• 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
solutions and our market-leading, cloud-based multi-
country solutions.
4
With a large and growing addressable market, we are
executing on our strategic pillars by focusing on the
following priorities:
• Investing in our world-class and next-gen platforms that
are built for the future of work, and providing market-
leading product and technology solutions that solve the
needs of our clients today, anticipate their needs of
tomorrow and provide them with valuable data insights and
guidance that help them understand their workforce and
how they compare to their industry peers.
• Continuing to offer the broadest suite of complete
identifying and pursuing new and
solutions, while
additional opportunities to expand and build on our
solutions to ensure that our clients and their workers can
navigate the ever-changing and challenging world of work.
• Enhancing our powerful distribution with impactful data,
digital technology and marketing investments.
• Accelerating our digital transformation and leveraging
technology to simplify and personalize how we engage
with our clients and how their workers engage with us –
delivering solutions wherever they are, whether at work or
on the go.
• Providing our clients with comprehensive HR and payroll
capabilities that drive productivity and enable compliance
globally through our world-class platforms and multi-
national solutions.
Our footprint and scale in the HCM industry is unmatched.
Together with leading technology and deep in-country
compliance expertise, we are strongly positioned to
continue to drive sustainable long-term growth and value
by delivering solutions to clients of all sizes and their
workers, wherever they do business.
Innovation at ADP
Innovation is in our DNA. For over 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 HCM
automation, HCM in the cloud, mobile HCM and a digital
HCM marketplace. As the business, data 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 designed for the ever-changing
world of work. Built from the ground up to be cloud-
native, global, scalable and secure, our next-gen platforms
provide our clients with the flexibility they need to address
today’s and tomorrow’s workplace challenges. Our award
winning next-gen 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. And, by deploying low-code applications, clients
can easily tailor the solution to their needs.
Our next-gen payroll solution is a global solution that
supports workers of all types and enables real-time,
transparent, continuous payroll calculations. This next-gen
payroll solution also unlocks flexible pay choices for our
clients so they can provide the best pay experience for their
workers. As the regulatory environment rapidly changes,
making
the
for companies
complexities of payroll, our next-gen payroll solution’s
built-in compliance capabilities enable our clients to focus
on managing their business.
to navigate
it harder
turn
into an
interface
intuitive conversation
Last year, we launched the “Roll™ by ADP” mobile-first
solution – reimagining how small businesses do payroll.
This groundbreaking payroll solution utilizes an AI-
traditional payroll
powered chat
to
management
that can
complete payroll in under a minute. Leveraging ADP’s
long-standing payroll expertise and data security, small
business owners can download and self-purchase Roll and
run payroll anywhere, anytime, quickly and compliantly,
with no experience or training needed. The conversational
experience runs off simple chat prompts such as “Run my
payroll,” offering a frictionless experience that also allows
clients to confidently handle compliance matters like tax
filing and deposits.
The size and breadth of our client base provides us an
unrivaled HCM dataset, and we are focused on converting
our data advantage into our client’s data advantage. We are
doing this by differentiating our HCM solutions with
ADP’s unmatched dataset that provides clients with
insights that can help drive better decisions, and by
continuing to identify and pursue new and additional data-
as-a-service opportunities. We are leading this innovation
effort with ADP® DataCloud, our award-winning ML and
workforce analytics platform which is the largest private
repository of payroll information available. DataCloud
analyzes aggregated, anonymized and timely HCM and
compensation data from more than 930,000 organizations
across the U.S., powering solutions that provide clients
with in-depth workforce and business insights that enable
critical HR decisions. ADP DataCloud's Skills Graph, our
proprietary data structure, is based on more than 30 million
employee records, 65 million resumes and 7 million job
postings across more
industries and 500
geographic areas, and extracts, aligns and normalizes key
information such as skills, job titles and levels, education
and qualifications from non-structured data and infers
missing skills and qualifications from context. Skills Graph
powers ADP’s Candidate Profile Relevancy tool to help
score, assess and predict candidates who are the best fit for
a job opening, as well as our new Organizational
Benchmarking Dashboard which enables companies to
decide how best to deploy their workers by comparing
organizational metrics like headcount, labor costs and
turnover against other similar businesses. We offer similar
tools to clients outside the United States, including through
our ADP GlobalView® and ADP iHCM solutions.
than 20
ADP’s Model-Based Benchmarks, powered by Skills
Graph, also extend benchmarks to include compensation
for up to 150 million workers. Model-Based Benchmarks
are driven by a set of deep learning models that extract
patterns and knowledge from millions of payroll records
and job profiles to provide accurate information that
reflects the reality of the position being shown. ADP’s Pay
Equity Storyboard combines analytics and benchmarking
5
to understand how
to help employers better understand potential pay gaps and
them with real, up-to-date, aggregated and
provide
anonymized market data
their
compensation for a particular job compares to other similar
employers. Insights powered by DataCloud are particularly
important with respect to diversity, equity and inclusion
(DEI) and, as part of our commitment to DEI, we
introduced the first-of-its-kind DEI benchmark to help
companies assess DEI gaps, track their progress and
achieve their goals, bolstering ADP’s suite of DEI
offerings. It was named a 2021 “Top HR Product” at the
annual HR Technology Conference, marking the seventh
consecutive year ADP has been honored for its innovative
HCM technology. The solution also earned acclaim in Fast
Company’s first-ever list of the “Next Big Things in
Tech,” which highlights tech breakthroughs that promise to
define the future of their industries. In harnessing the
power of data through ML, ADP recognizes the importance
of accountability, transparency, privacy, explainability and
those goals has
in furtherance of
governance, and
established an active AI & Data Ethics Committee,
comprised of both industry leaders and ADP experts,
which advises on emerging industry trends and concerns
and provides guidance with respect to compliance with the
principles that ADP should follow while developing
products, systems and applications that involve artificial
intelligence, ML and data.
their payroll
Our innovative Wisely® payment offerings support an
employer’s need for flexible payment solutions in order to
meet the individual needs of its workers. Wisely® Pay is a
network-branded payroll card that comes with a digital
account that enables employers to pay their employees, and
enables employees
funds
to access
immediately, including via a network member bank or an
ATM, make purchases or pay bills, deposit checks, load
additional funds onto the card, such as tax refunds, and
transfer funds to a bank account in the United States. As
we also seek to provide employee financial solutions, we
offer Wisely® Direct, a network-branded general purpose
reloadable card that comes with a digital account, which
provides similar features and functionality as Wisely Pay
but is offered directly to consumers. Our digital card
offerings are
that feature
true banking alternatives
innovative optional services such as savings envelopes,
spend-tracking, cash-back rewards and support for digital
wallets.
‘Always Designing for People’ isn’t just a tag line –
innovation is also about putting our clients first by giving
them and their workers a faster, smarter and easier user
experience (UX) that was designed with and for them.
With a modern look and feel based on our brand new
design system, our new UX is powered by data and ML
and provides intuitive workflows that are available when
and where our clients and their workers need it. We are
investing in UX alignment and simplification across our
strategic products and solutions, with new UX releases for
RUN Powered by ADP®, MyADP®, ADP® Mobile
Solutions and, most recently, ADP Workforce Now®.
In addition, our ADP Mobile app simplifies how work gets
done by enabling clients to process their payroll anywhere,
their employees worldwide
and giving millions of
convenient access to their payroll and HR information in
29 languages.
We have also given third-party developers and system
to some of our platforms’ API
integrators access
6
(application programming interface) libraries through ADP
Marketplace in order to enable secure data sharing between
ADP and other solutions across the HR and business
ecosystem. ADP Marketplace is a digital HR storefront
where clients can discover the best-fit apps for their
industry; browse by solution-types such as learning
management, financial wellness, time and attendance, and
benefits administration; or connect HR software they
already use. The pre-built integrations help clients simplify
their processes, create a single system of record, and
reduce data errors, freeing up time and resources to focus
on growing their business and taking care of their people.
With more than 650 apps and integrations to choose from,
ADP Marketplace offers clients a modern HR experience
that they can tailor to their specific needs.
data and expertise make ADP the partner that clients trust
as they adapt to the new world of work and create
workplaces where everyone can thrive.
Reportable Segments
Our two reportable business segments are Employer
and Professional Employer Organization
Services
(“PEO”). For financial data by segment and by geographic
area, see Note 14
the “Consolidated Financial
Statements” contained in this Annual Report on Form 10-
K.
to
ranging
Employer Services. Our Employer Services segment
serves clients
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
Services, Benefits
needs
Administration, Talent Management, HR Management,
Workforce Management, Compliance Services, Insurance
Services and Retirement Services.
include:
Payroll
and
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.
Helping Clients and their Employees Emerge
Stronger from the COVID-19 Global
Pandemic
The COVID-19 global pandemic created extremely
challenging circumstances for our clients and
their
employees and, throughout, our priority has been to help
them navigate these challenges. As they evolved their
business models and operations to address changes in the
economy and workplace, we provided and continue to
provide trusted solutions, data and expertise.
confidently,
compliance
and
including our award-winning Return
As COVID-19 restrictions eased, employers returned to the
workplace and designed new policies reflecting
the
demand for remote and hybrid work models, and we
supported their efforts by providing tools that helped them
achieve business
manage
and
continuity,
engagement,
to
Workplace dashboard powered by ADP DataCloud. The
dashboard uses data analytics and employee surveys to
allow clients to monitor workforce trends including
availability, health attestation results, and worker readiness
and sentiment toward returning to the workplace. As the
way people work is reshaped, our innovative technology,
employee wellness
support
7
PRODUCTS AND SOLUTIONS
In order to serve the unique needs of our clients and their diverse types of businesses and workforce models, we provide a range
of solutions which businesses of all types and 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 800,000 small businesses; ADP Workforce Now®, serving over 80,000 mid-sized and large businesses across our strategic
pillars; and ADP Vantage HCM® and our next-gen HCM platform, serving 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 over 65,000 clients with premier global solutions consisting of in-country solutions and
multinational offerings, including ADP GlobalView®, ADP Celergo®/Streamline® and ADP iHCM.
Strategic Cloud-based Products and Solutions Across Client Size and Geography
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, including:
• RUN Powered by ADP combines a software platform for
tax
small business payroll, HR management and
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
plan
administration systems.
retirement
payment
plans,
and
• 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.
Payroll Services. We pay over 25 million (approximately
1 out of every 6) workers in the United States. We offer
flexible payroll services to employers of all sizes, including
the preparation of employee paychecks, pay statements,
supporting journals, summaries, and management reports.
8
resource planning
We provide employers with a wide range of payroll
options, including using mobile technology, connecting
their major enterprise
(“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.
insights to drive employee engagement and leadership
development, which
turn help drive employee
performance.
in
Workforce Management. ADP’s Workforce Management
offers a range of solutions to over 110,000 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 off, attendance policy and leave case
management 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 data analytics and reporting tools that provide
clients with insights, benchmarks and performance metrics
so they can better manage their workforce. In addition,
labor
industry-specific modules
forecasting, budgeting, activity and task management,
grant and project tracking, and tips management.
available
are
for
carrier
Benefits Administration. In the United States, we provide
powerful and agile solutions for employee benefits
administration. These options include health and welfare
leave administration services,
administration services,
insurance
employee
enrollment
communication services, and dependent verification
In addition, ADP benefits administration
services.
solutions offer employers a simple and flexible cloud-
based eligibility and enrollment system that provides their
employees with
tools, communications, and other
resources they need to understand their benefits options
and make informed choices.
services,
employee
Talent Management.
ADP’s Talent Management
solutions simplify and improve the talent acquisition,
management and activation process, from recruitment to
ongoing
development.
engagement
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 StandOut® powered
by ADP, which provides team leaders with data and
and
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 our clients. In our fiscal
year ended June 30, 2022, in the United States, we
processed and delivered more than 74 million employee
year-end tax statements, and moved more than $2.7 trillion
in client funds to taxing and other agencies and to our
clients’ employees and other payees.
• 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.
9
• 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 8,000 federal, state and local tax
agencies.
• 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.
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,
insurance agency,
in conjunction with our
licensed
HRO Solutions
in
the United States
Automatic Data Processing Insurance Agency, Inc.,
facilitates access
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, an SEC registered investment adviser under
the Investment Advisers Act of 1940. ADP Retirement
Services also offers trustee services through a third party.
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, 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 is enabled by ADP Workforce Now and 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 a full HR department. With our cloud-based HCM software at the core, we serve more than 15,500 clients and
10
more than 700,000 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 a broad range of HR
administrative services, including payroll and payroll tax,
employer compliance, HR guidance, employee benefits
and benefit administration, talent strategies, and workers’
compensation
risk and claims
management. Some of the rich offerings available through
ADP TotalSource to address today’s workplace challenges
include:
insurance
including
• Better Employee 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 access to a patented 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
tailor
leaks, and have
recommendations to continue to drive their business
forward. A payroll specialist is also available to clients to
help them ensure their workers are paid correctly, on time
and in compliance.
their ADP HR expert help
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).
ADP COS is designed for large business outsourcing for
payroll, HR administration, workforce management,
benefits administration and talent management. With ADP
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
ADP COS offers is powerful, 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.
11
ADP Global Payroll is a solution for multinational
organizations of all sizes, empowering them to harmonize
HCM strategies in 140 countries globally. This improves
visibility, control and operational efficiency, giving
organizations the insight and confidence to adapt to
changing local needs, while helping to drive overall
organizational agility and engagement.
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.
We also offer comprehensive, country-specific HCM
solutions that combine innovative technology with deep
local expertise. By operating a flexible service model, we
help customers manage various combinations of payroll
attendance
time
services, HR management,
management,
benefits
talent management
management, depending on the country in which the
solution is provided.
and
and
We pay over 14 million workers outside the United States
with our in-country solutions and with ADP GlobalView,
ADP Celergo/Streamline and ADP iHCM – our simplified
and intuitive multi-country 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
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 help
ensure the right people are in the right place at the right
time.
engagement
and
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/or remittance services in the
United States, Canada, the United Kingdom, 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 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 industries, no one
client, industry or industry group is material to our overall
12
COMPETITION
companies,
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 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
to assist clients with
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
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.
laws,
changing nature of
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
including
federal, state and foreign security breach notification laws
with respect to both client employee data and our own
employee data. The
these
comprehensive 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”), which
will be replaced by the voter-approved California Privacy
Rights Act of 2020 (the “CPRA”), impact our processing
of personal information of our employees and on behalf of
our clients. The GDPR imposes strict and 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 are one of the few
companies in the world to 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 and CPRA 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. In 2019, the
Office of the Comptroller of Currency (the “OCC”)
authorized us to open ADP Trust Company, National
Association (the “ADP Trust Bank”), via a national trust
bank charter pursuant to the National Bank Act. The ADP
Trust Bank is the sole trustee of ADP Client Trust, our
grantor trust which holds U.S. client funds, and is
responsible for the oversight and management of those
client funds. The ADP Trust Bank, and all of its fiduciary
activities including the U.S. money movement it oversees
to
and manages via ADP Client Trust,
comprehensive ongoing oversight and regulation by the
OCC. We have surrendered all state money transmitter
licenses as the activity previously managed through those
licenses was moved into the ADP Client Trust managed by
ADP Trust Bank, which is federally exempt from state
money transmitter regulation with respect to the client
money movement activity that it manages. In addition, our
U.S. money movement managed by the ADP Trust Bank
and our U.S. prepaid access offering are subject to the anti-
money laundering and reporting provisions of The Bank
Secrecy Act of 1970, as amended by the USA PATRIOT
Act of 2001 (the “BSA”). Elements of our money
is subject
13
movement activities outside of the United States are
subject to licensing and similar anti-money laundering and
reporting laws and requirements in certain 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
limited obligations and
to
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. ADP Broker-
Dealer, Inc., which supports our Retirement Services
business, is a registered broker-dealer regulated by the SEC
and the Financial Industry Regulatory Authority (FINRA).
subject
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.
We believe that key components of our compliance
programs provide real competitive differentiators. For
instance, our BCRs have enabled ADP to apply a global
standard of data protection, simplifying data transfer
processes and assisting our clients
the
demanding standards of data protection expected in Europe
– a solution that most competitors cannot provide.
Similarly, the ADP Client Trust and ADP Trust Bank
provide client funds with a level of protection that most
competitors cannot offer. We continue to expand our
approach to compliance and are adopting “Compliance by
design” as a tenet that prioritizes compliance in designing
and developing new solutions to support our clients.
in meeting
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.
SYSTEMS DEVELOPMENT AND
PROGRAMMING
respectively,
During the fiscal years ended June 30, 2022, 2021 and
2020, we invested approximately $1.210 billion, $1.016
billion and $947 million,
in systems
development and programming. These investments include
expenses for activities such as the development of new
products, maintenance expenses associated with our
existing technologies, purchases of new software and
software licenses, and additions to software resulting from
business combinations.
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.
OUR HCM STRATEGY
Our Human Capital Management (HCM) strategy is
simple, our people are one of our most valuable assets and
we are committed to valuing, developing and engaging
them.
regularly updates
Our Chief Human Resources Officer (CHRO), together
with our Chief Diversity and Talent Officer, manages our
HCM strategy and related programs and initiatives, as well
as our talent strategy. Our CHRO, along with our CEO, as
appropriate,
supports our
Compensation and Management Development Committee
of the Board (“CMDC”) as well as the Board of Directors
on HCM matters, including culture, engagement, and
diversity and inclusion. The CMDC is responsible for these
matters, as well as our executive compensation program,
management succession planning and talent development,
and company-wide equity-based plans.
and
Our Employees and Demographics
As of June 30, 2022, our global team of associates
consisted of approximately 60,000 persons. We track
certain gender and racial demographics of our workforce
and share them in our annual Global Corporate Social
Responsibility (“CSR”) Report, which is available on our
website. Nothing in our CSR Report shall be deemed
incorporated by reference into this Annual Report on Form
10-K.
CLIENTS AND CLIENT CONTRACTS
We provide services to more than 990,000 clients. In fiscal
2022, no single client or group of affiliated clients
accounted for revenues in excess of 2% of our annual
consolidated revenues.
in
the process of performing
We are continuously
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, based on a
client's timeline, 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
agreements having varying terms and conditions. No one
price quotation or service agreement is material to us.
Based on our retention levels in fiscal 2022, our client
retention is estimated at approximately 13 years in
Employer Services, and approximately 7 years in PEO.
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.
14
Our Culture and Values
More than 70 years ago, our founders established the
values that guide us today.
diverse and inclusive environment. We strive to reflect the
diversity of the communities and clients we serve and are
firmly focused on ensuring that all our associates are
welcomed and enjoy a deep sense of belonging.
We have a number of initiatives to strengthen and further
cultivate our diverse and inclusive culture, starting with our
Talent Task Force for all of our people leaders, which
includes diversity goals for our senior leaders that are tied
to their compensation as an incentive to diversify our
leadership ranks. Our Workforce Diversity Initiative uses
data analysis to identify and focus on opportunities to
increase the number of underrepresented associates in our
workforce to better reflect the communities we serve. Our
voluntary business resource groups (BRGs), which cover a
broad array of diverse associates that share common
interests and experiences, make us stronger by promoting
diversity and cultural awareness, accelerating associate
engagement, retention and career development, and
helping build relationships with diverse markets in our
communities.
These values have helped shape our one-of-a-kind culture,
which embraces diversity, equity,
inclusiveness and
belonging.
During our fiscal 2022, we undertook and implemented
several initiatives that underpin our culture, values and
talent practices, including:
Our long-term business success is closely linked to our
commitment to creating an environment in which our
associates thrive, and that means we have to listen to and
engage our associates. We conduct an annual culture
survey, myVoice, where our associates can share their
opinions on important topics, including client service,
diversity, social responsibility, ethics, innovation and
leadership. Along with many of our world-class clients, we
leverage our innovative StandOut® powered by ADP
platform,
talent engagement, performance
management and activation. We issue quarterly global
StandOut® Engagement Pulse® and Performance Pulse®
surveys to ensure that all associates can share how they
feel about their work and their team, and for us to get a
snapshot of engagement across the globe.
to drive
The strength of our ADP team comes from what each one
of us offers each other, our clients and our community.
Through our myMoment Recognition Program, we give
our associates the opportunity to recognize and celebrate
each other when they demonstrate our values, drive our
goals and go above and beyond in contributing to our
collective success. Our global ADP Cares program, which
is funded by the Company, the ADP Foundation and our
generous associates, helps members of our team get
through difficult, unforeseen events such as natural
disasters and major illnesses. We also proudly support our
associates that give back to our communities through paid
volunteer time off and our donation matching program.
Diversity, equity and inclusion are a cornerstone of our
one-of-a-kind culture. We value diverse perspectives and
believe that our associates and their best ideas thrive in a
15
• Continuing to eliminate a college degree requirement to
expand the applicant pool for non-specialized roles, such as
those in our Sales organization;
• Launching ADP’s Impact Council, activating
top
executives to align their business unit practices and
outcomes with our diversity, equity and inclusion strategy;
and
• Establishing partnerships with the National Black MBA
the United Negro College Fund and
Association,
Prospanica to further diversify our talent pipeline and
educate and develop their members.
In addition, we are deeply committed to fair and equitable
pay, which is critical to creating a diverse, inclusive and
engaging culture. We make pay decisions based on skills,
job-related experience, the market value of the job and
performance, and in the U.S. and Canada do not ask
candidates for prior pay history, whether or not we are
required to do so.
Our commitment to building a better world of work and
creating a workplace where everyone can thrive has led to
recognition across the globe, including Fortune’s World’s
Most Admired Companies (16 consecutive years); Best
Place to Work for LGBTQ+ Equality (13th perfect score
on the Human Rights Campaign Foundation’s Corporate
Equality Index); DiversityInc Top 50 Companies for
Diversity; Barron’s 100 Most Sustainable Companies;
Newsweek’s America’s Most Responsible Companies; and
Newsweek’s America’s Most Trustworthy Companies.
Our Talent Strategy
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
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.
to
Our talent strategy is simple – we aim to attract, develop
and retain ambitious, passionate and overall top talent by
offering a place where our people can grow their careers,
challenge themselves, share generously, take risks, and
create positive change. This has allowed us to be
consistently recognized by esteemed organizations as an
employer of choice year after year.
We invest in our team members to ensure they have the
skills necessary to succeed and grow their careers. The
ADP talent journey begins with an innovative, engaging
and comprehensive onboarding process followed by
extensive
training and mentorship. Thereafter, our
associates can access a wide range of professional and
functional skills training to further continue and enhance
performance and career development. Our professional
skills program provides on-demand and self-paced learning
paths on key topics such as business acumen, client
service, time management, teamwork and collaboration,
communication and career management. Our leadership
program is designed to help leaders build self-awareness,
cultivate
relationships, establish a
leadership model that is unique to their strengths and
achieve better decision-making using systems thinking.
internal
strong
Our Benefits and Health and Wellness Programs
The wide range of benefits and health and wellness
programs we offer contribute to an environment where all
our associates add to our success. Our associates receive a
competitive benefits package, intended to help them enjoy
physical, emotional and financial well-being and be
productive members of their teams. While exact benefits
vary by associate and region, they typically include health
care coverage, a 401(k) plan with company matching
contributions, life insurance, paid time off and tuition
reimbursement. We particularly emphasize benefits that
support individual and family needs (parental leave,
adoption/fertility benefits and caregiver support), and
to our
constantly update our programs according
associates’ needs.
We offer physical and mental wellness programs that help
our team pursue a healthy lifestyle and reduce absenteeism
and lost time due to injuries. Our efforts include a
company-wide health and safety manual and website,
safety education and training, and a wellness program that
rewards associates for completing wellness activities.
Physical and mental health initiatives vary across regions,
but can include personal health checks, nutrition and
fitness expert visits offering
free consultation and
programs, employee mental wellness assistance programs,
free counseling and mental health therapy assistance for
associates, and mindfulness classes.
16
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. See "Item 1. Business—
Competition" of this Form 10-K for a discussion of the
competitive environment in the markets in which we
operate. Many risks affect more than one category, and the
risks are not in order of significance or probability of
occurrence because they have been grouped by categories.
The risks described below are not the only risks we face
and the occurrence of any of the following risks or other
risks not presently known to us or that we currently believe
to be immaterial could have a materially adverse effect on
our business, results of operations, financial condition or
reputation.
LEGAL AND COMPLIANCE RISKS
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 cause us to incur substantial costs or could result in
the suspension or revocation of licenses or registrations,
the limitation, suspension or termination of services, the
imposition of consent orders or civil and criminal penalties,
including fines, and lawsuits, including class actions, 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
17
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 U.S. or foreign
tax laws, regulations or rulings or the interpretation thereof
could adversely affect our effective tax rate and our net
income. Changes in laws, or interpretations thereof, that
the co-employment arrangement between a
govern
professional employer organization and
its worksite
employees may require us to change the manner in which
we conduct some aspects of our PEO business. In addition,
changes in the manner in which health and welfare plans
sponsored by PEOs or the TotalSource Health and Welfare
Plan, in particular, are regulated could adversely impact the
demand for our PEO offering. Our Wisely offerings and
potentially other future offerings in the payments and/or
consumer space may subject us to additional laws and
regulations, some of which may not be uniform and may
require us to modify or restrict our offerings and decrease
our potential revenue and earnings.
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 continue to exercise a high level of
scrutiny with respect to anti-corruption, economic and
trade sanctions, and anti-money laundering laws and
regulations. Such scrutiny has resulted in aggressive
laws and
investigations and enforcement of such
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 2010. 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 and entities in the U.S. and a number of
other 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 2001 (the “BSA”). Among
other things, the BSA requires certain financial institutions,
including banks and money services businesses (such as
national trust banks and providers of prepaid access like
us), 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 as a provider of
prepaid access, and registered our ADP Trust Bank with
the Treasury Department’s Financial Crimes Enforcement
Network (FinCEN).
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 regularly review, upgrade and
enhance 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, including the
OCC which regulates the ADP Trust Bank, continue to
impose 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 that assist in processing our
money movement transactions may limit the scope of
services they provide to us or may impose additional
material 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
materially 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
18
to provide notification
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 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”), and state consumer
privacy laws like the California Consumer Protection Act
(the “CCPA”), which will be replaced by the voter-
approved California Privacy Rights Act of 2020 (the
“CPRA”), are among the most comprehensive of these
laws, and more and more jurisdictions are adopting
similarly comprehensive laws that impose new data
privacy protection requirements and restrictions. 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.
We believe that providing insights from data, including
artificial intelligence (AI) and machine learning (ML), will
become increasingly important to the value that our
solutions and services deliver to our customers. However,
the ability
insights may be
constrained by current or future regulatory requirements or
ethical considerations,
including our own published,
guiding ethical principles regarding AI and ML, that could
restrict or impose burdensome and costly requirements on
our ability to leverage data in innovative ways.
to provide data-driven
to
Complying with privacy, data protection and cyber security
laws and requirements, including the enhanced obligations
imposed by the GDPR, our BCRs and the CCPA and
CPRA, 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
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.
If we fail to protect our intellectual property rights, it
could materially adversely affect our business and our
brand
trademark
secret and
Our ability to compete and our success depend, in part,
intellectual property. We rely on patent,
upon our
copyright,
laws, and
trade
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
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-
to enforce our
consuming. Furthermore, our efforts
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.
advantage. Our
competitive
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 could be
costly and time-consuming.
SECURITY AND TECHNOLOGY RISKS
Our businesses collect, host, store, transfer, process,
disclose, use, secure and retain 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 in the disclosure
of confidential information, damage our reputation,
increase our costs, cause losses and materially adversely
affect our results of operations
19
including payroll
In connection with our business, we collect, host, store,
transfer, process, disclose, use, secure and retain 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,
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
significant amounts of funds from the accounts of our
clients and transmit them to their employees, taxing
authorities and other third parties.
information, health
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 our systems and processes. Nonetheless, the global
environment continues to grow 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/or 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 retain and dispose of, and the client funds
that we collect and transmit.
the
techniques used
We have programs and processes in place to prevent,
detect and respond to data or cybersecurity incidents.
However, because
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. Our ability to
address data or cybersecurity incidents may also depend on
the timing and nature of assistance that may be provided
from relevant governmental or law enforcement agencies.
Hardware, software, applications or services that we
develop or procure from third parties, or are required by
third parties such as foreign governments to install on our
systems, may contain defects in design or manufacture or
other problems that could (or, in respect of third-party
software, may be designed
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
to) compromise
computer viruses and malware into our systems or
otherwise compromise the confidentiality, integrity or
availability of data or our systems. As these threats
continue to evolve and increase, we continue to invest
significant resources, and 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 confidential personal and business information, we
may 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 (including our personnel) resulting
from successful attacks against our clients, vendors,
partners or other third parties may, in turn, be used to
attack our information technology systems.
intrusion, malicious
Any cyberattack, unauthorized
software infiltration, network disruption, denial of service,
corruption of data, ransomware attack, 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 loss, disclosure or misuse of confidential
personal or business information or the theft of client or
ADP 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, or cause current or potential clients to choose
another service provider. As the global environment
continues to grow 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
cybersecurity 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.
20
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. From time to time, these
systems, applications or solutions fail to operate properly
or become disabled. Any such failure or disablement, even
for a brief period of time, whether due to malevolent acts,
errors, defects or any other factor(s), could result in
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 disasters, military or terrorist actions,
power 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 or funds, service interruptions, disruptions to our
operations, or damage to our important facilities. In
addition, the severity of the failure or disablement may
require us to replace or rebuild the affected system(s),
application(s) or solution(s) and we may be unable to do so
before it materially adversely affects our business.
A disruption of the data centers or cloud-computing or
other technology services or systems that we utilize could
have a materially adverse effect on our business
We host our applications and serve our clients with data
centers that we operate, and with data centers that are
operated, and cloud-computing and other technology
services and systems that are provided, by third-party
vendors. These data centers or cloud-computing and other
technology services and systems have (and, in the future,
may) failed, become disabled or been disrupted. Any
failure, disablement or disruption, even for a limited period
of time, could disrupt our businesses 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
cloud-computing or other technology services or systems,
elect
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.
to not
renew
BUSINESS AND INDUSTRY RISKS
to upgrade, enhance and expand our
If we fail
technology and services
to meet client needs and
preferences, the demand for our solutions and services
may materially 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,
technology, solutions and
enhance, and expand our
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
if customers delay purchasing
product
decisions
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.
introductions
to evaluate
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.
A major natural disaster or catastrophic event could have
a materially adverse effect on our business, financial
21
condition and results of operations, or have other adverse
consequences
Our business, financial condition, results of operations,
access to capital markets and borrowing costs may be
adversely affected by a major natural disaster or
catastrophic event, including civil unrest, geopolitical
instability, war, terrorist attack, pandemics or other (actual
or threatened) public health emergencies such as the
COVID-19 outbreak, or other events beyond our control,
and measures taken in response thereto.
The COVID-19 outbreak created, and such other events
may create, significant volatility and uncertainty and
economic and financial market disruption. The extent of
any such impact depends on developments which are
highly uncertain and cannot be predicted, including the
duration and scope of the event; the governmental and
business actions taken in response thereto; actions taken by
the Company in response thereto and the related costs; the
impact on economic activity and employment levels; the
effect on our clients, prospects, suppliers and partners; our
ability to sell and provide our solutions and services,
including due to travel restrictions, business and facility
closures, and employee remote working arrangements; the
ability of our clients or prospects to pay for our services
and solutions; and how quickly and to what extent normal
economic and operating conditions can resume. In
addition, clients or prospects may delay decision making,
demand pricing and other concessions, reduce the value or
duration of their orders, delay planned work or seek to
terminate existing agreements. Our business
is also
impacted by employment levels across our clients, as we
have varied contracts throughout our business that blend
base fees and per-employee fees. The COVID-19 outbreak
may have long-term effects on the nature of the office
environment and remote working, which may present
operational and workplace culture challenges that may
adversely affect our business.
Political, economic and social factors may materially
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. A slowdown in the economy or other negative
changes, including in employment levels, the level of
interest rates or the level of inflation, may have a negative
impact on our businesses. In addition, as our operating
costs increase due to inflationary pressure or otherwise, we
may not be able to offset these increases by corresponding
price increases for our products and solutions. Clients may
react to worsening conditions by reducing their spending
on HCM services or renegotiating their contracts with us,
which may adversely affect our business and financial
results.
We invest our funds held for clients in liquid, investment-
grade marketable securities, money market securities, and
other cash equivalents. Nevertheless, such investments 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
increase our borrowing costs and/or require us to sell
available-for-sale securities in our funds held for clients to
satisfy our short-term funding requirements. When there is
a reduction in employment levels due to a slowdown in the
economy, the Company may experience a decline in client
fund obligations and may also sell available-for-sale
securities in our funds held for clients in order to reduce
the size of the funds held for clients to correspond to client
fund obligations. A sale of such available-for-sale
securities may result in the recognition of losses and reduce
the interest income earned on funds held for clients, either
or both of which may 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.
We publicly share certain
information about our
environmental, social and governance (“ESG”) initiatives.
We may face increased scrutiny related to our ESG
initiatives and any related targets, including from the
investment community. In addition, our ability to achieve
certain ESG initiatives and targets may depend on the
actions or continuing requirements of governmental
entities (e.g., our paperless initiatives may depend on
whether certain states continue to require employers to
offer employees to be paid via paper check or to obtain
22
employee consent to be paid electronically instead of via
paper check). Our failure to achieve progress in these and
other ESG areas on a timely basis, or at all, could impact
our reputation, business, including employee retention, and
growth.
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 strong, investment-
grade long-term debt ratings and high 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.
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, including
with respect to our ESG efforts, 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 that do not necessarily reflect the underlying
fundamentals and prospects of our business.
We may be unable to attract and retain qualified
personnel
Our ability
to grow and provide our clients with
competitive services is, to an important degree, dependent
on our ability to attract and retain highly skilled and
motivated people reflecting diverse perspectives and the
diversity of our communities and clients. Competition for
skilled employees in the outsourcing and other markets in
which we operate is increasingly intense, making it more
difficult and expensive to attract and retain highly skilled,
motivated and diverse personnel. If we are unable to attract
and retain highly skilled, motivated and diverse personnel,
results of our operations and culture may suffer.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
ADP owns 7 of its processing/print centers, and 11 other operational offices, sales offices, and its corporate headquarters in
Roseland, New Jersey, which aggregate approximately 2,960,506 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 5,668,295 square feet worldwide, expire at various times up to the year 2032. 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.
23
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, 2022, there were 33,473 holders of record of the Company’s common stock. As of such date, 1,275,687 additional
holders held their common stock in “street name.”
Issuer Purchases of Equity Securities
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)
640,656
786,840
812,694
2,240,190
$230.87
$213.87
$212.38
638,944
785,635
809,908
2,234,487
Maximum
Approximate Dollar
Value
of Shares that
may yet be
Purchased under
the Common Stock
Repurchase Plan (2)
$1,445,716,749
$1,277,703,317
$1,105,689,504
Period
April 1, 2022 to
April 30, 2022
May 1, 2022 to
May 31, 2022
June 1, 2022 to
June 30, 2022
Total
(1)
(2)
During the three months ended June 30, 2022, pursuant to the terms of the Company’s restricted stock program,
the Company purchased 5,703 shares at the then-market value of the shares to satisfy certain tax withholding
requirements for employees upon the vesting of their restricted shares.
The Company received the Board of Directors' approval to repurchase shares of the Company's common stock as
follows:
Date of Approval
November 2019
$5 billion
There is no expiration date for the common stock repurchase authorization.
For equity compensation plan information, please refer to Item 12 in Part III of this Annual Report on Form 10-K.
24
Performance Graph
The following graph compares the cumulative return on the Company’s common stock for the most recent five years with the
cumulative return on the S&P 500 Index and the Peer Group Index,(a) assuming an initial investment of $100 on June 30, 2017,
with all dividends reinvested. The stock price performance shown on this graph may not be indicative of future performance.
(a)
We use the Nasdaq Dividend Achievers Select Index as our Peer Group Index. The Nasdaq Dividend Achievers Select
Index is a select group of companies, that includes the Company, with at least ten consecutive years of increasing
annual regular dividend payments.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Tabular dollars are presented in millions, except per share amounts
The following section discusses our year ended June 30, 2022 (“fiscal 2022”), as compared to year ended June 30, 2021 (“fiscal
2021”). A detailed review of our fiscal 2021 performance compared to our fiscal 2020 performance is set forth in Part II, Item 7
of our Form 10-K for the fiscal year ended June 30, 2021.
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 and inflation; 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;
25
employment and wage levels; changes in technology; availability of skilled associates; the impact of new acquisitions and
divestitures; the adequacy, effectiveness and success of our business transformation initiatives; the impact of any uncertainties
related to major natural disasters or catastrophic events, including the coronavirus (“COVID-19”) pandemic; and supply-chain
disruptions. 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.
NON-GAAP FINANCIAL MEASURES
In addition to our U.S. GAAP results, we use adjusted results and other non-GAAP metrics to evaluate our operating
performance in the absence of certain items and for planning and forecasting of future periods. Adjusted EBIT, adjusted EBIT
margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate and organic constant currency are
all non-GAAP financial measures. Please refer to the accompanying financial tables in the “Non-GAAP Financial Measures”
section for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial
measures to their comparable GAAP financial measures.
EXECUTIVE OVERVIEW
Highlights from the year ended June 30, 2022 include:
10%
Revenue Growth
10%
Organic Constant Currency
Revenue Growth
70 basis points
Earnings Before Income Taxes
Margin Expansion
15%
Diluted EPS Growth
90 basis points
Adjusted EBIT Margin
Expansion
16%
Adjusted Diluted EPS Growth
New Business Bookings Growth 15% PEO Services
15% Employer Services
$3.6B Cash Returned via Shareholder Friendly Actions
$1.7B Dividends | $2.0B Share Repurchases
Average Worksite Employee Growth
We are the leading provider of cloud-based HCM technology solutions to employers around the world. Through our extensive
suite of products, coupled with industry and compliance expertise, we help our clients navigate a highly dynamic world of work
in order to give them peace-of-mind and reduce the time and effort they allocate to non-core tasks. This, in turn, allows our
clients to better focus on what matters most to them – running their businesses.
Over the decades since pioneering our industry, we have reshaped HCM time and again by continuously innovating across our
technology platforms and service solutions. Our commitment to innovation is continuous amid challenging business and
operating environments – whether it be a global recession or bull market, an international conflict or global pandemic. We
believe businesses, our clients, serve as a force for progress, and we remain committed to rethinking a better, more personalized
world at work to help our clients and their workers achieve their full potential. That commitment underpins our drive to
innovate across our portfolio in order to deliver sustainable, profitable growth.
During the fiscal year, we made significant progress on the roll-out of a new unified user experience ("UX") across our strategic
products and solutions. We transitioned hundreds of thousands of clients across our RUN, iHCM, and next-gen HCM client
bases over to the new UX, generating positive feedback from this transition to even more intuitive HCM workflows.
We continue to advance all of our key platforms, with Workforce Now being especially critical to our differentiation and
growth. Workforce Now continues building traction in the lower end of the U.S. enterprise market and was instrumental to
26
ADP being rated an overall "Customer's Choice" provider for the first time in Gartner's annual "Voice of the Customer" study.
In addition to beginning the roll-out of the new UX, this year we continued to make progress on the roll-out of our next-gen
payroll solution to a growing portion of our new Workforce Now clients, and we believe these two major enhancements will
help keep Workforce Now at the forefront of the industry.
We also made exciting enhancements to other solutions during the fourth quarter. We started offering self-enrollment with full
digital wallet capabilities within the Wisely program, allowing for a more frictionless experience for workers that enables them
to more easily transition to our digital payment offering. We expanded our Earned Wage Access solution by offering a
seamless, one-application solution for Wisely members, which enables employees to receive portions of their earned wages
prior to paydate at no cost. We will also be launching "Voice of the Employee", a new employee survey and listening tool,
which will help our clients seamlessly capture employee feedback and sentiments across various HR categories during the
employee lifecycle, which is critical in a labor market where listening to their employees can help our clients differentiate
themselves and better compete in the marketplace.
We continue to drive innovation by anticipating our clients' evolving needs and always designing for people as the world of
work changes. We lead the HCM industry by driving growth through our strategic, cloud-based HCM solutions and developing
innovations like our next-gen platforms. We further enable these solutions by supplementing them with organic, differentiated
investments such as the ADP Datacloud and ADP Marketplace, and through our compliance expertise.
For fiscal 2022, we delivered strong revenue growth of 10%. In addition, Employer Services achieved record New Business
Bookings and near-record-level retention of 92.1%. The PEO average number of Worksite Employees increased 15% for fiscal
2022. Our pays per control metric, which represents the number of employees on ADP clients' payrolls in the United States
when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses, grew 7% for fiscal
2022.
We have a strong business model, generating significant cash flows with low capital intensity, and offer a suite of products that
provide critical support to our clients’ HCM functions. We generate sufficient free cash flow to satisfy our cash dividend and
modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our re-investments, our
long term strategy, and our commitments to shareholder friendly actions. We are committed to building upon our past successes
by investing in our business through enhancements in research and development and by driving meaningful transformation in
the way we operate. ADP was named one of Fortune’s Most Admired Companies for the 16th year in a row, which highlights
our culture of continuous improvement, our consistency, and our focus on being a true partner to our clients as the world of
work continues to change. Our financial condition remains solid at June 30, 2022 and we remain well positioned to support our
associates and our clients.
27
RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS
Total Revenues
For the year ended June 30, respectively:
Total Revenues
10% YoY Growth
10% YoY Growth, Organic Constant Currency
Revenues in fiscal 2022 increased due to new business started from New Business Bookings, an increase in zero-margin
benefits pass-throughs, an increase in our pays per control, and continued strong client retention. Refer to “Analysis of
Reportable Segments” for additional discussion of the changes in revenue for each of our reportable segments, Employer
Services and Professional Employer Organization (“PEO”) Services.
Total revenues in fiscal 2022 include interest on funds held for clients of $451.8 million, as compared to $422.4 million in fiscal
2021. The increase in interest earned on funds held for clients resulted from an increase in our average client funds balances of
18.7% to $32.5 billion in fiscal 2022 as compared to fiscal 2021, partially offset by the decrease in our average interest rate
earned to 1.4% in fiscal 2022, as compared to 1.5% in fiscal 2021.
28
$16,498.3$15,005.420222021 Total 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
For the year ended June 30:
Years Ended
June 30,
2022
2021
%
Change
$ 8,252.6 $ 7,520.7
798.6
410.7
9,461.9
3,233.2
81.9
716.6
403.0
8,640.3
3,040.5
59.7
$ 12,777.0 $ 11,740.5
10 %
11 %
2 %
10 %
6 %
37 %
9 %
Operating expenses increased due to the increase in our PEO Services zero-margin benefits pass-through costs to $3,514.4
million from $3,092.0 million for the year ended June 30, 2022 and 2021, respectively. Additionally, operating expenses
increased due to increased costs to service our client base in support of our growing revenue, partially offset by a net reduction
of $28.8 million in our estimated losses related to ADP Traditional Incorporated Cell, formerly known as ADP Indemnity, Inc.
("ADP Indemnity") and the impact of foreign currency.
Systems development and programming costs increased for fiscal 2022 due to increased investments and costs to develop,
support, and maintain our new and existing products.
Selling, general and administrative expenses increased due to increased selling expenses as a result of investments in our sales
organization, increased marketing expenses and increased travel expenses, partially offset by a decrease in our allowance for
doubtful accounts of $26.0 million as a result of a decrease in estimated credit losses related to the impact of COVID-19 on our
clients ("the decrease in our allowance for doubtful accounts").
Interest expense increased primarily due to the issuance of 7-year fixed-rate notes totaling $1.0 billion issued in the fourth
quarter of fiscal 2021, as compared to the year ended June 30, 2021. Additionally, there was an increase in average interest rates
for commercial paper borrowings to 0.4% for the year ended June 30, 2022, as compared to 0.1% for the year ended June 30,
2021. This was coupled with an increase in average daily borrowings under our commercial paper program to $2.0 billion for
the year ended June 30, 2022, as compared to $1.6 billion for the year ended June 30, 2021.
Other (Income)/Expense, net
(In millions)
Years ended June 30,
Interest income on corporate funds
Realized losses/(gains) on available-for-sale securities, net
Impairment of assets
Gain on sale of assets
Non-service components of pension income, net
Other (income)/expense, net
2022
2021
$ Change
$
(41.0) $
(36.5) $
4.5
4.4
23.0
(11.3)
(15.7)
19.9
(7.5)
(9.8)
(61.7)
(58.6)
(3.1)
(2.3)
3.1
$
(82.8) $
(96.3) $
(13.5)
Other (income)/expense, net, decreased $13.5 million in fiscal 2022, as compared to fiscal 2021 primarily as a result of losses
on available-for-sale securities, net, in the current year, compared to gains in the prior year, and the items described below,
partially offset by the change in non-service components of pension income, net. See Note 10 of our Consolidated Financial
Statements for further details on non-service components of pension income, net.
29
In fiscal 2022, the Company recorded impairment charges of $23.0 million which is comprised of a write down of $12.1 million
related to software and customer lists which were determined to have no future use and impairment charges of $10.9 million
related to operating right-of-use assets associated with exiting certain leases early.
In fiscal 2021, the Company recorded impairment charges of $19.9 million, which is comprised of $10.5 million related to
internally developed software which was determined to have no future use, impairment charges of $9.4 million related to
operating right-of-use assets and certain related fixed assets associated with exiting certain leased locations early, and
recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale.
Earnings Before Income Taxes
For the year ended June 30, respectively:
á 13% YoY Growth
á 70 bps YoY Growth
Earnings before income taxes increased due to the increases in revenues partially offset by the increases in expenses discussed
above.
Overall margin increased due to increases in revenues discussed above, operational efficiencies, the decrease of $26.0 million in
our allowance for doubtful accounts, and a net reduction of $28.8 million in our estimated losses related to ADP Indemnity,
partially offset by incremental pressure from growth in our zero-margin benefits pass-throughs.
30
Earnings Before Income TaxesYear Ended$3,804.1$3,361.220222021MarginYear Ended23.1%22.4%20222021
Adjusted Earnings before certain Interest and Taxes ("Adjusted EBIT")
For the year ended June 30, respectively:
á 14% YoY Growth
á 90 bps YoY Growth
Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds
extended investment strategy, and net charges, including gain on sale of assets related to our broad-based transformation
initiatives and the impact of net severance charges, as applicable, in the respective periods.
Provision for Income Taxes
The effective tax rate in fiscal 2022 and 2021 was 22.5% and 22.7%, respectively. The decrease in the effective tax rate is
primarily due to a favorable earnings mix, lower reserves for uncertain tax positions, and an intercompany transfer of certain
assets in fiscal 2022, partially offset by favorable adjustments to prior year tax liabilities and a foreign tax election in fiscal
2021. Refer to Note 11, 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 2022 and 2021 was 22.5% and 22.7%, respectively. The drivers of the adjusted effective
tax rate are the same as the drivers of the effective tax rate discussed above.
31
Adjusted EBITYear Ended$3,871.8$3,384.220222021Adjusted EBIT MarginYear Ended23.5%22.6%20222021
Net Earnings and Diluted Earnings per Share
For the year ended June 30, respectively:
á 13% YoY Growth
á 15% YoY Growth
Adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.
Diluted EPS increased as a result of the increase in net earnings and the impact of fewer shares outstanding resulting from the
repurchase of approximately 9.2 million shares during fiscal 2022 and 8.2 million shares during fiscal 2021, partially offset by
the issuances of shares under our employee benefit plans.
Adjusted Net Earnings and Adjusted Diluted Earnings per Share
For the year ended June 30, respectively:
á 15% YoY Growth
á 16% YoY Growth
For fiscal 2022, adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.
32
Net EarningsYear Ended$2,948.9$2,598.520222021Diluted EPSYear Ended$7.00$6.0720222021Adjusted Net EarningsYear Ended$2,951.6$2,577.720222021Adjusted Diluted EPSYear Ended$7.01$6.0220222021
ANALYSIS OF REPORTABLE SEGMENTS
Employer Services
PEO Services
Other
Employer Services
PEO Services
Other
n/m - not meaningful
Employer Services
Revenues
Revenues
Years Ended
June 30,
2022
2021
$ 10,967.7 $ 10,195.2
5,545.7
4,818.3
(15.1)
(8.1)
$ 16,498.3 $ 15,005.4
% Change
As
Reported
Organic
Constant
Currency
8 %
15 %
n/m
10 %
8 %
15 %
n/m
10 %
Earnings before Income Taxes
Years Ended
June 30,
2022
2021
% Change
As
Reported
$ 3,406.3 $ 3,052.1
718.8
(409.7)
871.2
(473.4)
$ 3,804.1 $ 3,361.2
12 %
21 %
n/m
13 %
Revenues increased due to new business started from New Business Bookings, an increase in our pays per control of 7%,
continued strong retention, and an increase in interest earned on funds held for clients.
Earnings before Income Taxes
Employer Services' earnings before income taxes increased in fiscal 2022 due to increased revenues discussed above, partially
offset by increases in expenses. The increases in expenses were due to increased costs to service our client base in support of
our growing revenue, increases in selling expenses, and investments and costs to develop, support, and maintain our new and
existing products, partially offset by the decrease of $26.0 million in our allowance for doubtful accounts.
33
For the year ended June 30, respectively:
á 110 bps YoY Growth
Employer Services' margin increased due to increases in revenues discussed above, operational efficiencies, and the decrease of
$26.0 million in our allowance for doubtful accounts, partially offset by an increase in costs to service our client base in support
of our growing revenue.
PEO Services
Revenues
PEO Services' revenues
$ 5,545.7 $ 4,818.3 $
Less: PEO zero-margin benefits pass-throughs
PEO Services' revenues excluding zero-margin benefits pass-throughs
3,514.4
3,092.0
$ 2,031.3 $ 1,726.3 $
Years Ended
June 30,
2022
2021
Change
$
727.4
422.4
305.0
%
15 %
14 %
18 %
PEO Revenues
PEO Services' revenues increased 15% for fiscal 2022 due to increases in average worksite employees of 15% for fiscal 2022,
as compared to fiscal 2021, and due to an increase in zero-margin benefits pass-throughs.
Earnings before Income Taxes
PEO Services’ earnings before income taxes increased 21% in fiscal 2022, due to increased revenues discussed above and a net
reduction of $28.8 million in our estimated losses related to ADP Indemnity, partially offset by the increases in zero-margin
benefits pass-throughs of $422.4 million for fiscal 2022.
34
ES MarginYear Ended31.1%29.9%20222021
For the year ended June 30, respectively:
á 80 bps YoY Growth
PEO Services' overall margin increased for fiscal 2022 due to an increase in revenues discussed above and a net reduction of
$28.8 million in our estimated losses related to ADP Indemnity, partially offset by by incremental pressure from growth in our
zero-margin benefits pass-throughs.
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 caps the exposure for each claim at $1 million per occurrence and has also secured
aggregate stop loss insurance that caps aggregate losses at a certain level in fiscal years 2012 and prior from an admitted and
licensed insurance company of AIG. 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.
Additionally, starting in fiscal year 2013, 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 the Company up to the $1 million per occurrence related to the workers' compensation and employer's liability
deductible reimbursement insurance protection for PEO Services' worksite employees. Each of these reinsurance arrangements
limits our overall exposure incurred up to a certain limit. The Company believes the likelihood of ultimate losses exceeding this
limit is remote. During fiscal 2022, ADP Indemnity paid a premium of $260 million to enter into a reinsurance arrangement
with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2022 policy year up to $1 million per
occurrence. ADP Indemnity recorded a pre-tax benefit of approximately $61 million in fiscal 2022 and a pre-tax benefit of
approximately $32 million in fiscal 2021, which were primarily a result of changes in our estimated actuarial losses. ADP
Indemnity paid a premium of $284 million in July 2022, to enter into a reinsurance agreement with Chubb to cover
substantially all losses incurred by ADP Indemnity for fiscal 2023 policy year on terms substantially similar to the fiscal 2022
reinsurance policy.
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, severance costs, non-recurring
gains and losses, the elimination of intercompany transactions, and all other interest income and expense.
35
PEO MarginYear Ended15.7%14.9%20222021
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
Adjusted provision for income taxes
Adjusted net earnings
Adjusted diluted earnings per share
Adjusted effective tax rate
Organic constant currency
Net earnings
Provision for income taxes
Net earnings
Diluted earnings per share
Effective tax rate
Revenues
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 periods, 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 corresponding U.S. GAAP measures, and they may not be comparable to similarly titled measures at other companies.
36
Net earnings
Adjustments:
Provision for income taxes
All other interest expense (a)
All other interest income (a)
Transformation initiatives (b)
Excess capacity severance charges
Legal settlements
Adjusted EBIT
Adjusted EBIT Margin
Provision for income taxes
Adjustments:
Transformation initiatives (c)
Excess capacity severance charges
Legal settlements
Adjusted provision for income taxes
Adjusted effective tax rate (d)
Net earnings
Adjustments:
Transformation initiatives (b)
Income tax benefit for transformation initiatives (c)
Excess capacity severance charges
Income tax benefit for excess capacity severance charges
Legal settlements
Income tax provision/ (benefit) for legal settlements
Adjusted net earnings
Diluted EPS
Adjustments:
Transformation initiatives (b) (c)
Excess capacity severance charges
Legal settlements
Adjusted diluted EPS
Years Ended
June 30,
% Change
2022
2021
As Reported
$
2,948.9
$
2,598.5
13 %
855.2
71.3
(7.1)
3.5
—
—
762.7
57.3
(6.5)
—
2.9
(30.7)
$
3,871.8
$
3,384.2
14 %
23.5 %
22.6 %
$
855.2
$
762.7
12 %
0.8
—
—
—
0.5
(7.5)
$
856.0
$
755.7
13 %
22.5 %
22.7 %
$
2,948.9
$
2,598.5
13 %
3.5
(0.8)
—
—
—
—
2,951.6
7.00
0.01
—
—
$
$
—
—
2.9
(0.5)
(30.7)
7.5
$
$
2,577.7
6.07
—
0.01
(0.05)
6.02
$
7.01
$
15 %
15 %
16 %
(a) In adjusted EBIT 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 are not related to our client funds extended investment strategy and are labeled as “All
other interest expense” and “All other interest income.”
(b) In fiscal 2022, the charges include consulting costs relating to our company wide transformation initiatives, partially offset
by net reversals relating to severance, and gain on sale of assets. Unlike other severance charges which are not included as an
adjustment to get to adjusted results, these specific charges relate to actions taken as part of our broad-based, company-wide
transformation initiative.
(c) The income tax provision/(benefit) was calculated based on the marginal rate in effect for the year ended June 30, 2022.
(d) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by the sum of our Adjusted
net earnings plus our Adjusted provision for income taxes.
The following table reconciles our reported growth rates to the non-GAAP measure of organic constant currency, which
excludes the impact of acquisitions, the impact of dispositions, and the impact of foreign currency. The impact of acquisitions
37
and dispositions is calculated by excluding the current year revenues of acquisitions until the one-year anniversary of the
transaction and by excluding the prior year revenues of divestitures for the one-year period preceding the transaction. The
impact of foreign currency is determined by calculating the current year results using foreign exchange rates consistent with the
prior year. The PEO segment is not impacted by acquisitions, dispositions or foreign currency.
Consolidated revenue growth as reported
Adjustments:
Impact of acquisitions
Impact of foreign currency
Consolidated revenue growth, organic constant currency
Employer Services revenue growth as reported
Adjustments:
Impact of acquisitions
Impact of foreign currency
Employer Services revenue growth, organic constant currency
Year Ended
June 30,
2022
10 %
— %
— %
10 %
8 %
— %
— %
8 %
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2022, cash and cash equivalents were $1.4 billion, which were primarily invested in time deposits and money
market funds.
For corporate liquidity, we expect existing cash, cash equivalents, short-term marketable securities, cash flow from operations
together with our $9.7 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 the foreseeable future. Our financial condition remains solid
at June 30, 2022 and we have sufficient liquidity.
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 $9.7 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 related to our client funds extended investment strategy. See Note 8 of our
Consolidated Financial Statements for a description of our short-term financing including commercial paper.
38
Operating, Investing and Financing Cash Flows
Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows
are summarized as follows:
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
Years ended June 30,
2022
2021
$ Change
$
3,099.5 $
3,093.3 $
6.2
(7,014.4)
(3,515.0)
(3,499.4)
13,653.4
6,437.5
7,215.9
(98.7)
73.8
(172.5)
$
9,639.8 $
6,089.6 $
3,550.2
Net cash flows provided by operating activities was flat compared to prior year and includes a net unfavorable change in the
components of operating assets and liabilities, due to timing on collections of accounts receivable and an increase in incentive
compensation payments, offset by the growth in our underlying business (net income adjusted for non-cash adjustments), as
compared to the year ended June 30, 2021.
Net cash flows used in investing activities changed due to the timing of proceeds and purchases of corporate and client funds
marketable securities of $3,455.6 million, and higher payments related to acquisitions of intangibles and a business, offset by
proceeds from the sale of property, plant, and equipment.
Net cash flows provided by financing activities changed due to a net increase in the cash flow from client funds obligations of
$8,721.7 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other
payees, an increase in reverse repurchase agreements borrowing, and the settlement of cash flow hedges in the year ended
June 30, 2021. These were partially offset by the issuance of debt in the year ended June 30, 2021 and repurchases of common
stock and dividends paid in fiscal 2022.
We purchased approximately 9.2 million shares of our common stock at an average price per share of $214.40 during fiscal
2022, as compared to purchases of 8.2 million shares at an average price per share of $170.04 during fiscal 2021. From time to
time, the Company may repurchase shares of its common stock under its authorized share repurchase program. 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.
Capital Resources and Client Fund Obligations
We have $3.0 billion of senior unsecured notes with maturity dates in 2025, 2028, and 2030. 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 9 of our Consolidated
Financial Statements for a description of our notes.
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. This commercial paper program provides for the issuance of up to $9.7 billion in aggregate
maturity value. Our commercial paper program is rated A-1+ by Standard and Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by
Fitch. 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, 2022 and 2021, we had no commercial paper borrowing outstanding. Details of the
borrowings under the commercial paper program are as follows:
Years ended June 30,
Average daily borrowings (in billions)
Weighted average interest rates
Weighted average maturity (approximately in days)
2022
2021
$
$
2.0
0.4 %
1 day
1.6
0.1 %
1 day
39
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, 2022 and 2021, there were $136.4 million and $23.5
million, respectively, of outstanding obligations related to the reverse repurchase agreements. Details of the reverse repurchase
agreements are as follows:
Years ended June 30,
Average outstanding balances
Weighted average interest rates
2022
299.6
$
2021
136.7
$
0.7 %
0.2 %
We vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility. We had a $3.75 billion,
364-day credit agreement that was amended in June 2022 and matured in July 2022. On July 1, 2022, the company entered into
a new $3.75 billion 364-day credit agreement that matures in June 2023 with a one year term-out option to replace the maturing
facility. In addition, we have a five-year $2.75 billion credit facility and a five-year $3.2 billion credit facility maturing in June
2024 and June 2026, 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 funding for general corporate purposes, if necessary. We had no borrowings
through June 30, 2022 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 $9.7 billion available to us under the revolving credit agreements. See Note 8 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 primarily 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 through June 30, 2022. In addition, we own U.S. government securities which primarily include debt
directly issued by Federal Farm Credit Banks and Federal Home Loan 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 4 of our Consolidated Financial Statements for a description of our corporate investments and funds held
for clients.
Capital expenditures for fiscal 2022 were $177.1 million, as compared to $178.3 million for fiscal 2021. We expect capital
expenditures in fiscal 2023 to be between $175 million and $200 million.
Contractual Obligations
Our contractual obligations at June 30, 2022 relate primarily to operating leases (Note 6) and other arrangements recorded in
our balance sheet or disclosed in the notes to our financial statements, including benefit plan obligations (Note 10), liabilities
for uncertain tax positions (Note 11), purchase obligations (Note 12), debt obligations (Note 9) and $309.5 million of interest
payments of our debt, of which $63.3 million is expected to be paid within one year.
In addition to the obligations described above, we had obligations for the remittance of funds relating to our payroll and payroll
tax filing services. As of June 30, 2022, the obligations relating to these matters, which are expected to be paid in fiscal 2023,
total $51,285.5 million and were recorded in client funds obligations on our Consolidated Balance Sheets. We had $49,569.2
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, 2022.
Separately, ADP Indemnity paid a premium of $284 million in July 2022 to enter into a reinsurance agreement with Chubb to
cover substantially all losses incurred by ADP Indemnity for the fiscal 2023 policy year. At June 30, 2022, ADP Indemnity had
total assets of $612.0 million to satisfy the actuarially estimated unpaid losses of $533.9 million for the policy years since July
1, 2003. ADP Indemnity paid claims of $1.8 million and $3.3 million, net of insurance recoveries, in fiscal 2022 and 2021,
40
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 have not yet been 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 our regular quarterly dividends, share repurchases, capital expenditures 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. In circumstances where we experience a reduction in employment levels due to a slowdown in the economy, we may
make tactical decisions to sell certain securities in order to reduce the size of the funds held for clients to correspond to client
funds obligations. 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 $9.7 billion commercial paper program (rated A-1+ by Standard and Poor’s, P-1 by Moody’s,
and F1+ by Fitch, the highest possible short-term credit ratings), our ability to engage in reverse repurchase agreement
transactions and available borrowings under our $9.7 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 at
time of purchase 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, and for single A rated, AA-rated and AAA-rated securities it 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.
41
Details regarding our overall investment portfolio are as follows:
Years ended June 30,
Average investment balances at cost:
Corporate investments
Funds held for clients
Total
Average interest rates earned exclusive of realized
losses/(gains) on:
Corporate investments
Funds held for clients
Total
Net realized losses/(gains) on available-for-sale securities
As of June 30:
2022
2021
$ 4,241.3
$ 3,525.6
32,480.3
27,353.1
$ 36,721.6
$ 30,878.7
1.0 %
1.4 %
1.3 %
1.0 %
1.5 %
1.5 %
4.4
(11.3)
Net unrealized pre-tax (losses)/gains on available-for-sale securities
$
(1,721.4) $
502.2
Total available-for-sale securities at fair value
$ 28,391.6 $ 24,371.7
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 decreased from 1.5% for
fiscal 2021 to 1.3% for fiscal 2022. 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 an $18 million impact to earnings before income taxes
over the ensuing twelve-month period ending June 30, 2023. 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 an $8 million impact to earnings before income taxes over the ensuing twelve-month period ending June 30,
2023.
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-rated 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. 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 government 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.
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.
42
CRITICAL ACCOUNTING ESTIMATES
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. See Note 1 - Summary of Significant
Accounting Policies for additional information.
The estimates are based on historical experience and assumptions believed to be reasonable under current facts and
circumstances. These estimates require levels of subjectivity and judgment, which could result in actual results differing from
our estimates. The Company believes the following are its critical accounting estimates:
Deferred Costs - Assets Recognized from the Costs to Obtain and Fulfill Contracts
Description
Incremental costs of obtaining a contract (e.g., sales commissions) and cost incurred to implement clients on our solutions (e.g.,
direct labor) that are expected to be recovered are capitalized and amortized on a straight-line basis over the client retention
period, depending on the business unit.
Judgments and Uncertainties
The Company has estimated the amortization periods for deferred costs by using its historical retention rates by business unit to
estimate the pattern during which the service transfers. The expected client relationship period ranges from three to eight years.
Sensitivity of Estimate to Change
As the assumptions used to estimate the amortization period of the deferred costs could have a material impact on timing of
recognition, we assess the amortization periods annually using historical retention rates. Actual retention rates were not
materially different than those used in our calculation to determine the amortization period. We regularly review our deferred
costs for impairment. There were no impairment losses incurred during the fiscal years ended June 30, 2022, June 30, 2021, or
June 30, 2020.
Goodwill.
Description
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.
Judgments and Uncertainties
The Company’s annual goodwill impairment assessment as of June 30, 2022 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.
Sensitivity of Estimate to Change
Some of the inherent estimates and assumptions used in determining the fair value of the reporting units are outside the control
of management including the weighted-average cost of capital, tax rates, market comparisons, and terminal growth rates. While
we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units, it is possible a
material change could occur. If our actual results are not consistent with our estimates and assumptions used to calculate fair
value, it could result in material impairments of our goodwill. The assumptions used to assess impairment consider historical
trends, macroeconomic conditions, and projections consistent with the Company’s operating strategy. Changes in these
estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.
43
We completed our annual assessment of goodwill as of June 30, 2022 and determined that there was no impairment of
goodwill. We performed a sensitivity analysis and determined that a one percentage point increase in the weighted-average cost
of capital would not result in an impairment of goodwill for all reporting units and their fair values substantially exceeded their
carrying values.
Income Taxes
Description
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). A
change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements.
Judgments and Uncertainties
The Company computes its provision for income taxes based on the statutory tax rates in the various jurisdictions in which it
operates. Assumptions, judgment, and the use of estimates are required in determining if the “more likely than not” standard has
been met when computing the provision for income taxes, deferred tax assets and liabilities, and uncertain tax positions.
Sensitivity of Estimate to Change
While the Company considers all of its tax positions fully supportable, the Company is occasionally challenged by various tax
authorities regarding the amount of taxes due. 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. As of June 30, 2022 and
2021, the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $98.1 million and
$99.9 million, respectively.
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.”
44
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, 2022 and 2021, and the related statements of consolidated earnings, comprehensive income, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 2022, 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, 2022 and 2021, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 2022, 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, 2022, 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 3, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.
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 risks of material misstatement 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.
Goodwill – Employer Services Reportable Segment— Refer to Notes 1 and 7 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 margin. In addition, the discounted cash flow model
requires the Company to select an appropriate weighted average cost of capital based on current market conditions as of June 30,
2022. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment
charge, or both.
Forecasts of future revenue and operating margin from the Company’s next-gen platform, for which there is limited historical data,
contribute significantly to the estimate of fair value of a reporting unit within the Employer Services reportable segment with
approximately $678 million of goodwill as of June 30, 2022. Given the limited historical data associated with the Company’s next-gen
platform, significant management judgment was required to forecast future revenue and operating margin to estimate the fair value of
the reporting unit. In turn, a high degree of auditor judgment and an increased extent of audit effort were required when performing
45
audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecasts of revenue and
operating margin and the selection of the weighted average cost of capital, including the involvement of our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenue and operating margin and the selection of the weighted average cost of
capital 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 unit within the Employer Services reportable segment, such as controls related to
management’s forecasts of future revenue and operating margin and the selection of the weighted average cost of capital.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation models, methodology, and
significant assumptions used by the Company, specifically the weighted average cost of capital including:
◦
◦
Testing the mathematical accuracy of the Company’s calculation of the weighted average cost of capital.
Developing a range of independent estimates and compared to the weighted average cost of capital selected by
management.
• 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, and (4) external communications made by management to analysts
and investors.
Client Funds Obligations - Refer to Note 4 to the financial statements
Critical Audit Matter Description
Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll, tax and other payee
payment obligations and are recorded as a liability at the time that the Company impounds funds from clients (i.e., money movement).
The Company has reported client funds obligations as a current liability in the consolidated financial statements totaling $51,285.5
million as of June 30, 2022. 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.
To validate the accuracy and completeness of the client funds obligations reported as of period end, the Company performs complex
data extracts in order to reconcile the transactional data to the client funds obligations and funds held for clients balances reported at
period end. Given the significant volume of data used in the reconciliation, the complexity of the data extraction, and the
reconciliation of the data extracts to the client funds obligations balance reported, auditing the client funds obligations is complex and
requires the involvement of data specialists to independently reperform the reconciliation and assist with testing of the completeness
and accuracy of client funds obligations reported as of period end, including identifying the manual adjustments identified in
management’s reconciliation process.
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 obligations 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 obligations reconciliation and (2) perform
•
data analyses to identify and evaluate recurring and new adjustments to the data extracts in the current period.
For a selection of client funds obligations transactions, we evaluated whether the funds were impounded prior to June 30, 2022,
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 adjustments identified by management’s reconciliation of the transactional data to the client funds
obligations balance reported at period end and evaluated whether the adjustments were supported and appropriate to reconcile and
validate the client funds obligations balance reported at period end.
• 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.
46
/s/ Deloitte & Touche LLP
Morristown, New Jersey
August 3, 2022
We have served as the Company’s auditor since 1968.
47
Automatic Data Processing, Inc. and Subsidiaries
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
2022
2021
2020
$
10,505.0 $
9,768.6 $
9,538.1
451.8
5,541.5
16,498.3
422.4
4,814.4
15,005.4
545.2
4,506.5
14,589.8
8,252.6
798.6
410.7
9,461.9
3,233.2
81.9
12,777.0
7,520.7
716.6
403.0
8,640.3
3,040.5
59.7
11,740.5
7,404.1
674.1
366.9
8,445.1
3,003.0
107.1
11,555.2
(82.8)
(96.3)
(148.0)
EARNINGS BEFORE INCOME TAXES
3,804.1
3,361.2
3,182.6
Provision for income taxes
NET EARNINGS
BASIC EARNINGS PER SHARE
DILUTED EARNINGS PER SHARE
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
$
$
$
855.2
762.7
716.1
2,948.9 $
2,598.5 $
2,466.5
7.04 $
6.10 $
5.73
7.00 $
6.07 $
5.70
418.8
421.1
426.3
428.1
430.8
432.7
(A) For the years ended June 30, 2022 (“fiscal 2022”), June 30, 2021 (“fiscal 2021”), and June 30, 2020 (“fiscal 2020”), Professional Employer Organization (“PEO”)
revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes, of $62,619.2 million, $51,362.3 million, and $45,826.1 million,
respectively.
See notes to the Consolidated Financial Statements.
48
Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Comprehensive Income
(In millions)
Years ended June 30,
Net earnings
Other comprehensive (loss)/income:
Currency translation adjustments
2022
2021
2020
$
2,948.9 $
2,598.5 $
2,466.5
(127.4)
95.4
(53.0)
Unrealized net (losses)/gains on available-for-sale securities
(2,228.0)
(363.3)
Tax effect
Reclassification of net losses/(gains) on available-for-sale securities to net earnings
Tax effect
Unrealized (losses)/gains on cash flow hedging activities
Tax effect
Amortization of unrealized losses on cash flow hedging activities
Tax effect
Pension net (losses)/gains arising during the year
Tax effect
Reclassification of pension liability adjustment to net earnings
Tax effect
503.7
4.4
(1.0)
—
—
4.4
(1.1)
(229.8)
57.3
18.1
(4.9)
82.6
(11.3)
2.5
(3.3)
0.8
3.8
(0.9)
281.5
(69.0)
9.3
(2.7)
602.2
(136.4)
(12.9)
2.9
(40.3)
10.0
—
—
(160.8)
39.5
(11.8)
3.1
Other comprehensive (loss)/income, net of tax
Comprehensive income
(2,004.3)
25.4
242.5
$
944.6 $
2,623.9 $
2,709.0
See notes to the Consolidated Financial Statements.
49
Automatic Data Processing, Inc. and Subsidiaries
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 $56.8 and $79.6, 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 $0.1 and $0.3, respectively
Property, plant and equipment, net
Operating lease right-of-use asset
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
Operating lease liabilities
Other liabilities
Deferred income taxes
Long-term deferred revenues
Total liabilities
Commitments and Contingencies (Note 12)
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, 2022 and June 30, 2021;
outstanding, 416.1 and 423.7 shares at June 30, 2022 and June 30, 2021, respectively
Capital in excess of par value
Retained earnings
Treasury stock - at cost: 222.7 and 215.0 shares at June 30, 2022 and June 30, 2021, respectively
Accumulated other comprehensive (loss)/income
Total stockholders’ equity
Total liabilities and stockholders’ equity
2022
2021
$
1,436.3
$
3,170.6
628.8
5,235.7
49,569.2
54,804.9
9.1
652.6
450.9
2,579.7
937.4
2,300.5
1,333.1
2,575.2
2,727.4
533.4
5,836.0
34,905.8
40,741.8
11.5
684.5
462.2
2,498.2
825.8
2,338.4
1,210.1
$
63,068.2
$
48,772.5
$
110.2
$
2,107.8
862.6
429.6
188.2
136.4
38.4
3,873.2
51,285.5
55,158.7
2,987.1
370.9
924.2
67.0
335.0
141.1
1,963.3
910.2
390.8
203.9
23.5
58.2
3,691.0
34,403.8
38,094.8
2,985.0
343.2
834.1
482.9
362.4
59,842.9
43,102.4
—
—
63.9
1,794.2
20,696.3
63.9
1,531.3
19,451.1
(17,335.4)
(15,386.8)
(1,993.7)
3,225.3
10.6
5,670.1
$
63,068.2
$
48,772.5
(A) As of June 30, 2022, $14.3 million of short-term marketable securities and $122.1 million of long-term marketable securities have been pledged as collateral under
the Company's reverse repurchase agreements. As of June 30, 2021, $23.5 million of long-term marketable securities have been pledged as collateral under the
Company's reverse repurchase agreements (see Note 8).
See notes to the Consolidated Financial Statements.
50
Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Stockholders' Equity
(In millions, except per share amounts)
Balance at June 30, 2019
Net earnings
Other comprehensive income
Stock-based compensation expense
Issuances relating to stock compensation plans
Treasury stock acquired (6.2 million shares
repurchased)
Dividends ($3.52 per share)
Other
Balance at June 30, 2020
Net earnings
Other comprehensive income
Stock-based compensation expense
Issuances relating to stock compensation plans
Treasury stock acquired (8.2 million shares
repurchased)
Dividends ($3.70 per share)
Balance at June 30, 2021
Net earnings
Other comprehensive loss
Stock-based compensation expense
Issuances relating to stock compensation plans
Treasury stock acquired (9.2 million shares
repurchased)
Dividends ($4.05 per share)
Balance at June 30, 2022
Common Stock
Shares
Amount
Capital in Excess
of Par Value
Retained
Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Income/(Loss)
638.7 $
63.9 $
1,183.2 $
17,500.6 $
(13,090.5) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
117.8
32.8
—
—
—
2,466.5
—
—
—
—
(1,523.9)
(6.9)
—
—
—
112.9
(1,089.4)
—
—
638.7 $
63.9 $
1,333.8 $
18,436.3 $
(14,067.0) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
156.3
41.2
—
—
2,598.5
—
—
—
—
(1,583.7)
—
—
—
111.4
(1,431.2)
—
638.7 $
63.9 $
1,531.3 $
19,451.1 $
(15,386.8) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
180.4
82.5
—
—
2,948.9
—
—
—
—
(1,703.7)
—
—
—
95.0
(2,043.6)
—
(257.3)
—
242.5
—
—
—
—
—
(14.8)
—
25.4
—
—
—
—
10.6
—
(2,004.3)
—
—
—
—
638.7 $
63.9 $
1,794.2 $
20,696.3 $
(17,335.4) $
(1,993.7)
See notes to the Consolidated Financial Statements
51
Automatic Data Processing, Inc. and Subsidiaries
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 (income)/expense
Net amortization of premiums and accretion of discounts on available-for-sale securities
Other
Changes in operating assets and liabilities:
Increase in accounts receivable
Increase in other assets
(Decrease)/Increase in accounts payable
Increase/(Decrease) 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
Net cash flows (used in)/provided by investing activities
Cash Flows from Financing Activities:
Net increase /(decrease) in client funds obligations
Payments of debt
Proceeds from the issuance of debt
Settlement of cash flow hedges
Repurchases of common stock
Net proceeds from stock purchase plan and stock-based compensation plans
Dividends paid
Net proceeds/(payments) related to reverse repurchase agreements
Net cash flows provided by/(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
2022
2021
2020
$
2,948.9 $
2,598.5 $
2,466.5
515.1
955.2
36.6
201.7
(53.4)
101.0
32.7
(486.5)
(1,258.4)
(16.4)
123.0
3,099.5
(10,733.2)
4,249.7
(174.4)
(379.0)
(11.7)
34.2
510.7
935.3
(251.1)
175.3
(52.8)
69.5
45.3
(339.8)
(1,029.4)
36.9
394.9
3,093.3
(9,266.3)
6,238.4
(178.6)
(327.3)
—
18.8
480.0
915.0
26.0
130.8
(11.6)
50.2
89.3
(113.8)
(910.4)
(18.3)
(77.5)
3,026.2
(3,905.1)
7,648.4
(172.7)
(443.7)
—
29.4
(7,014.4)
(3,515.0)
3,156.3
17,057.9
(0.9)
—
—
8,336.2
(1,001.8)
1,981.5
(44.6)
(3,213.2)
(2.2)
—
—
(1,969.4)
(1,372.3)
(1,006.3)
96.5
(1,659.0)
128.3
13,653.4
104.1
(1,575.5)
9.9
6,437.5
(98.7)
9,639.8
73.8
6,089.6
50.0
(1,470.5)
(248.4)
(5,890.6)
(34.5)
257.4
6,796.2
7,053.6
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of year
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of year
13,143.2
7,053.6
$
22,783.0 $
13,143.2 $
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
$
1,436.3 $
2,575.2 $
21,346.7
10,568.0
$
22,783.0 $
13,143.2 $
1,908.5
5,145.1
7,053.6
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes, net of income tax refunds
$
$
74.8 $
856.8 $
53.1 $
973.7 $
104.8
677.1
(A) See Note 4 for a reconciliation of restricted cash and restricted cash equivalents in funds held for clients on the Consolidated Balance Sheets.
See notes to the Consolidated Financial Statements.
52
Automatic Data Processing, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Tabular dollars in millions, except per share amounts or where otherwise stated)
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 4, “Corporate Investments
and Funds Held for Clients.”
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, legal settlements, severance costs, 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.
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.
53
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 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 business unit. 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.
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).
54
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 4) 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 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 used by 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 and mortgage-backed securities that are included within Other securities in Note 4, 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
quoted prices for similar assets, benchmark yield curves, and market corroborated inputs. 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 had no
available-for-sale securities included in Level 1 and Level 3 at June 30, 2022.
The Company issued three series of fixed-rate notes with staggered maturities of 7 and 10-years totaling $3.0 billion
(collectively the “Notes”). The fair value of the Notes are estimated in Note 9 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 Notes are senior unsecured obligations, and
interest is payable in arrears, semi-annually. 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.
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
55
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
5 to 10 years
20 to 40 years
4 to 7 years
I. Leases. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the lease commencement
date based on the present value of the lease payments over the lease term. The lease liabilities are measured by discounting
future lease payments at the Company’s collateralized incremental borrowing rate for financing instruments of a similar term,
unless the implicit rate is readily determinable. ROU assets also include adjustments related to prepaid or deferred lease
payments and lease incentives. Lease ROU assets are amortized over the life of the lease and tested for impairment in the same
manner as long-lived assets as described below.
J. 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, 2022 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.
K. 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.
L. 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.
M. 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.
56
N. 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,
2022
Net earnings
Weighted average shares (in millions)
EPS
2021
Net earnings
Weighted average shares (in millions)
EPS
2020
Net earnings
Weighted average shares (in millions)
EPS
Effect of
Employee
Stock Option
Shares
Effect of
Employee
Restricted
Stock
Shares
Diluted
$ 2,948.9
1.1
1.2
$
421.1
7.00
$ 2,598.5
0.8
1.0
$
428.1
6.07
$ 2,466.5
0.9
1.0
$
432.7
5.70
Basic
$ 2,948.9
418.8
7.04
$
$ 2,598.5
426.3
6.10
$
$ 2,466.5
430.8
5.73
$
Options to purchase 0.6 million, 1.1 million, and 1.2 million shares of common stock for fiscal 2022, 2021, and 2020,
respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-
dilutive.
O. 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. 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 10 for additional information on the Company's stock-based compensation programs.
P. 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. Software developed as part of the
Company's next-generation platforms are depreciated over ten years. 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
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.
Fees related to cloud-based subscriptions for which the Company has the right to take possession of the software at any time
during the hosting period (without significant penalty) and can run the software on internal hardware, or through contract with a
third party vendor to host the software, is recognized as an intangible asset and capitalized following the Internal Use Software
guidance under ASC 350-40. Subscriptions where the Company accesses the software through the cloud but cannot take
57
possession of the software during the hosting period is treated as a service contract, and as such hosting fees are treated as
expense.
Q. 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.
R. 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). 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, 2022 and 2021, the Company's
liabilities for unrecognized tax benefits, which include interest and penalties, were $98.1 million and $99.9 million,
respectively.
S. 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 caps the exposure for each claim at $1 million per occurrence and has also secured aggregate stop loss insurance that
caps aggregate losses at a certain level in fiscal years 2012 and prior from an admitted and licensed insurance company of AIG.
The Company has obtained approximately $290 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, 2022 and 2021 under the letters of credit.
Additionally, starting in fiscal 2013, 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 the
Company up to the $1 million per occurrence related to workers' compensation and employer's liability deductible
reimbursement insurance protection for PEO services worksite employees. 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 $260 million to enter into a reinsurance arrangement with Chubb Limited to cover
substantially all losses incurred by ADP Indemnity for the fiscal 2022 policy year up to $1 million per occurrence. ADP
Indemnity paid a premium of $284 million in July 2022 to enter into a reinsurance arrangement to cover substantially all losses
for the fiscal 2023 policy year on terms substantially similar to the fiscal 2022 policy.
T. Contingencies. In the normal course of business, the Company is subject to loss contingencies, such as claims and
assessments arising from litigation and other legal proceedings, contractual indemnities, and tax matters. Accruals for loss
contingencies are recorded when the Company determines that it is both probable that a liability has been incurred and the
amount of loss can be reasonably estimated. If the estimate of the amount of the loss is a range and some amount within the
range appears to be a better estimate than any other amount within the range, that amount is accrued as a liability. If no amount
within the range is a better estimate than any other amount, the minimum amount of the range is accrued as a liability. These
accruals are adjusted periodically as assessments change or additional information becomes available. The loss contingencies
are included in Selling, general and administrative expenses.
58
If no accrual is made for a loss contingency because the amount of loss cannot be reasonably estimated, the Company will
disclose contingent liabilities when there is at least a reasonable possibility that a loss or an additional loss may have been
incurred.
Legal fees and other costs related to litigation and other legal proceedings or services are expensed as incurred and are included
in Selling, general and administrative expenses.
Any claim for insurance recovery is recognized only when realization becomes probable.
U. Recently Issued Accounting Pronouncements.
Recently Adopted Accounting Pronouncements
In fiscal 2022, the Company early adopted accounting standard update ("ASU") 2021-08, "Business Combinations (Topic 805):
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." ASU 2021-08 requires that an
acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASU
2014-09, "Revenue from Contracts with Customers (Topic 606)". The adoption of this guidance did not have a material impact
on the Company's consolidated results of operations, financial condition, or cash flows.
Recently Issued Accounting Pronouncements
None.
NOTE 2. REVENUE
Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three strategic
pillars: Human Capital Management (“HCM”), HR Outsourcing (“HRO”), and Global (“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 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 and includes a reconciliation to the Company’s
reportable segments. The Company made changes to certain allocation methodologies in both the current period and the prior
period in the tables below which did not materially affect our reporting of revenues by strategic pillar:
59
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
$
$
2022
7,174.9 $
3,116.3
3,514.4
2,240.9
451.8
16,498.3 $
Years Ended
June 30,
2021
6,655.2 $
2,690.9
3,092.0
2,144.9
422.4
15,005.4 $
2020
6,563.5
2,538.9
2,907.7
2,034.5
545.2
14,589.8
Reconciliation of disaggregated revenue to our reportable segments for the fiscal year ended June 30, 2022:
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
$
7,183.1 $
— $
(8.2) $
7,174.9
1,096.1
—
2,240.9
447.6
2,027.1
3,514.4
—
4.2
(6.9)
—
—
—
3,116.3
3,514.4
2,240.9
451.8
$ 10,967.7 $
5,545.7 $
(15.1) $ 16,498.3
Reconciliation of disaggregated revenue to our reportable segments for the fiscal year ended June 30, 2021:
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
$
6,660.7 $
— $
(5.5) $
6,655.2
971.1
—
2,144.9
418.5
1,722.4
3,092.0
—
3.9
(2.6)
—
—
—
2,690.9
3,092.0
2,144.9
422.4
$ 10,195.2 $
4,818.3 $
(8.1) $ 15,005.4
Reconciliation of disaggregated revenue to our reportable segments for the fiscal year ended June 30, 2020:
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
$
6,569.0 $
941.8
—
2,034.5
541.3
— $
1,599.9
2,907.7
—
3.9
(5.5) $
(2.8)
—
—
—
6,563.5
2,538.9
2,907.7
2,034.5
545.2
$ 10,086.6 $
4,511.5 $
(8.3) $ 14,589.8
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.
60
Changes in deferred revenue related to set up fees for the fiscal year ended June 30, 2022 were as follows:
Contract Liability
Contract liability, July 1, 2021
Recognition of revenue included in beginning of year contract liability
Contract liability, net of revenue recognized on contracts during the period
$
$
516.1
(147.6)
133.0
(33.3)
468.2
Currency translation adjustments
Contract liability, June 30, 2022
Deferred costs
The balance is as follows:
June 30,
Deferred costs to obtain a contract
Deferred costs to fulfill a contract
Total deferred contract costs (1)
2022
2021
$
$
1,144.8 $
1,434.9
2,579.7 $
1,055.7
1,442.5
2,498.2
(1) The amount of total deferred costs amortized during the fiscal years ended June 30, 2022, June 30, 2021, and June 30,
2020 were $955.2 million, $935.3 million, and $915.0 million, respectively.
Deferred costs are periodically reviewed for impairment. There were no impairment losses incurred during the period.
NOTE 3. OTHER (INCOME)/EXPENSE, NET
Other (income)/expense, net consists of the following:
Years ended June 30,
Interest income on corporate funds
Realized losses/(gains) on available-for-sale securities, net
Impairment of assets
Gain on sale of assets
Non-service components of pension income, net
Other (income)/expense, net
2022
2021
2020
$
$
(41.0) $
4.4
23.0
(7.5)
(61.7)
(82.8) $
(36.5) $
(11.3)
19.9
(9.8)
(58.6)
(96.3) $
(84.5)
(12.9)
29.9
(6.0)
(74.5)
(148.0)
In fiscal 2022, the Company recorded impairment charges of $23.0 million which is comprised of a write down of $12.1 million
related to software and customer lists which were determined to have no future use and impairment charges of $10.9 million
related to operating right-of-use assets associated with exiting certain leases early.
In fiscal 2021, the Company recorded impairment charges of $19.9 million which is comprised of a write down of $10.5 million
related to internally developed software which was determined to have no future use, impairment charges of $9.4 million
related to operating right-of-use assets and certain related fixed assets associated with exiting certain leased locations early, and
recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale.
In fiscal 2020, the Company recorded impairment charges of $25.3 million as a result of recognizing certain owned facilities at
fair value given intent to sell and accordingly classified as held for sale. In addition, the Company exited certain leased
locations early and recorded total impairment charges of $4.6 million related to operating right-of-use assets and certain related
fixed assets associated with the exited locations.
61
NOTE 4. CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS
Corporate investments and funds held for clients at June 30, 2022 and 2021 were as follows:
Type of issue:
Money market securities, cash and other cash equivalents
Available-for-sale securities:
Corporate bonds
U.S. Treasury securities
Asset-backed securities
Canadian government obligations and
Canadian government agency obligations
U.S. government agency securities
Canadian provincial bonds
Commercial mortgage-backed securities
Other securities
June 30, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(A)
$ 22,783.0 $
— $
— $ 22,783.0
16,183.1
5,003.6
1,995.7
2,022.9
1,728.2
994.3
858.7
1,326.5
3.9
2.2
0.5
0.1
0.1
0.4
0.3
2.2
(1,083.0)
15,104.0
(171.1)
(58.8)
4,834.7
1,937.4
(123.5)
(138.2)
(62.7)
(29.9)
(63.9)
1,899.5
1,590.1
932.0
829.1
1,264.8
Total available-for-sale securities
30,113.0
9.7
(1,731.1)
28,391.6
Total corporate investments and funds held for clients
$ 52,896.0 $
9.7 $
(1,731.1) $ 51,174.6
(A) Included within available-for-sale securities are corporate investments with fair values of $169.1 million and funds held for
clients with fair values of $28,222.5 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
U.S. Treasury securities
Asset-backed securities
Canadian government obligations and
Canadian government agency obligations
U.S. government agency securities
Canadian provincial bonds
Commercial mortgage-backed securities
Other securities
June 30, 2021
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair Value
(B)
$ 13,143.2 $
— $
— $ 13,143.2
11,732.3
4,036.9
2,279.8
1,542.3
1,446.3
956.3
793.4
1,082.2
321.9
64.8
60.9
15.0
22.5
22.7
41.2
30.9
(38.5)
(9.3)
(0.9)
12,015.7
4,092.4
2,339.8
(9.0)
(9.4)
(5.3)
—
(5.3)
1,548.3
1,459.4
973.7
834.6
1,107.8
Total available-for-sale securities
23,869.5
579.9
(77.7)
24,371.7
Total corporate investments and funds held for clients
$ 37,012.7 $
579.9 $
(77.7) $ 37,514.9
(B) Included within available-for-sale securities are corporate investments with fair values of $33.9 million and funds held for
clients with fair values of $24,337.8 million. All available-for-sale securities were included in Level 2 of the fair value
hierarchy.
62
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 concurred with and did
not adjust the prices obtained from the independent pricing service. The Company had no available-for-sale securities included
in Level 1 or Level 3 at June 30, 2022.
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, 2022, are as follows:
June 30, 2022
Securities in unrealized
loss position less than
12 months
Securities in unrealized
loss position greater than
12 months
Total
Gross
Fair
Gross
Market
Value
Gross
Unrealized
Losses
Fair Market
Value
Unrealized
Losses
Unrealized
Losses
Fair Market
Value
$
(824.0) $ 11,525.4 $
(259.0) $ 2,356.7 $ (1,083.0) $ 13,882.1
Corporate bonds
U.S. Treasury securities
Asset-backed securities
Canadian government obligations and
(126.4)
2,919.6
(52.6)
1,444.9
Canadian government agency obligations
(110.0)
1,782.6
U.S. government agency securities
Canadian provincial bonds
Commercial mortgage-backed securities
Other securities
(75.3)
(45.4)
(29.5)
(42.6)
859.3
726.9
802.8
737.3
(44.7)
(6.2)
(13.5)
(62.9)
(17.3)
(0.4)
(21.3)
464.6
59.9
113.3
695.6
133.2
4.3
178.2
(171.1) 3,384.2
(58.8) 1,504.8
(123.5) 1,895.9
(138.2) 1,554.9
(62.7)
(29.9)
(63.9)
860.1
807.1
915.5
$ (1,305.8) $ 20,798.8 $
(425.3) $ 4,005.8 $ (1,731.1) $ 24,804.6
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, 2021 are as follows:
June 30, 2021
Securities in unrealized
loss position less than
12 months
Securities in unrealized
loss position greater than
12 months
Total
Gross
Fair
Gross
Market
Value
Gross
Unrealized
Losses
Fair Market
Value
Unrealized
Losses
Unrealized
Losses
Fair Market
Value
Corporate bonds
U.S. Treasury securities
Asset-backed securities
$
(38.5) $ 3,539.6 $
(9.3)
(0.9)
580.9
160.9
— $
—
—
— $
—
—
(38.5) $ 3,539.6
580.9
(9.3)
160.9
(0.9)
Canadian government obligations and
Canadian government agency obligations
U.S. government agency securities
Canadian provincial bonds
Commercial mortgage-backed securities
Other securities
(9.0)
(9.4)
(5.3)
—
(5.2)
721.3
749.7
253.7
16.7
308.5
—
—
—
—
(0.1)
—
—
—
—
1.9
(9.0)
(9.4)
(5.3)
—
721.3
749.7
253.7
16.7
(5.3)
310.4
$
(77.6) $ 6,331.3 $
(0.1) $
1.9 $
(77.7) $ 6,333.2
At June 30, 2022, 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 2022 through April 2032.
At June 30, 2022, 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 $973.1 million, $685.9
million, $233.8 million, and $44.2 million, respectively. These securities are collateralized by the cash flows of the underlying
63
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, 2022.
At June 30, 2022, U.S. government agency securities primarily include debt directly issued by Federal Farm Credit Banks and
Federal Home Loan Banks with fair values of $980.3 million and $524.4 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 September 2022 through March 2032.
At June 30, 2022, U.S. government agency commercial mortgage-backed securities of $829.1 million include those issued by
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association.
At June 30, 2022, other securities primarily include municipal bonds, diversified with a variety of issuers, with credit ratings of
A and above, with fair values of $536.5 million and AA-rated United Kingdom Gilt securities of $314.1 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
2022
2021
$
$
1,436.3 $
47.0
122.1
1,605.4 $
2,575.2
10.4
23.5
2,609.1
(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
2022
2021
$
$
21,346.7 $
4,263.1
23,959.4
49,569.2 $
10,568.0
3,743.3
20,594.5
34,905.8
Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll, tax and other
payee payment obligations and 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 $51,285.5
million and $34,403.8 million as of June 30, 2022 and 2021, 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, 2022, $46,201.2 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. The Company has reported the cash flows related to the
cash 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.
All available-for-sale securities were rated as investment grade at June 30, 2022.
64
Expected maturities of available-for-sale securities at June 30, 2022 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
$
$
4,310.1
4,160.1
4,218.0
6,488.1
9,215.3
28,391.6
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost and accumulated depreciation at June 30, 2022 and 2021 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
2022
2021
$
$
675.0 $
972.4
634.3
2,281.7
(1,629.1)
652.6 $
686.5
902.0
656.0
2,244.5
(1,560.0)
684.5
Depreciation of property, plant and equipment was $171.0 million, $183.3 million, and $192.8 million for fiscal 2022, 2021 and
2020, respectively.
The Company has certain assets classified as held for sale given intent to sell. The fair value of these assets was approximately
$5.0 million and $29.8 million as of June 30, 2022 and 2021, respectively, and it is not material for reclassification separately
on the Consolidated Balance Sheets.
NOTE 6. LEASES
The Company records leases on the Consolidated Balance Sheets as operating lease ROU assets, records the current portion of
operating lease liabilities within accrued expenses and other current liabilities and, separately, records long-term operating lease
liabilities. The difference between total ROU assets and total lease liabilities are primarily attributable to pre-payments of our
obligations and the recognition of various lease incentives.
The Company has entered into operating lease agreements for facilities and equipment. The Company's leases have remaining
lease terms of up to approximately ten years.
The components of operating lease expense were as follows:
Operating lease cost
Short-term lease cost
Variable lease cost
Total operating lease cost
Year ended
June 30,
2021
2022
144.7 $
157.8 $
1.1
11.5
1.3
7.6
157.3 $
166.7 $
2020
163.7
6.1
6.7
176.5
$
$
65
The following table provides supplemental cash flow information related to the Company's leases:
Year ended
June 30,
2021
2022
Cash paid for operating lease liabilities
Operating lease ROU assets obtained in exchange for new operating
lease liabilities
$
$
127.6
127.4
$
$
142.2
120.2
$
$
Other information related to our operating lease liabilities is as follows:
2020
224.7
160.4
June 30,
2022
June 30,
2021
Weighted-average remaining lease term (in years)
Weighted-average discount rate
Current operating lease liability
6
2.2 %
$
95.1
$
As of June 30, 2022, maturities of operating lease liabilities are as follows:
$
$
6
2.2 %
94.7
103.5
90.6
75.1
65.6
58.0
105.0
497.8
(31.8)
466.0
Total
PEO
Services
Employer
Services
$ 2,304.6 $
29.0
$ 2,333.6 $
11.1
(49.0)
$ 2,295.7 $
4.8 $ 2,309.4
—
29.0
4.8 $ 2,338.4
11.1
—
—
(49.0)
4.8 $ 2,300.5
Twelve months ending June 30, 2023
Twelve months ending June 30, 2024
Twelve months ending June 30, 2025
Twelve months ending June 30, 2026
Twelve months ending June 30, 2027
Thereafter
Total undiscounted lease obligations
Less: Imputed interest
Net lease obligations
NOTE 7. GOODWILL AND INTANGIBLE ASSETS, NET
Changes in goodwill for the fiscal years ended June 30, 2022 and 2021 are as follows:
Balance at June 30, 2020
Currency translation adjustments
Balance at June 30, 2021
Additions and other adjustments
Currency translation adjustments
Balance at June 30, 2022
66
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
2022
2021
$
3,271.3 $
1,104.7
241.2
4,617.2
2,950.8
1,062.2
239.0
4,252.0
(2,251.9)
(798.9)
(233.3)
(3,284.1)
1,333.1 $
$
(2,090.4)
(723.4)
(228.1)
(3,041.9)
1,210.1
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 5 years (6 years for software and software licenses, 4 years for customer
contracts and lists, and 2 years for other intangibles). Amortization of intangible assets was $344.1 million, $327.4 million, and
$287.2 million for fiscal 2022, 2021, and 2020, respectively.
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
Twelve months ending June 30, 2023
Twelve months ending June 30, 2024
Twelve months ending June 30, 2025
Twelve months ending June 30, 2026
Twelve months ending June 30, 2027
NOTE 8. SHORT TERM FINANCING
Amount
419.2
262.3
192.8
133.5
108.5
$
$
$
$
$
The Company has a $3.75 billion, 364-day credit agreement with a one-year term-out option that was scheduled to mature in
June 2022 and was amended to mature in July 2022. On July 1, 2022, the company entered into a new $3.75 billion 364-day
credit agreement that matures in June 2023 with a one year term-out option to replace the maturing facility. The interest rate
applicable to committed borrowings under each agreement is tied to SOFR, the effective funds rate, or the prime rate depending
up on the notification provided by the Company to the syndicated financial institutions prior to borrowing. 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 $3.2 billion credit facility maturing in June 2026 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,
2022 and 2021 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. This commercial paper program provides for the issuance of up to $9.7 billion in
aggregate maturity value. The Company’s commercial paper program is rated A-1+ by Standard & Poor’s, Prime-1 (“P-1”) by
Moody’s and F1+ by Fitch. 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, 2022 and June 30, 2021, the Company had no commercial paper
borrowing outstanding. Details of the borrowings under the commercial paper program are as follows:
67
Years ended June 30,
Average daily borrowings (in billions)
Weighted average interest rates
Weighted average maturity (approximately in days)
$
2022
2021
$
2.0
0.4 %
1 day
1.6
0.1 %
1 day
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
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, 2022 and 2021, the Company had $136.4 million and $23.5 million, respectively, of outstanding
obligations related to the reverse repurchase agreements. Details of the reverse repurchase agreements are as follows:
Years ended June 30,
Average outstanding balances
Weighted average interest rates
NOTE 9. DEBT
2022
2021
$
299.6
$
136.7
0.7 %
0.2 %
The Company issued three series of fixed-rate notes with staggered maturities of 7 and 10-years totaling $3.0 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, 2022 and 2021 are as
follows:
Debt instrument
Fixed-rate 3.375% notes due September 15, 2025
Fixed-rate 1.250% notes due September 1, 2030
Fixed-rate 1.700% notes due May 15, 2028
Other
Less: current portion (a)
Less: unamortized discount and debt issuance costs
Total long-term debt
Effective
Interest Rate
June 30,
2022
June 30,
2021
3.47%
1.83%
1.85%
1,000.0
1,000.0
1,000.0
6.0
1,000.0
1,000.0
1,000.0
6.9
3,006.0
3,006.9
(1.2)
(17.7)
(1.2)
(20.7)
$
2,987.1 $
2,985.0
(a) - Current portion of long-term debt as of June 30, 2022 is included within Accrued expenses and other current liabilities on
the Consolidated Balance Sheets.
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, 2022, the fair value of the Notes, based on Level 2 inputs, was $2,721.0 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 10. 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 generally forfeited if the employee
ceases to be employed by the Company prior to vesting. 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
68
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.
•
Time-Based Restricted Stock and Time-Based Restricted Stock Units. Time-based restricted stock and
time-based restricted stock units generally vest ratably over 3 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.
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 program. The Company repurchased 9.2 million shares in fiscal 2022 as compared to 8.2 million
shares repurchased in fiscal 2021. 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
69
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 22.1 million, 10.7 million, and 34.6 million during
fiscal years 2022, 2021, and 2020, respectively.
The following table represents stock-based compensation expense and related income tax benefits in each of fiscal 2022, 2021,
and 2020, 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
2022
2021
2020
19.7 $
155.7
26.3
201.7 $
17.9 $
133.9
23.5
175.3 $
13.7
99.1
18.0
130.8
49.1 $
43.0 $
32.2
$
$
$
As of June 30, 2022, the total remaining unrecognized compensation cost related to non-vested stock options, restricted stock
units, and restricted stock awards amounted to $18.9 million, $53.9 million, and $116.2 million, respectively, which will be
amortized over the weighted-average remaining requisite service periods of 2.2 years, 1.5 years, and 1.7 years, respectively.
In fiscal 2022, the following activity occurred under the Company’s existing plans.
Stock Options:
Options outstanding at July 1, 2021
Options granted
Options exercised
Options forfeited/cancelled
Options outstanding at June 30, 2022
Options exercisable at June 30, 2022
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, 2021
Restricted shares/units granted
Restricted shares/units vested
Restricted shares/units forfeited
Restricted shares/units outstanding at June 30, 2022
Number
of Options
(in thousands)
Weighted
Average
Price
(in dollars)
135
207
127
166
152
128
3,705 $
792 $
(860) $
(163) $
3,474 $
1,553 $
21,862
25,336
Number of
Shares
(in thousands)
Number of
Units
(in thousands)
1,141
504
(511)
(113)
1,021
200
89
(101)
(15)
173
70
Performance-Based Restricted Stock and Performance-Based Restricted Stock Units:
Restricted shares/units outstanding at July 1, 2021
Restricted shares/units granted
Restricted shares/units vested
Restricted shares/units forfeited
Restricted shares/units outstanding at June 30, 2022
Number of
Shares
(in thousands)
247
114
(114)
(25)
222
Number of
Units
(in thousands)
700
386
(263)
(66)
757
The aggregate intrinsic value of outstanding stock options and exercisable stock options as of June 30, 2022 was $203.1 million
and $127.0 million, respectively, which have a remaining life of 7 years and 6 years, respectively. The aggregate intrinsic value
for stock options exercised in fiscal 2022, 2021, and 2020 was $80.8 million, $58.6 million, and $78.0 million, respectively.
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)
The weighted average fair values of shares granted were as follows:
Year ended June 30,
(in dollars)
Performance-based restricted stock
Time-based restricted stock
B. Pension Plans
2022
2021
2020
0.0 %
1.8 %
22.7 %
4.9
33.03
$
0.1 %
2.6 %
25.8 %
5.4
21.66
$
1.4 %
1.9 %
19.3 %
5.4
24.40
$
2022
2021
2020
$
$
206.86 $
138.53 $
169.84
208.08 $
141.52 $
167.16
The Company has a defined benefit cash balance pension plan. The U.S. pension plan, which is currently closed to new
entrants, was frozen effective July 1, 2020. As of July 1, 2020 and onward, participants will retain their accrued benefits and
will not accrue any future benefits due to pay and/or service. The plan interest credit rate varies from year-to-year based on the
ten-year U.S. Treasury rate. The Company's policy is to make contributions within the range determined by generally accepted
actuarial principles.
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, was 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 income (loss).
71
The Company's pension plans' funded status as of June 30, 2022 and 2021 is as follows:
June 30,
2022
2021
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 (a)
Currency translation adjustments
Plan changes
Benefits paid
Projected benefit obligation at end of year
$
2,306.3 $
1,988.8
(406.7)
385.2
10.7
(16.4)
(93.4)
10.9
21.8
(100.4)
$
1,800.5 $
2,306.3
$
2,149.3 $
2,180.1
5.7
52.3
(319.2)
(22.5)
6.8
4.9
51.4
(11.8)
25.1
—
(93.4)
(100.4)
$
1,779.0 $
2,149.3
Funded status - plan assets less benefit obligations
$
21.5 $
157.0
(a) The actuarial loss for fiscal 2022 was primarily due to lower than expected return on assets.
The amounts recognized on the Consolidated Balance Sheets as of June 30, 2022 and 2021 consisted of:
June 30,
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount recognized
2022
2021
$
148.5 $
320.5
(5.3)
(6.0)
(121.7)
(157.5)
$
21.5 $
157.0
The accumulated benefit obligation for all defined benefit pension plans was $1,765.3 million and $2,135.0 million at June 30,
2022 and 2021, respectively.
The Company's pension plans with projected benefit obligations in excess of plan assets as of June 30, 2022 and 2021 had the
following projected benefit obligation and fair value of plan assets:
June 30,
Projected benefit obligation
Fair value of plan assets
2022
2021
$
$
145.5 $
18.5 $
182.2
18.7
72
The Company's pension plans with accumulated benefit obligations in excess of plan assets as of June 30, 2022 and 2021 had
the following accumulated benefit obligation and fair value of plan assets:
June 30,
Accumulated benefit obligation
Fair value of plan assets
2022
2021
$
$
132.0 $
18.5 $
168.3
18.7
The components of net pension (income)/ expense were as follows:
Service cost – benefits earned during the period
Interest cost on projected benefits
Expected return on plan assets
Net amortization and deferral
Special termination benefits, plan curtailments, and settlement charges
Net pension (income)/expense
2022
2021
2020
$
5.7 $
4.9 $
52.3
51.4
59.7
61.8
(127.9)
(121.3)
(117.9)
7.5
9.0
9.3
2.9
$
(53.4) $
(52.8) $
6.8
(22.0)
(11.6)
As a result of the freeze of the U.S. pension plan, described above, the Company recognized $17.0 million of prior service
credits during fiscal 2020 within Other (income)/expense, net, which were previously recognized within accumulated other
comprehensive income (loss) (see Note 13).
The net actuarial loss and prior service cost 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 $340.9 million
and $7.4 million, respectively, at June 30, 2022. There is no remaining transition obligation for the defined benefit pension
plans included in accumulated other comprehensive income (loss).
Assumptions used to determine the actuarial present value of benefit obligations were:
Years ended June 30,
Discount rate
Interest crediting rate
Increase in compensation levels
Assumptions used to determine the net pension expense generally were:
Years ended June 30,
Discount rate
Interest crediting rate
Expected long-term rate of return on assets
Increase in compensation levels
2022
2021
4.60 %
3.25 %
N/A
2.55 %
3.25 %
N/A
2022
2021
2020
2.55 %
3.25 %
6.75 %
N/A
2.45 %
3.25 %
6.75 %
4.00 %
3.40 %
3.25 %
6.75 %
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 interest crediting rate is based on the current and expected future ten-year U.S. Treasury rates and a minimum of 3.25%.
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.
73
Plan Assets
The Company's pension plans' asset allocations at June 30, 2022 and 2021 by asset category were as follows:
Cash and cash equivalents
Fixed income securities
U.S. equity securities
International equity securities
Global equity securities
2022
2021
2 %
39 %
19 %
15 %
25 %
100 %
1 %
38 %
19 %
15 %
27 %
100 %
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%
As of June 30, 2022 and June 30, 2021, 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, 2022.
74
The following table presents the investments of the pension plans measured at fair value at June 30, 2022:
Level 1
Level 2
Level 3
Total
Commingled trusts
Government securities
Mutual funds
Corporate and municipal bonds
Mortgage-backed security bonds
Total pension asset investments
$
— $
798.2 $
— $
—
11.0
—
—
350.7
252.6
322.4
32.8
—
—
—
—
798.2
350.7
263.6
322.4
32.8
$
11.0 $
1,756.7 $
— $
1,767.7
In addition to the investments in the above table, the pension plans also held cash and cash equivalents of $32.8 million as of
June 30, 2022, which have been classified as Level 1 in the fair value hierarchy.
The following table presents the investments of the pension plans measured at fair value at June 30, 2021:
Level 1
Level 2
Level 3
Total
Commingled trusts
U.S. government securities
Mutual funds
Corporate and municipal bonds
Mortgage-backed security bonds
Total pension asset investments
$
— $
1,060.2 $
— $
1,060.2
—
10.2
—
—
426.2
345.7
417.2
38.6
—
—
—
—
426.2
355.9
417.2
38.6
$
10.2 $
2,287.9 $
— $
2,298.1
In addition to the investments in the above table, the pension plans also held cash and cash equivalents of $8.2 million as of
June 30, 2021, which have been classified as Level 1 in the fair value hierarchy.
Contributions
During fiscal 2022, the Company contributed $10.7 million to the pension plans. The Company expects to contribute $9.7
million to the pension plans during fiscal 2023.
Estimated Future Benefit Payments
The benefits expected to be paid in each year from fiscal 2023 to the year ended June 30, 2027 are $122.3 million, $128.6
million, $135.2 million, $115.9 million, and $126.0 million, respectively. The aggregate benefits expected to be paid in the five
fiscal years from the year ended June 30, 2028 to the year ended June 30, 2032 are $644.1 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, 2022 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 $153.1
million, $130.8 million, and $112.7 million for the calendar years ended December 31, 2021, 2020, and 2019, respectively.
75
NOTE 11. INCOME TAXES
Earnings before income taxes shown below are based on the geographic location to which such earnings are attributable.
Years ended June 30,
2022
2021
2020
Earnings before income taxes:
United States
Foreign
$ 3,461.8 $ 3,010.9 $ 2,815.4
342.3
350.3
367.2
$ 3,804.1 $ 3,361.2 $ 3,182.6
The provision (benefit) for income taxes consists of the following components:
Years ended June 30,
2022
2021
2020
Current:
Federal
Foreign
State
Total current
Deferred:
Federal
Foreign
State
Total deferred
$
620.7 $
749.3 $
97.5
100.4
818.6
121.9
142.6
1,013.8
20.7
(182.6)
(12.9)
28.8
36.6
(19.1)
(49.4)
(251.1)
468.3
119.5
102.3
690.1
23.7
(5.4)
7.7
26.0
Total provision for income taxes
$
855.2 $
762.7 $
716.1
A reconciliation between the Company's effective tax rate and the U.S. federal statutory rate is as follows:
Years ended June 30,
2022
%
2021
%
2020
%
Provision for taxes at U.S. statutory rate
$ 798.9
21.0 $
705.9
21.0 $
668.4
21.0
Increase/(decrease) in provision from:
State taxes, net of federal tax benefit
Valuation allowance release on foreign tax credits
Foreign rate differential
Excess tax benefit - Stock-based compensation
Other
91.8
—
41.3
(19.9)
(56.9)
2.4
—
1.1
(0.5)
(1.5)
67.2
—
34.0
(8.8)
(35.6)
2.0
—
1.0
(0.2)
(1.1)
85.6
(20.3)
44.9
(26.9)
(35.6)
$ 855.2
22.5 $
762.7
22.7 $
716.1
2.7
(0.6)
1.4
(0.8)
(1.2)
22.5
The effective tax rate in fiscal 2022 and 2021 was 22.5% and 22.7%, respectively. The decrease in the effective tax rate is
primarily due to a favorable earnings mix, lower reserves for uncertain tax positions, and an intercompany transfer of certain
assets in fiscal 2022, partially offset by favorable adjustments to prior year tax liabilities and a foreign tax election in fiscal
2021.
The effective tax rate for fiscal 2021 and 2020 was 22.7% and 22.5%, respectively. The increase in the effective tax rate is
primarily due to combined benefits from a valuation allowance release related to foreign tax credit carryforwards and a foreign
tax law change during fiscal 2020 as well as a decrease in the excess tax benefit on stock-based compensation, partially offset
by favorable adjustments to prior year tax liabilities during fiscal 2021.
76
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
Prepaid royalty
Unrealized investment losses, net
Other
Less: valuation allowances
Deferred tax assets, net
Deferred tax liabilities:
Deferred revenue
Fixed and intangible assets
Prepaid expenses
Prepaid retirement benefits
Unrealized investment gains, net
Tax on unrepatriated earnings
Other
Deferred tax liabilities
Net deferred tax (assets)/liabilities
2022
2021
$
212.1 $
244.2
43.5
5.9
34.1
33.7
407.2
38.3
774.8
(18.9)
38.4
21.3
46.3
—
—
34.7
384.9
(13.4)
$
755.9 $
371.5
$
529.9 $
6.5
94.8
4.6
—
11.5
18.2
665.5
$
(90.4) $
494.5
119.4
27.9
37.7
101.7
11.4
13.6
806.2
434.7
There are $157.4 million and $48.3 million of long-term deferred tax assets included in other assets on the Consolidated
Balance Sheets at June 30, 2022 and 2021, respectively.
Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of
approximately $53.0 million as the Company considers such earnings to be permanently reinvested outside of the United States.
As of June 30, 2022, 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 $55.1 million as of June 30, 2022, of
which $1.5 million expire through June 2032 and $53.6 million have an indefinite utilization period. As of June 30, 2022, the
Company has approximately $23.8 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 $204.2 million as of June 30, 2022, which expire
through June 2041. The Company has recorded valuation allowances of $18.9 million and $13.4 million at June 30, 2022 and
2021, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized.
Income tax payments were approximately $856.8 million, $973.7 million, and $677.1 million for fiscal 2022, 2021, and 2020,
respectively.
As of June 30, 2022, 2021, and 2020 the Company's liabilities for unrecognized tax benefits, which include interest and
penalties, were $98.1 million, $99.9 million, and $62.3 million respectively. The amount that, if recognized, would impact the
effective tax rate is $68.1 million, $68.5 million, and $49.9 million, respectively. The remainder, if recognized, would
principally impact deferred taxes.
77
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
2022
2021
2020
Unrecognized tax benefits at beginning of the year
$
99.9 $
62.3 $
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
8.0
11.6
(8.5)
(2.0)
(9.2)
(1.7)
18.8
32.5
(11.0)
(1.3)
(1.5)
0.1
54.2
13.2
6.3
(4.3)
(4.0)
(2.8)
(0.3)
$
98.1 $
99.9 $
62.3
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 2022, 2021, and 2020, the Company recorded interest expense
of $3.5 million, $10.8 million, and $1.6 million, respectively. Penalties recorded during fiscal years 2022 and 2020 were not
significant. During fiscal year 2021, the Company recorded penalties of $0.3 million.
At June 30, 2022, the Company had accrued interest of $21.9 million recorded on the Consolidated Balance Sheets, of which
$4.5 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30,
2021, the Company had accrued interest of $19.2 million recorded on the Consolidated Balance Sheets, of which $3.9 million
was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2022 and
June 30, 2021, the Company’s accrued penalties of $0.3 million and $0.3 million, respectively, were recorded on the
Consolidated Balance Sheets within income taxes payable.
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
Illinois
Arizona
Massachusetts
New York State
New York City
India
2019 - 2020
2018 - 2020
2013 - 2014, 2016 - 2018
2016 - 2018
2016 - 2018
2011, 2014 - 2020
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 $2 million and expected cash payments could be up to $15 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.
78
NOTE 12. COMMITMENTS AND CONTINGENCIES
As of June 30, 2022, the Company has purchase commitments of approximately $796.7 million, including a reinsurance
premium with Chubb for the fiscal 2023 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 $455.0 million relates to fiscal 2023,
$282.2 million relates to the fiscal years ending June 30, 2024 through fiscal 2025 and the remaining relates to fiscal years
ending June 30, 2026 through fiscal 2027.
In May 2020, two potential class action complaints were filed against ADP, TotalSource and related defendants in the U.S.
District Court, District of New Jersey. The complaints assert violations of the Employee Retirement Income Security Act of
1974 (“ERISA”) in connection with the ADP TotalSource Retirement Savings Plan’s fiduciary administrative and investment
decision-making. The complaints seek statutory and other unspecified monetary damages, injunctive relief and attorney’s fees.
These claims are still in their early 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.
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.
79
NOTE 13. RECLASSIFICATION OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI")
Comprehensive income is a measure of income that includes both net earnings and other comprehensive income (loss). Other
comprehensive (loss)/income results from items deferred on the Consolidated Balance Sheets in stockholders' equity. Other
comprehensive (loss)/income was $(2,004.3) million, $25.4 million, and $242.5 million in fiscal 2022, 2021, and 2020,
respectively. Changes in Accumulated Other Comprehensive Income (“AOCI”) by component are as follows:
Currency
Translation
Adjustment
Net Gains/
(Losses) on
Available-
for-sale
Securities
Cash Flow
Hedging
Activities
Pension
Liability
Accumulated
Other
Comprehensive
(Loss) /Income
Balance at June 30, 2019
$
(269.2)
$
224.6
$
—
$
(212.7)
$
(257.3)
Other comprehensive income/
(loss) before reclassification
adjustments
Tax effect
Reclassification adjustments
to net earnings
Tax effect
Balance at June 30, 2020
Other comprehensive income/
(loss) before reclassification
adjustments
Tax effect
Reclassification adjustments
to net earnings
Tax effect
Balance at June 30, 2021
Other comprehensive income/
(loss) before reclassification
adjustments
Tax effect
Reclassification adjustments
to net earnings
Tax effect
(53.0)
—
—
—
$
(322.2)
$
95.4
—
—
—
$
(226.8)
$
(127.4)
—
—
—
(40.3)
10.0
—
—
(160.8)
39.5
(11.8) (B)
3.1
$
(30.3)
$
(342.7)
$
602.2
(136.4)
(12.9) (A)
2.9
680.4
(363.3)
82.6
(3.3)
0.8
281.5
(69.0)
9.3 (B)
(2.7)
(11.3) (A)
3.8 (C)
2.5
390.9
(0.9)
(29.9)
$
$
(123.6)
$
(2,228.0)
503.7
—
—
(229.8)
57.3
4.4 (A)
4.4 (C)
18.1 (B)
(1.0)
(4.9)
(1.1)
(26.6)
348.1
(86.9)
(24.7)
6.0
(14.8)
10.3
14.4
1.8
(1.1)
10.6
(2,585.2)
561.0
26.9
(7.0)
Balance at June 30, 2022
$
(354.2)
$
(1,330.0)
$
$
(282.9)
$
(1,993.7)
(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 (income)/expense (see Note 10). In fiscal 2020,
reclassification includes $17.0 million of prior service credits which were recognized as a component of net pension (income)/
expense as a result of the U.S. pension plan freeze.
(C) Reclassification adjustments out of AOCI are included in Interest expense on the Statements of Consolidated Earnings (see
Note 9).
80
NOTE 14. 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, legal settlements, severance costs, non-recurring gains and
losses, the elimination of intercompany transactions, and interest income and 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. The Company's Chief Operating Decision Maker does not review assets at the reportable segment level, hence
segment disclosure relating to total assets has not been provided.
Year ended June 30, 2022
Revenues
Earnings before income taxes
Capital expenditures
Depreciation and amortization
Year ended June 30, 2021
Revenues
Earnings before income taxes
Capital expenditures
Depreciation and amortization
Year ended June 30, 2020
Revenues
Earnings before income taxes
Capital expenditures
Depreciation and amortization
Year ended June 30, 2022
Revenues
Assets
Year ended June 30, 2021
Revenues
Assets
Year ended June 30, 2020
Revenues
Assets
Employer
Services
PEO
Services
Other
Total
$ 10,967.7 $ 5,545.7 $
(15.1) $ 16,498.3
3,406.3
871.2
(473.4)
3,804.1
125.4
428.5
—
8.3
51.7
78.3
177.1
515.1
$ 10,195.2 $ 4,818.3 $
(8.1) $ 15,005.4
3,052.1
718.8
(409.7)
3,361.2
116.7
421.7
—
7.4
61.6
81.6
178.3
510.7
$ 10,086.6 $ 4,511.5 $
(8.3) $ 14,589.8
3,058.2
609.3
(484.9)
3,182.6
115.7
388.0
—
3.4
52.6
88.6
168.3
480.0
United States
Europe
Canada
Other
Total
$
$
$
$
$
$
14,503.3 $
1,304.2 $
389.3 $
301.5 $ 16,498.3
56,856.2 $
2,452.9 $
2,987.9 $
771.2 $ 63,068.2
13,081.7 $
1,307.9 $
337.3 $
278.5 $ 15,005.4
42,137.1 $
2,425.1 $
3,360.5 $
849.8 $ 48,772.5
12,740.1 $
1,236.3 $
329.8 $
283.6 $ 14,589.8
33,891.0 $
2,162.7 $
2,435.3 $
676.5 $ 39,165.5
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
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
81
“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, 2022 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,
2022 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, 2022.
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
Chief Executive Officer
/s/ Don McGuire
Don McGuire
Chief Financial Officer
Roseland, New Jersey
August 3, 2022
82
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, 2022
that have materially affected, or are reasonably likely to materially affect, ADP's internal control over financial reporting.
83
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, 2022, 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, 2022, 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, 2022, of the Company and our report
dated August 3, 2022, expressed an unqualified opinion on those financial statements.
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
Morristown, New Jersey
August 3, 2022
84
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
85
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
Gus Blanchard
Michael A. Bonarti
Laura Brown
Chris D'Ambrosio
Joe DeSilva
Michael C. Eberhard
Sreeni Kutam
David Kwon
Virginia Magliulo
Don McGuire
Brian Michaud
Alex Quevedo
Carlos A. Rodriguez
Kareem Rogers
Jim Sperduto
Donald Weinstein
Age
Position
Employed by
ADP Since
47
55
48
59
56
50
41
47
60
52
52
53
62
54
50
57
47
50
53
Corporate Controller and Principal Accounting Officer
Chief Operating Officer
President, ADP
Chief Marketing Officer
Chief Administrative Officer
President, Major Account Services and ADP Canada
Chief Strategy Officer
President, Global Sales
Vice President and Treasurer
Chief Human Resources Officer
Chief Legal Officer/General Counsel
President, Employer Services International
Chief Financial Officer
President, Smart Compliance Solutions
President, Human Resource Outsourcing
Chief Executive Officer
President, National Account Services
President, Small Business Services, Retirement Services and
Insurance Services
Corporate Vice President, Global Product and Technology
2007
2002
1996
1985
1997
2000
2014
2003
1998
2014
2011
2015
1998
1991
1997
1999
2016
1994
2006
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 Chief Operating Officer in January 2022, he served as
President, Employer Services North America from March 2020 to December 2021, as President, Major Account Services and
ADP Canada from January 2017 to February 2020, 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, ADP in January 2022, she served as
President, Worldwide Sales and Marketing from March 2020 to December 2021, as President, Small Business Solutions and
Human Resources Outsourcing from January 2017 to February 2020, 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.
Gus Blanchard joined ADP in 1985. Prior to his appointment as Chief Marketing Officer in July 2021, he served as
Senior Vice President for Global Enterprise Sales from May 2014 to June 2021, and as Senior Vice President for TotalSource
Sales from July 2009 to April 2014.
86
Michael A. Bonarti joined ADP in 1997. Prior to his appointment as Chief Administrative Officer in July 2021, he
served as Corporate Vice President, General Counsel and Secretary from July 2010 to June 2021.
Laura Brown joined ADP in 2000. Prior to her appointment as President, Major Account Services and ADP Canada
in March 2020, she served as Senior Vice President/General Manager, Next Gen Human Capital Management from March
2019 to March 2020, as Senior Division Vice President, Major Account Services from September 2016 to March 2019, and
Division Vice President/General Manager, Small Business Services from April 2014 to August 2016.
Chris D’Ambrosio joined ADP in 2014. Prior to his appointment as Chief Strategy Officer in June 2021, he served as
Senior Vice President, General Manager, Insurance Services, Small Business Services from January 2019 to June 2021, and as
Senior Division Vice President of Strategy and Business Development, Small Business Services and Human Resources
Outsourcing from December 2017 to January 2019, as Division Vice President of Strategy and Business Development, Human
Resources Outsourcing from February 2017 to December 2017, and Division Vice President of Strategy, Human Resources
Outsourcing from March 2016 to February 2017.
Joe DeSilva joined ADP in 2003. Prior to his appointment as President, Global Sales in January 2022, he served as
President, Small Business Services, Retirement Services and Insurance Services from February 2020 to December 2021, as
Senior Vice President, Services & Operations, Small Business Services from May 2017 to February 2020, as Senior Vice
President/General Manager, Retirement Services from June 2015 to May 2017, and as Senior Vice President, Sales, Retirement
Services from May 2013 to June 2015.
Michael C. Eberhard joined ADP in 1998. He has served as Vice President and Treasurer since November 2009.
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.
David Kwon joined ADP in 2011. Prior to his appointment as Corporate Vice President, Chief Legal Officer/General
Counsel in July 2021, he served as Staff Vice President and Associate General Counsel – Global Compliance from March 2019
to June 2021, and as Staff Vice President and Associate General Counsel – Litigation from July 2012 to March 2019.
Virginia Magliulo joined ADP in 2015. Prior to her appointment as President, Employer Services International in
October 2021, she served as President, Global View from October 2019 to September 2021, and as General Manager, Southern
Europe from November 2017 to October 2019.
Don McGuire joined ADP in 1998. Prior to his appointment as Chief Financial Officer in October 2021, he served as
President, Employer Services International from June 2018 to September 2021, 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.
Brian Michaud joined ADP in 1991. Prior to his appointment as President, Smart Compliance Solutions in July 2021,
he served as President, Human Resources Outsourcing from February 2020 to June 2021, as Senior Vice President, TotalSource
from August 2016 to February 2020, as Senior Vice President, Client Services from June 2015 to August 2016, and as General
Manager, Northeast from September 2011 to June 2015.
Alex Quevedo joined ADP in 1997. Prior to his appointment as President, Human Resources Outsourcing in July
2021, he served as Senior Vice President, Human Resources Outsourcing Sales from September 2018 to June 2021, as Senior
Vice President/General Manager, Insurance Services from December 2015 to August 2018, and as Division Vice President,
Insurance Services Sales from December 2011 to December 2015.
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.
87
Kareem Rogers joined ADP in 2016. Prior to his appointment as President, National Account Services in July 2022,
he served as Senior Vice President, Implementation, National Account Services from July 2018 to June 2022, and as Senior
Vice President, Operations, National Account Services from March 2016 to July 2018. Prior to joining ADP, he was a senior
global executive for Equifax Inc. and a management consultant for McKinsey & Company.
Jim Sperduto joined ADP in 1994. Prior to his appointment as President, Small Business Services, Retirement
Services and Insurance Services in January 2022, he served as Senior Vice President/General Manager, Retirement Services
from November 2020 to December 2021, as Senior Vice President, Inside Sales, from January 2020 to October 2020, and as
Senior Vice President, Major Account Sales from July 2015 to January 2020.
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.
Directors
See “Election of Directors” in the Proxy Statement for the Company’s 2022 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
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 2022 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Item 11. Executive Compensation
See “Corporate Governance,” “Compensation Discussion and Analysis,” “Compensation and Management
Development Committee Report,” “Compensation of Executive Officers” and “Compensation of Non-Employee Directors” in
the Proxy Statement for the Company’s 2022 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 2022 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 2022 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 2022 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
1.
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 (PCAOB ID No. 34)
88
Statements of Consolidated Earnings - years ended June 30, 2022, 2021 and 2020
Statements of Consolidated Comprehensive Income - years ended June 30, 2022, 2021 and 2020
Consolidated Balance Sheets - June 30, 2022 and 2021
Statements of Consolidated Stockholders' Equity - years ended June 30, 2022, 2021 and 2020
Statements of Consolidated Cash Flows - years ended June 30, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Page in Form 10-K
93
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
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
Amended and Restated Certificate of Incorporation dated November 10, 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
Amended and Restated By-laws of the Company, dated August 5, 2020 - incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2020
Description of Common Stock
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 and filed on 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 and filed on September 15, 2015
Form of First Supplemental Indenture between Automatic Data Processing, Inc. and U.S. Bank
National Association, as trustee - incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated August 11, 2020 and filed on August 13, 2020
Form of 1.250% Senior Note due 2030 - incorporated by reference to Exhibit A to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated August 11, 2020 and filed on August 13, 2020
Form of Second Supplemental Indenture between Automatic Data Processing, Inc. and U.S. Bank
National Association, as trustee - incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated May 11, 2021 and filed on May 14, 2021
Form of 1.700% Senior Note due 2028 - incorporated by reference to Exhibit A to 4.1 to the
Company's Current Report on Form 8-K dated May 11, 2021 and filed on May 14, 2021
364-Day Credit Agreement, dated as of July 1, 2022, 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. and Deutsche Bank Securities Inc., as Syndication
Agents, and Barclays Bank PLC and MUFG Bank, Ltd., as Documentation Agents - incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated and filed on July 1,
2022
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 and filed on June 13, 2019
89
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Five-Year Credit Agreement, dated as of June 9, 2021, 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., and Deutsche Bank Securities Inc., as Syndication
Agents, and Barclays Bank PLC and MUFG Bank Ltd., as Documentation Agents - incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated June 9, 2021 and filed
on June 10, 2021
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
October 14, 2020 - incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 2020 (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 (Amended and Restated as
of February 3, 2020) - incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 2020 (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 and filed on November 13, 2018
(Management Compensatory Plan)
Automatic Data Processing, Inc. Amended and Restated 2008 Omnibus Award Plan (as amended and
restated as of April 11, 2018, 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)
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 Agreement 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 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 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)
90
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
21
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
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)
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)
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 and filed on November 13, 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 and filed on November 13, 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 and filed on November 13, 2018 (Management
Compensatory Plan)
Form of Stock Option Grant Agreement under the 2018 Omnibus Award Plan for grants beginning
September 1, 2021 - incorporated by reference to Exhibit 10.31 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2021 (Management Compensatory Plan)
Form of Restricted Stock and Restricted Stock Unit Award Agreement under the 2018 Omnibus
Award Plan for grants beginning September 1, 2021 - incorporated by reference to Exhibit 10.32 to
the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (Management
Compensatory Plan)
Form of Performance Stock Unit Award Agreement under the 2018 Omnibus Award Plan for grants
beginning September 1, 2021 - incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2021 (Management Compensatory Plan)
Form of Restricted Stock Unit Award Agreement under the 2018 Omnibus Award Plan for grants
beginning September 1, 2022 (Management Compensatory Plan)
Form of Performance Stock Unit Award Agreement under the 2018 Omnibus Award Plan for grants
beginning September 1, 2022 (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
Compensation letter for Don McGuire, dated September 2021, and relocation addendum, dated
October 26, 2021, by and between Automatic Data Processing, Inc. and Don McGuire - incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2021
Compensation letter for John Ayala, dated December 2021 - incorporated by reference to Exhibit 10.1
to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2021
Compensation letter for Maria Black, dated December 2021 - incorporated by reference to Exhibit
10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31,
2021
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 Don McGuire 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 Don McGuire pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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Inline XBRL Taxonomy Extension Schema
Inline XBRL Taxonomy Extension Calculation Linkbase
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101.LAB
101.PRE
101.DEF
Inline XBRL Taxonomy Label Linkbase
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92
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, 2022:
Allowance for doubtful accounts:
Current
Long-term
Deferred tax valuation allowance
Year ended June 30, 2021:
Allowance for doubtful accounts:
Current
Long-term
Deferred tax valuation allowance
Year ended June 30, 2020:
Allowance for doubtful accounts:
Current
Long-term
Deferred tax valuation allowance
$
$
$
$
$
$
$
$
$
79,568 $
(1,893) $
1,413 $
(22,320) (B)
249 $
13,377 $
— $
8,563 $
(166) $
— (B)
(250) $
(2,823)
92,472 $
14,661 $
2,185 $
(29,750) (B)
549 $
11,992 $
— $
3,250 $
(300) $
— (B)
226 $
(2,091)
54,850 $
65,069 $
(4,536) $
(22,911) (B)
505 $
— $
44 $
— (B)
31,627 $
(18,953) $
(204) $
(479)
$
$
$
$
$
$
$
$
$
56,768
83
18,867
79,568
249
13,377
92,472
549
11,992
(A) Includes amounts related to foreign exchange fluctuation.
(B) Doubtful accounts written off, less recoveries on accounts previously written off.
93
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 3, 2022
AUTOMATIC DATA PROCESSING, INC.
(Registrant)
By /s/ Carlos A. Rodriguez
Carlos A. Rodriguez
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
Chief Executive Officer,
August 3, 2022
(Carlos A. Rodriguez)
Director
(Principal Executive Officer)
/s/ Don McGuire
(Don McGuire)
Chief Financial Officer
(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/ David V. Goeckeler
(David V. Goeckeler)
Director
Director
Director
August 3, 2022
August 3, 2022
August 3, 2022
August 3, 2022
August 3, 2022
/s/ Linnie M. Haynesworth
Director
August 3, 2022
(Linnie M. Haynesworth)
/s/ John P. Jones
(John P. Jones)
Director
August 3, 2022
/s/ Francine S. Katsoudas
Director
August 3, 2022
(Francine S. Katsoudas)
94
/s/ Nazzic S. Keene
(Nazzic S. Keene)
/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
Director
August 3, 2022
August 3, 2022
August 3, 2022
August 3, 2022
August 3, 2022
95
EXHIBIT 21
Name of Subsidiary
ADP Atlantic, LLC
ADP Benefit Services KY, Inc.
ADP Brasil Ltda
ADP Broker-Dealer, Inc.
ADP Canada Co.
ADP Client Trust
ADP Employer Services GmbH
ADP Europe SAS
ADP France SAS
ADP GlobalView B.V.
ADP GSI France SAS
ADP Indemnity II, Inc.
ADP International Services B.V.
ADP, Inc.
ADP of Roseland, Inc.
ADP Pacific, Inc.
ADP Private Limited
ADP RPO, LLC
ADP Strategic Plan Services, LLC
ADP Tax Services, Inc.
ADP Technology Services, Inc.
ADP TotalSource, 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 XVIII, Inc.
ADP TotalSource FL XIX, Inc.
ADP TotalSource FL XXIX, Inc.
ADP TotalSource Group, Inc.
ADP TotalSource MI XXX, Inc.
ADP TotalSource NH XXVIII, Inc.
ADP TotalSource Services, Inc.
ADP Traditional Incorporated Cell
ADP Trust Company, N.A.
Automatic Data Processing Insurance Agency, Inc.
Automatic Data Processing Limited
Automatic Data Processing Limited
Bluefield Pilot Incorporated Cell
Global Cash Card, Inc.
Jurisdiction of
Incorporation
Delaware
Kentucky
Brazil
New Jersey
Canada
Delaware
Germany
France
France
Netherlands
France
Vermont
Netherlands
Delaware
Delaware
Delaware
India
Delaware
Delaware
Delaware
Delaware
Florida
Florida
Colorado
Colorado
Colorado
Delaware
Florida
Florida
Florida
Florida
Florida
Florida
Michigan
New Hampshire
Florida
Vermont
Office of the Comptroller of the Currency
New Jersey
Australia
United Kingdom
Vermont
Nevada
MasterTax, LLC
Work Market, Inc.
Arizona
Delaware
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, 2022.
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-10281,
333-110393, 333-147377, 333-170506 and 333-228204 on Form S-8, and Registration Statement
No. 333-226705 on Form S-3 of our reports dated August 3, 2022, 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 this Annual Report on Form 10-K of Automatic Data
Processing, Inc. for the year ended June 30, 2022.
/s/ Deloitte & Touche LLP
Morristown, New Jersey
August 3, 2022
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 3, 2022
/s/ Carlos A. Rodriguez
Carlos A. Rodriguez
Chief Executive Officer
EXHIBIT 31.2
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Don McGuire, 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 3, 2022
/s/ Don McGuire
Don McGuire
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
ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Carlos A.
Rodriguez, 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 3, 2022
/s/ Carlos A. Rodriguez
Carlos A. Rodriguez
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
ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Don McGuire,
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 3, 2022
/s/ Don McGuire
Don McGuire
Chief Financial Officer