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, 2023
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 $98,849,691,982. On July 31, 2023 there were 411,986,870
shares of Common Stock outstanding.
Portions of the Registrant's Proxy Statement for its 2023 Annual Meeting of Stockholders.
Part III
DOCUMENTS INCORPORATED BY REFERENCE
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 1 million clients and pay over 41 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
Our mission is to power organizations with insightful
Human Capital Management (HCM) solutions that meet
the changing needs of our clients and their workers.
digital
artificial
technology,
technology,
Data,
intelligence,
globalization, new business models and other significant
events and disruptions continuously reshape the way
people work. Our HCM
industry and
compliance expertise and data insights deliver measurable
results and peace-of-mind, and contribute to an engaged,
technology and
productive workforce. Our
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.
leading
ADP's Business Pillars
Our business is organized around three pillars which
represent our core growth areas.
U.S. HCM Solutions: In the United States, we provide
cloud-based HCM software with supporting service and
expertise that assists 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.
U.S. HR Outsourcing (HRO) Solutions: In the United
States, we offer comprehensive HRO solutions in which
we provide complete management solutions for HR
4
administration, payroll administration, talent management,
employee benefits, benefits administration, employer
liability management, and other HCM and employee
benefits functions.
Global Solutions: We offer international HCM and HRO
solutions, comprised of both local, in-country solutions and
cloud-based multi-country solutions, to clients wherever
they do business around the world.
ADP’s Strategy
Our business strategy has three key priorities:
With a large and growing addressable market, we are
focused on our core growth areas and further enhancing
our market position by executing on our Strategy:
• Lead with Best-in-Class HCM Technology. We design
and develop world-class HCM platforms that simplify
work and utilize enabling technologies like artificial
intelligence and modern cloud architecture. We aim to
solve the needs of our clients and their workers today by
making HCM transactions effortless and compliant, while
anticipating their needs of tomorrow by incorporating
valuable data insights and guidance into our solutions to
help them better understand their workforce and how they
compare to industry peers, and position them to make
better decisions.
technology
to achieve
• Provide Unmatched Expertise and Outsourcing
Solutions. Our clients look to us as a source of expertise to
understand key HR trends and best practices, employment
and related legislation, and to offer thoughtful strategies to
their business
utilize HCM
objectives and support their workforce. Many of our clients
also look to us to take on responsibility for a portion or all
of their HCM workflow via one of our HRO solutions. We
intend to continue to build on our deep expertise and make
it readily available to our clients through a variety of
channels, ranging from traditional call and chat options to
self-guided and AI-powered options. We will continue to
leverage our decades of experience, our significant data
insights, and investments in AI and other enabling
technologies to help our clients and their workers navigate
the ever-changing world of work.
• Benefit our Clients with Our Global Scale. Our clients
benefit from our unmatched global footprint and scale in
the HCM industry. We will continue to build on these
strengths to further improve our client experience, and to
add to our global footprint to further meet our clients
where they choose to do business and address their needs
for a distributed and flexible workforce. We intend to build
more relationships with partners, such as through the ADP
Marketplace, in order to provide clients with seamless
integrations and customizations that simplify their HR
processes and help them meet their needs. And we will
grow our sales organization and continue to invest in best-
in-class sales technology to not only make the purchase
experience seamless but to also empower our sellers to
provide the deep expertise and insights our clients, partners
and influencers require to ensure they have the right HCM
solutions to help them achieve their objectives and make a
meaningful impact for their employees.
As we continue to invest in and execute on our Strategy,
we intend to continue to exceed the expectations of our
clients and enable them and their people to reach their full
potential.
Innovation at ADP
Innovation is in our DNA. For over 70 years, we have
proven that actively listening and responding to what
clients and their employees need and want keeps the world
of work progressing forward. We pioneered HCM
automation, HCM in the cloud, mobile HCM and a digital
HCM marketplace. This spirit of innovation remains a
steady guide as we continue to listen and respond to
the business, data and digital
emerging needs. As
technology landscape continues to rapidly evolve, what
“work” means, how and where it gets done, and how
workers are paid is changing as well.
Leveraging the power of data, we innovate by anticipating
the future of work, the future of HCM and the future of pay
to help our clients transform their businesses, simplify
work and empower their workers.
The size and breadth of ADP gives us a unique
opportunity, especially in the era of data and data-driven
products, to test innovative ideas, validate hypotheses and
refine solutions before we bring them to the market. This
happens through our “client-zero” program, which forges a
direct connection point between our
internal HR
practitioners and our technologists. A key area of focus is
using data and feedback from front-line practitioners to
build products that improve the employee experience and
make HR technology more intentional and in the moment.
By innovating with a client-centric mindset, we continue to
transform work.
In today’s world of work, people-data has never been more
important. It gives companies the information they need to
identify the depth and scope of people issues, anticipate
and solve challenges, foster connections across their
workforce and drive business outcomes. Sitting at the
center of workforce data, we leverage the unrivaled scale,
breadth, and depth of our data to provide the insights
businesses need to create a better world of work. Our data
is also
the basis for our renowned ADP National
Employment Report, which the ADP Research Institute
(ADPRI) and the Stanford Digital Economy Lab recently
retooled to provide a more robust, independent high-
frequency view of the labor market and trajectory of
economic growth in the United States.
The scale and scope 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 and
providing our 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 machine learning (ML) and workforce
analytics platform which is the largest private repository of
analyzes
payroll
aggregated,
and
compensation data from more than 1 million organizations
across the U.S., powering solutions that provide clients
with in-depth workforce and business insights that enable
critical HR decisions.
available. DataCloud
timely HCM
anonymized
information
and
Artificial intelligence (AI) drives many of the key features
of ADP’s data products. In the U.S., ADP DataCloud's
Skills Graph, our proprietary data structure, is based on
more than 43 million employee records, 95 million
resumes and 9 million job postings across more than 20
industries and 500 geographic areas, and uses large
language models to extract, align and normalize 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 and is designed to minimize the introduction
of bias by, among other things, focusing on the skills,
education, and experience of an applicant. Skills Graph
also powers 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, as well as Talent Market Insights where
organizations can explore jobs and locations to understand
talent availability, skills, wages, turnover and time to fill.
ADP’s Model-Based Benchmarks, powered by Skills
Graph, also extend benchmarks to include compensation
for up to 160 million workers. Model-Based Benchmarks
are driven by a set of deep learning models that extract
5
patterns and knowledge from millions of payroll records
and job profiles to provide accurate information that
reflects the reality of the position being researched. We
offer similar tools to clients outside the United States,
including through our ADP GlobalView® and ADP iHCM
solutions.
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 governance, and in furtherance
of those goals has 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
that ADP should follow while
developing products, systems and applications that involve
AI, ML and data.
the principles
to explore
the potential
As we continue
that new
technologies like generative AI can provide as we design
and develop innovative solutions, we understand the great
responsibility we have to approach these innovations in a
way that is ethical, secure, and compliant for our business
and the clients and workers we serve around the world.
This led to our establishment of an interdisciplinary
working group across ADP to determine governance for
use cases and adoption of a set of principles and processes
to govern the use of these newer technologies, including
operational monitoring of recommendations made by AI/
ML technologies.
Built to be as dynamic as the world of work today, our
next-gen platforms are designed for adaptability. Built
from the ground up to be cloud-native, global, scalable and
secure, our next-gen platforms are designed to provide our
clients with the flexibility they need to address today’s and
tomorrow’s workplace challenges, and to personalize the
experience based on their needs. Built for dynamic teams,
our next-gen HCM platform provides our clients with
visibility into where work 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 platform is a global solution that
supports workers of all types and enables real-time,
transparent, continuous payroll calculations. This next-gen
payroll platform 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 platform’s
built-in compliance capabilities enable our clients to focus
on managing their business.
to navigate
it harder
Additionally, we launched the “Roll™ by ADP” mobile-
first solution – reimagining how small businesses do
payroll. This groundbreaking payroll solution utilizes an
AI-powered chat interface to turn traditional payroll
management
that can
complete payroll in under a minute. Leveraging ADP’s
long-standing payroll expertise and data security, small
intuitive conversation
into an
We are also using AI to respond to the needs of HR
practitioners. ADP’s data-driven Intelligent Self-Service
solution uses predictive analytics and machine learning to
proactively address common employee HR challenges
before the need to contact their HR departments arises,
freeing HR practitioners
to focus on higher value
initiatives. It was named a “Top HR Product” at the 2022
HR Technology Conference, marking the 8th consecutive
year we have received this award for continued product
innovation.
ADP’s Pay Equity Storyboard combines analytics and
benchmarking
to help employers better understand
potential pay gaps and provide them with real, up-to-date,
aggregated and anonymized market data to understand how
their compensation for a particular job compares to other
similar employers. 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
first-of-its-kind, award-winning DEI
benchmark to help companies assess DEI gaps, track their
progress and achieve their goals, bolstering ADP’s suite of
DEI offerings. It also earned acclaim in Fast Company’s
first-ever list of the “Next Big Things in Tech,” which
the
6
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.
financial wellness tools designed to help members realize a
better financial path forward.
‘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 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,
and giving millions of
their employees worldwide
convenient access to their payroll and HR information in
32 languages. We expanded employee self-service via our
app by incorporating ML-based recommendations for
employees to better find information, correct missing
information, and complete tasks more efficiently.
Reportable Segments
Our two reportable business segments are Employer
Services
and Professional Employer Organization
(“PEO”), and are based on the way that management
reviews the performance of, and makes decisions about,
our business. For financial data by segment and by
geographic area, see Note 14 to the “Consolidated
Financial Statements” contained in this Annual Report on
Form 10-K.
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
needs
Services, Benefits
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 innovative Wisely® payment and financial wellness
offering
includes a suite of personalized banking-
alternative solutions designed to give employees fast and
flexible choices to access their pay and other sources of
income. Wisely® Pay is a network-branded paycard with a
digital account, through which employees can access their
pay, make purchases online and in store, deposit checks,
load additional funds onto the card, and transfer funds to a
bank account in the United States. Wisely also enables
advanced capabilities and innovative features such as
Earned Wage Access (EWA), automatic savings options,
cash back rewards and bill pay that help employees take
even more control of their finances. Wisely® Direct, a
network-branded general purpose reloadable card that
comes with a digital account, provides similar features and
functionality but is offered directly to consumers. Our
digital card offerings are banking alternatives that afford
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 850,000 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.
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,
employee
enrollment
insurance
communication services, and dependent verification
services.
In addition, ADP benefits administration
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,
and
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
insights to drive employee engagement and leadership
turn help drive employee
development, which
performance.
in
Workforce Management. ADP’s Workforce Management
offers a range of solutions to over 120,000 employers of all
sizes, including time and attendance, absence management
9
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,
industry-specific modules
labor
forecasting, budgeting, activity and task management,
grant and project tracking, and tips management.
available
are
for
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, 2023, in the United States, we
processed and delivered more than 79 million employee
year-end tax statements and moved more than $3.1 trillion
in client funds to taxing and other agencies, 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.
• 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,
in conjunction with our
insurance agency,
Automatic Data Processing Insurance Agency, Inc.,
to workers’
facilitates access
compensation and group health insurance for small and
mid-sized clients through a variety of insurance carriers.
the United States
licensed
in
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.
HRO Solutions
As a leader in the growing HR Outsourcing market, we partner with our clients to offer a full range of seamless technology and
service solutions for HR administration, workforce management, payroll services, benefits administration and talent
management. From small businesses to enterprises with thousands of employees, 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 16,000 clients and
10
more than 725,000 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
leaks, and have
tailor
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
the day-to-day payroll process becomes our
COS,
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.
ADP Global Payroll is a solution for multinational
organizations of all sizes, empowering them to harmonize
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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.
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 clients manage various combinations of payroll
attendance
time
services, HR management,
benefits
talent management
management,
management, depending on the country in which the
solution is provided.
and
and
We pay over 15 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
revenues. We are a leader in each of our major service
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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 data) and 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.
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, artificial intelligence (AI) and cybersecurity-
related laws, including federal, state and foreign security
breach notification laws with respect to both client
employee data and our own employee data. The changing
nature of these 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 Privacy Rights Act of 2020
impact our processing of personal
(the “CPRA”),
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
CPRA requires companies to provide data disclosure,
access, deletion and opt-out rights to consumers in
California. In the area of artificial intelligence, some states
and localities in the U.S. have proposed or already enacted
legislation and proposals are pending in the European
Union and elsewhere that would impose obligations on
how we develop and market AI-based products and
solutions. Additionally, self-regulatory frameworks like the
National Institute of Standards and Technology AI Risk
Management Framework are being promulgated and
adherence to these may become an industry standard or
client expectation. 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
and manages via ADP Client Trust,
to
comprehensive ongoing oversight and regulation by the
OCC. 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
is subject
of our money 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
background screening 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, as a Certified PEO, maintains
certifications with the Internal Revenue Service. Because
ADP TotalSource is a co-employer with respect to its
clients’ worksite employees, we may be subject to certain
obligations and responsibilities of an employer under
federal and state tax, insurance and employment laws,
including worksite employee payroll obligations and with
respect to claimed employee retention and other tax credits.
ADP Strategic Plan Services, LLC, our registered
investment
investment
provides
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 Financial Industry Regulatory
the SEC and
Authority (FINRA).
adviser,
certain
Our current and future offerings in the payments and/or
consumer space may also subject us to additional laws and
regulations, which could also require corresponding
compliance programs and policies and dedicated resources.
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
in meeting
13
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.
The foregoing description does not include an exhaustive
list of the laws and regulations governing or impacting our
business. See the discussion contained in the “Risk
Factors” section in Part I, Item 1A of this Annual Report
on Form 10-K for information regarding changes in laws
and regulations that could have a materially adverse effect
on our reputation, results of operations or financial
condition or have other adverse consequences.
CLIENTS AND CLIENT CONTRACTS
We provide services to more than 1 million clients. In
fiscal 2023, no single client or group of affiliated clients
accounted for revenues in excess of 2% of our annual
consolidated revenues.
in
We are continuously
the process of performing
implementation services for new clients. Depending on the
service agreement and/or the size of the client, the
installation or conversion period for new clients can vary
from a short period of time for a small Employer Services
client (as little as 24 hours) to a longer period for a large
Employer Services client with multiple deliverables
(generally six to nine months). In some cases, 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 2023, our client
retention is estimated at approximately 13 years in
Employer Services, and approximately 6 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.
SYSTEMS DEVELOPMENT AND
PROGRAMMING
During the fiscal years ended June 30, 2023, 2022 and
2021, we invested approximately $1.195 billion, $1.210
in systems
billion and $1.016 billion, respectively,
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.
Our Chief Human Resources Officer (CHRO), together
with our Executive Leadership Team, manages our HCM
strategy and related programs and initiatives, as well as our
talent strategy. Our CHRO, along with our CEO, as
14
and
regularly updates
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, equity, inclusion and belonging. 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.
Our Associates and Demographics
As of June 30, 2023, our global team of associates
consisted of approximately 63,000 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.
Our Culture and Values
More than 70 years ago, our founders established the
values that guide us today.
These values have helped shape our one-of-a-kind culture,
inclusiveness and
which embraces diversity, equity,
belonging.
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
to drive
15
StandOut® Engagement Pulse® and Performance Pulse®
surveys to ensure that all associates can share with their
leaders how
their
colleagues, and for us to get a snapshot of engagement
across the globe.
they feel about
their work and
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
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 inclusive and diverse 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, helping
build
in our
communities, and promoting
the conservation and
restoration of natural resources.
relationships with diverse markets
We have undertaken and implemented several initiatives
that underpin our culture, values and talent practices,
including:
• Continuing to eliminate a college degree requirement to
expand the applicant pool for non-specialized roles, such as
those in our sales, service and implementation and
technology organizations;
• 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
Association, the United Negro College Fund, Prospanica,
the Anita Borg Institute for Women and Technology and
Disability:IN 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 (17 consecutive years); Best
Place to Work for LGBTQ+ Equality (13 consecutive
perfect
the Human Rights Campaign
Foundation’s Corporate Equality Index); DiversityInc Top
50 Companies for Diversity; Seramount’s Best Companies.
for Multicultural Women; Barron’s 100 Most Sustainable
Companies; and Newsweek’s America’s Most Responsible
Companies.
scores on
Our Talent Strategy
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 so that 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
16
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
is
and career management. Our
designed to help leaders build self-awareness, cultivate
strong internal relationships, establish a leadership model
that is unique to their strengths and achieve better decision-
making using systems thinking.
leadership program
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 for U.S. associates, 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 constantly update our programs according to our
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.
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
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, compliance 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.
Because our PEO is a co-employer with our PEO clients
and a Certified PEO by the Internal Revenue Service, we
may be subject to certain obligations, responsibilities and
liabilities of an employer with respect to Worksite
Employees (WSE), including with respect to their wages
and the payment thereof, the payment of certain taxes with
respect to WSE wages and employee benefits provided to
the WSEs. Even though PEO clients are contractually
responsible for the timely remittance of such costs, it is
possible that our clients will not remit such payments
despite their contractual obligations. The risk of failing to
receive such payments from PEO clients could be
magnified during significant financial or other disruptions
or catastrophic events, such as the failure of a bank, like
that of Signature Bank or Silicon Valley Bank, with whom
a significant number of PEO clients may bank at the time,
or more widespread stress or failure within the U.S.
banking system. Any such event could prevent or
materially delay the recovery of any payments not timely
remitted and could have an adverse impact on our financial
results and liquidity.
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 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 and
third-party senders 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
18
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, artificial
intelligence and cyber security laws and regulations could
have a materially adverse effect on our reputation, results
of operations or financial condition, or have other
adverse consequences
The collection, storage, hosting, transfer, processing,
disclosure, use, security and retention and destruction of
personal information required to provide our services is
subject to federal, state and foreign privacy, data protection
and cyber security laws. These laws, which are not
uniform, generally do one or more of the following:
regulate the collection, storage, hosting, transfer (including
in some cases, the transfer outside the country of
collection), processing, disclosure, use, security and
retention and destruction of personal information; require
notice to individuals of privacy practices; give individuals
certain access and correction rights with respect to their
personal information; and regulate the use or disclosure of
personal information for secondary purposes such as
marketing. Under certain circumstances, some of these
laws require us
to 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 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.
to provide notification
We believe that providing insights and content from data,
including via artificial intelligence (AI) and machine
learning (ML), will become increasingly important to the
value that our solutions and services deliver to our clients.
We are increasingly leveraging AI and ML in our solutions
and service delivery and are exploring how best to
integrate generative AI technologies and develop and
deploy capabilities that are beneficial to our clients and
their employees. However, legislation that would govern
the development and/or use of AI is under consideration in
the U.S. at the state and local level, as well as abroad. In
addition, self-regulatory frameworks like the National
Institute of Standards and Technology AI Risk
Management Framework are being promulgated and
adherence to these may become an industry standard or a
client expectation. As a result, the ability to provide data-
driven insights and otherwise leverage AI and ML may be
constrained by current or future laws, regulatory or self-
regulatory
considerations,
or
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 and/or these technologies in innovative ways.
requirements
ethical
to
Complying with privacy, data protection, AI and cyber
security laws and requirements, including the enhanced
obligations imposed by the GDPR, our BCRs and the
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
increase. The future
privacy violations continue
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, concerns about privacy abuses by other
companies and increased awareness of the potential
(positive and negative) of AI are changing consumer and
social expectations for enhanced protections (including
with respect to bias and potential discrimination). As a
result, noncompliance,
such
the
expectations or the perception of noncompliance or such
failure, whether or not valid, may damage our reputation.
to meet
failure
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,
clients, 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-
consuming. Furthermore, our efforts
to enforce our
intellectual property rights may be met with defenses,
counterclaims, and countersuits attacking the validity and
enforceability of our intellectual property rights, which
advantage. Our
competitive
may be successful. In addition, use of AI tools may result
in the release of confidential or proprietary information
which could limit our ability to protect, or prevent us from
protecting, our intellectual property rights.
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
their
property
infringing
intellectual
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
rights.
Additionally, as we expand our use of AI, there is
uncertainty regarding intellectual property ownership and
license rights of AI algorithms and content generated by AI
and we may become subject
to similar claims of
infringement. We may be found to be infringing upon third
party intellectual property 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 clients, 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
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
information. We also collect
personal and business
significant amounts of funds from the accounts of our
clients and transmit them to their employees, taxing
authorities and other third parties.
information, health
19
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.
We have programs and processes in place to prevent,
detect and respond to data or cybersecurity incidents.
However, as a result of the complexity of our operating
environment, the period over which hardware and software
has been acquired or other reasons, our programs and
processes may not be sufficient or adequate or may fail to
prevent, detect or respond to a cybersecurity incident or
identify and/or remediate a security vulnerability in our
operating environment. The techniques used to obtain
unauthorized access, disable or degrade service, or
sabotage systems change frequently, are increasingly more
complex and sophisticated (including due to the use of AI).
We may fail to anticipate or detect these techniques and/or
incidents for long periods of time and, even when we do
so, we may be unable or fail to 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
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 (including due to the use of
AI), we continue to invest significant resources, and may
be required to invest significant additional resources, to
modify and enhance our information security and controls
to) compromise
In
and
any
remediate
investigate
security
and
to
vulnerabilities.
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.
A cyberattack, unauthorized intrusion, malicious 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, which could have a materially adverse effect
on our business or results of operations or that of our
regulatory
liability,
clients,
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.
litigation,
result
in
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.
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,
20
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,
their agreements with us on
elect
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
Our industry is subject to rapid technological change,
including as a result of AI, and if we fail to upgrade,
enhance and expand our technology and services to meet
client needs and preferences, the demand for our
solutions and services may materially diminish
21
to
to
In order
the HCM
third parties respond
Our businesses operate in industries that are subject to
rapid technological advances (such as AI) and changing
client needs and preferences.
remain
to client demands, we
competitive and responsive
continually upgrade, enhance, and expand our technology,
solutions and services, including by leveraging AI in our
solutions. If we fail to respond successfully to technology
challenges and client needs and preferences or our
competitors or other
to such
challenges more quickly or successfully than us, the
demand for our solutions and services may diminish. As
new technologies (such as AI) continue to emerge, they
industry. These
may be disruptive
technologies could result in new and innovative HCM
products and solutions that could increase competition,
place us at a competitive disadvantage or even render
technology, products and solutions. In
obsolete our
addition, investment in product development and new
technologies often involves a long return on investment
cycle. We have made and expect to continue to make
significant investments in product development and new
technologies. We must continue to dedicate a significant
amount of resources to our development efforts before
knowing to what extent our investments will result in
products the market will accept. In addition, our business
could be adversely affected in periods surrounding our new
product introductions if clients delay purchasing decisions
to evaluate the new product offerings. Furthermore, we
may not execute successfully on our product development
strategy, including because of challenges with regard to
product planning and timing and technical hurdles that we
fail to overcome in a timely fashion. We may fail to realize
all the economic benefit of our investment in the
development of a product which could cause an
impairment of goodwill or intangibles and result in a
significant charge to earnings.
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, operations,
financial condition and results of operations, or have
other adverse consequences
Our business, operations, 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, extreme weather,
such as droughts, hurricanes, flooding and wildfires
(including as a result of climate change), 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.
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.
In connection with our client funds assets investment
strategy, we attempt to minimize the risk of not having
funds collected from a client available at the time such
client’s obligation becomes due by generally impounding
the client’s funds at the time of payment of such client’s
obligation. When we don’t impound client funds by the
time we pay such client obligations (including for PEO
clients with respect to which we are legally obligated for
payroll and tax obligations in respect of WSEs as a
Certified PEO), we are at risk of not recovering such funds
or a material delay in such recovery. Such risk could be
magnified during significant financial or other disruptions
or catastrophic events, such as the failure of a bank with
whom a significant number of clients may bank at the time
or more widespread stress or failure within the U.S.
banking system. Any such event could prevent or
materially delay the recovery of any funds from clients and
could have an adverse impact on our financial results and
liquidity.
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
22
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
to grow and provide our clients with
Our ability
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.
In addition, the nature of the office environment and
remote or hybrid working is changing, which may make it
more difficult to attract and retain personnel. It may also
present operational and workplace culture challenges that
may adversely affect our business.
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.
information about our
We publicly share certain
environmental, social and governance (“ESG”) initiatives,
including our net zero greenhouse gas emissions pledge.
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
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 clients and
business partners and may affect our relationships with
current clients, 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
23
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
ADP owns 7 of its processing/print centers, and 13 other operational offices, sales offices, and its corporate headquarters in
Roseland, New Jersey, which aggregate approximately 2,975,188 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 5,595,720 square feet worldwide, expire at various times up to the year 2033. 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.
24
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, 2023, there were 32,322 holders of record of the Company’s common stock. As of such date, 1,442,988 additional
holders held their common stock in “street name.”
Issuer Purchases of Equity Securities
Total Number of
Shares Purchased as
Part of the Publicly
Announced Common
Stock Repurchase
Plan (2)
Maximum
Approximate Dollar
Value
of Shares that
may yet be
Purchased under
the Common Stock
Repurchase Plan (2) (3)
Total Number of
Shares Purchased (1)
Average Price
Paid per Share
446,225
511,026
484,679
1,441,930
$215.30
$213.80
$222.16
441,377
509,837
464,818
1,416,032
$4,528,050,996
$4,419,043,544
$4,315,733,014
Period
April 1, 2023 to
April 30, 2023
May 1, 2023 to
May 31, 2023
June 1, 2023 to
June 30, 2023
Total
(1)
(2)
During the three months ended June 30, 2023, pursuant to the terms of the Company’s restricted stock program,
the Company purchased 25,898 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 2022
$5 billion
(3)
Inclusive of the impact of the one-percent excise tax under the Inflation Reduction Act of 2022.
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.
25
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, 2018,
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, 2023 (“fiscal 2023”), as compared to year ended June 30, 2022 (“fiscal
2022”). A detailed review of our fiscal 2022 performance compared to our fiscal 2021 performance is set forth in Part II, Item 7
of our Form 10-K for the fiscal year ended June 30, 2022.
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; our ability to respond successfully to changes in technology, including artificial
intelligence; compliance with existing or new legislation or regulations; changes in, or interpretations of, existing legislation or
26
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; employment and wage levels; 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; 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, 2023 include:
9%
Revenue Growth
10%
Organic Constant Currency
Revenue Growth
160 basis points
Earnings Before Income Taxes
Margin Expansion
17%
Diluted EPS Growth
130 basis points
Adjusted EBIT Margin
Expansion
17%
Adjusted Diluted EPS Growth
New Business Bookings Growth
6% PEO Services
10% Employer Services
$3.0B Cash Returned via Shareholder Friendly Actions
$1.9B Dividends | $1.1B Share Repurchases
Average Worksite Employee Growth
We are a leading global provider of cloud-based Human Capital Management (“HCM”) technology solutions to employers
around the world. Our HCM solutions, which include both software and outsourcing services, are designed to help our clients
manage their workforce through a dynamic business and regulatory landscape and the changing world of work. We
continuously seek to enhance our leading HCM solutions to further support our clients. We see tremendous growth opportunity
ahead as we focus on our three key Strategic Priorities: leading with best-in-class HCM technology, providing unparalleled
expertise and outsourcing, and leveraging our global scale for the benefit of our clients. Executing on our Strategic Priorities
will be critical to enabling our growth in the years ahead.
During the fiscal year we drove strong progress across a number of key measures and in support of our overall Strategic
Priorities. We crossed a major milestone, surpassing the 1 million client mark, driven by continued enhancements to our key
solutions like RUN and Workforce Now. We continued the deployment of our unified User Experience to key portions of our
portfolio such as the RUN mobile app. We were awarded Top HR Product for the 8th consecutive year at the annual HR Tech
Conference, in recognition for our recently launched Intelligent Self Service Solution. And our HR Outsourcing businesses
continued to grow, now with over 3 million worksite employees served.
27
For fiscal 2023, we delivered solid revenue growth of 9%, 10% organic constant currency. 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 4.7% for the year ended June 30, 2023 as compared to the
year ended June 30, 2022. PEO average worksite employees increased 6% for the year ended June 30, 2023, as compared to the
year ended June 30, 2022. Additionally, our strong ES new business bookings performance resulted in full year fiscal 2023
growth of 10%, and client satisfaction gains resulted in a full year ES client revenue retention rate of 92.2%, equal to the
highest level we have ever reported. We believe these results are largely attributable to improvements made to our platforms
and service over multiple years.
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
our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our re-investments,
longer term strategy, and 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. Our financial condition remains solid at June 30, 2023 and we remain well positioned to support our
associates and our clients.
RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS
Total Revenues
For the year ended June 30, respectively:
Total Revenues
YoY Growth
YoY Growth, Organic Constant Currency
Years Ended
June 30,
2023
18,012.2
2022
16,498.3
9 %
10 %
10 %
10 %
Revenues in fiscal 2023 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, continued strong client retention, an increase in interest on funds
held for clients, and an increase in pricing, partially offset by an unfavorable impact of one percentage point from foreign
currency. 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 2023 include interest on funds held for clients of $813.4 million, as compared to $451.8 million in fiscal
2022. The increase in interest earned on funds held for clients resulted from an increase in our average interest rate earned to
2.4% in fiscal 2023, as compared to 1.4% in fiscal 2022, coupled with an increase in our average client funds balances of 5.1%
to $34.1 billion in fiscal 2023 as compared to fiscal 2022.
28
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,
2023
2022
%
Change
$ 8,657.4 $ 8,252.6
844.8
451.2
9,953.4
3,551.4
253.3
798.6
410.7
9,461.9
3,233.2
81.9
$ 13,758.1 $ 12,777.0
5 %
6 %
10 %
5 %
10 %
209 %
8 %
Operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-through costs to $3,800.9
million from $3,514.4 million for the years ended June 30, 2023 and 2022, respectively. Additionally, operating expenses
increased due to increased costs to service our client base in support of our growing revenue, partially offset by the impact of
foreign currency and a net reduction of $12.3 million in our estimated losses related to ADP Indemnity.
Systems development and programming costs increased for fiscal 2023 due to increased investments and costs to develop,
support, and maintain our new and existing products.
Depreciation and amortization expenses increased due to the amortization of internally developed software products and new
investments in purchased software.
Selling, general and administrative expenses increased due to increased selling expenses as a result of investments in our sales
organization, increased marketing expenses, and a reversal of COVID-19 credit loss reserves of $26.0 million in 2022, partially
offset by the impact of foreign currency.
Interest expense increased due to the increase in average interest rates on commercial paper issuances and reverse repurchases
to 3.7% and 4.3% for the year ended June 30, 2023, as compared to 0.4% and 0.7% for the year ended June 30, 2022,
respectively, also coupled with a higher volume of average commercial paper and reverse repurchase borrowings, as compared
to the year ended June 30, 2022.
Other (Income)/Expense, net
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
2023
2022
$ Change
$
(149.5) $
(41.0) $
108.5
14.7
2.1
—
4.4
23.0
(7.5)
(10.3)
20.9
(7.5)
(50.8)
(61.7)
(10.9)
$
(183.5) $
(82.8) $
100.7
Interest income on corporate funds increased in fiscal 2023, as compared to fiscal 2022, due to higher average interest rates of
2.4% for the year ended June 30, 2023, as compared to 1.0% for the year ended June 30, 2022, coupled with higher average
investment balances for the year ended June 30, 2023 as compared to the year ended June 30, 2022. 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 $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.
Earnings Before Income Taxes ("EBIT") and Adjusted EBIT
For the year ended June 30, respectively:
EBIT
EBIT Margin
Adjusted EBIT
Adjusted EBIT Margin
Years Ended
June 30,
2023
$ 4,437.6
2022
$ 3,804.1
24.6 %
23.1 %
$ 4,467.9
$ 3,871.8
24.8 %
23.5 %
YoY
Growth
17 %
160 bps
15 %
130 bps
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, and operating efficiencies for costs of servicing our
clients on growing revenue, partially offset by increased selling expenses, increased interest expense, and increases in zero-
margin pass through costs.
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 relating to these initiatives, as applicable, in the respective periods.
Provision for Income Taxes
The effective tax rate in fiscal 2023 and 2022 was 23.1% and 22.5%, respectively. The increase in the effective tax rate is
primarily due to an intercompany transfer of certain assets that resulted in a lower effective tax rate in fiscal 2022 and higher
reserves for uncertain tax positions in fiscal 2023. 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 2023 and 2022 was 23.1% and 22.5%, respectively. The drivers of the adjusted effective
tax rate are the same as the drivers of the effective tax rate discussed above.
Net Earnings and Diluted EPS, Unadjusted and Adjusted
For the year ended June 30, respectively:
Net earnings
Diluted EPS
Adjusted net earnings
Adjusted diluted EPS
30
Years Ended
June 30,
2023
2022
$ 3,412.0 $ 2,948.9
7.00
$
8.21 $
$ 3,419.5 $ 2,951.6
$
8.23 $
7.01
YoY
Growth
16 %
17 %
16 %
17 %
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 4.9 million shares during fiscal 2023 and 9.2 million shares during fiscal 2022, partially offset by
the issuances of shares under our employee benefit plans.
For fiscal 2023, adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.
ANALYSIS OF REPORTABLE SEGMENTS
Employer Services
PEO Services
Other
Employer Services
PEO Services
Other
Employer Services
PEO Services
n/m - not meaningful
Revenues
Years Ended
June 30,
2023
2022
$ 12,042.6 $ 10,967.7
5,984.2
5,545.7
(14.6)
(15.1)
$ 18,012.2 $ 16,498.3
% Change
As
Reported
Organic
Constant
Currency
10 %
8 %
n/m
9 %
11 %
8 %
n/m
10 %
Earnings before Income Taxes
Years Ended
June 30,
2023
2022
% Change
As
Reported
$ 3,974.2 $ 3,406.3
871.2
(473.4)
977.3
(513.9)
$ 4,437.6 $ 3,804.1
17 %
12 %
n/m
17 %
Margin
Years Ended
June 30,
2023
2022
33.0 %
16.3 %
31.1 %
15.7 %
YoY
Growth
190 bps
60 bps
31
Employer Services
Revenues
Revenues increased due to new business started from New Business Bookings, an increase in our pays per control of 5%,
continued strong client retention, an increase in interest earned on funds held for clients, and an increase in pricing, partially
offset by an unfavorable impact of one percentage point from foreign currency.
Earnings before Income Taxes
Employer Services' earnings before income taxes increased in fiscal 2023 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.
Margin
Employer Services' margin increased due to increases in revenues discussed above, and operating efficiencies for costs of
servicing our clients on growing revenue, partially offset by an increase in selling expenses.
PEO Services
Revenues
PEO Services' revenues
Less: PEO zero-margin benefits pass-throughs
Years Ended
June 30,
2023
2022
$ 5,984.2 $ 5,545.7 $
3,800.9
3,514.4
PEO Services' revenues excluding zero-margin benefits pass-throughs
$ 2,183.3 $ 2,031.3 $
Change
$
438.5
286.5
152.0
%
8 %
8 %
7 %
PEO Revenues
PEO Services' revenues increased 8% for fiscal 2023 due to increases in average worksite employees of 6% for fiscal 2023, as
compared to fiscal 2022, and due to an increase in zero-margin benefits pass-throughs.
Earnings before Income Taxes
PEO Services’ earnings before income taxes increased 12% in fiscal 2023 due to increases in revenues discussed above and a
net reduction of $12.3 million in our estimated losses related to ADP Indemnity, partially offset by the increases in zero-margin
benefits pass-throughs of $286.5 million for fiscal 2023.
Margin
PEO Services' overall margin increased for fiscal 2023 due to increases in revenues discussed above, lower state unemployment
and workers compensation insurance costs, and changes in our estimated losses related to ADP Indemnity, partially offset by
increases in selling expenses.
32
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 2023, ADP Indemnity paid a premium of $284 million to enter into a reinsurance arrangement
with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2023 policy year up to $1 million per
occurrence. ADP Indemnity recorded a pre-tax benefit of approximately $73 million in fiscal 2023 and a pre-tax benefit of
approximately $61 million in fiscal 2022, which were primarily a result of changes in our estimated actuarial losses. ADP
Indemnity paid a premium of $269 million in July 2023, to enter into a reinsurance agreement with Chubb to cover
substantially all losses incurred by ADP Indemnity for fiscal 2024 policy year on terms substantially similar to the fiscal 2023
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.
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.
33
Net earnings
Adjustments:
Provision for income taxes
All other interest expense (a)
All other interest income (a)
Transformation initiatives (b)
Legal settlements (c)
Adjusted EBIT
Adjusted EBIT Margin
Provision for income taxes
Adjustments:
Transformation initiatives (d)
Legal settlements
Adjusted provision for income taxes
Adjusted effective tax rate (e)
Net earnings
Adjustments:
Transformation initiatives (b)
Income tax (benefit)/provision for transformation initiatives (d)
Legal settlements (c)
Income tax (benefit)/provision for legal settlements (d)
Adjusted net earnings
Diluted EPS
Adjustments:
Transformation initiatives (b) (d)
Legal settlements (c) (d)
Adjusted diluted EPS
Years Ended
June 30,
% Change
2023
2022
As Reported
$
3,412.0
$
2,948.9
16 %
1,025.6
70.9
(50.5)
8.7
1.2
855.2
71.3
(7.1)
3.5
—
$
4,467.9
$
3,871.8
15 %
24.8 %
23.5 %
$
1,025.6
$
855.2
20 %
2.2
0.2
0.8
—
$
1,028.0
$
856.0
20 %
23.1 %
22.5 %
$
3,412.0
$
2,948.9
16 %
8.7
(2.2)
1.2
(0.2)
3,419.5
8.21
0.02
—
$
$
$
$
$
8.23
$
3.5
(0.8)
—
—
2,951.6
7.00
0.01
—
7.01
16 %
17 %
17 %
(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 2023, the charges include consulting costs relating to our company-wide transformation initiatives, partially offset
by net reversals relating to severance. 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 initiatives.
(c) Represents net charges (reserves and insurance recovery) from legal matters during fiscal 2023.
(d) The income tax (benefit)/provision was calculated based on the marginal rate in effect for the year ended June 30, 2023.
(e) 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
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
34
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,
2023
9 %
— %
1 %
10 %
10 %
— %
1 %
11 %
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2023, cash and cash equivalents were $2.1 billion, which were primarily invested in time deposits and money
market funds.
For corporate liquidity, we expect existing cash, cash equivalents, short-term and long-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, 2023 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.
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,
2023
2022
$ Change
$
4,207.6 $
3,099.5 $
(2,517.3)
(7,014.4)
1,108.1
4,497.1
(15,680.7)
13,653.4
(29,334.1)
(21.1)
(98.7)
77.6
$
(14,011.5) $
9,639.8 $
(23,651.3)
35
Net cash flows provided by operating activities increased due to growth in our underlying business (net income adjusted for
non-cash adjustments), and a net favorable change in the components of operating assets and liabilities primarily due to timing
on collections of accounts receivable, and a decrease in incentive compensation payments, as compared to the year ended
June 30, 2022.
Net cash flows used in investing activities changed due to the timing of proceeds and purchases of corporate and client funds
marketable securities of $4,570.2 million, offset by higher payments for capital expenditures in fiscal 2023, and the sale of
property, plant, and equipment in fiscal 2022.
Net cash flows used in financing activities changed due to a net decrease in the cash flow from client funds obligations of
$29,759.5 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other
payees, an increase in dividends paid, and a net decrease in reverse repurchase agreements borrowing, offset by a decrease in
repurchases of common stock in fiscal 2023.
We purchased approximately 4.9 million shares of our common stock at an average price per share of $227.30 during fiscal
2023, as compared to purchases of 9.2 million shares at an average price per share of $214.40 during fiscal 2022. 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, 2023 and 2022, 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)
2023
2022
$
$
3.4
3.7 %
2 days
2.0
0.4 %
1 day
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, 2023 and 2022, there were $105.4 million and $136.4
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
2023
$ 1,279.9
2022
299.6
$
4.3 %
0.7 %
We vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility. We have a $4.25
billion, 364-day credit agreement that matures in June 2024 with a one year term-out option. In addition, we have a five-year
$3.2 billion credit facility and a five-year $2.25 billion credit facility maturing in June 2026 and June 2028, respectively, each
with an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability
36
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, 2023 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, and equipment
lease receivables, secured predominantly by prime collateral. All collateral on asset-backed securities is performing as expected
through June 30, 2023. 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 2023 were $206.0 million, as compared to $177.1 million for fiscal 2022. We expect capital
expenditures in fiscal 2024 to be between $200 million and $225 million.
Contractual Obligations
Our contractual obligations at June 30, 2023 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 $263.5 million of interest
payments of our debt, of which $64.3 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, 2023, the obligations relating to these matters, which are expected to be paid in fiscal 2024,
total $38,538.6 million and were recorded in client funds obligations on our Consolidated Balance Sheets. We had $36,333.6
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, 2023.
Separately, ADP Indemnity paid a premium of $269 million in July 2023 to enter into a reinsurance agreement with Chubb to
cover substantially all losses incurred by ADP Indemnity for the fiscal 2024 policy year. At June 30, 2023, ADP Indemnity had
total assets of $660.8 million to satisfy the actuarially estimated unpaid losses of $552.3 million for the policy years since July
1, 2003. ADP Indemnity paid claims of $0.8 million and $1.8 million, net of insurance recoveries, in fiscal 2023 and 2022,
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, client employees or other payees).
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
37
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 attempt to minimize the risk of not having funds collected from a client available at the time such client’s
obligation becomes due by generally impounding the client’s funds by the time we pay such client’s obligation. When we don’t
impound client funds in advance of paying such client obligations, we are at risk of not recovering such funds or a material
delay in such recovery. Through our clients funds investment strategy and client impounding processes, we have consistently
maintained the required level of liquidity 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.
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
2023
2022
$ 6,293.9
34,142.8
$ 4,241.3
32,480.3
$ 40,436.7
$ 36,721.6
2.4 %
2.4 %
2.4 %
1.0 %
1.4 %
1.3 %
Net realized losses/(gains) on available-for-sale securities
14.7
4.4
38
As of June 30:
Net unrealized pre-tax (losses)/gains on available-for-sale securities
$
(2,206.9) $
(1,721.4)
Total available-for-sale securities at fair value
$ 29,764.9 $ 28,391.6
We are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are
reinvested. Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested
funds and the overall portfolio mix between short-term and long-term investments. This mix varies during the fiscal year and is
impacted by daily interest rate changes. The annualized interest rate earned on our entire portfolio increased from 1.3% for
fiscal 2022 to 2.4% for fiscal 2023. 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 $14 million impact to earnings before income taxes
over the ensuing twelve-month period ending June 30, 2024. 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 $5 million impact to earnings before income taxes over the ensuing twelve-month period ending June 30,
2024.
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.
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.
39
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, 2023, June 30, 2022, or
June 30, 2021.
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, 2023 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.
We completed our annual assessment of goodwill as of June 30, 2023 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, 2023 and
2022, the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $116.9 million and
$98.1 million, respectively.
40
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is provided under the caption “Quantitative and Qualitative Disclosures About Market
Risk” under “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation.”
41
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Automatic Data Processing, Inc.
Roseland, New Jersey
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Automatic Data Processing, Inc. and subsidiaries (the "Company")
as of June 30, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 2023, 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, 2023, 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, 2023, 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
Company's 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,
2023. 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, 2023. 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
42
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 $38,538.6
million as of June 30, 2023. 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, 2023,
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.
43
/s/ Deloitte & Touche LLP
Morristown, New Jersey
August 3, 2023
We have served as the Company’s auditor since 1968.
44
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
2023
2022
2021
$
11,222.0 $
10,505.0 $
9,768.6
813.4
5,976.8
18,012.2
451.8
5,541.5
16,498.3
422.4
4,814.4
15,005.4
8,657.4
844.8
451.2
9,953.4
3,551.4
253.3
13,758.1
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
(183.5)
(82.8)
(96.3)
EARNINGS BEFORE INCOME TAXES
4,437.6
3,804.1
3,361.2
Provision for income taxes
NET EARNINGS
BASIC EARNINGS PER SHARE
DILUTED EARNINGS PER SHARE
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
$
$
$
1,025.6
855.2
762.7
3,412.0 $
2,948.9 $
2,598.5
8.25 $
7.04 $
6.10
8.21 $
7.00 $
6.07
413.7
415.7
418.8
421.1
426.3
428.1
(A) For the years ended June 30, 2023 (“fiscal 2023”), June 30, 2022 (“fiscal 2022”), and June 30, 2021 (“fiscal 2021”), Professional Employer Organization (“PEO”)
revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes, of $66,731.7 million, $62,619.2 million, and $51,362.3 million,
respectively.
See notes to the Consolidated Financial Statements.
45
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
2023
2022
2021
$
3,412.0 $
2,948.9 $
2,598.5
13.4
(127.4)
95.4
Unrealized net (losses)/gains on available-for-sale securities
(500.3)
(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
113.3
14.7
(3.3)
—
—
4.4
(1.1)
60.3
(13.3)
(0.4)
0.2
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)
Other comprehensive (loss)/income, net of tax
Comprehensive income
(312.1)
(2,004.3)
25.4
$
3,099.9 $
944.6 $
2,623.9
See notes to the Consolidated Financial Statements.
46
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 $53.0 and $56.8, 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 $0.1, 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, 2023 and June 30, 2022;
outstanding, 412.1 and 416.1 shares at June 30, 2023 and June 30, 2022, respectively
Capital in excess of par value
Retained earnings
Treasury stock - at cost: 226.6 and 222.7 shares at June 30, 2023 and June 30, 2022, respectively
Accumulated other comprehensive (loss)/income
Total stockholders’ equity
Total liabilities and stockholders’ equity
2023
2022
$
2,083.5
$
3,009.6
743.9
5,837.0
36,333.6
42,170.6
8.5
681.4
402.4
2,769.7
1,255.4
2,339.4
1,343.6
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
$
50,971.0
$
63,068.2
$
96.8
$
2,342.6
941.4
510.0
188.6
105.4
44.2
4,229.0
38,538.6
42,767.6
2,989.0
349.9
933.7
73.6
348.1
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
47,461.9
59,842.9
—
—
63.9
2,102.3
22,118.0
63.9
1,794.2
20,696.3
(18,469.3)
(17,335.4)
(2,305.8)
3,509.1
(1,993.7)
3,225.3
$
50,971.0
$
63,068.2
(A) As of June 30, 2023, $104.6 million of long-term marketable securities and $0.8 million of cash and cash equivalents have been pledged as collateral under the
Company's reverse repurchase agreements. 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 (see Note 8).
See notes to the Consolidated Financial Statements.
47
Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Stockholders' Equity
(In millions, except per share amounts)
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 income
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
Net earnings
Other comprehensive loss
Stock-based compensation expense
Issuances relating to stock compensation plans
Treasury stock acquired (4.9 million shares
repurchased)
Dividends ($4.79 per share)
Balance at June 30, 2023
Common Stock
Shares
Amount
Capital in Excess
of Par Value
Retained
Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Income/(Loss)
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)
—
(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)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
196.3
111.8
—
—
3,412.0
—
—
—
—
(1,990.3)
—
—
—
63.3
(1,197.2)
—
—
(312.1)
—
—
—
—
638.7 $
63.9 $
2,102.3 $
22,118.0 $
(18,469.3) $
(2,305.8)
See notes to the Consolidated Financial Statements
48
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
Net amortization of premiums and accretion of discounts on available-for-sale securities
Other
Changes in operating assets and liabilities:
Decrease/(Increase) in accounts receivable
Increase in other assets
(Decrease)/Increase in accounts payable
Increase in accrued expenses and other liabilities
Net cash flows provided by operating activities
Cash Flows from Investing Activities:
Purchases of corporate and client funds marketable securities
Proceeds from the sales and maturities of corporate and client funds marketable securities
Capital expenditures
Additions to intangibles
Acquisitions of businesses, net of cash acquired
Proceeds from the sale of property, plant, and equipment and other assets
Net cash flows used in investing activities
Cash Flows from Financing Activities:
Net (decrease)/increase in client funds obligations
Payments of debt
Proceeds from the issuance of debt
Settlement of cash flow hedges
Repurchases of common stock
2023
2022
2021
$
3,412.0 $
2,948.9 $
2,598.5
549.3
992.9
(80.1)
220.4
(42.6)
23.0
71.4
129.2
(1,357.4)
(11.8)
301.3
4,207.6
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
(6,618.8)
(10,733.2)
4,705.5
4,249.7
(206.3)
(365.3)
(32.4)
—
(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
(2,517.3)
(7,014.4)
(3,515.0)
(12,701.6)
17,057.9
(1.0)
—
—
(0.9)
—
—
8,336.2
(1,001.8)
1,981.5
(44.6)
(1,121.4)
(1,969.4)
(1,372.3)
Net proceeds from stock purchase plan and stock-based compensation plans
Dividends paid
Net (payments)/proceeds related to reverse repurchase agreements
Net cash flows (used in)/provided by financing activities
91.6
(1,903.6)
(44.7)
96.5
(1,659.0)
128.3
(15,680.7)
13,653.4
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents
(21.1)
(98.7)
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents
(14,011.5)
9,639.8
104.1
(1,575.5)
9.9
6,437.5
73.8
6,089.6
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of year
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of year
22,783.0
13,143.2
7,053.6
$
8,771.5 $
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
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes, net of income tax refunds
$
$
$
$
2,083.5 $
1,436.3 $
2,575.2
6,688.0
8,771.5 $
21,346.7
22,783.0 $
10,568.0
13,143.2
246.5 $
1,080.7 $
74.8 $
856.8 $
53.1
973.7
(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.
49
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.
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”) business pillar, provides a comprehensive human resources outsourcing
solution, including offering benefits, providing workers’ compensation insurance, and administering state unemployment
insurance, among other human resources functions. Amounts collected from PEO worksite employers include payroll, fees for
benefits, and an administrative fee that also includes payroll taxes, fees for workers’ compensation and state unemployment
taxes.
The payroll and payroll taxes collected from the worksite employers are presented in revenue net, as the Company does not
retain risk and acts as an agent with respect to this aspect of the PEO arrangement. With respect to the payroll and payroll taxes,
the worksite employer is primarily responsible for providing the service and has discretion in establishing wages.
50
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).
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.
51
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, 2023.
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
method. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the
52
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, 2023 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.
53
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,
2023
Net earnings
Weighted average shares (in millions)
EPS
2022
Net earnings
Weighted average shares (in millions)
EPS
2021
Net earnings
Weighted average shares (in millions)
EPS
Effect of
Employee
Stock Option
Shares
Effect of
Employee
Restricted
Stock
Shares
Diluted
$ 3,412.0
0.9
1.1
$
415.7
8.21
$ 2,948.9
1.1
1.2
$
421.1
7.00
$ 2,598.5
0.8
1.0
$
428.1
6.07
Basic
$ 3,412.0
413.7
8.25
$
$ 2,948.9
418.8
7.04
$
$ 2,598.5
426.3
6.10
$
Options to purchase 0.2 million, 0.6 million, and 1.1 million shares of common stock for fiscal 2023, 2022, and 2021,
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. Time-based restricted stock units 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, are valued based on the grant date fair value of such awards and are adjusted for changes to probabilities of achieving
performance targets. 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
54
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, 2023 and 2022, the Company's
liabilities for unrecognized tax benefits, which include interest and penalties, were $116.9 million and $98.1 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 $327 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, 2023 and 2022 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 $284 million to enter into a reinsurance arrangement with Chubb Limited to cover
substantially all losses incurred by ADP Indemnity for the fiscal 2023 policy year up to $1 million per occurrence. ADP
Indemnity paid a premium of $269 million in July 2023 to enter into a reinsurance arrangement to cover substantially all losses
for the fiscal 2024 policy year on terms substantially similar to the fiscal 2023 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.
55
If no accrual is made for a loss contingency because the amount of loss cannot be reasonably estimated, the Company will
disclose material 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
None.
Recently Issued Accounting Pronouncements
None.
NOTE 2. REVENUE
Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three business
pillars as follows: 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 business pillars and includes a reconciliation to the Company’s
reportable segments.
Years Ended
June 30,
2022
7,174.9 $
3,116.3
3,514.4
2,240.9
451.8
16,498.3 $
2023
7,716.1 $
3,386.0
3,800.9
2,295.8
813.4
18,012.2 $
2021
6,655.2
2,690.9
3,092.0
2,144.9
422.4
15,005.4
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
$
$
56
Reconciliation of disaggregated revenue to our reportable segments for the fiscal year ended June 30, 2023:
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
$
7,724.7 $
— $
(8.6) $
7,716.1
1,216.1
—
2,295.8
806.0
2,175.9
3,800.9
—
7.4
(6.0)
—
—
—
3,386.0
3,800.9
2,295.8
813.4
$ 12,042.6 $
5,984.2 $
(14.6) $ 18,012.2
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
Contract Balances
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
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.
Changes in deferred revenue related to set up fees for the fiscal year ended June 30, 2023 were as follows:
Contract Liability
Contract liability, July 1, 2022
Recognition of revenue included in beginning of year contract liability
Contract liability, net of revenue recognized on contracts during the year
Currency translation adjustments
Contract liability, June 30, 2023
$
$
468.2
(30.3)
31.7
(4.8)
464.8
57
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)
2023
2022
$
$
1,251.6 $
1,518.1
2,769.7 $
1,144.8
1,434.9
2,579.7
(1) The amount of total deferred costs amortized during the fiscal years ended June 30, 2023, June 30, 2022, and June 30,
2021 were $992.9 million, $955.2 million, and $935.3 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
2023
2022
2021
$
(149.5) $
14.7
2.1
—
(50.8)
(183.5) $
$
(41.0) $
4.4
23.0
(7.5)
(61.7)
(82.8) $
(36.5)
(11.3)
19.9
(9.8)
(58.6)
(96.3)
In fiscal 2023, interest income on corporate funds increased as compared to fiscal 2022, due to higher average interest rates of
2.4% for the year ended June 30, 2023, as compared to 1.0% for the year ended June 30, 2022, coupled with higher average
investment balances for the year ended June 30, 2023 as compared to the year ended June 30, 2022.
In fiscal 2022, the Company recorded impairment charges of $23.0 million, which is comprised 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.
See Note 10 of our Consolidated Financial Statements for further details on non-service components of pension income, net.
58
NOTE 4. CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS
Corporate investments and funds held for clients at June 30, 2023 and 2022 were as follows:
Type of issue:
Money market securities, cash and other cash equivalents
Available-for-sale securities:
Corporate bonds
U.S. Treasury securities
Canadian government obligations and
Canadian government agency obligations
U.S. government agency securities
Asset-backed securities
Canadian provincial bonds
Commercial mortgage-backed securities
Other securities
June 30, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(A)
$
8,771.5 $
— $
— $
8,771.5
15,870.7
8,054.7
2,070.4
1,670.0
1,234.7
1,000.5
679.2
1,391.6
4.7
0.7
—
0.2
—
0.2
—
1.7
(1,308.3)
14,567.1
(290.4)
7,765.0
(145.0)
(179.8)
(69.7)
(78.1)
(46.7)
(96.4)
1,925.4
1,490.4
1,165.0
922.6
632.5
1,296.9
Total available-for-sale securities
31,971.8
7.5
(2,214.4)
29,764.9
Total corporate investments and funds held for clients
$ 40,743.3 $
7.5 $
(2,214.4) $ 38,536.4
(A) Included within available-for-sale securities are corporate investments with fair values of $119.3 million and funds held for
clients with fair values of $29,645.6 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, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair Value
(B)
$ 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)
(171.1)
(58.8)
15,104.0
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
(B) 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 were included in Level 2 of the fair value
hierarchy.
59
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, 2023.
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, 2023, are as follows:
June 30, 2023
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
$
(62.0) $ 2,255.9 $ (1,246.3) $ 12,050.5 $ (1,308.3) $ 14,306.4
U.S. Treasury securities
Canadian government obligations and
Canadian government agency obligations
U.S. government agency securities
Asset-backed securities
Canadian provincial bonds
Commercial mortgage-backed securities
Other securities
(85.5)
4,629.4
(204.9)
2,876.3
(290.4) 7,505.7
(5.8)
(0.6)
(2.0)
(2.7)
(6.7)
(14.5)
333.9
28.2
159.7
127.0
126.9
574.0
(139.2)
1,588.0
(145.0) 1,921.9
(179.2)
1,432.2
(179.8) 1,460.4
(67.7)
(75.4)
(40.0)
(81.9)
975.6
757.3
505.6
629.0
(69.7) 1,135.3
(78.1)
(46.7)
884.3
632.5
(96.4) 1,203.0
$
(179.8) $ 8,235.0 $ (2,034.6) $ 20,814.5 $ (2,214.4) $ 29,049.5
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
Corporate bonds
U.S. Treasury securities
Asset-backed securities
$
(824.0) $ 11,525.4 $
(126.4)
2,919.6
(259.0) $ 2,356.7 $ (1,083.0) $ 13,882.1
(171.1) 3,384.2
(44.7)
464.6
(52.6)
1,444.9
(6.2)
59.9
(58.8) 1,504.8
Canadian government obligations and
Canadian government agency obligations
U.S. government agency securities
Canadian provincial bonds
Commercial mortgage-backed securities
Other securities
(110.0)
(75.3)
1,782.6
859.3
(45.4)
(29.5)
(42.6)
726.9
802.8
737.3
(13.5)
(62.9)
(17.3)
(0.4)
113.3
695.6
133.2
4.3
(21.3)
178.2
(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
At June 30, 2023, 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 2023 through May 2033.
At June 30, 2023, asset-backed securities include AAA-rated senior tranches of securities with predominately prime collateral
of fixed-rate auto loan, credit card, and equipment lease receivables with fair values of $569.5 million, $406.6 million, and
$163.2 million, respectively. These securities are collateralized by the cash flows of the underlying pools of receivables. The
60
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, 2023.
At June 30, 2023, U.S. government agency securities primarily include debt directly issued by Federal Farm Credit Banks and
Federal Home Loan Banks with fair values of $969.0 million and $443.6 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 December 2023 through March 2033.
At June 30, 2023, U.S. government agency commercial mortgage-backed securities of $632.5 million include those issued by
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association.
At June 30, 2023, other securities primarily include municipal bonds, diversified with a variety of issuers, with credit ratings of
A and above, with fair values of $535.8 million, AA-rated United Kingdom Gilt securities of $383.1 million and AAA-rated
supranational bonds of $207.5 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
2023
2022
$
$
2,083.5 $
14.7
104.6
2,202.8 $
1,436.3
47.0
122.1
1,605.4
(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
2023
2022
$
$
6,688.0 $
5,601.9
24,043.7
36,333.6 $
21,346.7
4,263.1
23,959.4
49,569.2
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 $38,538.6
million and $51,285.5 million as of June 30, 2023 and 2022, 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, 2023, $32,758.1 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.
61
All available-for-sale securities were rated as investment grade at June 30, 2023.
Expected maturities of available-for-sale securities at June 30, 2023 are as follows:
One year or less
One year to two years
Two years to three years
Three years to four years
After four years
Total available-for-sale securities
$
$
5,616.6
5,802.6
7,038.6
4,314.7
6,992.4
29,764.9
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost and accumulated depreciation at June 30, 2023 and 2022 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
2023
2022
$
$
682.2 $
1,087.5
669.3
2,439.0
(1,757.6)
681.4 $
675.0
972.4
634.3
2,281.7
(1,629.1)
652.6
Depreciation of property, plant and equipment was $176.5 million, $171.0 million, and $183.3 million for fiscal 2023, 2022 and
2021, respectively.
The Company has certain assets classified as held for sale given intent to sell. The fair value of these assets was approximately
$17.3 million and $5.0 million as of June 30, 2023 and 2022, respectively, and 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 eleven 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,
2022
2023
135.2 $
144.7 $
2.0
16.1
1.1
11.5
153.3 $
157.3 $
2021
157.8
1.3
7.6
166.7
$
$
62
The following table provides supplemental cash flow information related to the Company's leases:
Year ended
June 30,
2022
2023
Cash paid for operating lease liabilities
Operating lease ROU assets obtained in exchange for new operating
lease liabilities
$
$
129.2
90.5
$
$
127.6
127.4
$
$
Other information related to our operating lease liabilities is as follows:
2021
142.2
120.2
June 30,
2023
June 30,
2022
Weighted-average remaining lease term (in years)
Weighted-average discount rate
Current operating lease liability
6
2.7 %
$
95.5
$
As of June 30, 2023, maturities of operating lease liabilities are as follows:
$
$
6
2.2 %
95.1
106.8
93.0
79.7
70.8
52.4
76.1
478.8
(33.4)
445.4
Total
PEO
Services
Employer
Services
$ 2,333.6 $
11.1
(49.0)
$ 2,295.7 $
26.2
12.7
$ 2,334.6 $
4.8 $ 2,338.4
11.1
—
—
(49.0)
4.8 $ 2,300.5
26.2
—
—
12.7
4.8 $ 2,339.4
Twelve months ending June 30, 2024
Twelve months ending June 30, 2025
Twelve months ending June 30, 2026
Twelve months ending June 30, 2027
Twelve months ending June 30, 2028
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, 2023 and 2022 are as follows:
Balance at June 30, 2021
Additions and other adjustments
Currency translation adjustments
Balance at June 30, 2022
Additions and other adjustments
Currency translation adjustments
Balance at June 30, 2023
63
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
2023
2022
$
3,548.9 $
1,140.6
241.9
4,931.4
3,271.3
1,104.7
241.2
4,617.2
(2,442.6)
(907.5)
(237.7)
(3,587.8)
1,343.6 $
$
(2,251.9)
(798.9)
(233.3)
(3,284.1)
1,333.1
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, 3 years for customer
contracts and lists, and 1 year for other intangibles). Amortization of intangible assets was $372.8 million, $344.1 million, and
$327.4 million for fiscal 2023, 2022, and 2021, respectively.
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
Twelve months ending June 30, 2024
Twelve months ending June 30, 2025
Twelve months ending June 30, 2026
Twelve months ending June 30, 2027
Twelve months ending June 30, 2028
NOTE 8. SHORT TERM FINANCING
Amount
470.5
236.8
164.8
136.1
98.5
$
$
$
$
$
The Company has a $4.25 billion, 364-day credit agreement that matures in June 2024 with a one-year term-out option. The
Company also 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. In addition,
the Company also has a $2.25 billion five year credit facility that matures in June 2028 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 SOFR, 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, 2023 and 2022 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, 2023 and 2022 the Company 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)
$
2023
2022
$
3.4
3.7 %
2 days
2.0
0.4 %
1 day
64
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, 2023 and 2022, the Company had $105.4 million and $136.4 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
2023
2022
$
1,279.9
$
299.6
4.3 %
0.7 %
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, 2023 and 2022 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,
2023
June 30,
2022
3.47%
1.83%
1.85%
1,000.0
1,000.0
1,000.0
4.9
1,000.0
1,000.0
1,000.0
6.0
3,004.9
3,006.0
(1.2)
(14.7)
(1.2)
(17.7)
$
2,989.0 $
2,987.1
(a) - Current portion of long-term debt as of June 30, 2023 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, 2023, the fair value of the Notes, based on Level 2 inputs, was $2,653.9 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:
The Company's share-based compensation consists of stock options, time-based restricted stock, time-based restricted stock
units, performance-based restricted stock, and performance-based restricted stock units. The Company also offers an employee
stock purchase plan for eligible employees. Beginning in September 2022, the Company discontinued granting stock options,
time-based restricted stock and performance-based restricted stock. Any such future awards will be grants of time-based
restricted stock units and/or performance-based restricted stock units, depending on employee eligibility. Time-based restricted
stock unit awards and performance-based restricted stock unit awards granted to employees with a home country of the United
States are settled in stock, and for awards granted to employees with a home country outside the United States are generally
settled in cash.
•
Restricted Stock.
•
Time-Based Restricted Stock Units. Time-based restricted stock units generally vest ratably over 3 years.
Awards are generally forfeited if the employee ceases to be employed by the Company prior to vesting.
65
Time-based restricted stock unit awards granted to employees with a home country of the United States are
settled in stock and cannot be transferred during the vesting period. Time-based restricted stock unit awards
granted to employees with a home country outside the United States are generally settled in cash and cannot
be transferred during the vesting period. Compensation expense relating to the issuance of share-settled units
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. Compensation expense relating to the issuance of cash-settled 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.
Dividend cash equivalents are paid on share-settled units, and dividend cash equivalents are not paid on cash-
settled units.
•
Performance-Based Restricted Stock Units. 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 200% 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 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 4.9 million shares in fiscal 2023 as compared to 9.2 million
shares repurchased in fiscal 2022. The Company considers several factors in determining when to execute share repurchases,
including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to
employee benefit plan activity, and market conditions. Cash payments related to the settlement of vested time-based restricted
stock units and performance-based restricted stock units were approximately 23.5 million, 22.1 million, and 10.7 million during
fiscal years 2023, 2022, and 2021, respectively.
The following table represents stock-based compensation expense and related income tax benefits in each of fiscal 2023, 2022,
and 2021, 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
2023
2022
2021
24.6 $
165.0
30.8
220.4 $
19.7 $
155.7
26.3
201.7 $
17.9
133.9
23.5
175.3
54.5 $
49.1 $
43.0
$
$
$
As of June 30, 2023, the total remaining unrecognized compensation cost related to unvested stock options, restricted stock
units, and restricted stock awards amounted to $8.3 million, $137.1 million, and $53.5 million, respectively, which will be
amortized over the weighted-average remaining requisite service periods of 1.8 years, 1.9 years, and 1.3 years, respectively.
66
In fiscal 2023, the following activity occurred under the Company’s existing plans.
Stock Options:
Options outstanding at July 1, 2022
Options granted
Options exercised
Options forfeited/cancelled
Options outstanding at June 30, 2023
Options exercisable at June 30, 2023
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, 2022
Restricted shares/units granted
Restricted shares/units vested
Restricted shares/units forfeited
Restricted shares/units outstanding at June 30, 2023
Performance-Based Restricted Stock and Performance-Based Restricted Stock Units:
Restricted shares/units outstanding at July 1, 2022
Restricted shares/units granted
Restricted shares/units vested
Restricted shares/units forfeited
Restricted shares/units outstanding at June 30, 2023
Number
of Options
(in thousands)
Weighted
Average
Price
(in dollars)
152
—
139
173
155
141
3,474 $
— $
(798) $
(22) $
2,654 $
1,546 $
21,012
23,666
Number of
Shares
(in thousands)
Number of
Units
(in thousands)
1,021
4
(541)
(34)
450
173
671
(87)
(27)
730
Number of
Shares
(in thousands)
222
95
(106)
(14)
197
Number of
Units
(in thousands)
757
330
(256)
(10)
821
The aggregate intrinsic value of outstanding stock options and exercisable stock options as of June 30, 2023 was $171.7 million
and $121.3 million, respectively, which have a remaining life of 6 years and 5 years, respectively. The aggregate intrinsic value
for stock options exercised in fiscal 2023, 2022, and 2021 was $80.6 million, $80.8 million, and $58.6 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)
2023
2022
2021
N/A
N/A
N/A
N/A
N/A $
0 %
1.8 %
22.7 %
4.9
33.03
$
0.1 %
2.6 %
25.8 %
5.4
21.66
67
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
2023
2022
2021
$
$
245.96 $
206.86 $
138.53
214.75 $
208.08 $
141.52
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).
The Company's pension plans' funded status as of June 30, 2023 and 2022 is as follows:
June 30,
2023
2022
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 gain (a)
Currency translation adjustments
Plan changes
Acquisitions
Benefits paid
Projected benefit obligation at end of year
$
1,800.5 $
2,306.3
126.6
17.0
(3.0)
(406.7)
10.7
(16.4)
(86.7)
1,854.4 $
(93.4)
1,800.5
$
$
1,779.0 $
2,149.3
4.8
78.2
5.7
52.3
(48.2)
(319.2)
(2.0)
(22.5)
—
0.7
6.8
—
(86.7)
(93.4)
$
1,725.8 $
1,779.0
Funded status - plan assets less benefit obligations
$
128.6 $
21.5
(a) The actuarial gain for fiscal 2023 was primarily due to a higher discount rate used to value plan liabilities.
68
The amounts recognized on the Consolidated Balance Sheets as of June 30, 2023 and 2022 consisted of:
June 30,
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount recognized
2023
2022
$
247.7 $
148.5
(5.6)
(5.3)
(113.5)
(121.7)
$
128.6 $
21.5
The accumulated benefit obligation for all defined benefit pension plans was $1,712.1 million and $1,765.3 million at June 30,
2023 and 2022, respectively.
The Company's pension plans with projected benefit obligations in excess of plan assets as of June 30, 2023 and 2022 had the
following projected benefit obligation and fair value of plan assets:
June 30,
Projected benefit obligation
Fair value of plan assets
2023
2022
$
$
146.1 $
27.0 $
145.5
18.5
The Company's pension plans with accumulated benefit obligations in excess of plan assets as of June 30, 2023 and 2022 had
the following accumulated benefit obligation and fair value of plan assets:
June 30,
Accumulated benefit obligation
Fair value of plan assets
2023
2022
$
$
117.0 $
8.3 $
132.0
18.5
The components of net pension (income)/ expense were as follows:
Service cost – benefits earned during the year
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
2023
2022
2021
$
4.8 $
5.7 $
78.2
52.3
4.9
51.4
(127.5)
(127.9)
(121.3)
1.9
—
7.5
9.0
9.3
2.9
$
(42.6) $
(53.4) $
(52.8)
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 $293.0 million
and $5.5 million, respectively, at June 30, 2023. 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
2023
2022
5.10 %
3.50 %
N/A
4.60 %
3.25 %
N/A
69
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
2023
2022
2021
4.60 %
3.25 %
6.75 %
N/A
2.55 %
3.25 %
6.75 %
N/A
2.45 %
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.
Plan Assets
The Company's pension plans' asset allocations at June 30, 2023 and 2022 by asset category were as follows:
Cash and cash equivalents
Fixed income securities
U.S. equity securities
International equity securities
Global equity securities
2023
2022
— %
39 %
19 %
15 %
27 %
100 %
2 %
39 %
19 %
15 %
25 %
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, 2023 and 2022, 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.
70
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, 2023.
The following table presents the investments of the pension plans measured at fair value at June 30, 2023:
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
$
— $
829.5 $
— $
—
18.2
—
—
351.7
279.0
355.1
18.7
—
—
—
—
829.5
351.7
297.2
355.1
18.7
$
18.2 $
1,834.0 $
— $
1,852.2
In addition to the investments in the above table, the pension plans also held cash and cash equivalents of $2.2 million as of
June 30, 2023, 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, 2022:
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
$
— $
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.
Contributions
During fiscal 2023, the Company contributed $17.0 million to the pension plans. The Company expects to contribute $8.0
million to the pension plans during fiscal 2024.
Estimated Future Benefit Payments
The benefits expected to be paid in each year from fiscal 2024 to the year ended June 30, 2028 are $124.0 million, $140.4
million, $146.5 million, $126.7 million, and $125.1 million, respectively. The aggregate benefits expected to be paid in the five
fiscal years from the year ended June 30, 2029 to the year ended June 30, 2033 are $661.3 million. The expected benefits to be
paid are based on the same assumptions used to measure the Company's pension plans' benefit obligations at June 30, 2023 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 $163.6
million, $153.1 million, and $130.8 million for the calendar years ended December 31, 2022, 2021, and 2020, respectively.
71
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,
2023
2022
2021
Earnings before income taxes:
United States
Foreign
$ 4,091.4 $ 3,461.8 $ 3,010.9
346.2
342.3
350.3
$ 4,437.6 $ 3,804.1 $ 3,361.2
The provision (benefit) for income taxes consists of the following components:
Years ended June 30,
2023
2022
2021
Current:
Federal
Foreign
State
Total current
Deferred:
Federal
Foreign
State
Total deferred
$
840.0 $
620.7 $
104.6
161.1
1,105.7
97.5
100.4
818.6
749.3
121.9
142.6
1,013.8
(77.4)
20.7
4.3
(12.9)
(7.0)
(80.1)
28.8
36.6
(182.6)
(19.1)
(49.4)
(251.1)
Total provision for income taxes
$
1,025.6 $
855.2 $
762.7
A reconciliation between the Company's effective tax rate and the U.S. federal statutory rate is as follows:
Years ended June 30,
2023
%
2022
%
2021
%
Provision for taxes at U.S. statutory rate
$ 931.9
21.0 $
798.9
21.0 $
705.9
21.0
Increase/(decrease) in provision from:
State taxes, net of federal tax benefit
Foreign rate differential
Excess tax benefit - Stock-based compensation
Other
111.2
33.1
(19.0)
(31.6)
2.5
0.7
(0.4)
(0.7)
91.8
41.3
(19.9)
(56.9)
2.4
1.1
(0.5)
(1.5)
67.2
34.0
(8.8)
(35.6)
$ 1,025.6
23.1 $
855.2
22.5 $
762.7
2.0
1.0
(0.2)
(1.1)
22.7
The effective tax rate in fiscal 2023 and 2022 was 23.1% and 22.5%, respectively. The increase in the effective tax rate is
primarily due to an intercompany transfer of certain assets that resulted in a lower effective tax rate in fiscal 2022 and higher
reserves for uncertain tax positions in fiscal 2023.
The effective tax rate for 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.
72
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
Fixed and intangible assets
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
Tax on unrepatriated earnings
Other
Deferred tax liabilities
Net deferred tax (assets)/liabilities
2023
2022
$
209.5 $
48.8
13.3
108.2
37.5
18.0
519.5
39.9
994.7
212.1
43.5
5.9
—
34.1
33.7
407.2
38.3
774.8
(18.6)
(18.9)
$
976.1 $
755.9
$
578.1 $
529.9
—
78.9
30.8
10.1
20.7
718.6
$
(257.5) $
6.5
94.8
4.6
11.5
18.2
665.5
(90.4)
There are $331.1 million and $157.4 million of long-term deferred tax assets included in other assets on the Consolidated
Balance Sheets at June 30, 2023 and 2022, respectively.
Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of
approximately $53.1 million as the Company considers such earnings to be permanently reinvested outside of the United States.
As of June 30, 2023, 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 $78.1 million as of June 30, 2023, of
which $1.3 million expire through June 2033 and $76.8 million have an indefinite utilization period. As of June 30, 2023, the
Company has approximately $19.0 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 $173.3 million as of June 30, 2023, which expire
through June 2042. The Company has recorded valuation allowances of $18.6 million and $18.9 million at June 30, 2023 and
2022, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized.
Income tax payments were approximately $1,080.7 million, $856.8 million, and $973.7 million for fiscal 2023, 2022, and 2021,
respectively.
As of June 30, 2023, 2022, and 2021 the Company's liabilities for unrecognized tax benefits, which include interest and
penalties, were $116.9 million, $98.1 million, and $99.9 million respectively. The amount that, if recognized, would impact the
effective tax rate is $83.6 million, $68.1 million, and $68.5 million, respectively. The remainder, if recognized, would
principally impact deferred taxes.
73
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
2023
2022
2021
Unrecognized tax benefits at beginning of the year
$
98.1 $
99.9 $
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
11.3
16.8
(5.0)
(1.8)
(1.0)
(1.5)
8.0
11.6
(8.5)
(2.0)
(9.2)
(1.7)
62.3
18.8
32.5
(11.0)
(1.3)
(1.5)
0.1
$ 116.9 $
98.1 $
99.9
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 2023, 2022, and 2021, the Company recorded interest expense
of $9.1 million, $3.5 million, and $10.8 million, respectively. Penalties recorded during fiscal years 2023 and 2021 were not
significant. During fiscal year 2022, the Company recorded penalties of $0.3 million.
At June 30, 2023, the Company had accrued interest of $30.0 million recorded on the Consolidated Balance Sheets within other
liabilities. 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, 2023 and June 30, 2022, the Company’s accrued penalties recorded on the Consolidated Balance Sheets within other
liabilities were not material. At June 30, 2022, the Company's accrued penalties of $0.3 million, 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
U.S. (IRS)
Arizona
Illinois
Massachusetts
New York City
New York State
India
2023
2016 - 2020
2019 - 2020
2016 - 2020
2016 - 2021
2016 - 2019
2014 - 2018, 2020 - 2021
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, the Company is not projecting any settlements.
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.
74
NOTE 12. COMMITMENTS AND CONTINGENCIES
As of June 30, 2023, the Company has purchase commitments of approximately $1,067.9 million, including a reinsurance
premium with Chubb for the fiscal 2024 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 $297.5 million relates to fiscal 2024,
$406.8 million relates to the fiscal years ending June 30, 2025 through fiscal 2026 and the remaining relates to fiscal years
ending June 30, 2027 through fiscal 2028.
In May 2020, a putative class action complaint was filed against ADP, TotalSource and related defendants in the U.S. District
Court, District of New Jersey. The complaint asserts 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 complaint seeks 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 this matter. The Company intends to vigorously defend against this lawsuit. A second putative class action
complaint, also filed in May 2020 against TotalSource and covering similar claims, has been dismissed.
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.
75
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 ($312.1) million, ($2,004.3) million, and $25.4 million in fiscal 2023, 2022, and 2021,
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, 2020
$
(322.2)
$
680.4
$
(30.3)
$
(342.7)
$
(14.8)
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
Balance at June 30, 2022
Other comprehensive income/
(loss) before reclassification
adjustments
Tax effect
Reclassification adjustments
to net earnings
Tax effect
95.4
—
—
—
$
(226.8)
$
(127.4)
—
—
—
(363.3)
82.6
(3.3)
0.8
(11.3) (A)
3.8 (C)
2.5
390.9
(0.9)
(29.9)
$
281.5
(69.0)
9.3 (B)
(2.7)
$
(123.6)
$
(2,228.0)
503.7
—
—
(229.8)
57.3
4.4 (A)
4.4 (C)
18.1 (B)
(1.0)
(500.3)
113.3
(3.3)
13.4
—
—
—
(1.1)
(26.6)
—
—
(1.1)
(23.3)
(4.9)
60.3
(13.3)
0.2
14.7 (A)
4.4 (C)
(0.4) (B)
10.3
14.4
1.8
(1.1)
10.6
(2,585.2)
561.0
26.9
(7.0)
(426.6)
100.0
18.7
(4.2)
$
(354.2)
$
(1,330.0)
$
$
(282.9)
$
(1,993.7)
Balance at June 30, 2023
$
(340.8)
$
(1,705.6)
$
$
(236.1)
$
(2,305.8)
(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).
(C) Reclassification adjustments out of AOCI are included in Interest expense on the Statements of Consolidated Earnings (see
Note 9).
76
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, 2023
Revenues
Earnings before income taxes
Capital expenditures
Depreciation and amortization
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, 2023
Revenues
Assets
Year ended June 30, 2022
Revenues
Assets
Year ended June 30, 2021
Revenues
Assets
Employer
Services
PEO
Services
Other
Total
$ 12,042.6 $ 5,984.2 $
(14.6) $ 18,012.2
3,974.2
977.3
(513.9)
4,437.6
161.4
467.6
—
7.5
44.6
74.2
206.0
549.3
$ 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
United States
Europe
Canada
Other
Total
$
$
$
$
$
$
15,950.9 $
1,309.2 $
427.5 $
324.6 $ 18,012.2
44,565.9 $
2,602.2 $
3,022.0 $
780.9 $ 50,971.0
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
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
77
“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, 2023 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,
2023 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, 2023.
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/ Maria Black
Maria Black
Chief Executive Officer
/s/ Don McGuire
Don McGuire
Chief Financial Officer
Roseland, New Jersey
August 3, 2023
78
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, 2023
that have materially affected, or are reasonably likely to materially affect, ADP's internal control over financial reporting.
79
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, 2023, 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, 2023, 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, 2023, of the Company and our report
dated August 3, 2023, 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, 2023
80
Item 9B. Other Information
During the fiscal quarter ended June 30, 2023, none of the Company’s directors or executive officers adopted or terminated any
contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative
defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
On August 3, 2023, the Board of Directors (the "Board") of the Company amended and restated the Company's By-Laws to
eliminate reference to the Board's retirement policy under Section 2.02 since the Company's Corporate Governance Principles
contain this policy. The full text of the amended and restated By-Laws is attached hereto as Exhibit 3.2 and is incorporated
herein by reference.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
81
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
Paul Boland
Michael A. Bonarti
Chris D'Ambrosio
Joe DeSilva
Sreeni Kutam
David Kwon
Don McGuire
Carlos A. Rodriguez
Age
48
56
49
59
57
42
48
53
53
63
58
Corporate Controller and Principal Accounting Officer
Position
Chief Operating Officer
President and Chief Executive Officer
Chief Human Resources Officer
Chief Administrative Officer
Chief Strategy Officer
President, Global Sales
President, Global Product and Innovation
Chief Legal Officer/General Counsel
Chief Financial Officer
Executive Chair
Employed by
ADP Since
2007
2002
1996
2017
1997
2014
2003
2014
2011
1998
1999
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 and Chief Executive Officer in January 2023,
she served as President, ADP from January 2022 to December 2022, 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.
Paul Boland joined ADP in 2017. Prior to his appointment as Chief Human Resources Officer in June 2023, he
served as Interim Chief Human Resources Officer from November 2022 to June 2023, as Senior Vice President, Human
Resources, Employer Services International from September 2021 to November 2022, as Division Vice President, HR, for
Europe, Middle East and Africa (EMEA), GlobalView, Asia Pacific and Latin America from July 2018 to September 2021, and
as Vice President, HR for EMEA from May 2017 to July 2018. Prior to joining ADP, he served as Vice President, HR, EMEA
with Allergan plc.
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.
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
82
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.
Sreeni Kutam joined ADP in 2014. Prior to his appointment as President, Global Product and Innovation in January
2023, he served as Chief Human Resources Officer from June 2018 to December 2022, 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.
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.
Carlos A. Rodriguez joined ADP in 1999. Prior to his appointment as Executive Chair in January 2023, he served as
President and Chief Executive Officer from November 2011 to December 2022, 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.
Directors
See “Election of Directors” in the Proxy Statement for the Company’s 2023 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.
Insider Trading Policy
Our Company maintains an insider trading policy to provide guidelines to all directors, officers, associates and
consultants of ADP with respect to trading in ADP securities, as well as the securities of publicly traded companies with whom
ADP has a business relationship. The policy prohibits trading by any person while in possession of material non-public
information in violation of applicable law and provides for restricted periods and pre-clearance procedures for our directors and
officers and certain other specified persons, as well as other related policies and procedures. We believe that the insider trading
policy is reasonably designed to promote compliance with insider trading laws, rules and regulations and listing standards
applicable to ADP.
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 2023 Annual Meeting of Stockholders, which information is incorporated herein by reference.
83
Item 11. Executive Compensation
See “Corporate Governance,” “Compensation Discussion and Analysis,” “Compensation and Management
Development Committee Report,” “Compensation of Executive Officers,” “Potential Payments to Named Executive Officers
Upon Termination or Change in Control,” “CEO Pay Ratio,” “Pay versus Performance,” and “Compensation of Non-Employee
Directors” in the Proxy Statement for the Company’s 2023 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 2023 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 2023 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 2023 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)
Statements of Consolidated Earnings - years ended June 30, 2023, 2022 and 2021
Statements of Consolidated Comprehensive Income - years ended June 30, 2023, 2022 and 2021
Consolidated Balance Sheets - June 30, 2023 and 2022
Statements of Consolidated Stockholders' Equity - years ended June 30, 2023, 2022 and 2021
Statements of Consolidated Cash Flows - years ended June 30, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Page in Form 10-K
88
All other Schedules have been omitted because they are inapplicable, are not required or the information is included
elsewhere in the financial statements or notes thereto.
(b) Exhibits
The following exhibits are filed with this Annual Report on Form 10-K or incorporated herein by reference to the
document set forth next to the exhibit in the list below:
3.1
Amended and Restated Certificate of Incorporation dated November 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
84
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Amended and Restated By-laws of the Company, dated August 3, 2023
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 June 30, 2023, 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 June 30,
2023
Five-Year Credit Agreement, dated as of June 30, 2023, 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 and filed on June 30,
2023
Amendment Agreement, dated as of June 30, 2023, relating to the Five-Year Credit Agreement, dated
as of June 9, 2021, among Automatic Data Processing, Inc., the Lenders party thereto, and JPMorgan
Chase Bank, N.A., as Administrative Agent
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,
effective as of November 9, 2022 (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)
85
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
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 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)
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 - incorporated by reference to Exhibit 10.29 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2022 (Management Compensatory Plan)
86
10.30
10.31
10.32
10.33
10.34
10.35
19.1
21
23
31.1
31.2
32.1
32.2
Form of Performance Stock Unit Award Agreement under the 2018 Omnibus Award Plan for grants
beginning September 1, 2022 - incorporated by reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2022 (Management Compensatory Plan)
Form of Restricted Stock Unit Award Agreement under the 2018 Omnibus Award Plan for grants
beginning September 1, 2023 (Management Compensatory Plan)
Form of Performance Stock Unit Award Agreement under the 2018 Omnibus Award Plan for grants
beginning September 1, 2023 (Management Compensatory Plan)
ADP Canada Co. Supplementary Excess Retirement Plan, Amended and Restated as of August 1,
2018 (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 September 30, 2022
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
Separation Agreement and Release, dated January 30, 2023, by and between Don Weinstein and
Automatic Data Processing, Inc. - incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2022
ADP Insider Trading Policy, effective April 13, 2023
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm
Certification by Maria Black 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 Maria Black 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
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
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87
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 year
(1)
Charged to
costs and
expenses
(2)
Charged to
other accounts
(A)
Deductions
Balance at
end of year
Year ended June 30, 2023:
Allowance for doubtful accounts:
Current
Long-term
Deferred tax valuation allowance
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
$
$
$
$
$
$
$
$
$
56,768 $
23,412 $
(34) $
(27,066) (B)
83 $
18,867 $
— $
28 $
30 $
366 $
— (B)
(661)
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)
$
$
$
$
$
$
$
$
$
53,080
113
18,600
56,768
83
18,867
79,568
249
13,377
(A) Includes amounts related to foreign exchange fluctuation.
(B) Doubtful accounts written off, less recoveries on accounts previously written off.
88
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, 2023
AUTOMATIC DATA PROCESSING, INC.
(Registrant)
By /s/ Maria Black
Maria Black
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Maria Black
(Maria Black)
President and Chief Executive
August 3, 2023
Officer, 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/ David V. Goeckeler
(David V. Goeckeler)
Director
Director
August 3, 2023
August 3, 2023
August 3, 2023
August 3, 2023
/s/ Linnie M. Haynesworth
Director
August 3, 2023
(Linnie M. Haynesworth)
/s/ John P. Jones
(John P. Jones)
Director
August 3, 2023
/s/ Francine S. Katsoudas
Director
August 3, 2023
(Francine S. Katsoudas)
89
/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/ Carlos A. Rodriguez
(Carlos A. Rodriguez)
/s/ Sandra S. Wijnberg
(Sandra S. Wijnberg)
Director
Director
Director
Director
August 3, 2023
August 3, 2023
August 3, 2023
August 3, 2023
Executive Chair, Director
August 3, 2023
Director
August 3, 2023
90